Tuesday Talks With Dr. Patterson

September 9, 2014

MANY ARE NOT BRINGING HOME THE BACON
On August 19, 2014, the U.S. Bureau of Labor Statistics (BLS) released its monthly report on the consumer price index (CPI), which included data for the month of July. Since July 2013, prices for all goods and services increased about 2.0 percent. This is a moderate to low rate of inflation. However, food price increases are running ahead of many other product categories, putting further pressure on low income families during the still lackluster economic recovery.

The BLS report shows that retail food prices increased 2.5 percent when compared to a year ago. This is below the rapid food price increases seen during 2008 (5.5%) and 2011 (3.7%), but above the low rate of 1.4 percent seen during 2013. Currently, food prices are predicted to finish the year by increasing 2.5 to 3.5 percent. Among food products, beef, pork, dairy, and fresh fruits and vegetables have seen particularly strong price increases. Beef prices increased 10.4 percent over the period July 2013 to July 2014. The continuing drought in Texas and the Central Plains has reduced cattle supplies. While the drought shows signs of waning, cattle supplies will not recover for at least two years. Hence, higher beef prices will persist. Pork prices rose by 10.9 percent over the same period. The Porcine Epidemic Diarrhea virus (PEDv) has killed an estimated 8 million pigs since it was detected in April 2013, thereby reducing available pork supplies. Fortunately, two vaccines have been approved for this virus, including one that was just approved last week. However, future production levels remain uncertain. Fresh fruit and vegetable prices were reported to be 5.7 percent higher when compared to a year ago, largely as a result of the extreme drought conditions in California. Higher milk (5.4%) and egg (9.2%) prices have followed from higher grain prices over much of the last year. Recent reports on expected large U.S. corn and soybean crops are pushing these commodity and feed prices down, which should give some relief to meat, dairy, and egg producers. However, it will take time for these input price declines to translate into lower or at least slower increases in retail meat and dairy prices.

The current high prices of food are a concern for lower income households, many of whom are already struggling to meet household nutritional needs. This was shown in a USDA report released last week, Household Food Security in the United States in 2013. In this annual publication, USDA researchers evaluate the state of food security in the United States. For 2013, 14.3 percent of U.S. households were determined to be food insecure, meaning that at some time during the year providing enough food for all members of the household was difficult due to a lack of resources. This level of food insecurity is down from the 14.5 percent observed in 2012, though not statistically different, and from the 14.9 percent observed in 2011. Despite claims of being in an economic recovery, the rate of 14.3 for 2013 is still much higher than the pre-recession rate of 11.11 percent in 2007.

Food insecure households include those that are classified as being of low and very low food security. Households with very low security experience periods where food intake of some household members is reduced and normal eating patterns are disrupted at times during the year. For 2013, 5.6 percent of U.S. households experienced very low food security. Since, the start of the recession, this statistic has hovered in the 5.7 to 5.4 percent range. Before the recession, it was recorded at 4.1 percent in 2007.

The recent USDA report on food security also reports levels by state. Among the states, the rate of food insecurity ranged between 21.2 percent for Arkansas and 8.7 percent for North Dakota. Alabama ranked seventh in the nation among those with the highest rates of food insecurity at 16.7 percent. North Dakota has lower levels of food insecurity because of growing levels of personal income in the state due to its booming gas and oil industry.

The recent increases in food prices will make food security more of a challenge in states coming out of the recession more slowly. While the current national unemployment rate of about 6 percent is lower than the peak rate of 10 percent seen in October 2009, it still surpasses the 4.5 to 5 percent rates seen during 2007. Furthermore, since the start of the recession, inflation rates have outpaced growth in income, so household income is actually 8.4 percent lower in real terms. With further increases in food prices, lower income households are having to stretch their earnings farther. Obviously, many households are not bringing home the bacon.

 

Dr. Paul Patterson is associate dean for instruction for the College of Agriculture and Professor of Agricultural Economics.