The Food Institute: Food Expenditures Dipped In Second Quarter

A slew of government reports looking at various stages and sector of the food industry have been released recently notes The Food Institute.

A slew of government reports looking at various stages and sector of the food industry have been released recently notes The Food Institute. Food makers and retailers may want to evaluate to see how they a stacking up against overall industry trends.

Probably the most disheartening was the release of second quarter 2010 consumer expenditure data by the Bureau of Economic Analysis. This showed that consumer expenditures for food consumed at home declined 3.2% in between Apr. 1 and June 30th. This reversed the slightly upward trend of the prior four quarters and also bucked the upward trend in overall consumer expenditures for the second quarter, which actually increased 2%. Brian Todd, President of the Food Institute, notes that the downturn is not a complete surprise however as retail sales at supermarkets, which sell more than just food, have barely been edging above prior year levels. Mr. Todd also notes that part of the reason for that decline in expenditures for food is that retailers continue to be hesitant to pass along increases they are experiencing at wholesale. Indeed, Food Institute analysis of wholesale and retail price reports showed that July marked the ninth consecutive month advances at the wholesale level exceeded those at retail, indicating the retailers continue to absorb many of the costs they are incurring.

For example, since last fall, beef & veal prices at both wholesale and retail have been steadily increasing and for the past four months, the Producer Price Index for beef & veal has been about 15% above year earlier. The Wall Street Journal on Aug. 25 touted that this may be a precursor of wider inflation in food prices. As with the PPI for all finished consumer foods, however, the changes at retail have been far less dramatic. For example, during July, wholesale prices were up 14.3% from a year earlier, while the retail price index advanced just 6.7%.

Meanwhile, some major food manufacturers have been hesitant to pass raw product increases on to the consumer as well for fear of losing market share. .A recent study from the the Grocery Manufacturers Association noted  companies have been effective at cutting costs in other areas to counter those increases however, stating:“The food sector as a whole cut spending with a nearly two percentage point drop in median selling, general, and administrative costs as a percentage of sales.”

As a result, last week, USDA actually lowered it projected price increases for food-at-home this year, to just 0.5% to 1.5%. That would be the lowest annual food inflation rate since 1992.

USDA lowered it forecasts for 14 of the categories it tracks, with the largest changes coming in fats & oils (now seen edging only marginally higher than 2008 levels). USDA also lowered its projection for shell eggs but the impact of the large recall that surfaced earlier this month was not fully known at the time, and prices for eggs have increased substantially as result.  We will have to wait and see how long lived that upward trend in prices last however.