Thursday, December 23, 2004

Supermarkets, food prices, and the poor

USDA's Economic Research Service today released the latest installment in a series of interesting reports over several years about food prices and the poor. The issue is more complicated than you might think. Everybody assumes the poor pay more for food than other people do, but is that true? For any category of food (say, "fresh meats" or "canned vegetables"), it turns out that low-income people generally pay less per unit than other people do, because of economizing behavior such as choosing lower-quality or less-desirable foods. When researchers hold everything constant -- comparing the prices paid for the same foods in similar stores, for example -- they still usually find no evidence that the system sticks it to the poor. But maybe that comparison is overcompensating and holding too much constant. It is certainly true that prices are frequently higher and quality lower in small corner stores than in suburban supermarkets.

The most novel contribution of today's ERS report, by Robert King, Ephraim Leibtag, and Ajay Behl, is to pay close attention to the reasons why grocery prices might in principle be higher in low income neighborhoods. Most importantly, it studies differences in retail operating costs and finds no evidence that stores serving the poor (i.e. having high rates of food stamp redemption) have higher costs than stores serving the more prosperous. If you have trouble believing anything but the worst about food prices in poor neighborhoods, consider a couple other twists the authors raise. For one thing, small traditionally managed (wholesale supplied) stores occur in the wealthiest neighborhoods as well as the poorest. Also, while food costs are higher for some urban stores that serve the poor, labor costs for such stores are lower.

The authors don't quite put their foot down and make a strong claim that there is nothing to worry about in food price differentials. Instead, they mildly state their conclusion with an if/then structure: "If the poor do pay more, factors other than operating costs are likely to be the reason." But, except for citing previous research on the well-established pattern that prices are higher in corner stores than in supermarkets, they seemed to find little evidence of discrimination.

The final paragraph asks some good questions, which might be taken as a warning to "be careful what you wish for." For low-income urban neighborhoods, the arrival of new and better managed supermarkets is as two-sided as other aspects of gentrification. It brings good things that newcomers and long-time residents alike have long desired, but it may do so by displacing less-efficient local retailers with a long history of service to the neighborhood.

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