Food Price Inflation in the ’90s

As crude oil futures rose to a record high near $114 a barrel in trading on Tuesday at the New York Mercantile Exchange, some news reports continue to focus on higher corn prices as the culprit for increased food prices.

But, some of the message seems to be getting through. Many of the reports I have been reading lately have mentioned energy prices first as the cause of higher food prices, which they like to say are experiencing the “biggest increase in 17 years.”

That was 1990, when food price inflation was 5.3 percent.

If you want to read something really interesting, check out Food Marketing Costs – a 1990s Retrospective from USDA’s Economic Research Service. According to that report, consumers spent $618.4 billion on food in 1999, up 37 percent from the $449.8 billion spent in 1990. Seems like a pretty big jump for a decade.

But, if you dig deeper to find out the drivers for that increase, you find that the farm value of commodities only increased 13 percent between 1980 and 1999. On a graph, it looks almost flat. By contrast, the “marketing bill” as the economist call it, literally skyrocketed, up 45 percent, mainly due to increased consumer demand for convenience. Labor costs were up 56 percent, packaging up 39 percent, fuels and electricity up 43 percent, rent up 72 percent – but here’s the biggie – corporate profits up 98 percent!

Think about that the next time you hear the Grocery Manufacturers Association (which happens to represent the world’s leading food, beverage and consumer products companies) complain that corn for ethanol is making food prices higher.