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 2017, U.S. consumers, businesses, and government entities spent $1.62 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 0.4 percent from the third quarter of 2017 to the third quarter 2018. Although egg prices were up by 13.8 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 the first five food categories increased by 1.2 percent or less, and dairy prices declined 0.1 percent, from third quarter 2017 to third quarter 2018.
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 exceeded at-home food spending for the first time in 2010. During the 2007-09 recession, food away from home’s share of total food spending stayed at or just below 50 percent before surpassing its pre-recession share by rising to 50.2 percent in 2010 and continuing to grow to its 2017 share of 53.8 percent.
In 2016, Americans spent an average of 9.9 percent of their disposable personal incomes on food—divided between food at home (5.2 percent) and food away from home (4.7 percent). Between 1960 and 1997, the average share of disposable personal income spent on total food by Americans, on average, fell from 17.0 to 10.5 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 the late 1990s, as inflation-adjusted incomes for many Americans have stagnated or fallen.
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 2017, households in the middle income quintile spent an average of $7,061 on food, representing 14.3 percent of income, while the lowest income households spent $4,070 on food, representing 34.1 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.