Why Is The Food So Expensive?

A reflection on the cost of food around the world.

This past weekend I was traveling on a small coastal town in New Zealand with a fellow backpacker from France. Given that we are both on long term traveling adventures we figured we would cook a meal rather than eat out to save money. Our plan was to make some sort of rice, veggie and protein stir-fry concoction. When we started looking at the prices of fruit and veggies in the supermarket, we realized that this cooking plan would set us back at least $25+ for a simple meal… in the end we ended up buying peanut butter, jelly, bread and some bananas for the next day and walking to the wharf for fish and chips.

While the fish and chips were delicious and served in quite the iconic setting overlooking the wharf, I was shocked that we could feed both of us with fish and chips from a restaurant cheaper than cooking a meal at home. This got me wondering about the cost of food in different countries around the world and what causes those differences. After some further conversation with Kiwis and a couple of hours of digging into the question on the world-wide web I’ve got a bit more of an answer to this question.

Americans spend less on food than any other country. In 2018, Americans spent an average of 9.7% of their disposable income on food (5% at home and 4.7% away from home). (USDA ERS). In New Zealand, Kiwis spend an average of 17%-20% of their disposable income on food. (New Zealand Now Cost of Living Calculator). If I am used to spending about half as much on food as New Zealanders, then no wonder I think everything is expensive.

When I started to try to find the answer to both why food in America is so cheap and why food in New Zealand is so expensive, I came up with a number of different theories. Economists talk about economies of scale, the export market, the cost of imports and competition. Ultimately there are many economic trends that come into play when answering the question. One of the most significant explanations to the low cost of food in the checkout line in the States is the agricultural subsidies that exist in the U.S..

The U.S. government first introduced crop subsidies coming out of the Great Depression to aid farmers and help stabilize the economy. The U.S. federal government primarily subsidize the big 5: corn, soybeans, wheat, cotton and rice. While the subsidy program has changed over the years, it still exists in various forms today, primarily through the crop insurance program. With these staple crops being subsidized, it drives the price of certain foods down. While very little of these crops go directly to human food, many of them are used as feed for livestock, converted to biofuels or turned into cheap products and additives like corn sweeteners, carbohydrates and processed meats. So even though we aren’t directly consuming the corn, soybeans and wheat that is being subsidized, we are consuming it in a large quantity of processed food in other forms. On the other side of the equation, in New Zealand, all farm subsidies were ended in the 1980s. Without federal government subsidies supporting certain crops, it drives up the cost of food for consumers.

Other factors come into play as well. Because New Zealand is a small country there isn’t the same impact of economies of scale on production. Additionally, given the distance that imported food has to travel that can also drive food prices up. On the other hand of the equation, New Zealand is also known for their high volume of exports of high quality meats and dairy products. I’ve read some stories that talk about being able to buy New Zealand milk cheaper in Switzerland than in New Zealand. The economics of how this can be the case go beyond my level of understanding but it does go to show just how many factors contribute to the price of food in a country. It isn’t just the cost of production that has an impact on prices. It is: taxes, subsidies, transportation, ag policy and more.

As I travel and learn more about food and agriculture systems in different places, I feel like I am coming up with more questions rather than answers. The web of connections continues to become more complicated in my brain as I think about all of the factors that make up our food and agriculture system. The threads that weave together food and agriculture around the world are criss-crossed and nonsensical at times, but I am enjoying my time trying to work out a systems perspective of how the global agri-food system works.

A reflection on the cost of food around the world.

Further Reading & Research: