Wednesday, February 16, 2011

Producer Price Food Inflation: Crude (High and Volatile) vs. Consumer Goods (Low and Stable)

The chart above shows the annual inflation rates for: a) crude foodstuffs and feedstuffs (e.g. wheat, corn, animals for slaughter, peanuts, cottonseed, and soybeans), and b) finished consumer foods (pasta products, processed meats, bakery products, fresh fruits and vegetables, tree nuts, and eggs), based on today's BLS report on Producer Price Indexes through January. 

It's interesting to note the following:

1. Inflation for crude foodstuffs and feedstuffs is much more volatile (monthly standard deviation of almost 14% over the last ten years) than inflation for finished consumer foods (standard deviation of 3%). 

2. Double-digit inflation (0r deflation) rates in crude food items (like we've had for the last 7 months now starting last July) never translate into double-digit inflation (deflation) rates for finished consumer food products. 

3. The current 12-month inflation rate for finished consumer foods in January of 3.8% is only slightly higher than the 3% average over the last ten years, and is lower than six of the months over the last year, e.g. 4% for November, 4.6% for September, 5.7% May, 6.6% March, etc. 

4. The average inflation rate for finished consumer foods over the last 12 months of 3.9% is lower than the 6.7% average from 2007-2008.   

MP: Perhaps this explains some of the disconnect between all of the news reports about rising wholesale and commodity food prices globally, but no signs yet of rising consumer food inflation (1.5% CPI food inflation through December 2010).   

51 Comments:

At 2/16/2011 10:34 AM, Blogger morganovich said...

mark-

you are missing that fact that our food imports are up over 13% in price, and that 85% of them are "ready to consume" as opposed to "crude".

http://www.bls.gov/news.release/ximpim.t01.htm

line 4.

foods feeds and beverages:

dec 2009-dec 2010 change:

13.1%

line 5:

Agricultural foods, feeds & beverages, excluding distilled beverages:

dec 2009-dec 2010 change:

13.4%.

then look at the makeup:

http://paul.kedrosky.com/archives/2009/08/us_food_imports.html

this "inputs vs final products" argument gets made frequently, but that facts seem to oppose it.

our janaury export food prices were up 3.2% (46% annualized).

unless our home market is behaving radically differently from our imports and exports (and the food prices of the rest of the world as well) then this "there is no food inflation" argument seems unsupportable.

all the evidence outside of the heavily manipulated BLS data points to high food inflation.

how many other datapoints will it take to convince you that the CPI is not reporting what is going on in the market?

apart from the GDP deflator (whose methodology is even more slanted to ignore inflation and inflate growth), pretty much every other indicator is showing significant and accelerating inflation.

even the 30 day trailing billion price project data from MIT is annualizing at over 9%, and internet prices ought to have lower inflation that the economy as a whole.

producer prices are more volatile than consumer because of forward pricing and the way the 2 are measured. it says nothing about the actual rates of inflation.

 
At 2/16/2011 10:53 AM, Blogger VangelV said...

The problem is with the methodology used by BLS and the incentives it has to come up with a lower inflation number. The food companies are adjusting to the higher prices by playing games with packaging changes, using cheaper fillers in processed foods and using lower grade inputs.

 
At 2/16/2011 10:55 AM, Blogger VangelV said...

mark-

you are missing that fact that our food imports are up over 13% in price, and that 85% of them are "ready to consume" as opposed to "crude"....


Mark would rather not question the BLS methodology so facts like these do not matter to him. Let me note that these increases came before extremely cold weather killed much of the Mexican produce crop. We are days away from feeling the impact of that freeze but I doubt that it will show up in the BLS data even if it is significant to real consumers.

 
At 2/16/2011 11:04 AM, Blogger juandos said...

morganovich probably brings up the most salient point, where is the credible data coming from that points to "no signs yet of rising consumer food inflation"?

Obviously the bureaucrats in various federal agencies are attempting to whitewash certain unpalatable and politically injurious numbers...

The Treasury Dept. is playing political games...

The Fed Reserve is playing political games...

So where can we find out what's really happening?

 
At 2/16/2011 11:31 AM, Blogger Donny Baseball said...

It also tells you that those evil food companies work to keep prices as consistent as they can for us - taking lower margins when inputs spike and higher margins when input prices decline - because predictability is valuable.

 
At 2/16/2011 11:34 AM, Blogger VangelV said...

So where can we find out what's really happening?

On the issue of the measure of CPI, GDP, and unemployment John Williams at www.shadowstats.com is the best place to look. Williams is clear about the methodology that he uses and is very transparent about how he comes up with his results.

 
At 2/16/2011 11:58 AM, Blogger Bill said...

Mark: Who does the grocery shopping in your household?

 
At 2/16/2011 12:05 PM, Blogger rjs said...

YTD up 2% according to the very reliable Billion Prices Project at MIT

http://bpp.mit.edu/daily-price-indexes/

 
At 2/16/2011 12:11 PM, Blogger Buddy R Pacifico said...

OK, foods that are transformed won't increase much but foods such as milk and meat could.

Here is: The Index Mundi worldwide Commodity Agricultural Raw Materials Index. In one year it has risen 38.8% and all of that is in the last six months!

Professor Perry has presented an excellent chart. Those of us that live in the U.S. are blessed with the best market based economy in the world -- but I think that global pressures will push the overall CPI to over 4% 2011 inflation.

 
At 2/16/2011 12:31 PM, Blogger AIG said...

"The food companies are adjusting to the higher prices by playing games with packaging changes, using cheaper fillers in processed foods and using lower grade inputs."

Totally false. Couldn't be more false. I've worked in the food processing industry, and to assume that they can change packaging and ingredients on a monthly bases to adjust for raw-material prices is, completely ridiculous. It takes months to change a cardboard box to fold one way instead of another way, and you think they just willy-nilly "play games" with packaging. Unbelievable.

But then again, whats new?

 
At 2/16/2011 12:41 PM, Blogger juandos said...

Hey vangeIV, yeah I'm a bit of a Shadow Government Statistics fan myself and I find it a good place to start in asking questions...

Another Look At Inflation: Cotton Up 44% YTD - One Percent Per Day

 
At 2/16/2011 12:47 PM, Blogger Buddy R Pacifico said...

Correction: In my earlier comment I linked to an Index Mundi that included things grown such as trees. Here is: the worldwide Index Mundi Commodity Food Price Index. This index is up 32.9% and all the increase for last seven months,

 
At 2/16/2011 12:56 PM, Blogger morganovich said...

fwiw-

i have a friend who does data mining and price sensitivity analyses for safeway. (hes' the one who figures out that you are sensitive to price changes in ground beef but not in dental floss or dish soap and adjust prices accordingly)

he says prices are way up in the last 4-6 months (but would not quantify it).

 
At 2/16/2011 1:17 PM, Blogger morganovich said...

does anyone know of a differnce in the BLS's statistical handling of ppi vs cpi for food?

i'm just eyeballing here, but does it look to anyone else like there is an asymmetry in the response of CPI to PPI?

when PPI has dig drops, CPI seems to drop (though not nearly as much), but when PPI spikes, CPI seems less responsive on the upside that it is for an equivalent downmove, particularly lately.

the -20-25% PPI yields a CPI down 5%, but a +20-25% PPI yields what, a 1% hike?

this seems too pronounced to be just pricing power issue as there is clearly no overcapacity in food right now.

i suspect it is an artifact of statistical methodology.

 
At 2/16/2011 1:26 PM, Blogger morganovich said...

buddy-

"OK, foods that are transformed won't increase much but foods such as milk and meat could."

we import 10% of our food. 85% of imports are "ready to consume" as opposed to inputs.

import prices were up over 13% on food.

so, if transformed foods are not going up in price, why are imports up so much?

for that to be driven by the 15% raw inputs, they would have to be up 87%.

if raw inputs are up 87%, then there is no way profit margins at food companies could be sustained even if inputs are only 10% of costs (and they are more than that) this would make every major food co unprofitable, which has not happened.

the foods we export were up in price even more (over 15%) last year and are currently going up (in jan) at a annualized rate that was 3 times that (46%).

so, what is so magical about the US market that you feel we are blessed with that allows it to have the kind of inflation dr perry suggests when our imports alone would cause more inflation than that and our exports are up even more indicating that our costs to produce are increasing dramatically as well.

if your prices were stable but export prices were spiking, we'd sell less here, export more, and the gap would close.

food is a world market.

there is just no way that export prices are going up 15% while prices here are up 1% unless we had been selling overseas for less than domestically previously, which is not the case.

 
At 2/16/2011 1:57 PM, Blogger Hydra said...

" no signs yet of rising consumer food inflation "

Depends on whether you use primarily prepared foodstuffs or raw foodsuffs as poor people do. they feel the increase in corn prices immediately, and it translates into a larger percentage of their food budget than for someone who is buying prepared corn muffins.


It also shows why farmers take the brunt of risk, which prepared food producers can more easlily hedge.

 
At 2/16/2011 2:08 PM, Blogger Hydra said...

"So where can we find out what's really happening?"

===================================

By all means, let's depend on conspiracy addled Morganovitch for our numbers.

I side with AIG on this. It is inconsistent to call government stupid, meddlesome, and corrupt, and at the same time assume that the administration is able to quickly develop, confer to its minions, and enforce the complex moves needed to create and support a conspiracy.

And for what end? To convince a majority of potential voters (who probably never read such statistics) that their world is really a whole lot bettter than the reality they confront every day?

Will government statistical methods and accuracy change wildly when the next adminsitration hits?

Nah.

Show us what is wrong with the statistics, and suggest meaningful changes. And after the changes heppen, don't come back and complan that now you have ruined the data consistency such that no meaningful comparisons are possible.

And convince us that the suggested changes are not politically biased, or some elaborate conspiracy to undermine the current regime.

 
At 2/16/2011 2:13 PM, Blogger Hydra said...

Looks like a good time to plant some corn. Any of you guys want to invest in a hundred acres?

 
At 2/16/2011 2:25 PM, Blogger VangelV said...

YTD up 2% according to the very reliable Billion Prices Project at MIT

http://bpp.mit.edu/daily-price-indexes/


Their data comes from on-line retailers. Is it really reflective of what is going on in the bricks and mortar outfits? And if it is, how can Mark be so optimistic about profits increasing when retailers and producers are taking such a beating? He certainly can't be positive about profits and inflation at the same time.

 
At 2/16/2011 2:51 PM, Blogger Buddy R Pacifico said...

morganovich, transformed food products won't go up as much becuase food is a small percentage of the price. There are more cost components to packaged food that can be changed, like marketing, than raw food such as milk.

Further, we know that packaged food companies have stockpiled at lower prices and they have probably hedged their future commodity supplies.

Imports are going to be more expensive and the markets will have to determine if imports will drop dramatically. Overall, food and even the maligned CPI won't be able to overcome higher inflation of 4%+ vs. 2%- consesus U.S. inflation in 2011.

 
At 2/16/2011 2:58 PM, Blogger AIG said...

You are arguing something unrelated to Mark's graph...as usual. What more is there to say about this conversation?

 
At 2/16/2011 3:07 PM, Blogger VangelV said...

Totally false. Couldn't be more false. I've worked in the food processing industry, and to assume that they can change packaging and ingredients on a monthly bases to adjust for raw-material prices is, completely ridiculous. It takes months to change a cardboard box to fold one way instead of another way, and you think they just willy-nilly "play games" with packaging. Unbelievable.

The fact that the packaging has been changed is undeniable and well documented by the media and academia. A few years ago I used to purchase 900g packages of cheddar cheese for the kids once a week. The manufacturer has dropped that size and is now down to 500g packages that cost about the same as the 900g cheese four or five years ago.

From this article we read about other examples. The author writes, Edy's officials said the 1.75 quart-size container was reduced to 1.5 quarts to make up for a 30% to 60% rise in the cost of gas, cocoa and dairy products over the past several years. Orange juice giant Tropicana also squeezed its container size recently. A 96-ounce plastic jug of OJ shrank to 89 ounces. The suggested retail price remains $4.99.

Note the response to the smaller package but the same price. "We had a lot of spillage with our old products," said Tropicana spokeswoman Jamie Stein. "It's a value-added redesign." By redesigning the container the smaller portion can be offset by the BLS because the redesign improved the product by 'reducing spillage.'

And if you look around you notice substitution of crappier quality food. Wendy's does not use the same quality bacon strips on its Junior Bacon Cheeseburger that is uses on the Bacon Deluxe or the Baconator. We now know that Taco Bell has less than 40% beef in its meat filling. Instead of beef it substitutes soy lecithin, maltodextrin, yeast extract, and natural binders that keep everything together. None of this is a secret and should be known by anyone who pays attention to what is going on.

 
At 2/16/2011 3:10 PM, Blogger VangelV said...

i have a friend who does data mining and price sensitivity analyses for safeway. (hes' the one who figures out that you are sensitive to price changes in ground beef but not in dental floss or dish soap and adjust prices accordingly)

he says prices are way up in the last 4-6 months (but would not quantify it).


The problem is that things are not very simple to figure out and that you need to pay attention. It is easy to miss the fact that those 250g packages become 218g packages if they look the same and are priced at the same level.

 
At 2/16/2011 3:11 PM, Blogger AIG said...

"Further, we know that packaged food companies have stockpiled at lower prices and they have probably hedged their future commodity supplies. "

Stockpiled probably no (none of them could stockpile for more than a few weeks), but hedged defiantly.

But you are comparing apples to apples (which you should never do). The raw foods that go into a "processed food" product are not going to be "market price" raw ingredients. They are going to be far lower priced and far less volatile, typically.

Apple sauce is not made from "market priced" apples. Its made from apples you couldn't eat even if you wanted to. So regardless of what the distribution of "apple" market prices look like, processors of apples are not buying apples falling around the mean or above of this distribution.

Add to that that they represent only a portion of the costs of the processed food, and this alone is enough to explain why the volatility is so much less.

Now the argument becomes, as always, everyone is lying. What's new.

 
At 2/16/2011 3:17 PM, Blogger VangelV said...

so, what is so magical about the US market that you feel we are blessed with that allows it to have the kind of inflation dr perry suggests when our imports alone would cause more inflation than that and our exports are up even more indicating that our costs to produce are increasing dramatically as well.

Actually, the great US production and distribution system makes it harder to handle input increases because there is little fat to cut out of the system. If you have an antiquated system with lots of people in the distribution chain you can keep prices from going up much by cutting players out of the game and streamlining the distribution system. While that can happen in a place like Japan, where there are a lot of middlemen, it is harder in a place like the US, where Wal-Mart squeezed much of the waste out and forced fundamental improvements a long time ago.

This may seem counter-intuitive but it is the high efficiency of the American system that makes the American consumer more vulnerable to such price shocks. Of course, American producers are clever and can do their own substitution and packaging changes to hide some of the price increases.

 
At 2/16/2011 3:18 PM, Blogger AIG said...

"A few years ago I used to purchase 900g packages of cheddar cheese for the kids once a week. The manufacturer has dropped that size and is now down to 500g packages that cost about the same as the 900g cheese four or five years ago."

Thats not a packaging change, an ingredient change, or anything of any relevance to what you said.

Your typical strategy, as always, is to pick one example, multiply it by 1000, and paint the whole world with that brush.

Obviously you example doesn't even meet your own criteria of manipulating reality. On a per gram basis, the price obviously has changed, but nothing else. They have not reduced the amount of packaging, switched to cheaper packaging, reduced the quality of the product, or switched any of its ingredients. They didn't color the cheese yellow to make it look like cheddar cheese, when in fact its rat's cheese.

They changed portion sizes. Which constantly happens for any number of reasons.

 
At 2/16/2011 3:20 PM, Blogger VangelV said...

Show us what is wrong with the statistics, and suggest meaningful changes. And after the changes heppen, don't come back and complan that now you have ruined the data consistency such that no meaningful comparisons are possible.

We already did that. We showed that the data is adjusted to minimize the effects of rising prices and the methodology overestimates the value of 'quality improvements' even as it ignores quality declines. We also pointed out the incentive to lie; reduced cost of living increases and less pressure on budgets.

 
At 2/16/2011 3:40 PM, Blogger VangelV said...

Further, we know that packaged food companies have stockpiled at lower prices and they have probably hedged their future commodity supplies.

Hedges don't work well when you have weather related disruptions that allow counterparties to declare force majeure. And once prices go up your ability to hedge also goes up in price. At best you are looking at a few months before you have to pass on rising costs or take a huge hit on your income statement.

When we read, "On Feb. 8, the U.S. Department of Agriculture reported prices of $22.95-24.95 for two-layer cartons of 4×4, 5×5 and 5×6 vine-ripe field-grown tomatoes from Mexico, up from $6.95-9.95 the week before and $5.95-7.95 the year before," we notice that prices did rise significantly even before the deep freeze caused them to go up a few hundred percent overnight.

 
At 2/16/2011 3:58 PM, Blogger VangelV said...

Thats not a packaging change, an ingredient change, or anything of any relevance to what you said.

Your typical strategy, as always, is to pick one example, multiply it by 1000, and paint the whole world with that brush.


Actually, I gave you plenty of valid examples that have been documented by the financial media and academics. It is not a secret that companies reduce packaging sizes and use substitutions to help them hide the real price increases. And even the crappier, lower quality inputs that go into processed foods go up in price when demand increases as the price of the higher quality items forces consumers to purchase more of the processed foods.

The Wendy's, Tropicana, and Taco Bell examples have been well documented. Feel free to ignore them but that won't change reality.

 
At 2/16/2011 4:07 PM, Blogger VangelV said...

Obviously you example doesn't even meet your own criteria of manipulating reality. On a per gram basis, the price obviously has changed, but nothing else. They have not reduced the amount of packaging, switched to cheaper packaging, reduced the quality of the product, or switched any of its ingredients. They didn't color the cheese yellow to make it look like cheddar cheese, when in fact its rat's cheese.

Perhaps I was not clear enough for you. When I talk about changing packaging I do not mean the thinner polymers or lower quality inks that print the information. I mean that you get less of the product in a package that looks the same as the larger product you used to buy at the same price before. The price per unit went up, which is what food price inflation is about.

 
At 2/16/2011 4:11 PM, Blogger Buddy R Pacifico said...

"Hedges don't work well when you have weather related disruptions that allow counterparties to declare force majeure."

Likely contract language for food companies in commodity futures:

Force majeure shall not be in effect in enforcing this contract.

 
At 2/16/2011 4:35 PM, Blogger morganovich said...

buddy-

food stockpiles in the US are at multi decadal lows.

you tried to makes this stockpiling argument last time. it's still factually inaccurate.

the import and export numbers are not for raw food.

imports are 85% ready to eat.

exports are not that different.

you keep saying the same thing over and over despite the facts being totally contrary to your argument.

so how is it that imports and exports are up in price dramatically, yet our food at home is not?

the dept of labor stats on I and X are simply capturing actual prices as opposed to the heavily manipulated BLS numbers.

 
At 2/16/2011 5:05 PM, Blogger AIG said...

"Perhaps I was not clear enough for you. When I talk about changing packaging I do not mean the thinner polymers or lower quality inks that print the information. I mean that you get less of the product in a package that looks the same as the larger product you used to buy at the same price before. The price per unit went up,"

Thats the point. Price per UNIT did not go up. A unit of cheese is not...a package of cheese. Its a...unit.

In fact packaging costs probably went UP in this example, per UNIT of cheese.

"It is not a secret that companies reduce packaging sizes and use substitutions to help them hide the real price increases."

If you're illiterate, then yes they can "hide" price increases by changing from 900g to 500g.

"Feel free to ignore them but that won't change reality."

They have no relation to the discussion at hand.

"And even the crappier, lower quality inputs that go into processed foods go up in price when demand increases as the price of the higher quality items forces consumers to purchase more of the processed foods. "

Thats a plainly ridiculous comment that shows there is some bias here. “Processed foods” are not lower quality, nor do they use worst ingredients. They’re different, and they pick ingredients from a different distribution, and they serve different markets. You don’t stop buying fresh apples and switch to potatoes chips because “apples are too expensive”. The whole premise of this discussion is cartoonish.

The fact that they pick ingredients from different distributions is key here. You're trying to come up with some conspiracy theory (whats new here?) without understanding the basics of what you are comparing.

Apples on a grocery store shelf make terrible processed apple sauce, and vice versa. So the price of imported high-quality stand-alone apples is NOT necessarily related to the price distribution or price fluctuation of a low-fructose apple grown for the purposes of processing. They don't grow in the same regions, they don't grow in the same temperatures, they're not transported the same way and they serve two different purposes.

So the aggregate "commodity" price of "apples" doesn't capture the fact that processed food manufacturers don't pick from that distribution. And since processed foods make up the majority of food consumption in the US (and have for a very long time), the volatility obviously can't translate so directly.

 
At 2/16/2011 5:10 PM, Blogger AIG said...

"Thats the point. Price per UNIT did not go up. "

Sorry. I meant to say, price per unit DID go up. And this isn't hidden, because a unit of something isn't a "package of something".

"imports are 85% ready to eat."

Sorry, there may be a problem here. What do you define as "ready to eat"? Second, simply because an apple is labeled an "apple" doesn't mean it is "ready to eat". Third, it doesn't also mean that it is actually eaten raw, and doesn't become an input into something else.

We are trying to create categories and shove everything into whatever categories make our arguments work.

But it doesn't work that way. Its an exercise in futility.

 
At 2/16/2011 5:38 PM, Blogger Ron H. said...

Buddy

"Likely contract language for food companies in commodity futures:

Force majeure shall not be in effect in enforcing this contract.
"

I can't imagine why anyone would agree to such a condition. There have to be limits on how much risk a company is willing to assume. Otherwise, a total crop failure would destroy them, and hedging as we know it could cease to exist.

 
At 2/16/2011 6:03 PM, Blogger Buddy R Pacifico said...

Ron H, I think I am correct because a commodities contract has thousands of possible suppliers to fulfill its obligations. Force majeure would seem more likely to be enforceable in a contract situation where one or a few suppliers suffers catostrophic loss, such as a shipment going down in a sunken ship.

This assumes a contract between a commodities broker and another party such as a food processer -- not between an individual farmer and the food processor or a restaurant supplier and a food processor. The commodities broker would have to pay some damages and not be able to void the contract due to weather.

 
At 2/16/2011 6:31 PM, Blogger Ron H. said...

Buddy

"...such as a shipment going down in a sunken ship."

Why would anyone be so foolish as to ship goods in a sunken ship?

:-) Sorry, couldn't resist.

You are probably right about the contract. I was thinking on smaller terms.

 
At 2/16/2011 7:03 PM, Blogger Ron H. said...

Hydra

"It is inconsistent to call government stupid, meddlesome, and corrupt, and at the same time assume that the administration is able to quickly develop, confer to its minions, and enforce the complex moves needed to create and support a conspiracy."

I think you may be missing something here. It doesn't take a conspiracy to change the way CPI is calculated by BLS. It has been explained to you many times at great length that the new calculations systematically produce lower inflation numbers than the previous method. It has been proved beyond any doubt that it is biased for a lower reading by its very nature.You have been advised to try it for yourself. Do you not read others' comments, or do you just not understand them?

In fact, I believe this new method may have been one of Michael Mann's early efforts at producing the desired result by manipulating the input data. As you know, he later became interested in climate change, and perfected his technique in that field.

All the reasons for doing something dishonest like this that you need to consider, is that the newer way of calculating CPI reduces the amounts of COLA increases, including Social Security. This is a huge amount of money.

You can see here what the difference is.

 
At 2/16/2011 7:45 PM, Blogger Buddy R Pacifico said...

Ron H, your link provided to Hydra seems to have gone down on the sunken ship; it's bad (:

 
At 2/16/2011 9:24 PM, Blogger VangelV said...

Likely contract language for food companies in commodity futures:

Force majeure shall not be in effect in enforcing this contract.


That is not the way the real world works. As I pointed out, that has already happened. Some of the producers are self insured because they own their own plantations and farms. Since they grow their own they will be able to produce far less and with less supply the price will go up.

 
At 2/16/2011 9:40 PM, Blogger VangelV said...

Our friend is not interested in the reality. It is hard to make the stockpiling argument when there are reports of only 18 days of corn usage left. Eventually the naive optimists will see prices of food, oil, natural gas, silver, and gold spike and will claim that nobody could see it coming. And after the rising prices cause the economy to implode they will claim that there is a danger of deflation because the price of gold temporarily hit a 6 month low.

This is the same old story all over again. The illogical and illiterates can't understand what is going on and will wind up getting killed in the markets. And after they have their heads handed to them they will whine about how unlucky the world was and demand that those who saw what was happening and took advantage of the opportunities to get rich share their gains with them.

 
At 2/16/2011 9:49 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 2/16/2011 9:55 PM, Blogger Ron H. said...

Buddy

Sorry, try this one

 
At 2/16/2011 10:05 PM, Blogger VangelV said...

Thats the point. Price per UNIT did not go up. A unit of cheese is not...a package of cheese. Its a...unit.

But the price did go up. The weight was reduced by 44% while the cost to the consumer went down by less than 10%. That is a price increase.

If you're illiterate, then yes they can "hide" price increases by changing from 900g to 500g.

I always look at price per gram, 100g, or kg so packaging changes do not fool me often. But most people are not as observant because they either don't care or are so busy chasing sales offers that they have not notice the per unit price changes.

Thats a plainly ridiculous comment that shows there is some bias here. “Processed foods” are not lower quality, nor do they use worst ingredients. They’re different, and they pick ingredients from a different distribution, and they serve different markets. You don’t stop buying fresh apples and switch to potatoes chips because “apples are too expensive”. The whole premise of this discussion is cartoonish.

I never said that all processed foods are all inferior. What I said is that many producers of processed foods have found ways to substitute cheaper ingredients than the ones that they used before because consumers will balk at paying the full increase and they do not want to reduce their already thin margins. While I think that the Taco Bell lawsuit is unfounded crap it does illustrate that producers do use far more substitutes than people think. At least 20% of the meat filling is plant based substitutes and less than 30% is what would be considered high grade beef. While the meat used is perfectly acceptable as are the fillers and binders I do not believe that most people really understand what it is that they are eating or that over time the percentage of lower value meat and fillers has increased.

 
At 2/16/2011 10:10 PM, Blogger VangelV said...

Apples on a grocery store shelf make terrible processed apple sauce, and vice versa. So the price of imported high-quality stand-alone apples is NOT necessarily related to the price distribution or price fluctuation of a low-fructose apple grown for the purposes of processing. They don't grow in the same regions, they don't grow in the same temperatures, they're not transported the same way and they serve two different purposes.

You are assuming an argument that I never made. All I said is that when the price of the higher cost food goes up because of shortages the demand will shift towards the lower cost foods and that increase in demand will increase the cost at the lower end as well. Now you could argue as you do that much of the cost is also packaging, labour, and capital so the increase in food inputs not fully translate to an equivalent increase in the final product. And that would be correct. But the problem you have is that capital costs as well as the costs of other inputs like packaging, energy, employee benefits, etc., are also going up faster than the reported inflation rate. Given the fact that margins have not gone down by enough to come up with the numbers that the BLS is reporting there is a disconnect in its methodology, with the income numbers being reported by the producers, or with both.

 
At 2/16/2011 10:13 PM, Blogger VangelV said...

Ron H, your link provided to Hydra seems to have gone down on the sunken ship; it's bad (:

Try again. I had no problem with it.

http://www.shadowstats.com/

 
At 2/16/2011 10:28 PM, Blogger Ron H. said...

"At least 20% of the meat filling is plant based substitutes and less than 30% is what would be considered high grade beef. While the meat used is perfectly acceptable as are the fillers and binders I do not believe that most people really understand what it is that they are eating or that over time the percentage of lower value meat and fillers has increased."

It is my sincere hope that anyone who eats at Taco Bell understands that they are getting something to put in their stomach to help fill themselves up at a very cheap price, and aren't counting on a well balanced nutritious meal. What they are actually eating shouldn't concern them much. To think of the taco filling as "meat" requires an active imagination.

Don't get me wrong, I've been known to gobble down a couple of those cheap tacos myself, on occasion, so I can make it 'til dinner. But, I don't give much thought to what I'm actually eating. It's probably best that way.

 
At 2/16/2011 10:33 PM, Blogger VangelV said...

It is my sincere hope that anyone who eats at Taco Bell understands that they are getting something to put in their stomach to help fill themselves up at a very cheap price, and aren't counting on a well balanced nutritious meal. What they are actually eating shouldn't concern them much. To think of the taco filling as "meat" requires an active imagination.

Actually, I imagine that when everything is said and done we will find out that Taco Bell has around 20% of plant fillers, which is par for the course. And the 50% or so of the lower value meat is perfectly edible and acceptable because it still has the protein content that people want. It is just that they might not be pleased with the part of cow that they are eating if that was revealed to them.

 
At 2/17/2011 1:36 AM, Blogger Ron H. said...

"And the 50% or so of the lower value meat is perfectly edible and acceptable because it still has the protein content that people want. It is just that they might not be pleased with the part of cow that they are eating if that was revealed to them."

Why would anyone mind eating cow udders? I'm sure you're right about the nutrition part.

 
At 2/17/2011 8:40 AM, Blogger juandos said...

"Why would anyone mind eating cow udders?"...

Come on Ron H, tell me that
fried cow utters don't sound just absolutely scrumptious?!?!...:-)

 
At 2/17/2011 1:05 PM, Blogger Ron H. said...

"Come on Ron H, tell me that
fried cow utters don't sound just absolutely scrumptious?!?!...:-)
"

Hmm. Gotta admit, they sound pretty yummy. Try one & let me know.

 

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