Food inflation – impact on America

Just how much have food prices increased?

  • 37% in the last year
  • 234% in the last ten years

For me that brings food prices to dizzying highs. I like to eat. I do not like it when I do not know how much this hobby will cost me from month to month.

The purpose of this post is simply to examine why food inflation is important for the Average American. At the end I also offer a solution for those who are not afriad to get their hands dirty.

food price increases
The trend in world food prices is both up and just as important is more volatile

Stable food and commodity prices are  important because volatility creates uncertainly with price expectations and makes it hard to plan budgets both in business and your own household cashflow month to month. Since we have seen not just increased prices but price volatility this increases hardship on families.

  • Economics is about prices and expectations. Prices transmit information and expectations allow individuals to create plans for the future.

American is rich but the cost of groceries still affect home economics

The percentage of income spend on food indicates the relative level of wealth of a country. For example, the average American household spends 12% of their family budget on food. However,  in a country like Romania, a household might spend up to 50% of their earnings on groceries each month.

The poorest ten percent  in the USA spends about 35% of their budget on food and the richest ten percent about 7%. I am sure the diets are different.

The following video must be for one single person living in a city including dinning out as it is very different from the family of four model.

Wealthy countries feel the pinch when disposable income shrinks – Just because a country is wealthy  does not mean that food increases do not affect American households. This is because budgets and disposable income in the USA are pretty tight. People have large mortgages and fixed costs, and small increases can push people over the line. I can feel this, when I am living in the USA.  In contrast, I feel financial stress less when I live in Poland with less income.

  • The average American family of four spends about $750 a month on food. For me that seems too little actually and I question that number. However, what if it doubles to $1500 a month. I think this would push many people over the edge in terms of financial security. Food inflation is the worst type of inflation because it affects your health and can drive a family to the edge financially. I can not have a car or even be cheap on heating, but food is an absolute necessity.

My experience living in a less wealthy country with food – People in poorer countries (I am not talking impoverished) have access to locally growth and home-grown food more than countries where agriculture is agribusiness. For example, my wife’s parents have a farm, like 30% of Polish people. We get a lot of food for free from her parents farm. It is by default organic, not by plan as who has the money to spend on agribusiness chemicals. If the world had a crisis and ran out of food. I am 100% certain Poland would be fine. People grow food everywhere. Even in the city of Krakow which has a million people, there are vegetable gardens and everywhere.

In contrast I do not know too many American farmers personally. Many people have small gardens but it is not the same. If there was a world side crisis, I know few people in Poland that would go without food. However, think of all the professionals in L.A., Boston or Washington, D.C. that could not fend for themselves.

So my point is, yes food price increases affect people, even in wealthy countries. In the USA when food prices go up as much as they have, people feel it. I feel it. I am no longer buying arugula, but bags of potatoes. Cans of Tuna replace Sushi. They call it ‘Hamburger helper’, but it does fine just all by itself. Is this the way you want to live? And sweating the next mortgage payment? That is not prosperity, nor the land of milk and honey.

I guess I have a pretty steep utility curve when it comes to healthy food but I still have limits. Food inflation affects me the most of any type of price volatility.

The cause of food price increases are:

  1. Increased demand world-wide
  2. monetary stimulus
  3. Supply shocks

Further, food production is being concentrated in the hands of fewer and fewer companies and regions.  I do not know if I like this.

What will I do if prices continue to increase?

You know during WWII the British had something called “victory gardens”. You can look into the history of this.

The point is not the money. It really is not. To compensate when we move to the USA for sure we will have a garden and have even considered a few chickens, even though they are pretty stinky and my wife keeps saying what if we go on vacation. The point is I like fresh food and do not want to be dependent 100% on whole food prices from large companies.

You can buy dwarf fruit trees that grow pretty fast and potatoes in all their varieties and colors grow in almost any soil. Herbs can really save you money if you growth them at home. You can do a lot in your back yard. I see people doing it in Poland. Small micro farms supplying a year’s supply of food for the family and surplus.  It is really not  a lot of work if you know what you are doing. I am trying to get my wife to do a videos about this. As I think there is a small market for food crisis videos. That is, how to live A to Z on your own and believe me Polish farmers in the village are masters at this. Yep, I married a farmer, a potato princess I joke.

My hope is the world will learn to adapt. That is increase production and supply as well as quality. I do not believe in Malthusian economics because demand tends to expand algebraically but technology exponentially. However, I would say that food problems in the world are more an allocation problem, that is some people have too much and others have nothing. This will be solved with a mix of innovation and compassion. If you want to read more about the world food problem you can go here: UN food and agriculture organization. It has good statistical data if you like numbers and graphs like I do.




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