Rising Food Prices Aren’t Slowing Consumer Demand

The USDA’s Economic Research Service says the Consumer Price Index for all food rose one percent from January to February. Food prices in February were 7.9 percent higher than in February 2021. Dr. Scott Brown is an associate extension professor of agricultural and applied economics at the University of Missouri. He says while food prices have gone up, farmers aren’t getting an increasing share of the food dollar.

“When you think about that retail consumer dollar, only about 20 percent of it or less gets back to the farm level, and some may see that as a negative. I sometimes say we’re adding a lot of value to farm-level products once they leave the farm, and so that’s where this remaining 80 percent of the value-added is related to labor costs, to energy prices, all of that’s been at least important in terms of the overall CPI growth that we’re seeing today. So, I think to remind everyone that it’s not just the farm level that’s the reason why we’re seeing this high CPI for food, the numbers that we’re seeing today, it’s all of the other costs that are probably much more important to where we sit.”

He says consumers have seen similar food price hikes in the past.

“So, we have seen spikes like this in the past. I think you have to go back to the early 1980s to find another period like this in terms of pretty rapid growth. I will point out, though, more recently, in 2008, we were up 5.5 percent on an annual basis, so that was kind of pre-the 2009 great recession that we often talk about. And there was a case where we were seeing, again, a CPI for food up 5.5. A lot of the components were also higher in that year, so we have seen these periods. I will say, I think by the time we get into late 2022, we might be able to begin to see some slowdown in that rate of CPI inflation for food that we’ve been seeing, but there’s a lot of uncertainty between now and the end of 2022.”

Brown says rising prices aren’t slowing down consumer demand.

“So, I do think, as we have higher prices today, we do have to be concerned about consumer behavior to that. I say, equally important to this discussion is, if now I’m paying four dollars-plus for gasoline in many parts of the country, am I going to see a crowding out of food expenditures because consumers need to put gas in the fuel tank. Those things are certainly important. Now, I will say all signs today tell me demand for meat has continued to be strong, and so, I will say, it’s amazing how strong demand has been in the face of higher prices. So, we haven’t seen consumers turn away yet, and we’ll just have to wait and see whether there’s some point in time where prices get high enough that it really affects consumption, but again, today I just see demand for meat products and food products generally has been incredibly strong.”

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