Rising Food Costs: Will Your Family Be Hurt?

Image: Helge Höpfner

The rising price of food has been in the news a lot lately. Skyrocketing food costs were one of the initial forces behind the protests that eventually toppled the Tunisian and Egyptian regimes. Sarah Palin recently lashed out at the First Lady’s efforts to encourage breast-feeding saying “Yeah, you better because the price of milk is so high right now.'” This comes on the heels of a dust-up Palin had last fall with a reporter from the Wall Street Journal over whether or not food prices had gone up significantly in 2010 or stayed basically flat. The World Bank reports that worldwide food prices went up 30 percent last year, while the Bureau of Labor Statistics reports a 1.5% percent increase over the same period. So what gives? Are food prices going up or not? And how does this effect your family?

Food prices are going up, but more in other parts of the world than in America. The diversion of food crops to biofuel production, droughts in Australia and Russia, increased demand for meat in countries like China with a lot of new wealth, and other factors have all combined to drive up food prices, especially for things like grains. In poor countries that’s a big deal because an increase of 30% can mean a family that’s barely subsisting can’t afford to eat.

So why haven’t we felt the impact as much in America? Because the cost of raw foodstuffs (wheat, meat, lettuce, etc.) is only a small portion of the cost of our finished food products (pasta, cereal, bags of salad, Hot Pockets). A lot of what we pay for is packaging, marketing, transportation, profits for the manufacturer and grocery store, etc. So an increase in the cost of ingredients doesn’t necessarily mean a big increase in the cost of what you see at the store. Nonetheless, as this Wall Street Journal article from November indicates, everyone from grocery stores to cereal manufacturers to fast food restaurants has either begun to or plans to raise prices.

How does an increase in food prices affect your family? Well, it’s not ideal. Obviously, it means that you have less to spend on other things. However, to put things in perspective, the percentage of income Americans spend on food has never been lower. Families in the 1930s spent more than 20% of their disposable income on food. That’s declined more or less steadily since the late 40s. In the 2000s, for the first time in American history, families spent less than 10% of disposable income on food. So food prices would have to climb pretty high before we find ourselves in a situation like our grandparents or even our parents faced.

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