FOOD COSTS AND CONSUMER INCOMES

Income after taxes averaged $2,127 per person in 1963, an increase of about 3 percent from 1962, continuing the upward trend that has been underway almost without interruption since the 1930's.

Food expenditures averaged $400 per person in 1963. For the third year in a row, food expenditures were 19 percent of disposable income. Food expenditures accounted for 26 percent of disposable income in the 1947-49 period, 23 percent in 1951, and 20 percent in 1960.

Of the 19 percent of their income that U.S. consumers spent for food, U.S. farm foods accounted for 17 percent. Imported foods and fish accounted for the remaining 2 percent. The 17 percent spent for farm foods was divided between farm producers who got 5 percent and the marketing bill which took 12 percent. If people bought exactly the same quantities and kinds of food along with the same services now as in the 1930's, food expenditures would account for only about 14 percent of income rather than 19 percent actually spent. This difference is one measure of the upgrading of our diet by shifting away from cereals and potatoes to higher-cost meats, as well as expanded and improved food services.

Dr. COCHRANE. From 1940 to 1947, with a very rapid rate of increase in per capita disposable income, expenditures for food also rose rather significantly as indicated by the crosshatched section at the bottom of the chart. From 1947 on, per capita disposable incomes continue to rise but expenditures for food rise very slowly. I think this is one of the big stories of our modern economic society. With rising real incomes, consumers don't put very large amounts of those increases into increased expenditures for food.

This relationship is shown on the bottom line, where we see that food costs, as a percentage of disposable income, peak out in 1947 when the average consumer was spending 27 percent of his income for food. In 1963 the average consumer is spending only 19 percent.

I might point out that for the last 3 years we have told you that the average consumer has been spending 19 percent for his food, and yet that line is going down a little bit. In 1961 the average consumer was spending almost 19.5 percent of his income for food, in 1962, 19.1, and in 1963, 18.8-in all cases rounding to 19 percent.

I would hazard a guess that next year that figure will round off a little lower, so that the average consumer will be spending only about 18 percent of his per capita disposable income for food.

INCOME AND FOOD CONSUMPTION

Dr. COCHRANE. This chart we presented to the committee last year for the first time. I am presenting it again today because I think it continues to show the striking relationship between disposable income and food consumption. Per capita disposable income increased 32 percent from the base period of 1947-49 to 1963-a strong upward movement.

(The chart referred to follows:)

PER CAPITA CONSUMPTION OF FOOD RISES SLIGHTLY AS INCOME INCREASES The index of per capita food consumption increased about half of 1 percent in 1963, a fairly sizable increase for this relatively stable measure of food consumption. A substantial increase in beef consumption plus small increases in poultry and several other foods more than offset declines in consumption of eggs, fish, and citrus fruit. Compared to 1947-49 per capita food consumption is up percent. Over the same period per capita disposable income increased 32 percent. These percentages illustrate the fact that increases in income make only a limited contribution to the increased consumption of farm products. Increases in population are the chief source of increased domestic use of farm products in the United States in this day and age.

Dr. COCHRANE. While the average consumer's income was increasing 32 percent, the average consumer's consumption of all foods was increasing only 4 percent. This is really one of the significant relationships with which we have to reckon, and it is one of the real problems confronting American agriculture in the very opulent society in which we live.

CHANGES IN PER CAPITA CONSUMPTION

While total per capita food consumption has been holding constant or rising very slowly, there have been significant changes in the composition of the average consumer's diet. The average consumer has increased his consumption of poultry very greatly from 1950 to 1963, and our experts predict that this upward trend will be continued through 1968. The consumption of red meat has also increased importantly over this same period, and our experts think this trend will continue on through 1968. The increase will not be as rapid as in poultry, but nonetheless some continued increase is expected.

On the other hand, the average consumer has decreased his consumption of dairy products and he has decreased his consumption of eggs. We think that these trends will continue and that there will

be a further decline in the per capita consumption of both eggs and dairy products.

(The chart referred to follows:)

FOOD CONSUMPTION: TRENDS AND PROJECTIONS, 1963-68

Looking ahead about 5 years, population can be expected to rise about 9 percent; and with an expanding economy, disposable income per capita could rise by about 12 percent from 1963 levels. The population growth will bring a proportionate increase in the domestic market for food, but the effect of rising incomes on the per capita consumption of food will be negligible.

The advance in purchasing power provided by the increased income will result in a further expansion in the per capita demand for beef and poultry, but the demand for pork, milk products, and eggs is expected to decline. Also, a further downtrend in per capita food use of wheat is in prospect. The recent pronounced shifts from use of fresh fruits and vegetables to increased use of frozen, canned, and other convenience foods will continue, with these two movements largely offsetting each other.

On balance, any increase that may take place in the per capita consumption of food is unlikely to exceed 1 percent, and this will be due to a shift from the lower priced foods to the higher priced ones. The actual number of pounds consumed per person will probably continue to decline slightly as it has over the past decade.

Dr. COCHRANE. On the right hand side of this chart we see what has been going on in the case of fruits and vegetables and grain products. You will observe that the consumption of processed fruit and processed vegetables has increased significantly over the period 1950 through 1963. At the same time the consumption of fresh fruits and fresh vegetables has gone down.

And you will notice that we project the trend through the rest of the 1960's, or through 1968, as leveling out. You might wonder why. The consumption of total fruit and the consumption of all vegetables on a fresh equivalent basis has held almost constant over this period. But consumers have moved away from fresh fruit and fresh vegetable consumption and have consumed more in the way of processed fruits and processed vegetables.

We believe that this trend is about over, and our experts think that the consumption of both processed and fresh will remain about the same through the rest of this decade.

Consumption of grain products has declined, too. We believe that it is probably getting down to about the point where people eat bread because they like to eat bread, rather than because they have to, and we do not anticipate much further decline in cereal products.

Although the total consumption of farm products on a per capita basis holds about constant, whether on a pound basis or in a priceweighted index basis, the composition of diet has changed very greatly and will continue to change.

FARM FOOD MARKETING BILL

Dr. COCHRANE. The next chart, Mr. Chairman, shows us what has happened to total marketing costs since 1940. You will observe from the bottom line that the total volume of marketings has increased steadily over this whole period.

(The chart referred to follows:)

From 1940 to about 1950, rising civilian expenditures for food were reflected in appreciable increases in the farm value of food commodities. Since then, the picture has changed radically.

From 1950 to 1963, consumer expenditures for food rose $25.5 billion or 61 percent; while the volume of products marketed increased 38 percent. Marketing costs rose $21.8 billion or 92 percent, but the farm value of these products rose only $3.7 billion or 21 percent. In other words, about 85 percent of the rise in consumer expenditures went to pay for increased marketing costs and services, with only 15 percent finding its way back to the farmers.

Despite the fact that consumer expenditures totaled $67 billion in 1963-up $2.7 billion from a year earlier-the farm value of these foods, at $21.3 billion,

was $100 million less than in 1962. This was due to the fact that the food marketing bill totaled $45.7 billion, an increase of $2.8 billion from 1962. A rise in unit marketing costs accounted for about two-thirds of this increase. The rest was due to a 2 percent rise in the volume of products marketed.

Although the food marketing bill is likely to increase again in 1964, the rise will probably not be as much as in 1963, when there were large increases in the farm to retail spread for beef, pork, and citrus products.

Consumer expenditures for U.S. farm food include those for food and accompanying services away from home, as well as food purchased for consumption at home. Nonfarm foods, such as fish and imported foods, are not included.

Dr. COCHRANE. This is what we would expect; our population has increased; our production has increased; and the volume marketed has increased.

Actually, the volume of farm food marketings increased 38 percent from 1950 to 1963. Civilian expenditures for farm foods increased by around 60 percent.

You will note that most of the increase in civilian expenditures has gone into paying the marketing bill, and very little has gone into a greater return to the farm producer.

From 1950 on, the farm value of farm foods marketed has increased only very modestly. On the other hand, the marketing bill has taken up almost all the increase in civilian expenditures.

This gives rise to the declining share of the consumer's food dollar that goes to the farmer, and I think, as most of you know, that is now down to about 37 cents. In 1963 the farmer got about 37 cents out of the consumer's retail food dollar.

CONSUMER'S BREAD PRICE

We now turn to three commodities which further illustrate what has been happening in this marketing bill. The first is the pound loaf of bread which you have seen on several occasions.

(The chart referred to follows:)

• AT PARITY PRICE OF $2.50 PER BU. WHEAT FARMERS WOULD HAVE RECEIVED AN ADDITIONAL

0.7. THIS ADDITION WOULD HAVE RAISED THE RETAIL PRICE TO 22.30

U. S. DEPARTMENT OF AGRICULTURE

NEG. ERS 828-64 (1) ECONOMIC RESEARCH SERVICE