Economics of Food

The economics of food is a broad, complex topic involving many issues such as commodities, food markets and prices, international trade, security, consumption, assistance programs, safety, biotechnology, labeling, and organic agriculture. U.S. and global economic polices concerning agriculture, trade, investment, and marketing of food affect what the world eats and therefore can be regarded as global health policies. Research has shown that the economics of food can be directly implicated as one of the causes of obesity. Since the mid-1980s, the incidence of obesity in the United States has been rising as the cost of food has dropped below the rate of inflation. A better understanding of the economics of food may therefore provide insight into economic causes of obesity.

Commodities, Food Markets and Pricing

The United States produces many agricultural commodities for domestic consumption and export. According to the United Nations Food and Agriculture Organization, the United States is the number one producer of several globally important crops including corn, soybeans, chicken, pork, beef, turkey, and milk. Their top ten highest grossing commodities (in order by dollar value) are: corn, beef, milk, chicken, soybeans, pork, wheat, eggs, tomatoes, and grapes. Corn and soybeans make up a large portion of the American agriculture and food sector. Soybeans are used to make cattle feed, vegetable oils, tofu, and protein isolates. Corn is even more versatile. Aside from being used as cattle feed, vegetable oil, and a major ingredient in many food products, there is a rapidly expanding industry converting corn into ethanol for fuel. The United States is also the number one producer of high fructose corn syrup, which now replaces sugar in many convenience foods like soft drinks and confections.

The U.S. food marketing system is an important part of the economy, accounting for 12.3 percent of the U.S. gross domestic product (GDP) in 2001. It has five main stages: production, processing and manufacturing, wholesaling, retailing, and consumption. Farmers produce food crops and sell them to manufacturers or processors. The processed or packaged products are then sold to wholesalers that in turn sell them to retailers. Consumers buy products from retail food stores (e.g., grocery stores or super centers), or food service distributors (e.g., restaurants). An increasing amount of what consumers pay for food goes towards advertising, transportation, packaging, distribution, and labor, rather than going to the farm [Page 219]sector. Food technology has made food production increasingly efficient in the United States. Food industry income growth outpaces any increases in food expenditures, resulting in a reduction of the share of income Americans spend on food. In 2001, consumers spent 10 percent of their income on food, compared to 18 percent in 1960. Recent consolidation in the retail food sector and food service sector has also helped keep food prices low. These large companies frequently have contracts directly with the farm sector, instead of buying through wholesalers, making the whole process even more efficient.

The consumer price index (CPI) is a statistical estimate of the price of goods and services consumed by U.S. households. The CPI for food measures the amount of money U.S. households spend on food and is broken down into several categories including food bought away from home, food bought for the home, alcohol purchases, etc. The change in CPI for food over time can be compared to the overall rate of inflation as a way to determine if food is getting relatively more or less expensive. For example, from 1960 through 1980, average food prices rose slightly faster than the overall inflation rate (5.5 percent versus 5.3 percent per year). However, between 1985 and 2000, when obesity rates more than doubled, food prices rose 3.4 percent per year from 1980 to 2000, which is slower than the 3.8 percent average rise in the inflation rate over the same period. So in actuality, relative food prices during this period fell 14 percent. Retail food price inflation has accelerated in 2007; the CPI for all food products is predicted to increase from 3.5 percent to 4.5 percent due to increased commodity and energy costs, partly in response to the expanding corn ethanol industry.

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