o utlook for u.s. r etail f ood p rices and i nflation, 2012 richard volpe, ph.d. food markets...
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OUTLOOK FOR U.S. RETAIL FOOD PRICES AND INFLATION, 2012
Richard Volpe, Ph.D.Food Markets Branch
Food Economics DivisionERS-USDA
USDA Agricultural Outlook ForumFebruary 23, 2012
1
HEAVY FOOD PRICE INFLATION IN 2011
Beef Fats and oils Eggs Pork Fish and seafood0
2
4
6
8
10
12
10.29.3 9.2
8.5
7.1
Five Biggest Moving Major Categories
Perc
ent
Change,
2010-2
011
2• All food: 3.7%• Food-at-home: 4.8%
Source: BLS CPI Data, 2011
3
PERSPECTIVE:LONG TERM FOOD-AT-HOME PRICE INFLATION
0
2
4
6
8
10 8.1
4.62.8 2.8
4.7
Average Annual Percent Change in Food Price Inflation by Decade
1970s 1980s 1990s 2000s 2011
Source: BLS CPI Data, 1970-2011
CPI AND CPI FOR FOOD, 1970-2011
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-2
0
2
4
6
8
10
12
14
16
CPI CPI for Food
An
nu
al P
erc
en
t C
ha
ng
e
Source: BLS CPI Data, 1970-2011
4
FAH AND FAFH, 1970-2011
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
6.4
4.84.4
2.3
Food at Home
An
nu
al
Pe
rce
nt
Ch
an
ge
5
Source: BLS CPI Data, 1970-2011
FOOD, ENERGY, MEDICAL CARE, SERVICES 1990-2011
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-20
-15
-10
-5
0
5
10
15
20
25
30
CPI for Home Energy CPI for Motor Fuel CPI for FoodCPI for Medical Care CPI for Personal Services
An
nu
al P
erce
nt
Ch
ang
e
Source: BLS CPI Data, 1970-2011
6
SOURCES OF RETAIL PRICE CHANGES
Changes in Consumer DemandChanges in Retail Market Competition
Number of retailers in a marketType of retailers
Specialization
Changes in CostsCost of Goods Sold (Farm and Wholesale)
Regional VariationOperating Costs (e.g. Energy)
7
CONSUMERS’ FAH EXPENDITURE PATTERNS, 1999-2009
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
0.05
0.1
0.15
0.2
0.25
0.3
Fruit
Vegetables
Whole Grains
Refined Grains
Regular Meats
Fish
Sugary Drinks
NoCal Drinks
Sweet Packaged
Savory Packaged
Sh
are
of
To
tal
FA
H B
ud
ge
t
8Source: Nielsen Homescan Data, 1999-2009
CONSUMERS INCREASINGLY SHOP AT NONTRADITIONAL FORMATS FOR FAH
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Grocery
Drug
Mass Merchandiser
Supercenters
Club Store
Convenience
All other
Shar
e of
tota
l FA
H E
xpen
ditu
res
9
Source: Nielsen Homescan Data, 1999-2009
SPOTLIGHT: NONTRADITIONALS
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
Drug
Mass Merchan-diser
Supercenters
Club Store
Convenience
All other
Shar
e of
Tot
al F
AH
Exp
endi
ture
s
10
Source: Nielsen Homescan Data, 1999-2009
PPI FOR RETAIL GROCERY DEPARTMENT MARGINS, REVENUES MINUS WHOLESALE COST
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
An
nu
al
Pe
rce
nt
Ch
an
ge
Source: BLS PPI Data, 2001-2011
11
THE UPDATED FOOD DOLLAR
Marketing Share; 84.2%
Farm Share; 15.8%
Marketing Share: Post-farm receipts to food supply chain in-dustries
Source: A Revised and Expanded Food Dollar Series (2011), ERR114, Economic Research Service,
www.ers.usda.gov/data/FoodDollar/
Farm Share: Farmers’ receipts from sale of raw food commodities
12
WHERE A CONSUMER DOLLAR SPENT ON FOOD GOES
Food Processing; 18.6%
Farm and Agribusiness; 11.6%
Food Services; 33.7%
Energy and Transportation ; 10.3%
Packaging; 4.0%
Retail Trade; 13.6%
Finance and Insurance; 4.4%
Advertising, Legal, Accounting; 3.8%
Source: A Revised and Expanded Food Dollar Series (2011), ERR114, Economic Research Service,
www.ers.usda.gov/data/FoodDollar/13
ERS FOOD MARKETS AND PRICES RESEARCH
Leibtag & Kumcu (May 2011) examined importance of regional variation in pricesKey finding: fruit and vegetable prices vary
substantially across markets30-70% more expensive in highest-priced
markets as compared to lowest-priced markets
Implications for purchasing power of programs to improve food security, e.g. WIC 14
ERS FOOD MARKETS AND PRICES RESEARCH
Stewart & Blayney (Aug. 2011) study dairy price transmissionKey finding: Milk price fluctuations drive
dairy retail price changes, but incompletely and asymmetrically
Farm price increases passed on more quickly and completely than decreases
But no evidence of a widening of the farm-retail spread from 2000-2010 Due in part to retail competitive pressure
15
ERS FOOD MARKETS AND PRICES RESEARCH
Volpe (December 2011) examined prices by brandingKey finding: Competition within stores,
between NBs and PLs, drives prices and salesLowers prices and increases product variety
NB/PL price difference is fallingNB/PL competition is fiercest when market
competition is weak
16
ERS FOOD MARKETS AND PRICES RESEARCH
Okrent & Alston (2011) examined FAFH demandKey finding: FAFH demand much more
responsive to income-driven changes in consumption
Demands for healthful foods less price responsive than unhealthful foods
Strong substitutions and complements in demand among FAFH groups, important for any policy consideration
17
ERS FOOD MARKETS AND PRICES RESEARCH
Carlson and Frazao (forthcoming, 2011) compares prices across categoriesKey finding: How you measure the price of
food mattersSome other studies have shown that less
healthful foods are cheaper, as measured on a caloric basis
As measured by edible weight or portion size, the opposite is true: fruits, vegetables, grains, dairy are less expensive than foods high in saturated fats, added sugars, etc.
18
2011-2012 FOOD INFLATION IS UNLIKELY TO APPROACH 2007-2008 LEVELS
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Low
2012 High
0
1
2
3
4
5
6
2.6
2.2 2.12.3
3.2
1.8
2.2
3.4
2.4 2.4
4
5.5
1.8
0.8
3.7
2.5
3.5
Annual Percent Change in CPI for Food
Source: BLS CPI data, 1997-2011
19
FOOD INFLATION 2009-2012 2009
Food commodity costs down from summer 2008 highs Energy prices down Recession leads to weakened domestic and global
demand 2010
Sputtering global economy, deflation concerns Renewed commodity price pressures
2011 Higher commodity costs (corn, wheat, soybeans, etc.) Higher energy and transportation costs Increased U.S. exports due to growing global demand,
weak U.S. Dollar Large animal supplies at historic lows due to lingering
effects of 2008 Retailers slow to pass on cost increases for most of year 20
FOOD INFLATION 2009-2012
2012 Most inflationary pressures remain but do not
intensify Retailers begin to pass on costs in earnest US economy improves, dollar strengthens
Domestic demand grows little Exports fall
Late-2011 surge in prices means higher starting point for year
21
PERCENT CHANGE IN FOOD CPI (A)
Items 2008 2009 2010 2011 Forecast 2012
All Food 5.5 1.8 0.8 3.7 2.5 to 3.5
FAFH 4.4 3.5 1.3 2.3 2 to 3
FAH 6.4 0.5 0.3 4.8 2.5 to 3.5
Beef 4.5 -1.0 2.9 10.2 4 to 5
Pork 2.3 -2.0 4.7 8.5 3 to 4
Other Meats
3.1 2.3 -0.1 6.4 2.5 to 3.5
Poultry 5.0 1.7 -0.1 2.9 3 to 4 22
PERCENT CHANGE IN FOOD CPI (B)
Items 2008 2009 2010 2011 Forecast 2012
All Food 5.5 1.8 0.8 3.7 2.5 to 3.5
FAH 6.4 0.5 0.3 4.8 2.5 to 3.5
Fish 6.0 3.6 1.1 7.1 4 to 5
Dairy 8.0 -6.4 1.1 6.8 2 to 3
Fats and Oils
13.8 2.3 -0.3 9.3 3.5 to 4.5
Sugar +Sweets
5.5 5.6 2.2 3.3 2 to 3
Eggs 14.0 -14.7 1.5 9.2 1 to 2 23
PERCENT CHANGE IN FOOD CPI (C)
Items 2008 2009 2010 2011 Forecast 2012
All Food 5.5 1.8 0.8 3.7 2.5 to 3.5
FAH 6.4 0.5 0.3 4.8 2.5 to 3.5
Fresh Fruits 4.8 -6.1 -0.6 3.3 3 to 4
Fresh Vegetables
5.6 -3.4 2.0 5.6 1 to 2
Processed F + V
9.5 6.6 -1.3 2.9 3 to 4
Cereals + Bakery
10.2 3.2 -0.8 3.9 3.5 to 4.5
Nonalc. Bev.
4.3 1.9 -0.9 3.2 1.5 to 2.524
CAVEATS Food commodity volatility Food ~ Energy Connection Global demand for U.S. exports Retail margin pressure
Post-recession consumer response Weather is major source of uncertainty Longer term structural inflation
concerns
25
RESOURCES FOR FOOD PRICE TRENDS RESEARCH
ERS CPI Forecastshttp://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm
New ERS Reportshttp://www.ers.usda.gov/publications/err129/http://www.ers.usda.gov/Publications/EIB75/http://www.ers.usda.gov/Publications/ERR105/
BLS CPI, PPI, and Average Price Datahttp://data.bls.gov/PDQ/outside.jsp?survey=cuhttp://data.bls.gov/PDQ/outside.jsp?survey=wphttp://data.bls.gov/PDQ/outside.jsp?survey=ap
AMS Fruit and Vegetable Reporthttp://www.ams.usda.gov/mnreports/fvwretail.pdf
IMF World Commodity Priceshttp://www.imf.org/external/np/res/commod/index.asp
26
CONTACT INFORMATION
Richard Volpe, PhDrvolpe@ers.usda.gov
202-694-5395
For more information, see http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/
27
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