The Myth of “Skyrocketing” Food Prices

Posted on: December 03, 2012 in Renewable Fuel Standard

Food prices have always been an emotional issue, and it’s easy to understand why. After all, food is among the most basic of human needs, and groceries are permanently one of the top line items in the family budget. Only housing and transportation consume larger shares of household income. So, it’s only natural that consumers react strongly to news about grocery prices or the cost of eating out.

No one understands our society’s emotional connection to food (and our sensitivity to food prices) better than the corporations that process, package, transport, advertise, and sell it.  These large companies intimately understand that Americans have come to expect cheap food and frown on abnormal price increases. Big Food knows that they better have a good excuse or scapegoat at the ready every time they decide to increase food prices. This is exactly why the food lobby has made grocery prices a central theme in its relentless campaign against ethanol and the Renewable Fuel Standard (RFS).

In attempting to prey upon the emotions and sensitivities of American consumers, the food groups use an arsenal of scary words (like “skyrocketing,” “surging,” “spiking”) to characterize food price trends. Then they quickly point to increased ethanol production as the scapegoat for supposed higher food prices. Of course, these corporations aren’t necessarily concerned about the economic welfare of consumers (on the contrary, increased food prices means increased revenues for them). Rather, the true motives behind their attacks on the RFS and their claims of “out of control” food prices are to protect their own profits and send farm commodity prices back below the cost of production.

The absurdity of Big Food’s alarmist rhetoric becomes quickly apparent when one examines the actual data and trends regarding food prices. The data show that food prices ARE NOT increasing abnormally and the average American household spends less of its income on food today than 10 years ago (i.e., before the “ethanol era”). So, the next time you hear food processors and grocery manufacturers warning of “sky-high” food prices and the role of the RFS, call “baloney” and remember these key facts:

  • First of all, asking whether food prices are “higher” today than in the past is the wrong question. Of course food prices are higher, as are prices for every other product or service Americans purchase. Like it or not, inflation is a fact of life. Rather, the right questions to ask are: “How much higher are food prices? Are food prices increasing abnormally? How do food price increases compare to price increases for other goods and services?”

 

  • Food inflation rates have averaged 2.95% per year since 2005, the year Congress first adopted the RFS. That compares to average annual food inflation of 3.47% in the 25-year period (1980-2004) leading up to adoption of the RFS. USDA expects annual food inflation for 2012 to be approximately 3.0%, right in line with historical norms and below the 2011 rate.

 

  • The average monthly increase in food prices since the RFS was expanded in December 2007 is 0.23%. That compares to average monthly food price increases of 0.27% over the last 15 years. Consumer prices for all items have increased by a comparable monthly average of 0.24% over that span. Meanwhile, energy price increases have averaged 0.78% per month over the past 15 years—three times the rate of food inflation!

Changes in Consumer Prices, All Items, Food, and Energy, 1998-Present

 

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  • Inflation rates for food and all items have been remarkably stable and consistent over the past 15 years (with the exception of a brief period during the “commodities bubble” of 2008). Growth in ethanol production and adoption of the RFS in 2005 hasn’t altered the stability or rate of change in the indexes for food and all items. By comparison, the energy price index has been extremely volatile over the past 15 years and has seen rapid acceleration.

 

  • Food prices have increased just 1.7% over the past 12 months (October 2011 to October 2012). That is lower than the general rate of inflation for all items over the past year (2.2%), and less than half of the inflation rate for energy (4.0%).

Percent Changes

  • Prices for most meat and dairy products are lower today than they were a year ago, or at least near the same levels. Curiously, Big Food wasn’t complaining about “spiking food prices” or the impacts of the RFS last fall.

Retail Prices for Dairy Products, Oct 2011 to Oct 2012

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Retail Prices for Pork Products, Oct 2011 to Oct 2012

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Retail Prices for Poultry and Eggs, Oct 2011 to Oct 2012

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  • The annual food inflation rate in 2010 was 0.8%, the lowest increase in almost 50 years. Meanwhile, the ethanol industry in 2010 produced 13.2 billion gallons of ethanol, which was a new record. Since 1980, annual food inflation rates have continued to trend downward, while ethanol production has grown exponentially.

US Food Price Inflation and Ethanol Production

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  • Americans continue to spend less than 10% of their income on food, down from more than 20% in the late 1940s and early 1950s. Today, less than 6% of household income is spent on food consumed at home (i.e., groceries), while 4% is spent on meals away from home.

Percentage of US Household Income Spent on Food

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  • Research published in the journal Food Policy in 2012 shows that a tremendous amount of food is wasted in America each day. According to the authors, the amount of food wasted by the average American is valued at $1.07 per day. They concluded, “Food loss represents a significant share of household food expenditures: our estimates suggest that the annual value of food loss is almost 10% of the average amount spent on food per consumer in 2008 and over 1% of the average disposable income.”

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