outlook for u.s. retail food prices and inflation in 2010
TRANSCRIPT
February 18, 2010 1
Outlook for U.S. Retail Food Prices and Inflation in 2010
Ephraim Leibtag, PhDFood Markets Branch, Food Economics Division
ERS-USDA
Presented at the 2010 Agricultural Outlook ForumSustainable Agriculture: The Key to Health & Prosperity
February 18, 20102
CPI vs. CPI for Food 1970-2009
-202468
10121416
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
Ann
ual P
erce
nt C
hang
e
CPI CPI for Food
February 18, 20103
Long Term Food Price Inflation Trends
8.1
4.62.8 2.9
02468
10
Average Annual Percent Change in Food Price Inflation by Decade
1970s 1980s 1990s 2000s
February 18, 20104
Food at Home vs. Food Away from Home, 1999-2009
Annual Percent Change
01234567
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CPI for Food at Home CPI for Food Away from Home
February 18, 20105
Food vs. Energy, 1970-2009
-20
-10
0
10
20
30
40
50
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008A
nnua
l Per
cent
Cha
nge
CPI for Fuel Oil CPI for Gas and Electricity CPI for GasolineCPI for Food CPI for Medical Care
*Last Twelve Months
February 18, 20106
Food vs. Energy, 1990-2009
-20
-10
0
10
20
30
40
50
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008Ann
ual P
erce
nt C
hang
e
CPI for Fuel Oil CPI for Gas and Electricity CPI for GasolineCPI for Food CPI for Medical Care
*Last Twelve Months
February 18, 20107
Sources of Retail Price Changes Changes in Costs
Cost of Goods Sold Operating Costs
Changes in Retail Market Competition Number of retailers in a market Type of retailers
Specialization Differentiation
Changes in Consumer Demand
Source: Bill Lapp, Advanced Economic Solutions using BLS data
February 18, 20109
PPI for Retail Grocery Department Margins
-10
-5
0
5
10
15
20
2001 2002 2003 2004 2005 2006 2007 2008 2009
Grocery PPI Center Aisle Food ItemsMeat PPI Dairy PPIBakery PPI Produce PPIFrozen Food
February 18, 201010
Where a Consumer Dollar Spent on Food Goes
Source: Economic Research Service Calculations using 2006 Data
Profits, 4.0%Depreciation and
Repairs, 5.0%Rent and Interest,
6.5%
Taxes and Other Costs, 7.0%
Energy and Transportation ,
8.0%
Advertising and Packaging, 12.0%
Farm value, 19.0%
Labor, 38.5%
February 18, 201011
Trends in Retail Food Markets
Impact of the Recession and RecoveryImpact of the Recession and Recovery Volatility in food commodity marketsVolatility in food commodity markets Transportation and energy costsTransportation and energy costs Competition from a variety of formatsCompetition from a variety of formats
Supercenter/Warehouse Club/Dollar/Limited Supercenter/Warehouse Club/Dollar/Limited Assortment/Upscale/GourmetAssortment/Upscale/Gourmet
Food SafetyFood Safety Location and size of storeLocation and size of store Local/Natural/Organic /Fresh/Local/Natural/Organic /Fresh/NoTransFatNoTransFat//……
February 18, 201012
GDP Growth and Food Inflation, 1930-2010*
-20-15-10-505
101520
1930 1940 1950 1960 1970 1980 1990 2000 2010
Ann
ual P
erce
nt C
hang
e
Real GDP Percent Change Food CPI Percent Change*2010 forecasts
February 18, 201013
GDP Growth and Food Inflation, 1990-2010*
-10
-5
0
5
10
1990 2000 2010
Ann
ual P
erce
nt C
hang
e
Real GDP Percent Change Food CPI Percent Change*2010 forecasts
February 18, 201014
GDP Growth and Food Inflation Trends
Average Growth Rate (5) 1930-2009: GDP 3.4, Food CPI 3.4
1930-1949: GDP 3.7, Food CPI 2.6 1950-1969: GDP 4.3, Food CPI 2.0 1970-1989: GDP 3.2, Food CPI 6.3 1990-2009: GDP 2.5, Food CPI 2.8
February 18, 201015
GDP Growth and Food Inflation Lags
1-Year Lag Correlation Patterns 1930-2008: 0.26
1930-1949: 0.27 1950-1969: 0.41 1970-1989: 0.35 1990-2007: 0.08
2-year Lag Correlation Patterns 1930-2008: 0.05
1930-1949: 0.04 1950-1969: 0.05 1970-1989: 0.36 1990-2006: 0.08
February 18, 201016
50
100
150
200
250
1980
M1
1982
M1
1984
M1
1986
M1
1988
M1
1990
M1
1992
M1
1994
M1
1996
M1
1998
M1
2000
M1
2002
M1
2004
M1
2006
M1
2008
M1
2010
m1
Food commodity price index
2005 Index = 100
Source: International Monetary Fund: International Financial Statistics
Food commodity prices down 22% from the 2008 peak, but still up 39% since January 2006
77% increase at peak
February 18, 201017
0
50
100
150
200
250
300
Jan 1992 Jan 1996 Jan 2000 Jan 2004 Jan-08
Crude oilAverage of all comodities
Food commodity index
Index: 2005 = 100
Prices of Many CommoditiesRose Even More
Source: International Monetary Fund: International Financial Statistics
+ 130 %
+ 330 %
+ 585 %
February 18, 201018
0
50
100
150
200
250
300
350
400
450
500
550
600
Jan-90 1992M1 1994M1 1996M1 1998M1 Jan-00 2002M1 2004M1 2006M1 Jan-08 'Jan-10
CornSoybeansWheatRiceFood commodity index
Index: 2005 = 100
Volatility in food commodity prices
Source: International Monetary Fund: International Financial Statistics
February 18, 201019
Wal-Mart Supercenter Store Count
0
500
1000
1500
2000
2500
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Number of SupercentersSource: Wal-Mart Annual Reports 1997-2009
February 18, 201020
Expenditure Shares for Nontraditional Food Stores Continue to Rise
0%
20%
40%
60%
80%
100%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Traditional Retailers Nontraditional RetailersSource: ERS Calculations of ACNielsen Homescan Data
February 18, 201021
Expenditure Shares for Nontraditional Formats 1998-2008
0
2
4
6
8
10
12
14
16
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Expe
nditu
re S
hare
(Per
cent
)
Warehouse Clubs SupercentersMass Merchandisers Other
February 18, 201022
Research Project: Pass-through of Commodity and Input Cost Changes to Retail Food Prices
Objectives Model the magnitude of pass-through
Identify mitigating factors Identify differences across food groups
Estimate time to pass-through by food category
February 18, 201023
Data Monthly Change in PPI and CPI for Ag,
Energy and Food Items Retail Foods Related Farm and Wholesale PPIs Crude Oil and Gasoline PPIs
Grocery Store Wage Data (Current Employment Statistics)
Time Period: 1972-2008
February 18, 201024
February 18, 201026
Preliminary Results for Pass-Through of Farm and Wholesale Prices to Retail Prices
1 month31-52%29-39%Farm to Wholesale
Beef
1-4 months14-15%4-10%Wholesale to Retail
1-2 months33-46%6-27%Wholesale to Retail
1-2 months28-29%11-12%Farm to Wholesale
Bread
Time for majority of response to
occur
Cumulative 6-month pass-
through
Single period pass-through
February 18, 201027
Other Pass-Through Findings Pass-through from farm to wholesale prices are
generally symmetrical, both for short term and long term adjustments
Retail responses to wholesale price changes appear to have asymmetrical tendencies (in terms of the timing and size of response)
Price responses are stronger through the beef production chain than that of bread
February 18, 201028
Food inflation projected to accelerate in 2010, but close to historical average
Annual Percent Change in CPI for Food
2.6 2.2 2.1 2.33.2
1.8 2.2
3.42.4 2.4
4
5.5
1.82.5
3.5
0123456
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Low20
10 H
igh
February 18, 201029
Why?
2008 Higher commodity costs (corn, wheat, soybeans, etc.) Higher energy and transportation costs Increased U.S. exports due to weaker dollar/growing
global demand
2009 Food commodity costs down from summer 2008 highs Energy prices down Domestic and global demand weakens
2010 Recovering domestic and global economy Renewed energy and commodity price pressures
February 18, 201030
Percent Change in Food CPI (a)
1.7
2.3
-2.0
-1.0
0.5
3.5
1.8
2009Items 2007 2008 Forecast 2010
All Food 4.0 5.5 2.5 to 3.5
FAFH 3.6 4.4 2.5 to 3.5
FAH 4.2 6.4 2.5 to 3.5
Beef 4.4 4.5 1.0 to 2.0
Pork 2.0 2.3 1.0 to 2.0
Other Meats
2.3 3.1 2.5 to 3.5
Poultry 5.2 5.0 1.0 to 2.0
February 18, 201031
Percent Change in Food CPI (b)
-14.7
5.6
2.3
-6.4
3.6
0.5
1.8
2009
2.0 to 3.0
3.5 to 4.5
3.0 to 4.0
2.5 to 3.5
3.5 to 4.5
2.5 to 3.5
2.5 to 3.5
Forecast 2010Items 2007 2008
All Food 4.0 5.5
FAH 4.2 6.4
Fish 4.6 6.0
Dairy 7.4 8.0
Fats and Oils 2.9 13.8
Sugar + Sweets 3.1 5.5
Eggs 29.2 14.0
February 18, 201032
Percent Change in Food CPI (c)
1.9
3.2
6.6
-3.4
-6.1
0.5
1.8
2009
2.5 to 3.5
3.0 to 4.0
3.0 to 4.0
3.0 to 4.0
3.0 to 4.0
2.5 to 3.5
2.5 to 3.5
Forecast 2010
Items 2007 2008
All Food 4.0 5.5
FAH 4.2 6.4
Fresh Fruits 4.5 4.8
Fresh Vegetables 3.2 5.6
Processed F + V 3.6 9.5
Cereals + Bakery 4.4 10.2
Nonalcoholic Bev. 4.1 4.3
February 18, 201033
Caveats Food commodity volatility
Food ~ Energy Connection
Global demand for U.S. exports
Duration of recession Consumer demand for food Post-Recession Inflation?
February 18, 201034
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
2005 2006 2007 2008 2009 201020
40
60
80
100
120
140
Corn Crude Oil
Crude Oil and Corn Price Trends
February 18, 201035
Data Resources for Food Price Trends ERS CPI Forecastshttp://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm
BLS Average Price Datahttp://data.bls.gov/PDQ/outside.jsp?survey=ap
AMS Fruit and Vegetable Reporthttp://www.ams.usda.gov/mnreports/fvwretail.pdf
BLS CPI and PPI Datahttp://data.bls.gov/PDQ/outside.jsp?survey=cuhttp://data.bls.gov/PDQ/outside.jsp?survey=wphttp://data.bls.gov/PDQ/outside.jsp?survey=pc
IMF World Commodity Priceshttp://www.imf.org/external/np/res/commod/index.asp
February 18, 201036
Contact InformationEphraim Leibtag, [email protected]
202-694-5349
For more information, see http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/
February 18, 201037
Motivation- an Egg Example
$0.00
$0.50
$1.00
$1.50
$2.00
2002 2003 2004 2005 2006 2007 2008
Farm-Level Price Wholesale Price Retail Price
Sources: USDA, BLS
February 18, 201038
Total world grain & oilseedsStocks and stocks-to-use ratio
0
200
400
600
800
1970 1975 1980 1985 1990 1995 2000 20050%
5%
10%
15%
20%
25%
30%
35%Ending stocksStocks / Use
Million metric tons Supply / Use (%)
Source: USDA PS&D Database
February 18, 201039
Previous Research Results Summary Food and energy commodity price changes to
farm and wholesale prices Time: 2 to 9 months Pass-through: 2 to 41 percent depending on the product
in question.
Farm and wholesale prices change to retail prices Time: 1 to 6 months Pass-through: 2 to 18 percent.
Implies that commodity price changes take 4 to 27 months to pass through to retail prices and are passed through at rates ranging from less than one-half percent to nearly 7 percent.