Acton Institute Powerblog

Why Cheap Food Makes Us Richer

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food-cost1While it may not seem like it when you’re standing at the checkout line at the grocery store, food is cheaper now that it was half a century ago.

“We are purchasing more food for less money, and we are purchasing our food for less of our income,” says Annette Clauson, an agricultural economist. “This is a good thing, because we have income to purchase other things.”

A recent report published by the U.S. Department of Agriculture shows how the average share of per capita income spent on food fell from 17.5 percent in 1960 to 9.9 percent in 2013.

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A reduction of 7.6 percent over 50 years may sound trivial, so let’s examine how it would affect an average person.

Let’s take an unmarried worker in Ohio who earns $50,000 a year. To calculate their disposable income we have to subtract the taxes they pay: an estimated $5,819 in federal income taxes, $3,825 in Social Security/Medicare, and $1,435 in state income tax. Altogether, they’d pay $11,079 in taxes, leaving them with a disposable income of $38,921.

At 9.9 percent of their disposable income, they’d spend about $3,876 a year on food ($74.50 a week, $10.62 a day). But if food prices were the same as in 1960, they would spend $6,811 ($130.98 a week, $18.66 a day). That’s a difference of $2,935 a year ($245 a month).

That may not seem all that significant. But let’s also imagine they made the same salary, paid the same amount in taxes, yet saved the difference in food costs. Over 30 years they’d have saved $87,430.60. If they earned 5 percent interest (compounded monthly) they could have a nest egg of $202,126.80.

What this means is that, even if we don’t realize it, lower food costs makes us richer. The lower cost of food allows us to save more or spend more on other consumption, which can (depending on how the extra money is spent) lead to greater human flourishing.

Since 1960 we’ve been the beneficiaries of this lower cost effect. We could, however, increase flourishing even more, for ourselves and our global neighbors, by changing three factors: eliminating agricultural subsidies, reducing the manipulation of oil supplies, and increasing the use of genetically-modified crops.

Several years ago, Samuel Gregg, Acton’s director of research, explained why these factors could make cheaper food available for everyone:

“All the subsidies that go into agriculture – through things like import taxes and tariffs, as well as direct subsidies – have the paradoxical effect of reducing the incentive for investment in agriculture in developing countries,” Gregg observed.

Without the ability to sell their products at competitive prices on the global market, these countries end up producing less food, and attracting fewer investors.

“They end up saying, ‘We can’t compete because of subsidies in the European Union and the United States.’ Consequently, the supply of food starts to be reduced, because there isn’t the incentive for agricultural investment.”

“This effort to protect American and European farmers has the unintended consequence of reducing the supply of agricultural products from other people.”

He said farm subsidies, going mainly to large corporations rather than individual growers, were a “very good example” of how “a government program can have a completely unintended negative effect” on a critical area of the world economy.

If the barriers to competition were lifted, Gregg said, developing countries could attract more investment and increase their own productive capacities, to cope with global demand and bring food prices down.

The other important factor that needs changing is fuel costs, which make food more expensive:

“The energy sector of the economy is not a free market – it’s a cartel,” he stated. “That’s something to keep in mind with all discussion about energy prices. This is why we worry about what OPEC is going to set as the price for gas, or for the production of barrels of oil.”

“It’s not the market that is controlling the price, for the most part. erally speaking, it’s a cartel – which means that OPEC and other oil-producing countries introduce a whole range of price-distortions into the energy sector, resulting in higher prices.”

Oil prices, he said, “don’t reflect the true state of supply and demand.” Rather, Gregg said, they tend to reflect the will of countries exporting oil, and the inefficiency of frequently nationalized oil production.

Elsewhere, government regulations surrounding the refinement of oil into gas also play a role in raising prices, when refining capacity fails to keep pace with crude oil supply.

“There’s plenty of oil,” Gregg stated. “The problem is, there’s a disparity between supply and demand.” Meanwhile, this imbalance in the oil market has a ripple effect. “Just as energy prices go up,” he explained, “so do food costs.”

The third change that needs to be made is reducing opposition to genetically modified food:

“There are all sorts of restrictions in place around the world, upon the development of genetically modified food,” Gregg noted. Genetic modification is highly controversial, and skeptics worry such crops could harm local ecosystems or human health.

But Gregg said that these concerns had to be weighed against the world’s urgent food needs, given that genetic modification could enable crops to be grown “in conditions where they might not otherwise be able to be produced.”

Many of these crops are also designed to resist natural occurrences – such as droughts, floods, and disease – that destabilize food prices.

“There’s no question that if more countries were enabled by law to engage in genetically modified agriculture, the supply of food would go up, and prices would come down,” he observed.

Gregg’s advocacy of what he called a “true free market in agriculture,” geared toward attracting investment in the developing world, reflects priorities that Pope Benedict XVI outlined in his 2008 encyclical “Caritas in Veritate.”

In that encyclical, the Pope said that “the problem of food insecurity” had to be addressed by “eliminating the structural causes that give rise to it, and promoting the agricultural development of poorer countries.”

Sure, food is cheaper than it was fifty-five years ago, but it’s still much more expensive than it needs to be. Cheap food helps increases global economic growth, provides more choices for consumers, and—most importantly—reduces the level of food insecurity for the poor.

Causes like eliminating ethanol subsides, endorsing the use of fracking, or championing genetically modified foods may seem like esoteric public policy issues. But because they impact food prices they are important way we can serve the poor. Efforts we take to establish a true free market in agriculture not only make us richer, it makes our poor neighbors better off too.

Joe Carter Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).

Comments

  • John-Mark Hack

    It is supremely ironic that this article appeared on a web page with a photo of Joel Salatin, the Virginia farmer who champions sustainability in food production and abhors talk of the desirability of “cheap food.” The level of ignorance reflected in this piece is shocking – ignorance of economics, ignorance of the numerous ecologically devastating effects of “cheap food at any cost,” and ignorance of any theological basis for understanding our roles as stewards of creation. The simplicity of this piece suggests that the author might want to stick with subjects about which he has some, or any, expertise.