The past few years have seen a rapid rise in real food prices – especially, fruit, vegetables and meat. At the same time, we have seen falling real incomes for low income decile groups. The consequence is that those on low incomes have been changing their diet in response to higher prices. With squeezed real incomes, there has been a greater preference for ‘cheap calories’ and lower demand for ‘more expensive calories’ – such as fruit and vegetables. Some fear the poorest are struggling to buy sufficient food.
The consequence of a switch to ‘cheap calories’ (e.g. saturated fats, processed sugar, less fruit and veg) has been to contribute to concerns about the nations health. During this period, obesity has continued to increase.
Price is not the only factor to influence demand for food. But, increasingly, consumers are mentioning food prices and promotions as key factors in determining choice.
Income Decline for low income groups
Median income after housing costs fell 12% between 2002-03 and 2010-11 for low income decile households – while rising in all other income groups.
Food prices have risen 12% in real terms over the last five years taking us back to 1997 in terms of cost of food relative to other goods.
Food Price Inflation Relative to CPI inflation
How did changes in food prices affect demand for different food groups?
Fruit saw the second largest increase in price (35% and also the second largest fall in demand (-25%). This suggests that fruit is highly sensitive to changes in price and income. It is hard to separate the income and price effect because we have seen falling incomes and rising prices at the same time. But, it suggests demand for fruit is price elastic – people don’t see it as a necessity, – they can substitute other types of food. It may also be a ‘luxury good’ – a good with an income elasticity of demand of greater than 1. This means falling incomes cause a bigger percentage fall in demand.
Food Prices in Past Three Decades
The recent rise in food prices, is in contrast to the long term decline in prices since 1980.
Obesity and Health
- In England in 2010 obesity rates increased in all age bands with adults aged 25-34 showing the largest rise at 36%.
- Overall, 26% were obese in 2010.
- Food price statistics at DEFRA