OUTLOOK FOR U.S. RETAIL
FOOD PRICES AND
INFLATION, 2012
Richard Volpe, Ph.D.
1
Food Markets Branch
Food Economics Division
ERS-USDA
USDA Agricultural Outlook Forum
February 23, 2012
HEAVY FOOD PRICE INFLATION IN 2011
12
10.2
Percent Change, 2010-2011
10
Five Biggest Moving Major Categories
9.3
9.2
8.5
8
7.1
6
4
2
0
Beef
Fats and oils
Eggs
•All food: 3.7%
•Food-at-home: 4.8%
Pork
Fish and seafood
Source: BLS CPI Data, 2011
2
PERSPECTIVE:
LONG TERM FOOD-AT-HOME PRICE INFLATION
Average Annual Percent Change in Food
Price Inflation by Decade
10
8
8.1
6
4.7
4.6
4
2.8
2.8
2
0
1970s
1980s
1990s
2000s
2011
Source: BLS CPI Data, 1970-2011
3
CPI AND CPI FOR FOOD, 1970-2011
16
Annual Percent Change
14
12
10
8
6
4
2
0
-2
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
CPI
CPI for Food
Source: BLS CPI Data, 1970-2011
4
FAH AND FAFH, 1970-2011
18.0
16.0
Annual Percent Change
14.0
12.0
Food at
Home
10.0
8.0
Food
away from
Home
6.4
6.0
4.4
4.0
4.8
2.3
2.0
0.0
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
5
Source: BLS CPI Data, 1970-2011
FOOD, ENERGY, MEDICAL CARE, SERVICES
1990-2011
Source: BLS CPI Data,
1970-2011
Annual Percent Change
30
25
20
15
10
5
0
-5
-10
-15
-20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
6
CPI for Home Energy
CPI for Food
CPI for Personal Services
CPI for Motor Fuel
CPI for Medical Care
SOURCES OF RETAIL PRICE
CHANGES
 Changes
in Consumer Demand
 Changes in Retail Market Competition


Number of retailers in a market
Type of retailers

Specialization
 Changes

Cost of Goods Sold (Farm and Wholesale)


in Costs
Regional Variation
Operating Costs (e.g. Energy)
7
CONSUMERS’ FAH EXPENDITURE
PATTERNS, 1999-2009
0.3
Share of Total FAH Budget
0.25
Fruit
Vegetables
Whole Grains
0.2
Refined Grains
Regular Meats
Fish
0.15
Sugary Drinks
NoCal Drinks
Sweet Packaged
Savory Packaged
0.1
0.05
0
1999
2000
2001
2002
2003
Source: Nielsen Homescan Data, 1999-2009
2004
2005
2006
2007
2008
2009
8
CONSUMERS INCREASINGLY SHOP AT
NONTRADITIONAL FORMATS FOR FAH
0.9
Share of total FAH Expenditures
0.8
0.7
0.6
0.5
Grocery
Drug
0.4
Mass Merchandiser
Supercenters
0.3
Club Store
Convenience
0.2
All other
0.1
9
0
1999
2000
2001
2002
2003
Source: Nielsen Homescan Data, 1999-2009
2004
2005
2006
2007
2008
2009
SPOTLIGHT: NONTRADITIONALS
0.2
0.18
Share of Total FAH Expenditures
0.16
Drug
0.14
0.12
Mass
Merchandiser
0.1
Supercenters
0.08
Club Store
0.06
Convenience
0.04
All other
0.02
10
0
1999
2000
2001
2002
2003
2004
Source: Nielsen Homescan Data, 1999-2009
2005
2006
2007
2008
2009
PPI FOR RETAIL GROCERY DEPARTMENT MARGINS,
REVENUES MINUS WHOLESALE COST
9.0
Annual Percent Change
7.0
5.0
3.0
1.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-1.0
-3.0
11
Source: BLS PPI Data, 2001-2011
THE UPDATED FOOD DOLLAR
Farm Share:
Farmers’
receipts from
sale of raw
food
commodities
Marketing Share:
Post-farm
receipts to food
supply chain
industries
Farm Share,
15.8%
Marketing
Share, 84.2%
12
Source: A Revised and Expanded Food Dollar Series (2011), ERR114, Economic Research Service,
www.ers.usda.gov/data/FoodDollar/
WHERE A CONSUMER DOLLAR SPENT ON FOOD
GOES
Advertising,
Legal,
Finance and Accounting, 3.8%
Insurance, 4.4%
Food Processing,
18.60%
Retail Trade,
13.6%
Farm and
Agribusiness,
11.6%
Packaging, 4.0%
Energy and
Transportation ,
10.3%
Food Services,
33.7%
Source: A Revised and Expanded Food Dollar Series (2011), ERR114, Economic Research Service,
www.ers.usda.gov/data/FoodDollar/
13
ERS FOOD MARKETS AND PRICES
RESEARCH
 Leibtag
& Kumcu (May 2011) examined
importance of regional variation in prices
Key finding: fruit and vegetable prices vary
substantially across markets
 30-70% more expensive in highest-priced
markets as compared to lowest-priced markets
 Implications for purchasing power of programs
to improve food security, e.g. WIC

14
ERS FOOD MARKETS AND PRICES
RESEARCH
 Stewart
& Blayney (Aug. 2011) study
dairy price transmission



Key finding: Milk price fluctuations drive dairy
retail price changes, but incompletely and
asymmetrically
Farm price increases passed on more quickly
and completely than decreases
But no evidence of a widening of the farmretail spread from 2000-2010

Due in part to retail competitive pressure
15
ERS FOOD MARKETS AND PRICES
RESEARCH
 Volpe
(December 2011) examined prices
by branding



Key finding: Competition within stores,
between NBs and PLs, drives prices and sales
 Lowers prices and increases product variety
NB/PL price difference is falling
NB/PL competition is fiercest when market
competition is weak
16
ERS FOOD MARKETS AND PRICES
RESEARCH
 Okrent
& Alston (2011) examined FAFH
demand



Key finding: FAFH demand much more
responsive to income-driven changes in
consumption
Demands for healthful foods less price
responsive than unhealthful foods
Strong substitutions and complements in
demand among FAFH groups, important for
any policy consideration
17
ERS FOOD MARKETS AND PRICES
RESEARCH
 Carlson
and Frazao (forthcoming, 2011)
compares prices across categories
Key finding: How you measure the price of
food matters
 Some other studies have shown that less
healthful foods are cheaper, as measured on a
caloric basis
 As measured by edible weight or portion size,
the opposite is true: fruits, vegetables, grains,
dairy are less expensive than foods high in
saturated fats, added sugars, etc.

18
2011-2012 FOOD INFLATION IS UNLIKELY TO
APPROACH 2007-2008 LEVELS
Annual Percent Change in CPI for Food
6
5.5
Source: BLS CPI data, 1997-2011
5
4
4
3.4
3.2
3
2.6
2.2
2.1
3.7
2.3
2.4
2.2
2.5
2.4
1.8
2
3.5
1.8
0.8
1
19
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Low
2012
High
FOOD INFLATION 2009-2012

2009




2010



Food commodity costs down from summer 2008 highs
Energy prices down
Recession leads to weakened domestic and global demand
Sputtering global economy, deflation concerns
Renewed commodity price pressures
2011





Higher commodity costs (corn, wheat, soybeans, etc.)
Higher energy and transportation costs
Increased U.S. exports due to growing global demand, weak
U.S. Dollar
Large animal supplies at historic lows due to lingering effects
of 2008
Retailers slow to pass on cost increases for most of year
20
FOOD INFLATION 2009-2012

2012
Most inflationary pressures remain but do not
intensify
 Retailers begin to pass on costs in earnest
 US economy improves, dollar strengthens

Domestic demand grows little
 Exports fall


Late-2011 surge in prices means higher starting
point for year
21
PERCENT CHANGE IN FOOD CPI (A)
Items
2008
2009
2010
2011
Forecast
2012
5.5
1.8
0.8
3.7
2.5 to 3.5
FAFH
4.4
3.5
1.3
2.3
2 to 3
FAH
6.4
0.5
0.3
4.8
2.5 to 3.5
Beef
4.5
-1.0
2.9
10.2
4 to 5
Pork
2.3
-2.0
4.7
8.5
3 to 4
Other
Meats
3.1
2.3
-0.1
6.4
2.5 to 3.5
Poultry
5.0
1.7
-0.1
2.9
3 to 4
All Food
22
PERCENT CHANGE IN FOOD CPI (B)
Items
2008
2009
2010
2011
Forecast
2012
5.5
1.8
0.8
3.7
2.5 to 3.5
6.4
0.5
0.3
4.8
2.5 to 3.5
Fish
6.0
3.6
1.1
7.1
4 to 5
Dairy
8.0
-6.4
1.1
6.8
2 to 3
Fats and 13.8
Oils
2.3
-0.3
9.3
3.5 to 4.5
Sugar
+Sweets
5.5
5.6
2.2
3.3
2 to 3
14.0
-14.7
1.5
9.2
1 to 2
All Food
FAH
Eggs
23
PERCENT CHANGE IN FOOD CPI (C)
Items
2008
2009
2010
2011
Forecast
2012
5.5
1.8
0.8
3.7
2.5 to 3.5
6.4
0.5
0.3
4.8
2.5 to 3.5
Fresh Fruits
4.8
-6.1
-0.6
3.3
3 to 4
Fresh
Vegetables
5.6
-3.4
2.0
5.6
1 to 2
Processed
F+V
9.5
6.6
-1.3
2.9
3 to 4
Cereals +
Bakery
10.2
3.2
-0.8
3.9
3.5 to 4.5
All Food
FAH
Nonalc.
Bev.
24
4.3
1.9
-0.9
3.2
1.5 to 2.5
CAVEATS
 Food
commodity volatility
 Food ~ Energy Connection
 Global demand for U.S. exports

Retail margin pressure
 Post-recession consumer response
 Weather
is major source of uncertainty
 Longer term structural inflation concerns
25
RESOURCES FOR FOOD PRICE TRENDS
RESEARCH

ERS CPI Forecasts
http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm

New ERS Reports
http://www.ers.usda.gov/publications/err129/
http://www.ers.usda.gov/Publications/EIB75/
http://www.ers.usda.gov/Publications/ERR105/

BLS CPI, PPI, and Average Price Data
http://data.bls.gov/PDQ/outside.jsp?survey=cu
http://data.bls.gov/PDQ/outside.jsp?survey=wp
http://data.bls.gov/PDQ/outside.jsp?survey=ap

AMS Fruit and Vegetable Report
http://www.ams.usda.gov/mnreports/fvwretail.pdf

IMF World Commodity Prices
http://www.imf.org/external/np/res/commod/index.asp
26
CONTACT INFORMATION
Richard Volpe, PhD
[email protected]
202-694-5395
For more information, see
http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/
27