Retail Food Price Outlook

USDA Agricultural Outlook Forum February 19, 2015

Annemarie Kuhns USDA, Economic Research Service

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2014 inflation near historical average

0

1

2

3

4

5

6

7

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Percent Change

Percent change in the annual Consumer Price Index (CPI) for food at home, 1995 - 2014

20-year average: 2.6%

Source: USDA, Economic Research Service using Bureau of Labor Statistics data.

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Annual percent change in food prices by category, 2014

-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Other foods

Nonalcoholic beverages

Cereals and bakery products

Sugar and sweets

Fresh vegetables

Fresh fruits

Fats and oils

Dairy products

Eggs

Fish and seafood

Poultry

Pork

Beef and veal

Percent Change, 2013-2014

Source: USDA, Economic Research Service using Bureau of Labor Statistics data.

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Annual percent change in food prices by category, 2012

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0

Other foods

Nonalcoholic beverages

Cereals and bakery products

Sugar and sweets

Fresh vegetables

Fresh fruits

Fats and oils

Dairy products

Eggs

Fish and seafood

Poultry

Pork

Beef and veal

Percent Change, 2011-2012

Source: USDA, Economic Research Service using Bureau of Labor Statistics data.

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Food away from home 41%

Food at home 59%

Grocery versus restaurant purchases, 2013

Average American’s

Food Purchases

Source: USDA, Economic Research Service using U.S. Bureau of Labor Statistics Consumer Expenditure Survey, 2013

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Food away from home 41%

Meats, poultry, and fish 12%

Eggs 1%

Dairy products 6%

Fats and oils 2%

Fruits and vegetables 10%

Sugar and sweets 2%

Cereals and bakery products

8%

Nonalcoholic beverages 7%

Other foods 11%

Food purchases by category, 2013

Average American’s

Food Purchases

Source: USDA, Economic Research Service using U.S. Bureau of Labor Statistics Consumer Expenditure Survey, 2013

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Annual percent change in food at home and food away from home CPIs, 1990-2014

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Percent

Food At HomeFood Away From Home

Source: USDA, Economic Research Service using Bureau of Labor Statistics data.

8

9

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

Percent Change

Percent change in the all-items consumer price index (CPI) and food CPI, 1984 - 2014

Economy-wide Inflation Food Inflation

Source: USDA, Economic Research Service using Bureau of Labor Statistics data.

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Percent change in the Consumer Price Index (CPI) by sub-category, 1984-2014

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1984 1989 1994 1999 2004 2009 2014

Apparel Food

Housing Medical care

Transportation

Source: USDA, Economic Research Service using Bureau of Labor Statistics data.

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Annual percent change in price, by stage of production

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1985 1990 1995 2000 2005 2010

Percent change

PPI - Farm Products

PPI - Processed Foodstuff and Feedstuff

CPI - All Food

Source: USDA, Economic Research Service using Bureau of Labor Statistics data.

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Where a food dollar goes…

Source: USDA, Economic Research Service, 2012

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Pass through percentages and times Retail Category Time to Pass Through

(Months)

Beef 1 to 2

Pork 1 to 3

Poultry 1 to 2

Eggs 3 to 5

Milk 1 to 5

Bread 1 to 6

Oranges 1 to 2

Lettuce 1 to 2

Source: Leibtag, E. "How Much and How Quick? Pass Through of Commodity and Input Cost Changes to Retail Food Prices," American Journal of Agricultural Economics 91: 1462-67, 2009.

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0

0.5

1

1.5

2

2.5

3

3.5A

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Seat

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An

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it

Atl

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Ne

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ork

Pit

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Percent Change

National Average

0 to 2 %

2% to 3 %

> 3%

Annual percent change scale

Annual grocery store inflation by metropolitan statistical area, 2014

Source: USDA, Economic Research Service using Bureau of Labor Statistics data.

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Potential for drought to impact food prices

• CA drought impact on food prices

– Potential to have long an lasting effects on fruit, vegetable, dairy, and egg prices

– Length and severity is not yet realized

– Crop decisions affect prices further down the line

• Drought conditions in Texas/Oklahoma impact beef and veal prices, but are improving

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17

Drought severity and food prices

200

220

240

260

280

300

320

340

360

380

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

No drought

Abnormally dry

Moderate

Severe

Extreme

Exceptional

Drought severity from least to most severe

Retail food category Fresh fruits

Fresh vegetables

Percent of California land in drought, annual average, by severity

Average annual price index, 1982-84 = 100

Source: USDA, Economic Research Service using data from The National Drought Mitigation Center and the U.S. Bureau of Labor Statistics.

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Energy prices and food prices

• The importance of energy prices depends on the food category

– More important as processing and transportation costs increase in share

• Diesel and electricity prices are key inputs to ERS CPI forecast models

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Price of crude oil and change in Consumer Price Index (CPI) for selected food categories

Source: USDA, Economic Research Service using data from the St. Louis Federal Reserve Economic Data (FRED) and U.S. Bureau of Labor Statistics.

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

0.00

15.00

30.00

45.00

60.00

75.00

90.00

105.00

120.00

1994 1998 2002 2006 2010 2014

Average annual price index, 1982-84 = 100

Dollars per barrel

Crude oil price (West Texas Intermediate) Fresh Produce CPI Cereals and bakery products CPI

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2015 inflation predicted to be near historical average

0

1

2

3

4

5

6

7

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Percent Change

Percent change in the annual Consumer Price Index (CPI) for food at home, 1995 - 2015

20-year average: 2.6%

Source: USDA, Economic Research Service using Bureau of Labor Statistics data.

21

2015 forecast intervals, by retail food category

0

1

2

3

4

5

6

7Percent Change

Source: USDA, Economic Research Service.

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Food categories to watch in 2015: Beef and veal

• Retail beef and veal prices forecast to rise 5 to 6% in 2015

• Reductions in U.S. cattle inventory - Herd sizes similar to the 1950s

- Texas and Oklahoma drought further delayed herd expansion

• Expectation of herd expansion in 2015

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Food categories to watch in 2015: Fresh produce

• Fresh fruit prices are expected to rise 2.5 to 3.5 percent – California drought

• Fresh vegetable prices are expected to rise 2 to 3 percent – Potential for further impacts from California drought

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Food categories to watch in 2015: Eggs

• Egg prices rose 8.4% in 2014 and expected to rise 2.5 to 3.5 percent in 2015

- Prices are volatile and vary seasonally

- Will the new law in CA requiring larger cages for birds have an effect?

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Food categories to watch in 2015: Non-perishable food items

• Fats and oils and cereals and bakery products are expected to see below average inflation – Large crop yields for soybeans and wheat

– Fats and oils are expect to rise 0 to 1 percent

– Cereals and bakery products predicted to rise 0.5 to 1.5 percent

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Amber Waves:

Presents current ERS economic and policy research on agriculture, food, rural America, and the environment for policymakers, academics and the public.

• Via web connection or mobile app http://www.ers.usda.gov/AmberWaves/

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Resources for food price trends research

• ERS CPI Forecasts: http://www.ers.usda.gov/data-products/food-price-

outlook.aspx • ERS California Drought Page: http://www.ers.usda.gov/topics/in-the-news/california-drought-2014-farm-and-food-impacts/california-drought-2014-food-prices-and-consumers.aspx • AMS Fruit and Vegetable Report http://www.ams.usda.gov/mnreports/fvwretail.pdf

• IMF World Commodity Prices http://www.imf.org/external/np/res/commod/index.asp

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Thank You!

Contact Information: Annemarie Kuhns amkuhns@ers.usda.gov 202- 694-5351 OR David Levin David.levin@ers.usda.gov 202-694-5353

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