Federal Data in Time of Change
APDU Annual ConferenceSeptember 24-25
The Brooking Institute Washington, DC
The Grocery Store and the Gas Pump:What Price for Food?
Mark [email protected]
Preview
Facts about higher food and commodity prices
Weakening link between agricultural commodity and food prices
Intense price competition in food retailing
Consumer response to high gasoline prices by substituting away from more expensive food products
32.8
24.8
5.3
-25
-15
-5
5
15
25
35
45
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
CPI for GasolinePPI for Farm ProductsCPI for Food
annual percent change
Prices of the More Volatile Retail Gas and Food Commodities Increased Faster than
Food at Retail
Source: BLS.gov
2008=LTM
years
3.76
5.85
0.5
1.5
2.5
3.5
4.5
5.5
19761 19791 19821 19851 19881 19911 19941 19971 20001 20031 20061
quarters
Retail Gasoline: Regular Grade, ($/Gallon)
Corn: Number 2 Yellow, ($/bushel)
$ gal & $ /bu
Corn and Oil Connection?
Source: EIA.doe.gov and NASS
20082
Factors Contributing to Higher Food Commodity Prices
5
1996 1998 2000 2002 2004 2006 2007 2008 Strong growth in demand, based on:
Increasing population + Rapid economic growth + Rising per capita meat consumption
Slowing growth in agricultural production
Rapid expansion biofuels production
Dollar devaluation
Large foreign exchange reserves
Adverse weather
Exporter policies
Importer policies
Aggressive purchases by
importers
Declining stocks of food commodities
Escalating crude oil price
Rising farm production costs
Supply factors in green
Demand factors in brown
Source:Ronald Trostle, Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices, ERS-USDA, WRS-0801, July 2008
**
*
*
*
Total world grain & oilseedsStocks and stocks-to-use ratio
0
200
400
600
800
1970 1975 1980 1985 1990 1995 2000 2005
0%
5%
10%
15%
20%
25%
30%
35%
40%Ending stocks
Stocks / Use
Million metric tons Supply / Use (%)
Source: USDA PS&D Database
0
100
200
300
400
500
600
700
1992M1 1994M5 1996M9 1999M1 2001M5 2003M9 2006M1 2008M5
70
80
90
100
110
120
130
Crude Oil All Commodity index
Food Commodity index $, trade-weighted
Index: January 2002 = 100
Will the Value of the Dollar Stabilize?
Sources: International Monetary Fund: International Financial Statistics, andhttp://ers.usda.gov/Publications/WRS0801/FED Reserve Board
Index: January 1997=100
Food Commodity Prices:Categories of Contributing Factors
Continuation of long-term trends:
Structural changes:
Temporary factors:
Rapid economic growth in many developing countries Population growth in developing countries
Increasing per capita meat consumption
High oil prices
Biofuels production
High ag production costs
Adverse weather
Trade policies by exporters and importers
Aggressive buying by importers
Further dollar depreciation
Slower growth in ag productivity
Role of large foreign exchange reserves held by importers
Questionable future impact:
Source:Ronald Trostle, Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices, ERS-USDA, WRS-0801, July 2008
Commodity Prices Increases Push Retail food Prices up thru…
Higher costs of animal feed● Beef, Pork, Poultry
Higher costs of ingredients● Breakfast Cereal and Soda
But…
Where a Consumer Dollar Spent on Food Goes
Source: ERS, using 2006 data http://ers.usda.gov/Briefing/FoodMarketingSystem/pricespreads.htmCalculations
Labor, 38.5%
Farm value, 19.0%
Advertising and Packaging,
12.0%
Energy and Transportation ,
8.0%
Taxes and Other Costs, 7.0%
Rent and Interest, 6.5%
Depreciation and Repairs,
5.0%
Profits, 4.0%
Farm Share of Consumer Food $ Has Been Falling Over Time
15
17
19
21
23
25
27
29
31
33
1980 1985 1990 1995 2000 2005 2006
pe
rce
nt
Source: ERS
http://ers.usda.gov/Briefing/FoodMarketingSystem/pricespreads.htmCalculations
Consumers Switch to Buying More Food from Non-Traditional Outlets
0
10
20
30
40
50
60
70
80
90
100
1994 2001 2005
% o
f to
tal
foo
d e
xp
en
dit
ure
s
Traditional
Non-Traditional
Food prices for similar products can vary by more than 10% across store formats.
Source: Ephraim Leibtag. 2005. Where You Shop Matters: Store Formats Drive Variation in Retail Food Prices. Amber Waves, November Issue, ERS.
Private Label Purchases Are One Way To Economize
http://www.ers.usda.gov/publications/aib747/aib74707.pdf
Food Demand Response to Gas Prices Doubling gasoline prices*
● Doubled the gasoline expenditure (3.7% income)
● Consumers partially offset this by substituting groceries for food away from home, and by buying products on sale
Reduced FAFH expenditure by 56% (4% of income) Increased FA expenditure by 15% (1.8% of income)
Reduced grocery prices paid by 5 to 11%, purchasing more products on sale, and further substitution within categories (e.g., tilapia for salmon, and chicken for beef)
Source: Gicheva, Hasting, Villas-Boas. 2007. “Revisiting the Income Effect: Gasoline Prices and Grocery Purchases,” NBER Working Paper No. 13614.
*2002-2204 CES, EIA, and retail scan data for a retailer in CA
CPI for Food above Historical Average in 2008 and again in 2009
Annual Percent Change in CPI for Food
2.62.2 2.1 2.3
3.2
1.82.2
3.4
2.4 2.4
4
5
6
4
5
0
1
2
3
4
5
6
Source: ERShttp://ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm
Food away from Home with Larger Service Content Is less Volatile
5.5
3.5
4
6.5
4.55
0
1
2
3
4
5
6
7
1997 1999 2001 2003 2005 2007 2009 F
ann
ual
per
cen
t ch
ang
e
CPI for Food at HomeCPI for Food Away from HomeForcast--at homeForcast--away
Source: ERShttp://ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm
Percent Change in Food CPIItems 2006 2007 Forecast
2008
Forecast
2009
All Food 2.3 4.0 5.0 to 6.0 4.0 to 5.0
Food Away from
Home
3.1 3.6 3.5 to 4.5 4.0 to 5.0
Food at Home 1.7 4.2 5.5 to 6.5 4.0 to 5.0
Beef 0.8 4.4 2.5 to 3.5 6.0 to 7.0
Cereals + Bakery 1.8 4.4 9.0 to 10.0 3.5 to 4.5
Fresh Vegetables 4.6 3.2 5.0 to 6.0 3.5 to 4.5
Fats and Oils 0.2 2.9 13.0 to 14.0 3.0 to 4.0
Source: ERShttp://ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm
Thank you!
For more information, see:
http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/
And
http://www.ers.usda.gov/Briefing/FoodMarketingSystem/
Farm Share is Larger for Less Processed Foods
0
5
10
15
20
25
30
35
40
Farm Share in 2006
Milk
Cheese
Flour
Frozen Green Beans
Corn Flakes
Source: ERS
http://ers.usda.gov/Briefing/FoodMarketingSystem/pricespreads.htmCalculations