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Global Food Prices: The Other Angle

March 9, 2013

I’ve spent a fair bit of time over the past year talking about the increasing volatility and general upward trend in global food prices since 2007. So articles in Bloomberg  and The Atlantic this week were of particular interest. Both note that the proportion of income Americans spend on food has been decreasing steadily over the past century. There are a couple of interesting trends worth noting here.

First, as Bloomberg’s graphic (below) shows, the proportion of post-tax income spent on food has declined since the mid-1980s, from 16.8 percent on average in 1984, to just 11.2 percent on average in 2011.

Food Spending and Income, from Bloomberg

Food Spending and Income, from Bloomberg

As we’ve spent less on food at home, we’ve spent more on meals outside the home. As recently as the 1960s, about two-thirds of our food spending was for meals prepared at home. But today, we spent about half our food money on meals outside the home.

And looking globally, we spend less as a proportion of our income on food than any other country in the world. As the graphic from The Atlantic shows, Americans as a group spend about 7 percent of their household budget on food at home, compared to 13 percent in France, 21 percent in China, 31 percent in Russia, and 44 percent in Egypt. In many developing countries, the figure is considerably higher, often reaching 80 percent of household income.

Food Spending Around the World, from The Atlantic

Food Spending Around the World, from The Atlantic

This figure, of course, obscures important socioeconomic differences in the United States. The wealthiest Americans spend about twice as much on food at home as the poorest Americans do. But the wealthiest also spend more than five times as much on food outside the home as the poorest Americans. But both the poorest and wealthiest Americans spend less on food than they did over the past 100 years.

So how do we make sense of the contradictory trends of higher food prices and declining spending on food? Three factors are at play.

First, as a whole, Americans are considerably wealthier than they were 100 years ago. Since the 1970s, economic inequality in the United States has increased dramatically. But despite sharp increases in inequality, most American are better off today than they were at the turn of the century. Because demand for food is relatively inelastic, increases in income to not generate proportional increases in demand for food. Consequently, as our incomes increased, we increased food spending, but not as quickly as our incomes increased, leaving us free to spend more on other things.

Second, throughout most of the twentieth century, global food prices were remarkably stable and generally low by historical standards. It was not until the 2007 global food crisis that we start to see dramatic increases (and even more dramatic fluctuations) in the price of food.

FAO Food Price Index, 1990-2013

FAO Food Price Index, 1990-2013

Third, because Americans tend to eat more packaged, processed foods and less raw grains and vegetables, our food prices are somewhat insulated against changes in global commodity prices. The bulk of our grocery bill is not for the food ingredients (the grains and vegetables that do into our food), but for the packaging and processing our food. Only about one-quarter of the price of a loaf of bread, for example, is the comprised of the wheat to make that bread. Thus, even as wheat prices increase, the impact on the price of our bread is blunted by other forces.

Still, there are some interesting questions that come out of the changing food consumption patterns in the United States.

 

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