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Federal Data in Time of Change APDU Annual Conference September 24-25 The Brooking Institute

The Grocery Store and the Gas Pump: What Price for Food?. Mark Denbaly Mdenbaly@ers.usda.gov 202-694-5390. Federal Data in Time of Change APDU Annual Conference September 24-25 The Brooking Institute Washington, DC. Preview. Facts about higher food and commodity prices

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Federal Data in Time of Change APDU Annual Conference September 24-25 The Brooking Institute

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  1. The Grocery Store and the Gas Pump: What Price for Food? Mark Denbaly Mdenbaly@ers.usda.gov 202-694-5390 Federal Data in Time of Change APDU Annual Conference September 24-25 The Brooking Institute Washington, DC

  2. 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

  3. Prices of the More Volatile Retail Gas and Food Commodities Increased Faster than Food at Retail 2008=LTM years Source: BLS.gov

  4. Corn and Oil Connection? 20082 Source: EIA.doe.gov and NASS

  5. Factors Contributing to Higher Food Commodity Prices Strong growth in demand, based on: Increasing population + Rapid economic growth + Rising per capita meat consumption * 1996 1998 2000 2002 2004 2006 2007 2008 Slowing growth in agricultural production * Declining stocks of food commodities * Escalating crude oil price Rapid expansion biofuels production * Dollar devaluation Large foreign exchange reserves * Rising farm production costs Demand factors in brown Adverse weather Supply factors in green Aggressive purchases by importers Source: Ronald Trostle, Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices, ERS-USDA, WRS-0801, July 2008 Exporter policies Importer policies 5

  6. Total world grain & oilseedsStocks and stocks-to-use ratio Source: USDA PS&D Database

  7. Will the Value of the Dollar Stabilize? Index: January 1997=100 Sources: International Monetary Fund: International Financial Statistics, and http://ers.usda.gov/Publications/WRS0801/ FED Reserve Board

  8. Food Commodity Prices:Categories of Contributing Factors Continuation of long-term trends: Temporary factors: Structural changes: Questionable future impact: • Adverse weather • Trade policies by exporters and importers • Aggressive buying by importers • High oil prices • Biofuels production • High ag production costs • Rapid economic growth in many developing countries • Population growth in developing countries • Increasing per capita meat consumption • Further dollar depreciation • Slower growth in ag productivity • Role of large foreign exchange reserves held by importers Source: Ronald Trostle, Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices, ERS-USDA, WRS-0801, July 2008

  9. 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…

  10. Where a Consumer Dollar Spent on Food Goes Source: ERS, using 2006 datahttp://ers.usda.gov/Briefing/FoodMarketingSystem/pricespreads.htmCalculations

  11. Farm Share of Consumer Food $ Has Been Falling Over Time Source: ERS http://ers.usda.gov/Briefing/FoodMarketingSystem/pricespreads.htmCalculations

  12. Consumers Switch to Buying More Food from Non-Traditional Outlets 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.

  13. Private Label Purchases Are One Way To Economize http://www.ers.usda.gov/publications/aib747/aib74707.pdf

  14. 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) *2002-2204 CES, EIA, and retail scan data for a retailer in CA Source: Gicheva, Hasting, Villas-Boas. 2007. “Revisiting the Income Effect: Gasoline Prices and Grocery Purchases,” NBER Working Paper No. 13614.

  15. CPI for Food above Historical Average in 2008 and again in 2009 Source: ERShttp://ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm

  16. Food away from Home with Larger Service Content Is less Volatile Source: ERShttp://ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm

  17. Percent Change in Food CPI Source: ERShttp://ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm

  18. Thank you! • For more information, see: http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/ And http://www.ers.usda.gov/Briefing/FoodMarketingSystem/

  19. Farm Share is Larger for Less Processed Foods Source: ERS http://ers.usda.gov/Briefing/FoodMarketingSystem/pricespreads.htmCalculations

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