U.S. food prices: Committee discusses farm economyWritten by Natasha Wheeler
Washington, D.C. – The Nutrition Subcommittee of the House Agriculture Committee held a hearing on April 28, focusing on U.S. food prices and how consumers are impacted by economic conditions in farm country.
“The United States has the safest, most abundant, most affordable food supply in the world. There are many factors that contribute to this. We are blessed with a large amount of fertile land to farm, innovative minds that have pioneered technologies to increase yields and an infrastructure network that gets products to market quickly and efficiently,” stated Chairman Jackie Walorski (R-Ind.) in her opening remarks.
However, she added that the effects of farm policy on affordable and stable prices are often overlooked.
“We are all aware that the farm bill expires next congress. As we gear up for that process, it’s crucial to arm ourselves with facts that help us inform our decisions in this committee and inform our colleagues on the importance of farm policies when the time comes for a vote in the full house,” she said.
Committee member Jim McGovern (D-Mass.) supported the discussion of food prices, reminding the committee how important it is to understand the entirety of the food system.
“It’s a complex system. But by and large, it’s an efficient and effective system. It really is a testament to the resiliency and hard work of our farmers, ranchers, processors and retailers that we have such a strong farm economy, stable and affordable food prices and such a depth of choice and diversity when it comes to the food that we eat,” he said.
Although, he added, many Americans take easy access to supermarkets, specialty markets and farmers’ markets for granted.
“That’s not available to everyone in this country, particularly low-income and rural communities,” stated McGovern.
Before yielding the floor, he also commented, “I always remind people, it is the farmers who grow the food we eat, and we can only use Supplemental Nutrition Assistance Program (SNAP) to buy food, so there is a close link between our farmers and our federal food assistance programs. It’s important that we recognize that relationship.”
Jason Henderson, associate dean and director of Purdue Extension, spoke as the first witness during the hearing.
Praising partnerships that support Extension programs, he noted, “Recent studies show that Cooperative Extension, through the Smith-Lever Act, kept almost 140,000, or 28 percent, more farmers from disappearing from U.S. agriculture over the past three decades.”
In his overview of the farm sector, Henderson concluded that U.S. farmers are facing substantial declines in farm profit, and crop insurance is the primary safety net for U.S. agriculture, which appears to benefit consumers.
“More stable food prices will benefit consumers, especially those in low-income households, yet those living in food deserts may be at a disadvantage, which makes nutrition education programs critical,” he said.
Henderson also predicted that plummeting farm incomes will further strain poverty rates and solutions will require partnerships between government agencies at all levels, academic institutions such as land grants, nonprofits, philanthropic entities and industry.
U.S. food spending
Next on the floor, Ephraim Leibtag shared insight from the USDA’s Economic Research Service (ERS).
As assistant administrator of ERS, Leibtag stated, “Our mission is to inform and enhance public and private decision making on a broad range of economic and policy issues related to agriculture, food, the environment and rural development.”
He then explained that changing trends in how and what food companies produce, as well as by what consumers choose to eat, drive the dynamics of retail food markets.
“A major factor during the past 30 years has been in the food away from home’s share of total consumer food spending. Consumers are spending more outside the home and paying for the added services and convenience,” he remarked.
Recent trends indicate that overall food prices rose 1.9 percent in 2015. Grocery store prices rose 1.3 percent, and restaurant prices rose 2.9 percent.
In 2016, ERS predicts that grocery store prices will go up between one and two percent, a rate of inflation that falls below the 20-year average of 2.5 percent across the U.S.
“We update our food price forecast monthly and revise estimates if conditions such as the crop outlook or weather-related events, change significantly,” he added.
ERS also evaluates how a food dollar is distributed across sectors, such as the farm share, wholesale retail and food service, transportation, packaging, energy and others. Leibtag noted that the largest share, approximately 33 percent of food spending from consumers, goes back to food service, 15 percent goes to food processing and 13 percent traces back to retail.
“As of 2014, the farm share of the U.S. food dollar is estimated to be about 17.2 percent,” he stated.
Within the U.S. between 1960 and 2002, the average share of disposable income fell from 17.5 to 9.6 percent, mostly due to rising incomes for consumers overall. But, since 2002, the average has stabilized between 9.5 and 10 percent.
However, Leibtag noted, “The middle income level within the U.S. shows household spending around 13.4 percent of income on food, while the lowest income group spends roughly 34 percent.”
“Our data show that retail food prices in the U.S. are relatively stable, and consumers are therefore able to spend a relatively small share of income on food, devoting larger amounts of their budgets to other goods and services, but the extent to which this is the case does depend on the income level of the given household,” he concluded.
Farm to table
The last witness to take the floor was Andrew Harig, senior director for sustainability, tax and trade at the Food Marketing Institute (FMI), which represents food wholesalers and retailers in each congressional district in the U.S.
“Americans of all income levels are intensely price conscious when deciding what foods to purchase. In survey after survey, low price remains the single most important attribute that consumers seek in deciding where to shop,” he stated. “Put simply, we focus so intently on food prices because our consumers demand that we do.”
Harig emphasized that, as the final link in the supply chain, food retail plays a crucial role in connecting the American public with farmers and ranchers, saying that FMI and the industry have a strong responsibility to create a better understanding of agricultural policy and the farm sector.
“We believe the relationship between farm-level issues and their impact on food prices is not always as clear to consumers as it could be, in part due to the sheer complexity of our industry’s pricing model,” he explained.
Farm policy, events such as avian influenza and input costs are only a few of the many factors that affect pricing.
“The disconnect between what is going on at the farm level and how it translates into price increases raises long-term concerns that the entire supply chain needs to address,” Harig stated.
In closing remarks, speakers emphasized the importance of acknowledging low-income household price dynamics, crop insurance finances and consumer trends.
“Moving forward, as new demands are placed on the supply chain, producers, manufacturers and retailers are going to be called upon to be adaptable,” Harig said.