Is Your Grocery Budget Going Up in Flames? The Truth Behind Rising Food Prices

Andrew Harig, Vice President of Tax, Trade, Sustainability & Policy Development at the Food Marketing Institute in Arlington, VA, delivered a presentation at USDA's 99th Annual Agricultural Outlook Forum on February 23, 2023. Harig's presentation provided insights into the underlying economic, supply chain, and labor challenges that are driving the rising food prices in the United States.

Americans are facing higher prices for nearly all consumer goods, including food at the grocery store and restaurants, due to inflationary economic pressures on food production, disruptions to the global supply chain, shifting consumer shopping and food consumption habits, and unprecedented labor challenges. The impact of Russia's invasion of Ukraine on the global supply chain has also contributed to these challenges.

Despite these challenges, innovations, and efficiencies driven by American food producers have helped keep food costs relatively flat over the past 20 years. Food costs in America are lower than in many other Western nations, and the price of many food staples, adjusted for inflation, are much cheaper today than in 1992, including white rice, pasta, cheddar cheese, chicken, eggs, ground beef, and bacon.

However, consumers have a different view of the inflationary environment, with a perceived level of inflation of 24.3% compared to the actual level of inflation of 12% as reported by the Bureau of Labor Statistics. Consumers also have a mistaken view of food retail's business model, with a perceived grocery store profit margin of 35.2%, compared to actual profit margins that have remained relatively low over the past decade, ranging from 1.0% to 3.0%.

As a result, consumer worries are rising, with 76% concerned about rising prices, 44% concerned about out-of-stocks, and 43% concerned about having enough money. Food price concerns are front of mind for consumers, with 48% extremely concerned about food from grocery stores prices rising, 43% extremely concerned about gas prices rising, and 40% extremely concerned about home utility prices rising.

To mitigate rising food prices, consumers are looking for more deals (59%), buying more store brands (45%), buying fewer items (41%), and buying only when on sale/deal (32%). Consumers can also take other steps to stretch their food dollar, such as planning meals in advance, creating a grocery list, comparing prices, buying in bulk, freezing leftovers, and cooking from scratch.

                                             When your shopping list is on sale

Here are the important takeaways from the data:

• Despite challenges to the global supply chain, American food producers have been able to keep food costs relatively flat over the past 20 years.
  
• Food costs in America are lower than in many other Western nations, and the price of many food staples, adjusted for inflation, are much cheaper today than in 1992.
  
• Consumers have a different view of the inflationary environment and a mistaken view of food retail's business model, which is contributing to rising worries about rising food prices.
• To mitigate rising food prices, consumers are taking steps such as looking for more deals, buying more store brands, buying fewer items, and buying only when on sale/deal. Consumers can also take other steps to stretch their food dollar, such as planning meals in advance, creating a grocery list, comparing prices, buying in bulk, freezing leftovers, and cooking from scratch.