Federal Data in Time of Change

APDU Annual ConferenceSeptember 24-25

The Brooking Institute Washington, DC

The Grocery Store and the Gas Pump:What Price for Food?

Mark DenbalyMdenbaly@ers.usda.gov202-694-5390

Preview

Facts about higher food and commodity prices

Weakening link between agricultural commodity and food prices

Intense price competition in food retailing

Consumer response to high gasoline prices by substituting away from more expensive food products

32.8

24.8

5.3

-25

-15

-5

5

15

25

35

45

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

CPI for GasolinePPI for Farm ProductsCPI for Food

annual percent change

Prices of the More Volatile Retail Gas and Food Commodities Increased Faster than

Food at Retail

Source: BLS.gov

2008=LTM

years

3.76

5.85

0.5

1.5

2.5

3.5

4.5

5.5

19761 19791 19821 19851 19881 19911 19941 19971 20001 20031 20061

quarters

Retail Gasoline: Regular Grade, ($/Gallon)

Corn: Number 2 Yellow, ($/bushel)

$ gal & $ /bu

Corn and Oil Connection?

Source: EIA.doe.gov and NASS

20082

Factors Contributing to Higher Food Commodity Prices

5

1996 1998 2000 2002 2004 2006 2007 2008 Strong growth in demand, based on:

Increasing population + Rapid economic growth + Rising per capita meat consumption

Slowing growth in agricultural production

Rapid expansion biofuels production

Dollar devaluation

Large foreign exchange reserves

Adverse weather

Exporter policies

Importer policies

Aggressive purchases by

importers

Declining stocks of food commodities

Escalating crude oil price

Rising farm production costs

Supply factors in green

Demand factors in brown

Source:Ronald Trostle, Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices, ERS-USDA, WRS-0801, July 2008

**

*

*

*

Total world grain & oilseedsStocks and stocks-to-use ratio

0

200

400

600

800

1970 1975 1980 1985 1990 1995 2000 2005

0%

5%

10%

15%

20%

25%

30%

35%

40%Ending stocks

Stocks / Use

Million metric tons Supply / Use (%)

Source: USDA PS&D Database

0

100

200

300

400

500

600

700

1992M1 1994M5 1996M9 1999M1 2001M5 2003M9 2006M1 2008M5

70

80

90

100

110

120

130

Crude Oil All Commodity index

Food Commodity index $, trade-weighted

Index: January 2002 = 100

Will the Value of the Dollar Stabilize?

Sources: International Monetary Fund: International Financial Statistics, andhttp://ers.usda.gov/Publications/WRS0801/FED Reserve Board

Index: January 1997=100

Food Commodity Prices:Categories of Contributing Factors

Continuation of long-term trends:

Structural changes:

Temporary factors:

Rapid economic growth in many developing countries Population growth in developing countries

Increasing per capita meat consumption

High oil prices

Biofuels production

High ag production costs

Adverse weather

Trade policies by exporters and importers

Aggressive buying by importers

Further dollar depreciation

Slower growth in ag productivity

Role of large foreign exchange reserves held by importers

Questionable future impact:

Source:Ronald Trostle, Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices, ERS-USDA, WRS-0801, July 2008

Commodity Prices Increases Push Retail food Prices up thru…

Higher costs of animal feed● Beef, Pork, Poultry

Higher costs of ingredients● Breakfast Cereal and Soda

But…

Where a Consumer Dollar Spent on Food Goes

Source: ERS, using 2006 data http://ers.usda.gov/Briefing/FoodMarketingSystem/pricespreads.htmCalculations

Labor, 38.5%

Farm value, 19.0%

Advertising and Packaging,

12.0%

Energy and Transportation ,

8.0%

Taxes and Other Costs, 7.0%

Rent and Interest, 6.5%

Depreciation and Repairs,

5.0%

Profits, 4.0%

Farm Share of Consumer Food $ Has Been Falling Over Time

15

17

19

21

23

25

27

29

31

33

1980 1985 1990 1995 2000 2005 2006

pe

rce

nt

Source: ERS

http://ers.usda.gov/Briefing/FoodMarketingSystem/pricespreads.htmCalculations

Consumers Switch to Buying More Food from Non-Traditional Outlets

0

10

20

30

40

50

60

70

80

90

100

1994 2001 2005

% o

f to

tal

foo

d e

xp

en

dit

ure

s

Traditional

Non-Traditional

Food prices for similar products can vary by more than 10% across store formats.

Source: Ephraim Leibtag. 2005. Where You Shop Matters: Store Formats Drive Variation in Retail Food Prices. Amber Waves, November Issue, ERS.

Private Label Purchases Are One Way To Economize

http://www.ers.usda.gov/publications/aib747/aib74707.pdf

Food Demand Response to Gas Prices Doubling gasoline prices*

● Doubled the gasoline expenditure (3.7% income)

● Consumers partially offset this by substituting groceries for food away from home, and by buying products on sale

Reduced FAFH expenditure by 56% (4% of income) Increased FA expenditure by 15% (1.8% of income)

Reduced grocery prices paid by 5 to 11%, purchasing more products on sale, and further substitution within categories (e.g., tilapia for salmon, and chicken for beef)

Source: Gicheva, Hasting, Villas-Boas. 2007. “Revisiting the Income Effect: Gasoline Prices and Grocery Purchases,” NBER Working Paper No. 13614.

*2002-2204 CES, EIA, and retail scan data for a retailer in CA

CPI for Food above Historical Average in 2008 and again in 2009

Annual Percent Change in CPI for Food

2.62.2 2.1 2.3

3.2

1.82.2

3.4

2.4 2.4

4

5

6

4

5

0

1

2

3

4

5

6

Source: ERShttp://ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm

Food away from Home with Larger Service Content Is less Volatile

5.5

3.5

4

6.5

4.55

0

1

2

3

4

5

6

7

1997 1999 2001 2003 2005 2007 2009 F

ann

ual

per

cen

t ch

ang

e

CPI for Food at HomeCPI for Food Away from HomeForcast--at homeForcast--away

Source: ERShttp://ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm

Percent Change in Food CPIItems 2006 2007 Forecast

2008

Forecast

2009

All Food 2.3 4.0 5.0 to 6.0 4.0 to 5.0

Food Away from

Home

3.1 3.6 3.5 to 4.5 4.0 to 5.0

Food at Home 1.7 4.2 5.5 to 6.5 4.0 to 5.0

Beef 0.8 4.4 2.5 to 3.5 6.0 to 7.0

Cereals + Bakery 1.8 4.4 9.0 to 10.0 3.5 to 4.5

Fresh Vegetables 4.6 3.2 5.0 to 6.0 3.5 to 4.5

Fats and Oils 0.2 2.9 13.0 to 14.0 3.0 to 4.0

Source: ERShttp://ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm

Thank you!

For more information, see:

http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/

And

http://www.ers.usda.gov/Briefing/FoodMarketingSystem/

Farm Share is Larger for Less Processed Foods

0

5

10

15

20

25

30

35

40

Farm Share in 2006

Milk

Cheese

Flour

Frozen Green Beans

Corn Flakes

Source: ERS

http://ers.usda.gov/Briefing/FoodMarketingSystem/pricespreads.htmCalculations