Food expenditures

Food Expenditures

Food expenditures in the United States totaled $473 billion in 1988, 5 percent more than in 1987 and 445 percent more than in 1965. These figures encompass everything spent on food, regardless of who paid. They include food for home use paid for with food stamps or donated by the Government, meals in military and prison mess halls, and business meals.

Spending for food to be eaten at home rose 4 percent from 1987 to 1988 and 334 percent from 1965. Spending for meals and snacks eaten away from home rose 6 percent from 1987. However, since 1965, away-from-home food expenditures have increased 703 percent, more than double the at-home rate. One reason for this difference is that people are eating out more as incomes rise and as more women enter the work force. Also, prices for meals and snacks have risen faster than those for at-home food.

The share of food spending for away-from-home meals and snacks rose from 30 percent in 1965 to 39 percent in 1980, and to 45 percent in 1988. However, away-from-home expenditures cover less food, since prices of meals and snacks also include the cost of preparing and serving the food. This is why the away-from-home share of the quantity of food purchased was only 24 percent in 1965. It increased to 29 percent in 1980 and 31 percent in 1988. Spending for alcoholic beverages, such as beer, wine, and liquor, rose 3 percent from 1987 to 1988 and 373 percent from 1965 to 1988.

In real terms (adjusted for inflation), overall food expenditures increased 46 percent between 1965 and 1988, while population increased 27 percent. Real spending for food at home went up 29 percent during the same period, while meals and snacks increased 87 percent.

Who Pays for Food

Not all food consumed in the United States is bought by families and individuals. About 16 percent of total expenditures in 1987 were made by governments and businesses. That year, individuals and families paid $372 billion for their food purchases, businesses spent another $48 billion, and local, State, and Federal authorities spent $24 billion. Home-produced food, including sport fish and game, was $7 billion.

The Federal share was $13 billion, covering food stamps, donated commodities, and the cost of feeding the Armed Forces and prisoners in Federal institutions. Business expenses included employee meals at restaurants and industry facilities and those eaten on business trips.

Food Spending and Income

In 1988, individuals and families spent $410 billion for food. This figure excludes government and business spending, but does include purchases using food stamps since they are counted as income. Food spending by individuals and families was up 5 percent from 1987 and 451 percent from 1965. In 1988, food purchased for use at home accounted for 62 percent of personal food expenditures, down from 77 percent in 1965.

Food accounted for 11.8 percent of disposable personal income (after taxes) in 1988, compared with 12.1 percent in 1987, 13.9 percent in 1975, and 15.3 percent in 1965. The proportion of income spent on food was much higher in low-income households than in higher income ones, averaging 42 percent in the 20 percent of households with the lowest before-tax incomes and 9 percent in the 20 percent with the highest incomes.

As incomes rose during the past two decades, most of the increase went for services like housing, transportation, and medical care. Since 1965, the share of income spent on services has climbed from 38 to 50 percent. Spending for medical care alone rose from $26 billion to $404 billion.

Where Our Food Dollars Go

Consumer food expenditures cover items bought at foodstores and those purchased at eating places. They can be broken into two components based on where the dollars go--the farm value and the marketing bill. The farm value, which accounted for 25 percent of the food dollar in 1988, is an estimate of the farmer's share of food purchased for at-home and away-from-home consumption. The marketing bill is the difference between the farm value of domestically produced foods and what a consumer pays for them. Imported foods and seafood are excluded from these estimates.

The marketing bill came to $296.8 billion in 1988. It encompasses four industry functions: processing, wholesaling, transporting, and retailing. The costs of these functions are different for foods bought in foodstores than for meals and snacks purchased for consumption away from home. The marketing bill generally accounts for a higher portion of total expenditures in the away-from-home market. Correspondingly, the farm value share is smaller, primarily because the cost of additional labor needed to prepare meals and snacks reduces the farmers' share of the final product's value. For the same reason, away-from-home foodservice costs are much greater than their retailing counterpart in the at-home market--60 cents of the food dollar versus 23 cents.

Processing is a larger share of at-home expenditures than away-from-home, 31 cents versus 15 cents. However, when an allowance is made for the large cost of foodservice relative to food retailing, processing costs are about the same. This suggests that retail stores and away-from-home outlets purchase about the same proportions of raw and processed foods. Costs associated with wholesaling account for 10 cents of the at-home dollar, but only 6 cents of the away-from-home dollar. Transportation came to 6 cents and 3 cents, respectively.

Food Marketing Costs

Higher marketing costs were the primary cause of the rise in consumer expenditures over the last decade. Consequently, the marketing bill accounted for an increasingly larger share of food spending. For instance, consumer expenditures on food have increased $177.4 billion since 1978, but the farm value rose only $28.0 billion. During the same period, the marketing bill climbed $149.4 billion.

In 1988, the marketing bill accounted for about three-fourths of the $394.3 billion consumers spent for U.S. farm foods. At 5 percent above 1987, this increase was somewhat higher than the year before, mainly because of higher labor costs. Their increase is due to parallel rises in food industry employment and employee compensation. Employment in eating and drinking places, the largest employer with 53 percent of the total, rose 3.3 percent last year. Employment by retailers increased 4.3 percent, accounting for 26 percent of food industry employment in 1988. Employment by food manufacturers and wholesalers, which accounts for the remaining 21 percent of industry workers, rose 1.4 percent last year.

Labor costs have been held down in recent years by lower inflation and union concessions, a trend that has since bottomed out. Lump-sum payments, which are granted in lieu of wage increases or to offset wage reductions, remain popular. They restrain labor costs by holding down the wage rate base. On the other hand, two-tiered wage contracts--in which workers hired after a specified date receive lower wages or benefits--are being phased out. Both management and labor have noted the reduced productivity from lower tier employees. Back-loaded contracts also dampen the wage rate base by providing for lower wage adjustments in the first year of a contract. However, these contracts have become less common as unions have begun to demand restoration of previously accepted wage concessions.

As the industry has employed more part-time workers to lower labor costs by reducing pay, benefits, and overtime, unions are now demanding contract provisions limiting the number of part-timers. Profit-sharing plans have also been used to lower labor costs during slow business periods and to reward more productive workers. However, higher Social Security taxes and rising health care costs are adding to the overall labor bill. The net effect of these developments is that labor costs should accelerate over the next few years.

Packaging is another sizable component of the marketing bill. Costs of these materials rose 8 percent during 1988, due to large jumps in the prices of paper and plastic products. Paperboard and other paper items accounted for nearly 40 percent of total packaging costs. Much of this increase resulted from the high price and tight supplies of kraft linerboard, which is the major input for corrugated and solid fiber boxes. Higher demand for corrugated materials stems largely from greater use of retail point-of-purchase displays and preprinted linerboard for shipping. Demand for folding paperboard boxes also grew in 1988 as consumers bought more dry cereals and frozen foods. Industry use of plastics continued to climb, largely because of more consumer demand for plastic containers. Demand for packaging materials for fast foods, convenience foods, and single-portion meals also contributed to the growth of packaging costs last year.

Advertising continues to rise in importance as a marketing bill component. Expenditures on food advertising, which reached $17.8 billion in 1988, have grown as manufacturers and retailers promote new value-added convenience foods, such as microwave frozen dinners. Consumer demand for convenience foods implies continued introduction of new products, accompanied by brisk increases in advertising. Other costs, which include property taxes and insurance, accounting and professional services, bad debts, interest, rent, and depreciation, rose little in 1988.

Food Spending Trends

After adjusting for inflation, the average urban household spent $19.92 weekly per person on food in 1985, up 5.2 percent from $18.94 in 1980. The low point in spending occurred in 1981 and the high in 1985.

While average per person expenditures for urban households across the country were higher in 1985 than in 1981, not all demographic groups gained equally. For example, households with four members or less spent more per person on food in 1985 than they did in 1980. Meanwhile, per person spending by households with more than four members actually declined. For any given year, per person food expenditures tend to decline rapidly as household size increases. This comes from economies of scale; for instance, large households can buy items in bulk. Bigger households also purchase a different mix of foods.

A household's income also affected food expenditures. For example, in 1985, lower income households spent $16.42 weekly per person on food compared with $26.02 for the wealthiest households, a 58-percent difference. The wealthiest households also experienced the largest increases in per person spending during the 6-year period, probably because they ate out more often and bought more convenience foods.

Race may also influence food spending. Households headed by blacks tend to spend considerably less per person on food than households headed by whites or other races. In 1985, white households spent $20.89 per person on food and black households $12.24, a 71-percent difference. Other races--including American Indian, Eskimo, and Asian--were in between, spending 13 percent less than whites but 48 percent more than blacks. Between 1980 and 1985, per-person food spending in black households declined about $1 per week, while white spending gained about $1. American Indians, Eskimos, and Asians increased their spending by about 40 cents during the period. Most of these differences can be explained by noting that, on average, whites have higher incomes.

Age is another factor. Generally, as the age of the household head increases, per person food spending tends to rise, at least until age 65. The major reason is that higher incomes are associated with greater age up to retirement. Households headed by someone under 35 years old spent less per person on food in 1985 than in 1980. Older households spent more.

In 1985, urban households in the West and Northeast spent more per person on food than those in the South or Midwest, with Westerners spending the most and Southerners the least. Some of these differences result from regional variations in food prices, household incomes, and food purchases. Between 1980 and 1985, per person spending jumped about 19 percent in the West, rose more than 7 percent in the South, gained 6 percent in the Northeast, and stayed about the same in the Midwest.

Most of the 5.2-percent increase in total food spending nationwide was caused by a more than 12-percent gain in eating out. Food expenditures for at-home use increased only 1.5 percent between 1980 and 1985. Commodities with the most growth in at-home spending include breads (other than white), fresh and frozen fish and seafood, fresh milk (other than whole), ice cream, bananas, frozen prepared foods, and potato chips and related snacks. Among the biggest losers were white bread, beef and pork products, fresh whole milk, and oranges.

It is interesting to compare the changing at-home consumption patterns of foods that are close substitutes. For instance, expenditures for fresh whole milk fell almost 17 percent between 1980 and 1985, while spending on other fresh milk rose 30 percent. Likewise, purchases of white bread dropped about 13 percent, while spending for other types of bread gained 32 percent. These types of purchases tend to indicate that consumers are shifting to products perceived as healthier. However, other examples run counter to this trend. Sugar and sweets consumption rose 3.4 percent, cola drinks, 16 percent, and snack type foods, more than 33 percent.

Food Expenditures...At a Glance

The outlets where Americans buy food for home use continue to change. The supermarket boom has about ended and their share of food sales, which rose from 45 to 61 percent between 1963 and 1977, only reached 62 percent in 1987. Convenience store sales boomed during the past quarter century, but they only accounted for 5 percent of the 1987 total. (In recent years, most of the growth in supermarket and convenience store sales has been in nonfoods, which are excluded from these figures.) Home delivery--mostly of milk--continues to drop as do direct sales by farmers, processors, and wholesalers.

The growth in fast-food sales continues to be the most impressive item on the away-from-home food agenda. In 1987, one-third of all away-from-home food was bought in fast-food places, up from 10 percent in 1963. Food sales by hotels and motels dropped from 6 percent in the 1960's to 5 percent in 1977-82 and recovered to 6 percent in 1987. Foodservice at schools and colleges peaked in 1967 at 14 percent, at the height of the baby boom. Their share has declined ever since, hitting 9 percent in 1987.

Authors James Blaylock and Howard Elitzak are agricultural economists with the Food Marketing and Consumption Economics Branch, and author Alden Manchester is senior economist in the Office of the Director, Commodity Economics Division.

COPYRIGHT 1989 U.S. Government Printing Office
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