FarmPolicy

July 28, 2017

Chairman Conaway on Farm Policy and Food Prices, Related ERS Update

Categories: Farm Bill /Food Prices

Recall that over the weekend, Senate Ag Committee Chairman Pat Roberts (R., Kans.) and House Ag Committee Chairman Mike Conaway (R., Tex.) discussed a variety of current issues impacting the U.S. agricultural economy and farm policy at the Kansas State Fair in Hutchinson.

In particular, before embarking on changes to federal agricultural policies, Chairman Conaway said that he wanted “to know what it does to the cost of food.” He added that “we have 45 million Americans on food stamps [SNAP],” when he analyses farm policies he thinks in terms of what we are getting in return for government investment- and current policies are working, “there is no denying that,” he said.

Noting that on average, Americans spend 9.8% of disposable income on food, Chairman Conaway indicated that,“what I care about is the folks at the bottom 20% of the economic food chain, it’s not 9.8% of their disposable income, they are paying 30-35% of their disposable income for food.”

With this background on the importance of food costs to policy makers in mind, the USDA’s Economic Research Service (ERS) indicated last week (“Percent of Income Spent on Food Falls as Income Rises“) that, “[P]oorer households spend less money on food than higher income households, but this accounts for a greater share of their income.”

The ERS update indicated that, “Over the past two and a half decades, U.S. households in the lowest income quintile (the poorest 20 percent of households) spent between 28.8 and 42.6 percent of their annual before-tax income on food, compared with 6.5 to 9.2 percent spent by households in the highest income quintile. Before-tax income includes earnings and other money income, public assistance, Supplemental Security Income payments, and Supplemental Nutrition Assistance Program (SNAP) benefits.

The share of income spent on food is more volatile for poorer households than for higher income households. The lowest income households saw their share of income spent on food drop from 41.1 to 28.8 percent over the years 2001 to 2007 but then rise to 35.5 percent in 2009. Meanwhile, over the same period, the highest income households saw relatively minor yearly swings of 0.5 to 1.0 percentage points.”

The ERS report explained that, “This volatility in the share of income spent on food by the lowest income quintile is due in part to (1) changes in grocery store (food-at-home) prices and (2) changes in earned income and Federal assistance benefits. The 2001 jump in the share of income spent on food by the lowest income quintile illustrates the impact of rising food prices. Although incomes were steadily increasing for low-income households at this time, at-home food prices increased by 3.3 percent from 2000 to 2001. Higher food prices disproportionately affect the spending behavior of low-income households and often require them to allocate a larger share of their incomes to food.”

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