Food Prices and Spending
Retail food prices partially reflect farm-level commodity prices, but 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 2014, U.S. consumers, businesses, and government entities spent $1.46 trillion on food and beverages in grocery stores and other retailers and on away-from-home meals and snacks.
The food-at-home CPI rose 0.3 percent from the second quarter of 2017 to the second quarter 2018. Although egg prices were up by 19.7 percent over this period, eggs represent a small share of total grocery spending. The food-at-home CPI is weighted by average consumer expenditure shares, which are largest for other foods (snacks, soups, frozen entrees, etc.), cereals and bakery products, fresh fruits and vegetables, nonalcoholic beverages, and dairy. Prices for fresh vegetables fell 1.8 percent, nonalcoholic beverages were 0.8 percent lower, and both dairy and other foods fell by 0.2 percent, moderating overall food-at-home inflation.
From 2013 to 2017, the all-food CPI rose 5.5 percent—a slightly higher increase than the all-items CPI, which was 5.2 percent higher over the same time period. However, food price increases were below the 10.5-percent rise in housing costs and 11.8-percent increase in medical care costs. Increased U.S. production of agricultural commodities, lower transportation costs, and a strong U.S. dollar has eased retail food price inflation over the last two years.
For a typical dollar spent in 2016 by U.S. consumers on domestically produced food, including both grocery store and eating out purchases, 36.3 cents went to pay for services provided by foodservice establishments, 15.2 cents to food processors, and 12.4 cents to food retailers. At 3.9 cents, energy costs per food dollar were below the 4.6-cent average for 1993-2016.
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 2010, the production-weighted price of these crops increased by 33 percent, and food prices rose just 0.8 percent.
Food prices typically move in the same direction as fuel prices, often with a slight lag as it takes time before 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 0 and 6 percent, for an average annual increase of 2.4 percent.
Food away from home's share of total food expenditures rose to 50.1 percent in 2014, surpassing at-home food sales for the first time in 2014. During the 2007-09 recession and its aftermath, food away from home's share of total food spending fell from 49.0 percent in 2007 to 48.5 percent in 2008 and did not rebound to its pre-recession share until 2012.
Between 1960 and 2007, the share of disposable personal income spent on total food by Americans, on average, fell from 17.5 to 9.6 percent, driven by a declining share of income spent on food at home. The share of income spent on total food began to flatten in 2000, as inflation-adjusted incomes for many Americans have stagnated or fallen over the last decade or so. In 2014, Americans spent 5.5 percent of their disposable personal incomes on food at home and 4.3 percent on food away from home.
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 2016, households in the middle income quintile spent an average of $6,224 on food, representing 13.1 percent of income, while the lowest income households spent $3,862 on food, representing 32.6 percent of income.
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 exceed 50 percent. Per capita calorie availability follows the reverse pattern. According to the most recent available data, U.S. per capita calorie availability was among the highest at 3,682 calories per day, while Kenya’s was estimated at only 2,206 calories.