Think Food Prices Are High? You Have No Idea

A few months ago, I sat down with a relative who has two kids getting ready to go to college. While discussing the price of college, he said, "It seems like everything is getting so expensive -- even food is costing way more than it used to."

I thought about that statement for a while, and decided to check it out for myself. Although I surely sympathize with the payments he is about to make, my uncle couldn't have been more wrong. From a historical perspective, food is dirt cheap.

Source: Palosirkka, via Wikimedia Commons.

Take the long view
If you think about it, most of the "work" by our earliest ancestors was to provide two things: food and safety. There was no currency per se, but suffice it to say that at least 50% of their toil was devoted toward food.

Obviously, we don't have records that far back to back up my statement. Fortunately, the USDA has been keeping tabs on how much we spend on food since 1929. Taken as a percentage of our disposable income, the amount has dropped dramatically in the last 85 years. In fact, relative to our incomes, food has simply never been cheaper.

Source: USDA. 

Interestingly, food away from home (restaurants, takeout, etc.) has actually increased since 1929, from 3.1% to 4.1%. That's likely because eating out has always been a luxury, and over time, more people have been able to afford it.

The decrease in the percentage of our income spent on food, then, comes from food bought for consumption at home. At its height in 1933, we devoted 21.9% of our money toward at-home food. By 2011, it was only a quarter of that amount: 5.7%. That's a mind-numbing difference.

Technology + science = cheap
An huge part of that shift is due to tremendous strides in agricultural technology, especially once the nation settled into a post-World-War-II mind-set in 1949. That's when the era of industrial agriculture began to take hold.

These advances can be broken down into three categories: machines, fertilizers, and genetically modified crops.

When the tractor came along to replace mules, horses, and hand laborers, it became exponentially easier to farm the land. For example, in 1850, it took 90 hours of labor to produce 100 bushels of corn. By 1987, it took fewer than three hours -- or just 3% of the time -- to obtain the same harvest.

Fertilizers have also played an important role. Nature's rhythms call for periods of work then rest, but much of our current food system is based on the premise that the land must meet or exceed the previous year's harvest in order to feed a growing population. To interrupt the process, fertilizers -- especially nitrogen, phosphate, and potash -- jump-start the soil.

Source: The Fertilizer Institute, Agclassroom.org

Before fertilizers, nature put a cap on how much could be grown in a season. After fertilizers, those caps were gone. It shouldn't be surprising, then, to see that just as the use of fertilizers was just ramping up, the price of food began to drop.

It's also not surprising that Potash (NYSE: POT  ) and Mosaic (NYSE: MOS  ) -- two leading producers of fertilizer ingredients in North America -- showed astounding returns leading up to the Great Recession.

MOS Total Return Price Chart

MOS Total Return Price data by YCharts.

Those days of heavy growth, however, are subsiding. Not only has fertilizer usage reached a saturation point, but a breakup of key global alliances has sent commodity (and stock) prices tumbling in the sector.

The technology now front and center for making cheap food is genetic engineering. In 1994, the United States approved its first genetically modified organism (GMO) for human consumption: the Flavr Savr tomato made by now-Monsanto (NYSE: MON  ) subsidiary Calgene.

Though the tomato wasn't a huge success, it ushered in a new era of agribusiness. With the ability to engineer and patent seeds, scientists at Monsanto, Dow Chemical (NYSE: DOW  ) , and DuPont (NYSE: DD  )  -- three of the largest companies producing GMOs worldwide -- can create plants resistant to herbicides that would normally kill a plant. In theory, that means that the days of plagues and pestilence are over, and food production can take off once again.

On the global scale, no country uses more land to produce GMO crops than the United States.

Source: ISAAA, Mother Jones

To put that in perspective, before the 1990s, no land in the U.S. was used for GMOs. By 2012, more than 270,000 square miles were devoted to the new method of growing crops.

Whether or not this boom in food production is a good thing is a topic for a different article, but suffice it to say that if you hear someone complaining about the cost of food, gently remind them that it's cheaper now than it's ever been.

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Read/Post Comments (10) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 17, 2013, at 11:04 PM, adamwins76 wrote:

    Mother Jones is not an objective source.

  • Report this Comment On September 18, 2013, at 10:36 AM, TMFCheesehead wrote:

    @adamwins76-

    The graph simply appeared in Mother Jones, it was put together by the International Service for the Acquisition of Agri-biotech Applications (ISAAA).

    Brian Stoffel

  • Report this Comment On September 18, 2013, at 2:52 PM, Johny205 wrote:

    Hey Cheesehead, are you from Wisconsin? Good article.

  • Report this Comment On September 18, 2013, at 3:33 PM, TMFCheesehead wrote:

    @johny-

    Yes, yes I am.

    Go Packers!

    Brian Stoffel

  • Report this Comment On September 18, 2013, at 8:42 PM, damilkman wrote:

    I have read other articles that have made the same conclusion. They may not all agree on the final number.

  • Report this Comment On September 18, 2013, at 11:39 PM, kyleleeh wrote:

    If the average household makes 51k a year and only spends 5.7% on food at home that comes out to about 56 dollars a week for an entire household. Unless the nation is living off of rice and potatoes I think your numbers are wrong, or at least heavily skewed by people with high incomes.

  • Report this Comment On September 19, 2013, at 10:13 AM, bluedepth wrote:

    following up with Kyleleeh;

    the chart lists "Disposable Income", although I question whether this should be "Discretionary income" - two very different things. Disposable income is income minus all taxes.

    In Kyleleeh's example, the disposable income of someone making 51k and paying an estimated 18% taxes (federal + state + local) would leave $5.74 per day for groceries for this theoretical family of 4. That would be about 48¢ per person per meal.

    The math doesn't seem to add up here.

    FWIW, I consider our family to be food-frugal, but out weekly grocery budget is $75 for a family of 3, and we don't quite make 51k/year.

  • Report this Comment On September 19, 2013, at 11:01 AM, TMFCheesehead wrote:

    @kyleleeh-

    Very astute observation. The info from the FDA seems to include all disposable income in America in a given year, meaning high earners skew this. To look at the data yourself, see chart 7 here:

    http://www.ers.usda.gov/data-products/food-expenditures.aspx...

    Brian Stoffel

  • Report this Comment On September 19, 2013, at 3:52 PM, MikeK wrote:

    I disagree with this exerpt from the article: Interestingly, food away from home (restaurants, takeout, etc.) has actually increased since 1929, from 3.1% to 4.1%. That's likely because eating out has always been a luxury, and over time, more people have been able to afford it.

    I believe it is mainly because fast food outlets have

    made eating out more affordable to the masses and to the fact there are more two parents working which makes fast food a inviting substitute for cooking at home. Overall, good article

  • Report this Comment On June 01, 2014, at 4:50 AM, Paulist wrote:

    We are seeing the beginning of a huge rise in food prices caused by increasing weather turbulence, and the beginning of Global Cooling. Yes, the drivers of Global Warming stopped ten years ago. Have you noticed that the usual graphs and charts use the AVERAGE from 1970 to 2000 as their baseline? What happened in or around 2000? Global Warming Stopped. There is an eight year delay in seeing the full effects. We have been seeing them for five years now. The full science behind global temperatures is not CO2. It is a cyclical change in the solar system. Along with the end of Global Warming, we are seeing violent weather. This is exactly what is expected. Notice that winters start earlier and summers start later each year. Anyone can see where this trend leads. To understand this better, see paullitely.wordpress.com. this is not a commercial site. It is a community service. No profits here, no revenue here. Just an understanding of the real science that shows the real future that you can see out your window now, and in the next two to thirty years.

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