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

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 Source: BLS.gov 2008=LTM years

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

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

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

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

8. Food Commodity Prices: Categories of Contributing Factors Continuation of long-term trends: Structural changes: Temporary factors:  Rapid economic growth in many developing countries  Population growth in developing countries  Increasing per capita meat consumption  High oil prices  Biofuels production  High ag production costs  Adverse weather  Trade policies by exporters and importers  Aggressive buying by importers  Further dollar depreciation  Slower growth in ag productivity  Role of large foreign exchange reserves held by importers Questionable future impact: 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 data http://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) Source: Gicheva, Hasting, Villas-Boas. 2007. “Revisiting the Income Effect: Gasoline Prices and Grocery Purchases,” NBER Working Paper No. 13614. * 2002-2204 CES, EIA, and retail scan data for a retailer in CA

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

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

17. Percent Change in Food CPI Items20062007Forecast 2008 Forecast 2009 All Food2.34.05.0 to 6.04.0 to 5.0 Food Away from Home 3.13.63.5 to 4.54.0 to 5.0 Food at Home1.74.25.5 to 6.54.0 to 5.0 Beef0.84.42.5 to 3.56.0 to 7.0 Cereals + Bakery1.84.49.0 to 10.03.5 to 4.5 Fresh Vegetables4.63.25.0 to 6.03.5 to 4.5 Fats and Oils0.22.913.0 to 14.03.0 to 4.0 Source:ERS http://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