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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 fourth quarter of 2013 was 0.6 percent higher than the food-at-home CPI for fourth-quarter 2012, as most at-home food categories increased in price. Lower prices for fats and oils, dairy products, and nonalcoholic beverages partially offset higher prices for most meats, fish and seafood, eggs, and fresh vegetables.
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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 2011 by U.S. consumers on domestically produced food, including both grocery store and eating out purchases, 31.2 cents went to pay for services provided by foodservice establishments, 22 cents to food processors, and 12.2 cents to food retailers. Food processing costs per food dollar were up over 18 percent since 2008, as consumers bought greater quantities of more highly processed food products.
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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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The all-food CPI reflects price movements at supermarkets and other food-at-home retailers as well as price changes at fast food outlets, restaurants, and other away-from-home places. While prices in these two markets typically move in the same direction, food-away-from home prices are less volatile. Inputs such as wages for restaurant workers, rents, and advertising play a larger role in shaping away-from-home prices than at-home prices. Costs for these inputs rise and fall less sharply than commodity and fuel prices, lessening price volatility for food away from home.
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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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Spending by families and individuals on at-home and away-from-home food accounted for 78.8 percent of U.S. food sales in 2012. In the decade prior to the 2007-09 recession, U.S. consumers’ share of total food sales averaged 82.2 percent. Food spending by consumers and local, State, and Federal governments fluctuates with economic conditions, while businesses’ share has been relatively stable since the late 1960s, at around 10 percent. The share of the value of home production (food grown by farmers and households for their own consumption) declined from 17.4 percent in 1940 to 1.6 percent in 2012.
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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 2012, households in the middle income quintile spent an average of $5,798 on food, representing 12.3 percent of income, while the lowest income households spent $3,502 on food, representing 35.1 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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Per capita food-at-home spending varies widely across countries, reflecting general food price levels, prices for particular foods (grains versus meats), and the mix of at-home and away-from-home spending. In 2012, food-at-home spending was $2,273 per person in the U.S., $423 in Cameroon, and $350 in Kenya. Calorie availability in 2009 displayed a narrower range from 3,688 calories per person per day in the U.S. to 2,092 calories in Kenya. Japanese consumers outspent U.S. consumers on at-home foods, but per-person calorie availability in Japan was lower.
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Last updated: Tuesday, February 11, 2014

For more information contact: Rosanna Mentzer Morrison

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