Monday, July 5, 2010

Food Prices at Historical LOWS...Stop complaining and eat your Veggies!

All societies, one way or the other and to differing degrees, pursue the social goal of meeting peoples "needs and wants".  Needs are things that have no viable substitute and are universal in nature regardless of where you live on the planet, such as food, water, air, shelter. Everything after that is up for debate and enters the realm of "wants".  Even within a need, like food, there are embedded "wants".  We need food to live BUT the kind of food we eat is a want.  I can subsist on a cup or two of rice a day (millions do) and live, BUT I "want" pizza, burgers, pasta, etc.  
     There is a strange paradox afoot when we look at needs relative to wants.  The things we identify as needs are life-giving/sustaining, BUT we (by "we" I mean Americans, and perhaps citizens of other developed countries) feel entitled to pay the LEAST for them and demand the best quality.  Seems as though the market has responded over time in delivering better food (certainly room for debate there) in much greater quantities through mechanization of farming equipment, technological advancement in food engineering/fertilization, transportation, food packaging to avoid spoilage, domestic competition, and free (freer) trade with the rest of the world.  If we pay less for a pesky need like food, then we have more income left over to purchase "wants", which after all, make life worth living, right?  The graphs below help illustrate these historical developments. 
      The first one shows food (as a broad category) as a share of one's disposable income (income leftover after paying taxes).  You can see there is a steady decrease over time.  The second graph shows the vital commodity milk, as a direct consumption good or input into making a myriad of other goods, and its price change over time. 


 Looking at these two graphs, primarily the first one, you could deduce that:
(1) Food prices are not cheaper, but that income has dramatically increased (many do not believe this) so food expense has become smaller relative to incomes.
(2) Food has indeed become cheaper, in real terms, even though incomes have not increased
(3) A combination of both

What do you think?  Am I missing something? Fill me in, please!
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