Food expenditures - includes related article

Food Expenditures

Food and beverage expenditures in the United States totaled $515 billion in 1989, 6 percent more than in 1988. Individuals and families accounted for $421 billion of the total, up 6 percent from 1988. Sixty-one percent of personal food expenditures went for food to be used at home, down 16 percent from 1965.

About 17 percent of total expenditures in 1989 were made by governments and businesses (figure 1). The Federal Government spent $20 billion on food stamps, donated commodities, and feeding the armed forces and prisoners in Federal institutions. State and local governments accounted for another $5 billion in food expenditures. Businesses spent $54 billion for such expenses as meals on business trips and those furnished enployees in restaurants. The value of home-produced food, including sport fish and game, totaled $8 billion.

Spending for food to be eaten at home rose 6.4 percent from 1988 to 1989, while away-from-home expenditures were up 5.7 percent from 1988. Since 1965, away-from-home food expenditures have increased nearly nine fold, more than double the at-home rate (table 1). 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. Spending for alcoholic beverages, such as beer, wine, and liquor, rose 4 percent from 1988.

In real terms (adjusted for inflation), overall food sales increased 0.5 percent between 1988 and 1989, while population increased 1 percent. Real spending for food at home went down 0.1 percent, while spending for meals and snacks rose 1.3 percent.

Food Spending and Income

The $446 billion spent for food in 1989 amounted to 11.8 percent of disposable personal income (after taxes) in 1989 (table 2). Food spending totaled 12.1 percent of disposable income in 1988, 14.2 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 (including food stamps). Food spending totaled 9 percent of before-tax income in the 20 percent of households 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. The share for medical care alone rose from 5 to 12 percent, counting only the share paid for by families and individuals.

Food Marketing Costs

Higher marketing costs were the primary cause of rising consumer expenditures over the past decade. The marketing bill--the cost of processing, wholesaling, transporting, and retailing--rose 93 percent between 1979 and 1989 to $320.4 billion (figure 2). At the same time, consumer food expenditures increased by almost 73 percent and the farm value rose only 30 percent (see box).

Higher labor costs were primarily responsible for the 6.1-percent increase in the marketing bill between 1988 and 1989. Labor costs rose 6.4 percent to $146.7 billion, largely because of increases in food industry employment and employee compensation (table 3). Employment in eating and drinking places--which accounts for 52 percent of total food industry employment--rose 1.4 percent in 1989. About 27 percent of industry employment was in retail outlets and 21 percent in food manufacturing and wholesaling.

Food industry retail employment grew 5.5 percent, the largest increase of the decade for the sector. Increased retail sales, including purchases of microwaveable foods and take-out foods from salad bars, bakeries, in-store delicatessens, and other prepared food departments in supermarkets, slowed food sales at restaurants.

Part-time workers are being hired to fill many of the positions created in response to consumer demand for these increased supermarket services. Part-time workers hold down labor costs because they are paid less, qualify for fewer benefits, and reduce overtime pay to full-time workers. However, recruiting competition from fast food restaurants has meant higher wages for supermarket employees. This has been especially true in areas where the teenage population, a major source of these workers, has diminished.

Manufacturing employment grew 1.8 percent in 1988-89, the sector's largest growth of the decade. Most of the increase was due to a 6.6-percent gain in the number of employees working for poultry dressing plants. The demand for processed poultry products (such as deboned chicken) has soared, especially at foodservice establishments. Employment in canned fruit and vegetable plants increased 6.5 percent due to the recovery of this industry following the 1988 drought-induced production slowdown and the growth of such products as aseptically packaged juices. Aseptic packaging consists of paperboard layered with plastic film or aluminum film which is sterilized by heat or chemicals. However, the poultry industry's impact on food manufacturing employment was greater than the canned fruit and vegetable industry because poultry processing employs nearly twice as many people.

Lower inflation rates and fewer union concessions held down labor costs during the 1980's, although this trend has bottomed out. Cost-of-living adjustments (COLA's), for example, were once a major feature of union wage contracts, but played only a minor role in 1989 bargaining. With low inflation rates, COLA's were phased out and replaced by lump sum payments. However, COLA provisions are tied to changes in the Consumer Price Index. They may once again become a major point of contention at the bargaining table if the increased inflation rates recorded during the first quarter of 1990 continue.

Lump sum payments, granted in lieu of wage increases or to offset wage reductions, remain popular. They restrain labor costs by holding down the wage rate base. For example, in 1988-89, contract settlements for workers in food manufacturing provided wage increases averaging 3.3 percent without lump sum payments, versus 2.8 percent with them. Such contracts were even more common in foodstores, where union workers without lump sums received wage increases of 4.0 percent, but those employees covered by lump sum provisions received increases of only 2.5 percent. Two-tiered wage contracts--in which workers hired after a specified date receive lower wages or fewer benefits--continue to be phased out. Both management and labor have noted the reduced productivity from lower tier employees.

Labor costs are also controlled by back-loaded contracts. These contracts provide lower wage rate increases in the first year of a contract, relative to subsequent years. Prior to 1983, more contracts were front-loaded, meaning the largest wage increases occurred in the first year. Back-loaded contracts were used to dampen the wage rate base and effectively delay increases. Many of these contracts are still in effect because of prior bargaining agreements, but they are becoming less common.

In 1989, front-loaded contracts pre-dominated in bargaining agreements covering the food industry. They provided higher wage adjustments than back-loaded contracts. The Bureau of Labor Statistics reports that average front-loaded wage adjustments were 5.4 percent in the first year and 3.8 percent annually over the life of the contract. These increases contracts with back-loaded contract hikes of 1.6 percent and 2.6 percent, respectively, across the entire retail trade. For food manufacturing workers, average wage increases were 3.53 percent during the first year of the contract and 3.1 percent over the contract life. Foodstore workers received wage increases of 3.97 percent during the first year and 3.22 percent over the life of the contract.

Labor agreements with workers (particularly in retailing) that provide small wage increases, reduced pay for holiday and evening work, lower medical benefits, and more management flexibility in scheduling work tempered food industry labor costs during the 1980's. With greater part-time employment, unions are now demanding contract provisions limiting the number of part-timers. Profit-sharing plans are also lowering labor costs during slow business periods and rewarding more productive workers. However, higher Social Security taxes and rising health care costs continue to add to the overall labor bill. The net effect of these developments is that labor costs should continue to accelerate over the next few years.

Packaging is Second Largest Component of the Marketing Bill

Packaging accounts for 8.5 percent of the food dollar (figure 3). Costs of these materials rose 8 percent in 1989, roughly the same rate of increase as in 1988. The 1988 increase was mostly due to large jumps in the price of paper and plastic products. However, packaging costs were higher in 1989 because of increased demand, rather than higher costs for packaging materials. Paper prices rose more slowly than in 1988. Additional plant and equipment capacity became operational during 1989 and eased tight corrugated box supplies.

At the same time, the value of sanitary food containers and plastics shipments increased faster than in 1988. A number of factors are responsible for this rising demand.

Industry sales of sanitary food containers are closely tied to consumer food spending patterns, especially for prepared and packaged foods, convenience foods, and fast foods. Fast-paced, two-income lifestyles have reduced the amount of time available for preparing food at home and increased the demand for quick, easy-to-prepare meals. Moreover, as the growing adult population ages, its tendency to use more convenience foods--especially those that are microwaveable--means increased sales of sanitary food packaging products. Aseptic packaging continues to be the most rapid growth product among sanitary containers, and is thus the most important factor explaining increased industry shipments.

These same forces--population changes, shifts in workforce composition, and modern cooking technology--also affect the demand for rigid container packaging. Consumers demand convenient containers that are lightweight and microwaveable. Consumer demand for convenience foods implies continued introduction of new products.

Manufacturer and retailer promotion of new value-added products, such as microwaveable frozen dinners, also means continued increases in advertising expenditures. Food industry expenditures on advertising jumped nearly 14 percent to $19.7 billion last year.

Food Spending Trends

The average urban household spent $19.05 (adjusted for inflation) weekly per person on food in 1986, up 0.6 percent from $18.94 in 1980, according to the latest Bureau of Labor Statistics survey available. Spending reached a record low of $18.56 in 1981 before peaking at $19.92 in 1985.

Not all demographic groups gained equally. For example, households with three members or less spent more per person on food in 1986 than they did in 1980, while spending by larger households declined (table 4). For any given year, per-person food expenditures tend to decline rapidly as household size increases. Large households can buy items in bulk and often purchase a different mix of foods than smaller households.

Household income also affected food expenditures in 1986. For example, lower income households spent $15.03 weekly per person on food compared with $24.90 for the highest income households, a 66-percent difference. The wealthiest households also experienced the largest increases in per-person spending during the 7-year period, probably because they are 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 those headed by whites or other races. In 1986, white households spent $19.98 per person on food and black households $12.96, a 54-percent difference. Spending by white households fell about $1 per week between 1985 and 1986.

Other groups--including American Indian, Eskimo, and Asian--spent 10 percent less than whites but 39 percent more than blacks. Between 1980 and 1986, per-person food spending in black households declined about 33 cents per week, while spending by whites gained about 16 cents. American Indians, Eskimos, and Asians increased their spending by about 35 cents. Most of these differences can be explained by noting that, on average, whites have higher incomes.

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 25-to-34-year-olds spent less per person on food in 1986 than in 1980. Other households spent more or about the same.

In 1986, urban households in the West and Northeast spent more per person on food than those in the South or Midwest, with the Northeast spending the most and the South the least. Some of these differences result from regional variations in food prices, household incomes, and food types. Between 1980 and 1986, per person spending rose about 5 percent in the West and 7 percent in the Northeast, stayed about the same in the South, but dropped 4 percent in the Midwest.

A more than 9.6-percent gain in eating out caused all of the gain in total inflation-adjusted food spending nationwide. Food expenditures for at-home use declined 4.3 percent between 1980 and 1986. Commodities with the most growth in at-home spending included breads (other than white), cola drinks, 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 (table 5).

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 27 percent between 1980 and 1986, while spending on lowfat, skim and other fresh milk rose over 25 percent. Likewise, purchases of white bread dropped about 28 percent, while spending for other types of bread gained 36 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. Candy consumption rose 11 percent, cola drink, 13.5 percent, and snack-type food, more than 23 percent.

Food Expenditures...At a Glance

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 46 percent in 1989. 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 33 percent in 1989.

Single, employed persons living alone spend much more on eating out than any other group. Larger households generally spend less eating out than smaller households and those with more wage earners. Part of this trend is no doubt due to more lunches being eaten away from home by wage earners, although how many lunches are brown-bagged from home is unknown. The proportion of families with more than one earner began to increase sharply after World War II--from 39 percent in 1950 to 46 percent in 1960, 54 percent in 1970, and 57 percent in 1989. With the added effects of rising real income (adjusted for inflation) per wage earner and declining family and household size, average real income per person in the noninstitutional population rose 63 percent between 1963 and 1988. [Tables 1 to 5 Data Omitted] [Figures 1 to 3 Data Omitted] [Graph Data Omitted]

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

COPYRIGHT 1990 U.S. Government Printing Office
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