Tuesday, September 30, 2008

Briefing on food prices

I gave a briefing (.pdf) yesterday for House of Representatives staff in DC, on the topic of rising food prices. In the past 12 months, grocery food prices in the United States have risen about 6 to 8 percent (depending on how different types of food are weighted in the overall index).

This is of course much higher than the 3 percent increases that have been typical in the earlier part of this decade, but perhaps not as high as you thought if you have been following the news about raw food commodities. Some prices of raw commodities have doubled in just a couple years, for a variety of reasons, causing great alarm. Short term contributors include weather, low carry-over stocks, and export controls by some producer countries. Long term contributors include world population growth, rising demand for meat and dairy products, competition with biofuels, and rising energy prices.

Because the farm cost is less than 10 percent of the value of the grocery food dollar in the United States, consumer grocery prices are somewhat buffered in this country. Also, we have for a number of years spent a comparatively small fraction of our disposable income on food, on average. The slide below is based on international comparison data for selected countries (not all countries) from the Economic Research Service. It is not surprising that poor countries spend a higher fraction of income on food than the United States does. It is notable, though, that our food spending share at least through 2006 was small even by comparison to some more prosperous industrialized countries.

Other interesting data series from USDA/ERS include the food spending share over time.

The lunchtime seminar was organized by the Council on Food, Agricultural, and Resource Economics (C-FARE, an outreach organization for the agricultural economics profession) and the National Coalition for Food and Agricultural Research (a broader umbrella group that publicizes the value of research on these topics). In addition to my presentation with an economic perspective, the lunchtime briefing in an Agriculture Committee meeting room at the Longworth House Office Building included a representative of the American Dietetic Association (ADA), who turned out to provide a great interdisciplinary set of resources for staff questions afterwords. The moderator was Ephraim Leibtag from USDA/ERS, whose work on food prices has been widely followed lately, including this article from Philip Brasher.

In addition to consumer concerns about the overall food price level, bigger concerns for me include the rates of food insecurity and hunger in low-income U.S. populations, and the cost of healthy diets. Both issues have to do with more than just prices.

Meanwhile, for unrelated reasons, it was an exciting day to be on the House side of Capitol Hill. During the lunchtime seminar, I could hear from outside the voices of protesters against the bailout. Later, while I was in a follow-up meeting in the early afternoon with staff from one of the Massachusetts congressional delegations, there was a bustle in the office as the Congressman arrived and briskly rounded up staff for an urgent meeting. Only later in the airport did I hear the big news that the House voted down the financial bailout plan.

Data source: USDA/ERS. Follow link for clearer image.


freude bud said...

Very interesting; thank you. (I was especially interested in the distribution of food insecurity by state.)

Is there any publicly available breakdown of fuel and fertilizer inputs by country? IE, I have been given to understand that fertilizer and fuel inputs in the US are much higher both in price and volumetric terms than in most of the rest of the world. I'd like to have a look at the relative differences.

Aliza said...

that's a pretty interesting chain of events and coincidence. do you think there are any interesting connections between food prices and the current financial situation? i wonder how the stock volatility resulting from bailout deals (or lack of) is effecting commodity prices and futures.

Kei said...

Definitely some very interesting considerations here. I'm glad you brought up the issue of the relatively higher cost of healthy foods in particular. Food insecurity and poor nutrition do indeed go hand in hand - it's a reality we have to deal with every day at the food bank I work at. Thanks for your insights.

Parke Wilde said...

Eshel G and Martin P. Diet, energy and global warming. Earth Interactions. April 2006; 10(9): 1-17.
Pasted below are some readings that discuss energy use in food production, but I'm not sure they have the data in the form freude bud seeks.

Meanwhile, the main connection between the financial crisis and food costs may be that a really bad recession would be anti-inflationary. I read in the news this morning that auto sales are collapsing. I doubt fuel prices and food prices will be rising as much in the next year as in the preceding two years.


Steinfeld H, Gerber P, Wassenaar T, Castel V. Livestock’s long shadow: environmental issues and options. Rome: Food and Agriculture Organization of the United Nations; 2006.

Goodland, R. 1997. Environmental sustainability in agriculture: diet matters. Ecological Economics 23, 189-200.

Eshel G and Martin P. Diet, energy and global warming. Earth Interactions. April 2006; 10(9): 1-17.

freude bud said...

I can tell you that one of the regularly bandied about explanations for the large volatility in the oil markets just now is shallow trading. This could possibly be exacerbated by the "anti-speculation" legislation that just passed the House (introduced in the Ag Committee actually). In effect, the legislation would reduce the (openly anyway) "speculative" position by 90%, which would mean about a 45% drop in total contracts as non-commercials hold about half of the light sweet crude market on NYMEX.

I follow the oil markets pretty closely (and professionally) and would agree with Dr. Wilde that oil prices are likely to come down, but I think the bottom is higher than the world has seen for a long time and the sustainability of some economic models may need to be revisited as a result ...

I would add that in the Great Depression it was bottom of the barrel low food prices that exacerbated the crisis, not high food prices.

freude bud said...

Oh, and I forgot to thank you for pointing me to possible data sources on worldwide fertilizer and fuel inputs. Very much appreciated.