Are food price increases always bad?

From my interview this week by Gail Bambrick in TuftsNow.

Does it seem like you need a second mortgage to fill your cart at the grocery store these days? Are these price spikes that hit us at the checkout line for real, or not as bad as they seem? A lot depends on which prices you consider.

Take the old standby of meat and potatoes. According to the federal Bureau of Labor Statistics (BLS), over the past two years a pound of ground beef went from an average of $2.23 per pound to $2.77, an increase of almost 25 percent. By contrast, potato prices rose over the past two years from $.63 to $.69 per pound, an increase of only 8 percent.

According to Parke Wilde, an associate professor and food economist at the Friedman School of Nutrition Science and Policy, U.S. food prices are more complicated than they appear at first glance....

Are those increases going to harm the economy?
This is the hardest thing for economists to express to people, because it sounds on the face of it totally loony: not all food price increases are bad. You have to ask yourself, is the food price increase a mistake or does it reflect a genuine scarcity? If things are really scarce, economists think prices ought to be high, because that sends the right message to everybody. It indicates to consumers that they should moderate their consumption, and it indicates to producers to innovate and produce more efficiently. These are all good things that can happen. Moderating consumption should not mean people going hungry, but perhaps going a little easier on the meat consumption, because that uses more resources than raising fruits and vegetables and grains.

A price change has two effects. It changes how well-off we are. And it changes the market's assessment of relative scarcity.

First, in thinking about how well-off we are, consider producers that you care about as well as consumers. Higher prices make producers better off and consumers worse off. They help some people and hurt others. Now, for a moment, set aside this issue of being richer or poorer.

Second, in thinking about relative scarcity, ask yourself if you think food really is becoming more scarce. Don't panic about it, just acknowledge that there are strong environmental reasons for thinking of food as scarce. In this setting, are you sure you would want food prices in the marketplace to stay forever low?

Here is the full interview.

Photo: Emily Zilm.