Fuel price spike effect on produce prices studied

12/11/2013 04:00:00 PM
Tom Karst

USDA Fuel prices surges have the potential to hurt fresh produce demand, according to a new U.S. Department of Agriculture study.

The study, titled “How Transport Costs Affect Fresh Fruit and Vegetable Prices” was published by the USDA’s Economic Research Service. It examines the influence of fuel and transportation costs on wholesale produce price volatility.

The report predicts the effect of changing fuel prices on wholesale prices of fruits and vegetables, said Richard Volpe, an author of the report and research economist in the Food Markets Branch of the Food Economics Division.

Among other things, the study looked at the effects to the industry if gas prices would double. While that’s a dramatic increase, he said it helps to put into perspective what effects high fuel prices would have on fresh produce. Some fresh produce items would see prices rise by 40% to 50% with a doubling of fuel costs, he said.

The study showed that a 100% increase in diesel prices would lead to a short-term average wholesale produce price increase of 20% to 28%.

That type of spike is meaningful, he said, because the effect of fuel price increases on fresh produce is higher than it is for packaged or shelf stable foods.

“It underscores the idea that more perishable foods — the foods more in line with dietary guidelines — that are more likely to face volatility as a result of input prices such as fuel,” he said.

The study demonstrates that fuel prices are a significant factor in determining the difference between domestic wholesale and farm-level produce prices. For produce shipped by truck, the price margins are increasingly sensitive to fuel prices with greater distance from the growing region.

Volpe said he was somewhat surprised by transportation technology’s effect on fuel price increases.

“Almost across the board, the commodities that were most sensitive to fuel price swings were those that were produced in the U.S. and shipped within the U.S. and shipped from state to state,” he said.

Those U.S.-produced commodities rely on truck transportation, which is more energy intensive by far than ocean carrier transportation which bring in produce from other countries.

“A lot of people have this perception that the closer to home you are for the source of your food the better in terms of being sustainable and fuel efficient and all that, but that is not obviously always the case,” he said.

The study found that commodities with larger import shares generally exhibit less fuel price sensitivity, with the authors concluding that is because ship transport is considerably less energy-intensive per mile than trucks. Studies have shown that trucking uses more than 13 times more energy per-mile per-pound shipped than does ocean shipping.

Rail fuel efficiency is almost as good as ocean shipping, and Volpe said the study makes it clear that the incentives of produce price stability and price predictability favor more rail transport of fresh produce.

“To the extent that the fuel price share of produce prices can be reduced, that’s one major step to reducing price volatility, which should improve welfare,” he said. “There are incentives to move in that direction, but that’s not to say it is going to be easy.”

Volpe said more research is needed, particularly on the link between increases in fuel prices and changing retail prices.

Finding precise data from the retail sector will be more challenging, but Volpe said he believes more research is possible.



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