Thursday, March 13, 2008

Are prices rising faster for fruits and vegetables than for other foods?

Everybody is concerned about food prices lately.

Some worry about food price inflation. Others worry about a looming recession, bringing deflation.

In nutrition circles, one focus of concern is that prices might be rising faster for fruits and vegetables than for other food categories, contributing to less healthy diets.

A fascinating report this week from Fred Kuchler and Hayden Stewart at USDA's Economic Research Service includes this chart for major Consumer Price Index (CPI) categories over the past 27 years. It shows more rapid price inflation for fresh fruits and vegetables than for cakes and cookies.

Regarding this figure, Kuchler and Stewart write:
The line plots clearly show that, compared with all other goods purchased, Americans are paying relatively more for fresh fruits and vegetables now than they did 27 years ago.
But here things begin to get a bit more complicated. Kuchler and Stewart don't really believe the top line in the figure above represents price inflation for fruits and vegetables very well. They argue that this trend overstates the real level of price inflation by failing to correctly account for quality changes.

To evaluate this concern, I think it is important to emphasize that the Bureau of Labor Statistics (BLS) does not make the error of simply ignoring quality changes. BLS understands very well that the price of traditional fresh carrots in 1981 cannot be compared to the price of bagged mini carrots in 2001. Instead, BLS carefully looks at price changes for fixed products from one period to the next. For example, BLS looks at how the price of traditional fresh carrots changed from 1981 to 1982 and how the price of bagged mini carrots changed from 2001 to 2002. The agency links together such price changes from one year to the next to get a sense of price trends over the years. The price changes represent consumer spending patterns in a particular time period, so traditional carrots were given comparatively more weight in estimating price changes in the early 1980s and bagged mini carrots were given comparatively more weight in estimating price changes in the 2000s.

Nevertheless, Kuchler and Stewart believe the BLS approach may miss some of the consumer benefit that arises when a traditional product is replaced by a new product that is closely similar -- such as when old fashioned carrots are replaced by bagged mini carrots. For this reason, the authors prefer to look at price changes for particular selected foods. They believe the trends for these foods show little evidence of more rapid price inflation for fruits and vegetables.

Still, even the analysis of specific foods contains some examples of real price increases. Here is the price trend for broccoli:


I doubt that quality improvements in broccoli are responsible for all of this price trend.

The bottom line: The main BLS price indices show particularly rapid price inflation for fruits and vegetables. Though the BLS method is imperfect, it is difficult to find a better summary of price changes over time for a representative sample of foods.

4 comments:

Matthew S. Urdan said...
This comment has been removed by a blog administrator.
Janet said...

Chalk up one more bit of evidence that our farm policy is helping us get fat yet poorly nourished. What a great system!

Bix said...

I wonder how our cheaper dollar is affecting produce prices. For imported foods, that is.

Sarah Grace said...

Certainly fewer consumers purchase fresh fruits and veggies than highly processed goods - consumer demand must be a factor in these prices. Great information. I just found your blog and look forward to reading!