Processing and marketing costs lessen volatility of retail food prices

Droughts, floods, and other shocks to farming can lead to swings in the prices paid for farm commodities. Volatility in farm commodity prices—measured by the Producer Price Index (PPI) for Farm Products—and in intermediate foods—measured by the PPI for Processed Foodstuffs and Feedstuffs—is often greater than price volatility in grocery stores and restaurants. Prices move in the same direction, but the magnitude of the price changes varies. For instance, in 2011 the Farm Products PPI rose by 23.6 percent, while the Processed Foodstuffs and Feedstuffs PPI increased by 8.3 percent and the Consumer Price Index (CPI) for All Food by 3.2 percent. Price fluctuations for intermediate and retail foods are muted relative to that of farm products because prices for these foods include processing, transportation, and marketing costs. According to ERS’s Food Dollar Series, farm and agribusiness costs only represented 10.8 cents of every dollar spent on food in 2011. This chart appears in “Food Price Transmissions from Farm to Retail” in the May 2014 issue of ERS’s Amber Waves magazine.

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