Domestic Food Costs

Abstract

ONSUMERS and producers alike consider 1973 as a year of traumatic experiences. Apparently 1974 will be comparable, at least for many producers. Increasing general inflation and rapidly rising food prices in 1973 led first to consumer boycotts, then to meat price ceilings imposed at the retail but not the farm level. These actions led to disruption of the marketing system for meat and to drastic producer reactions involving drowning of baby chicks and slaughter of pregnant sows. Through all the changes, consumer food prices continued to climb and to lead the consumer price index upward. Forecasts of the rate of increase in food prices were far under the actual rates. In mid-1973, for example, the S. Department of Agriculture was criticized for underestimating the rise in food prices which had occurred and probably would occur by year-end [2, p. 24]. The charge concerned projections of the average increase in domestic food prices during 1973 of first 3 percent (made in November, 1972), then 6 percent (February, 1973), then 9 percent (May, 1973). The actual change from January through December was 17.7 percent and averaged 14.5 percent higher in 1973 than in 1972. Why did food costs increase so much beyond the expected levels? Some analysts have concluded that past economic models and parameters are no longer applicable and that revised parameters are needed for the new economic environment in which domestic consumers compete with foreign consumers for available supplies. Fox [3, p. 3] in an analysis of the food price forecasting problem concluded that no U. S. agency has an adequate model of the world economy or even an adequate conceptual framework within which to discuss interactions among the food, agricultural and other sectors of the world economy. The conclusion that all new models are needed does not appear warranted. Models involving domestic demand and the associated parameters remain valid and can be used in an analysis of conditions during the past two years as illustrated in the first section of the paper. There are new attributes of the domestic demand for food, however. In the second section of the paper, trends in the shares of incomes spent on food by different income groups, the shock of reversal of trends, and the impact of the food stamp program on meat consumption are considered. In subsequent sections, the relationship of marketing spreads to changes in farm and retail prices are analyzed, and the impact on consumer prices of increasing export demand with low reserve stocks are reviewed. For the latter some relationships and ranges of data admittedly are new.