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How Food Spending Varies with Income

The question of how much money people spend on food as their income rises or falls has been a question that has long interested economists.  If food is a "normal" good, one would expect consumption (and spending) to increase as income increases.  This relationship has implications for projections of food demand and food security as incomes grow or as countries develop and become wealthier.  

However, just because people will spend more on food as their income increases, the relationship isn't necessarily proportional.  In fact, the famous Engel curve, hypothesized in the mid- 1800s, conjectured that the share of total spending allocated to food would fall as income increased.  Also of interest is how demand for "quality" and "convenience" changes as income changes, which relates to whether people spend more money on food at home vs. away from home as income increases.  

To explore these issues, I turned to data from the Food Demand Survey (FooDS), (I'm using data from the first four years of the project which includes observations from more than 48,000 respondents).  On the survey, respondents are asked how much money they spent (per week) on food at home and away from home (you can find exact wording of the questions on page 3 of this document).  I use these data to estimate mean food spending for different household income categories at home and away from home, while controlling for other factors like age, gender, education, race, region of residence, household size, presence of children in the household, and status as primary shopper or SNAP recipient.  


Here is estimated weekly food spending by annual household income.

foodspend1.JPG

Food at home, and particularly food away from home, appear to be "normal" goods - people spend more on these categories as their income grows.  Note that my estimation approach does not require a monotonic relationship (i.e., completely increasing or decreasing relationship) between income and food spending, but that's what the estimates reveal.  People in the lowest income category only spend $78/week at home and $33/week away from home on food on average (for a total of $228/week).  By contrast, people in the highest income category spend $125/week at home and $96/week away from home on food (for a total of $221/week).  These differences are not a result of differences in household size, etc. because I've already controlled for those factors.  Spending on food away from home tends to accelerate the fastest when going from $60,000-$59,999/year to $80,000-$99,000/year and then again when moving from the penultimate to the highest income category.  

Despite the fact that spending on food increases as income increases, the Engel curve suggests that spending on food as a SHARE of income should decline as income increases.  Below are the estimates from my data, which suggest exactly that.

foodspend2.JPG

Consumers with annual household incomes below $20,000/year spend 27% of their total income on food at home and 12% of their income on food away from home (for a total of 39% of income spent on food).  By contrast, people with annual household incomes above $160,000/year, only spend 3.6% of their income on food at home and 2.8% of their income on food away from home (for a total of 6.4% of income spent on food).    

Also of interest is how food spending away from as a share of total food spending varies with income.  That is, do richer households tend to eat out vs. in more than poorer households?  The following figure suggests the answer is "yes".  

foodspend3.JPG

Respondents in the lowest income categories spend about 30% of their food budget on food away from home.  By contrast, households in the highest income category spend 43% of their food budget away from home.*  

Why would higher income households spend more of their food budget away from home than lower income households?  There are a variety of fairly obvious answers. For example, if one can afford to pay others to cook and clean up for them, they will.  And, food away from home can often be more expensive, making it less attractive (or available) to lower income households.  

I'll also throw out a potentially less conventional explanation: eating away from home is more visible than eating at home.  There is some research suggesting that the size of the income elasticity of demand (i.e., how much consumption increases with income) is driven by how "visible" the consumption of the good is because of a concept known as conspicuous consumption.  That is, we buy some goods to signal to others our "status" or "social standing", and the more visible the purchase of the good is, the more prone it is to these sorts of status-competitions (which economists typical view as socially wasteful as it's a zero sum game).  If this is true, it would be interesting to know whether there are similar effects for different foods with different levels of "visibility".  

 

*Note: These shares are a bit lower than the aggregate food spending at home vs. away from home reported by the USDA (e.g., see table 10 at this site, which shows in 2014 that 43.7% of household spending is away from home of food expenditures; a figure that rises to 50.1% if one includes food eaten at schools and prisons and meals paid for by expense accounts, etc.) but note that I'm holding various demographic characteristics constant to compare across household incomes, whereas USDA data are simply comparing aggregate spending regardless of who spent it.

Published papers

In a testament to the slowness of academic publishing in economics, I noticed two co-authored papers were just released that we've been working and waiting on quite literally for years.  

1) The Economic Journal finally released a paper I wrote with Laurent Muller, Anne Lacroix, and  Bernard Ruffieux.  I blogged on this paper about a year and a half ago when it was first accepted. In short, we find that "fat taxes" and "thin subsidies" are a double whammy on the poor because the price policies lead to i): the poor paying higher taxes owing to the fact they tend to eat more unhealthy foods than the rich, and ii) the poor receiving fewer subsidies owing to the fact they tend to eat fewer healthy foods than the rich.  These effects were exacerbated by the finding in that the poor tended to be more habit prone than the rich, sticking more to their now relatively more expensive diets. These findings have direct implications for the food movement policy proposals I discussed last week.   

2)  In early 2010, I was working with a bright young Master's student named Rock Andre.  Rock happened to be from Haiti, and when the earthquake hit his homeland, he decided to shift his research focus.  He returned home in the aftermath of the earthquake and surveyed over 1,000 people.  Development Policy Review just published that research.  Here's part of the abstract:   

The results indicate that almost two thirds of Haitians lost a friend to the earthquake, and nearly half lost a family member. People reported spending more on food in the aftermath of the earthquake, and the level of food aid received does not appear to have any impact on food expenditures. Among different types of aid, Haitians stated being most in need of a job—something difficult for international aid agencies to supply over the long run. They also indicated that quality of life would be most improved by education. The lessons learned in Haiti may prove useful in addressing future natural disasters.

Paarlberg on Farm Policy

Yesterday, I posted on a paper I wrote critiquing some of the proposals of the food movement.  As such, its probably only fair that I share a paper sent to me by a reader.  It was written by Don Paarlberg in 1987 and takes issue with farm policy from the Depression up to that date.  I found the history fascinating; the paper is short and well worth a read.  By the way, Don was a Professor of Agricultural Economics at Purdue and was a former Assistant Secretary of Agriculture.  

Here's an excerpt that shows some of the challenges with trying to manage agricultural prices and supplies.

Some of the antics of the commodity programs are so ludicrous as to be almost unbelievable. Dairy programs are perhaps the most fantastic. The government supported the prices of dairy products with the intention of increasing dairy farm incomes. But, as every student who has taken a beginner’s course in economics knows, the result was to stimulate production, reduce consumption, and accumulate a surplus. The surplus of butter, cheese, and dried milk was then donated to those on the welfare rolls. This proved to be an inadequate outlet so then these products were donated overseas. The surplus was still growing so the government bought and slaughtered whole herds of dairy cattle. Thereupon the beef cattle producers, who are self-reliant and are not shielded by price supports or production controls, complained of this subsidized competition with their product and the government responded by purchasing beef for donation to the school lunch program. This did not adequately alleviate the complaints of the beef producers so the government exported beef from the slaughtered dairy herds, a strange action indeed since we suffer from beef shortages and import substantial amounts. Our forced exports of dairy beef disturbed other beef exporters, making an additional problem for the GATT multinational trade negotiations in Geneva. All of these questionable strategies were undertaken because the government was unwilling to follow the most simple and effective expedient: lowering the official price.

Meanwhile, those dairymen who stayed in business currently anticipate a reduced supply of milk and a better market. They are increasing their herds and laying the basis for a larger supply of milk. Like the sorcerer’s apprentice, they have heard the signal for delivering more water (in this case, milk) and have heard no credible signal for stopping. The commodity programs create surplus. They make a burden of what should be a blessing—our capability to produce food.

Policy Proposals of the Food Movement

The journal Applied Economic Perspectives and Policy (AEPP) just published a paper I wrote critically evaluating the policy positions advocated in a series of articles by Mark Bittman, Michael Pollan, Ricardo Salvador, and Olivier De Schutter (see here, here, and here). If you don't want to read the paper, I also recorded a podcast with AEPP editor Craig Gundersen, where we talked about a few of the high points.  

Debate about the next Farm Bill is already beginning, and I suspect many people in the agricultural community would argue that the so-called food-movement should be ignored because it does not seem to have much effect on farm policy.  I'd argue that view is short sighted.  First, the population dynamics have change dramatically over the past half century, giving more power to the food consumer.  Second, the larger size and more integrated nature of farms today is likely to make them less sympathetic as recipients of subsidies than has been the case in the past.  And, as I outline in the paper, evidence of the shift is beginning to emerge.

While members of the so-called food movement have historically had much less influence on farm and food policy than, for example, farm commodity organizations, recent events suggest that dynamic could be changing. Food movement members have been extraordinarily adept in fomenting the modern day food and farm zeitgeist, selling numerous bestselling books and garnering space in influential media outlets. For example, in 2015 the New York Times hosted a “Food for Tomorrow” conference, which focused on food and farm policy issues that are centerpieces of the food movement agenda. Former First Lady Michelle Obama made food policy a signature issue by planting a White House garden, retooling school lunches, and including the White House chef as a policy advisor. The emergence of the local food movement, as well as state ballot and local initiatives on labeling of genetically engineered food, soda taxes, and farm animal housing, can also be seen as outgrowths of the impacts of the food movement.

I won't summarize the whole paper here, but the main purpose is to try to bring the food and agricultural economics profession into this debate.  My own view is that Bittman et al. offer no consistent, underlying philosophical basis for when the federal government should (and should not) intervene and that they misjudge the trajectory of health, environmental, and productivity changes in food and agriculture and thus overstate the urgency and scope for intervention.  More specifically, I would argue that many of their specific proposals are unlikely to pass a cost benefit test.

Here is part of the concluding paragraph from the piece.

There are some points of agreement related to the need to reform current farm subsidies and the need to alter existing government policies that act as barriers to entry. However, the authors spend virtually no time discussing those policies that are likely to have the biggest bang for the buck for the present farmers responsible for producing the bulk of the nation’s food supply or for the average food consumer. These include activities and policies that expand the size of the pie, rather than redistributing the pieces to favored groups. For example, research on productivity-enhancing technology improves both farmer and consumer well-being and lessens impacts on the environment. In addition, American farmers are more prosperous when they have access to consumers all over the world by having open borders and freer trade unhindered by nontariff trade barriers based on specious food safety claims; consumers benefit from trade as well by gaining access to more diversified foodstuffs and more affordable food. While Bittman, Pollan, Salvador, and De Schutter’s (2015) are not economists and should not be expected to frame their policy proposals in economic terms, that does not absolve economists of the responsibility to engage with their ideas, particularly in light of the fact that current trends suggest the policy proposals are gaining traction with a growing number of consumers and politicians.

On Scientific Ignorance

Consumers are often woefully ignorant of basic facts about food and agriculture.  For example, in this paper I published with Brandon McFadden, we report multiple lines of evidence that most people know very little about genetically engineered food.  When scientific names are used for food ingredients (e.g., sodium chloride instead of salt), perceptions of naturalness and safety substantially decline.  A typical response to these sorts of findings is, "we need to spend more on consumer education." Such a statement is an implicit endorsement of the knowledge deficit model - it is a view that "experts" convey the information, consumers accept it and update their beliefs accordingly.

Dan Kahan's work on cultural cognition had gone a long way toward dismantling the knowledge-deficit model of how consumers change opinions.  His work shows that "more education" doesn't necessarily lead to convergent beliefs; rather, it seems we filter information through our group identities.  I recently ran across a book chapter Kahan wrote, and thought I'd share the abstract as it does a good job describing why consumers (and scientists) may not be fully informed and how we might change their minds on controversial issues.

It is impossible to make sense of persistent controversy over certain forms of decision-relevant science without understanding what happens in the vastly greater number of cases in which members of the public converge on the best available evidence without misadventure. In order to live well — or just to live, period — individuals must make use of much more scientific information than any (including a scientist) is in a position to comprehend or verify for him- or herself. They achieve this feat not by acquiring even a rudimentary level of expertise in any of the myriad forms of science essential to their well-being but rather by becoming experts at recognizing what science knows — at identifying who knows what about what, at distinguishing the currency of genuine scientific understanding from the multiplicity of counterfeit alternatives. Their rational recognition of valid science, moreover, is guided by recourse to cues that pervade their everyday interactions with other non-experts, whose own behavior convincingly vouches for the reliability of whatever scientific knowledge their own actions depend on. Cases of persistent controversy over decision-relevance science don’t stem from defects in public science comprehension; they are not a result of the failure of scientists to clearly communicate their own technical knowledge; nor are they convincingly attributable to orchestrated deception, as treacherous as such behavior genuinely is. Rather such disputes are a consequence of one or another form of disruption to the system of conventions that normally enable individuals to recognize valid science despite their inability to understand it. To preempt such disruptions and to repair them when they occur, science must form a complete understanding of the ordinary processes of science recognition, and democratic societies must organize themselves to use what science knows about how ordinary members of the public come to recognize what is known to science.