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If you think grocery prices take a big bite out of your paycheck in U.S., check out the rest of the world

6 Comments
By Peter A Coclanis
Image: iStock/JasonDoiy

Though cynics may question her motives, Kamala Harris’ recent call to ban price gouging on groceries has received a lot of attention – and for good reason.

The cost of food has been a big concern for Americans since the height of the COVID-19 pandemic, with U.S. food prices rising 25% between 2019 and 2023. While U.S. food inflation slowed considerably in 2024, grocery prices are still up from prepandemic numbers.

Price hikes like this are as painful as they are aggravating, and they can have real effects on both household spending and the broader economy. So it’s not surprising that the topic is coming up on the campaign trail.

But oftentimes, complexity can get lost amid the politicking. Here, economic history – and economic historians like me – can provide some context.

How Americans spend their food dollars

For starters, despite the run-up in food prices in the U.S., there’s little evidence of price gouging in the grocery industry today.

“Price gouging” is notoriously difficult to define, but the term is usually invoked after a supply or demand shock of some kind, when sellers are said to take advantage and jack up prices, particularly for basics such as food or gasoline. Concern over “gouging” goes way back – in some ways, it can be seen as an outgrowth of medieval Christian injunctions against mercantile greed.

Although many states have laws on the books against price gouging, such laws have proved difficult to enforce. In the case of the U.S. grocery industry, profit margins — traditionally razor-thin at about 1% or 2% — remain small even today.

What’s more, it’s important to note that food prices in the U.S. — relatively speaking — are the cheapest in the world, and have been for a long time. This is the case whether measured in terms of disposable personal income or in terms of percentage of household expenditures.

For example, U.S. Department of Agriculture data shows that in 2023 — the most recent year for which data are available — Americans spent about 11.2% of their disposable personal income – or income after taxes – on food. That was unchanged from 2022.

This includes expenditures for both food at home — generally purchased at supermarkets and other grocery stores — and food purchased “away” at restaurants and the like. Interestingly, the “away” component has been growing as a proportion of total food spending since the onset of COVID-19.

Grocery prices around the world

No one likes to pay more for food, but a little comparative data can reduce one’s sense of victimization, if not alleviate the pocketbook pain.

Cross-national data compiled by the USDA shows that in 2022, Americans spent less on food as a proportion of total consumer expenditures than people in any other country. People in many other nations spent two, three or four times as much in percentage terms, and sometimes even more.

The differences were greatest between the U.S. and low-income countries in South Asia and Africa – Bangladesh, Myanmar and Ethiopia, for example – but were also quite sizable between the U.S. and middle-income countries such as Argentina, Brazil, China, Costa Rica and Mexico.

These differences aren’t altogether surprising. Why not? Because as the German statistician Ernst Engel first noted in the middle of the 19th century, as family or household income increases, the proportion of the total spent on food declines. After all, you can only eat so much no matter how rich you are.

Scholars have found that Engel’s insight still applies in the contemporary world, which provides context for the sharp distinctions between low-income and middle-income countries and the U.S.

That said, however, there are big differences between the U.S. and other high-income countries such as Japan, Sweden, Norway, France and Italy, with the U.S. percentage spent on food considerably lower than in any of these other rich countries. This is because economies of scale are more important in American agriculture, among other reasons.

To be sure, if so inclined, one can point to certain negative environmental externalities in American food production and question the ways animals and laborers are treated in the American food system, which prizes efficiency — or at least low prices — above all else.

But food that is dirt cheap in comparative terms, even in a time of rising food prices, is a problem virtually every other nation in the world would love to have.

Peter A Coclanis is professor of History; Director of the Global Research Institute, University of North Carolina at Chapel Hill.

The Conversation is an independent and nonprofit source of news, analysis and commentary from academic experts.

© The Conversation

©2024 GPlusMedia Inc.

6 Comments
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For starters, despite the run-up in food prices in the U.S., there’s little evidence of price gouging in the grocery industry today..

That is a bald faced lie!

https://qz.com/supermarket-prices-grocery-food-inflation-pandemic-1851369826

https://www.forbes.com/sites/errolschweizer/2024/02/07/why-your-groceries-are-still-so-expensive/

https://www.npr.org/2024/09/09/nx-s1-5103935/grocery-prices-inflation-corporate-greedflation

3 ( +7 / -4 )

Poorly written and selected article. Only percentage given is for American spending of paycheck on food! No stats for other countries!

9 ( +11 / -2 )

This is because economies of scale are more important in American agriculture, among other reasons.

Let's not forget the subsidies either. Each year, the US government spends $38bn on meat and dairy industry subsidies.

1 ( +5 / -4 )

The U.S. has vast agricultural space to produce far more food than the country could ever eat. So much so that much of America’s agriculture is now geared toward ethanol production. On top of this, the U.S. heavily subsidizes agriculture to ensure consistent production.

The result is low prices, which ultimately benefits the poorest in society the most since a higher percentage of their paychecks goes to food.

The problem is that successive financial and COVID bailouts have led to rampant inflation. For most people in the U.S., wages largely kept up. Savings were dented, but a tight labor market boosted earnings as inflation also boosted prices. Nobody likes paying higher prices; everybody likes earning higher wages. Most people got both at once.

The poorest, however, didn’t see real wages keep pace. This has been largely because immigration flooded the market with low-skilled manual labor. For them, food prices are really painful.

Harris is idiotic to harp on price gouging. It's a populist stump point, but a problem that Harris’s tie-breaking vote in the Senate helped create. Harris’s vote passed the bill that generated the spike in inflation. Wholesale prices are up, which means retail prices are up. Stores have to pay higher wages, which means higher prices.

Harris will simultaneously complain that supermarkets close shop, creating “food deserts,” while also blaming those same supermarkets for price gouging. Shops are going out of business because of high theft, high labor costs, and tight margins. Gouging is raising prices far above margins. Harris seems oblivious to the contradiction.

-3 ( +1 / -4 )

mikeylikesitToday 03:22 pm JST

It's a populist stump point, but a problem that Harris’s tie-breaking vote in the Senate helped create. Harris’s vote passed the bill that generated the spike in inflation.

Because of the Infrastructure bill or the other Infrastructure bill? We should take the inflation to not have bridges falling down.

0 ( +2 / -2 )

I laugh at mainland Americans complaining about higher prices, specially gasoline :D

Like, have they ever been outside of US?

0 ( +0 / -0 )

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