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Food Prices and Spending

While retail food prices reflect farm-level commodity prices, packaging, processing, transportation, and other marketing costs, along with competitive factors, have a greater role in determining prices on supermarket shelves and restaurant menus. Monthly price swings in grocery stores for individual food categories, as measured by the Consumer Price Index (CPI), tend to smooth out into modest yearly increases for food in general. In 2012, U.S. consumers, businesses, and government entities spent $1.4 trillion on food and beverages in grocery stores and other retailers and on away-from-home meals and snacks.

 
The food-at-home CPI for the second quarter of 2014 was 2.3 percent higher than the food-at-home CPI for second quarter 2013, as most at-home food categories increased in price, some over 10 percent. Lower prices for fats and oils and nonalcoholic beverages partially offset higher prices for most meats, fish and seafood, fresh fruits, dairy, and eggs. Year-over-year increases in retail beef and veal, pork, and egg prices were the largest since the fourth quarter of 2011.
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Since 2006, a series of interrelated factors—including spikes in prices for food commodities and energy, major weather events, shocks to global commodity markets, and the U.S. economic recession and subsequent recovery—have caused price inflation for food to outpace many other consumer spending categories. Between 2006 and 2013, the all-food CPI was up more than 21 percent. Only prices for medical care have risen faster than food prices.  
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For a typical dollar spent in 2012 by U.S. consumers on domestically produced food, including both grocery store and eating out purchases, 31.1 cents went to pay for services provided by foodservice establishments, 15.8 cents to food processors, and 13 cents to food retailers. At 5.6 cents, energy costs per food dollar are up 27 percent since 2009, but still below the 6.8 cents that energy costs contributed in 2008.    
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Corn, wheat, and soybeans are the top three U.S. field crops and comprise the majority of field crop inputs to the U.S. food supply. The average farm price of these crops, weighted by total production, regularly rises or falls by over 10 percent from year to year. However, these price swings have relatively small impacts on food prices. For example, in 2007-08, the production-weighted price of these crops increased by 50 percent, and food prices rose just 5.5 percent.
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Food prices usually move in the same direction as fuel prices, often with a slight lag as fuel costs are incorporated into food prices. While the direction is often the same, the sizes of the price swings differ. Over the last two decades, motor fuel and household energy prices have experienced double-digit annual price swings, while food prices have posted annual increases of between 1 and 6 percent, for an average annual increase of 2.7 percent.
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Since 2006, at-home food sales have accounted for just over half (51 percent) of total food expenditures, with the away-from-home market accounting for 49 percent. In 1960, the away-from-home market had a 26-percent share of total food expenditures. Rising incomes and busier lifestyles have led consumers to spend less time cooking and seek the convenience of food prepared away from home.
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Between 1960 and 2007, the share of disposable personal income spent on total food by Americans fell from 17.5 to 9.7 percent, and the share of income spent on food at home fell from 14.1 to 5.6 percent. At the same time, the percentage of income spent on food away from home increased from 3.4 to 4.1 percent. During the 2007-09 recession, the shares of income spent on total food and its at-home and away-from-home components leveled off as disposable personal incomes stagnated. In 2012, the share of income spent on food away from home rose to 4.3 percent. 
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Households spend more money on food when incomes rise, but food represents a smaller portion of income as they allocate additional funds to other goods. In 2013, households in the middle income quintile spent an average of $5,728 on food, representing 13.1 percent of income, while the lowest income households spent $3,655 on food, representing 36.2 percent of income. Rising food prices and falling incomes put pressure on food budgets. In pre-recession 2006, households in the lowest income quintile spent 32 percent of their incomes on food.
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High-income countries such as the United States and the United Kingdom have higher food spending in absolute terms, but the share of household consumption expenditures devoted to at-home food is low—less than 10 percent. In Kenya and other low income countries, at-home food’s share of consumption expenditures can approach 50 percent. Per capita calorie availability follows the reverse pattern. In 2011, U.S. per capita calorie availability was among the highest at 3,639 calories per day, while Kenya’s was only 2,189 calories.
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Last updated: Tuesday, November 25, 2014

For more information contact: Rosanna Mentzer Morrison