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Food-market prices uncertain in 2021
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Food-market prices uncertain in 2021

Box of produce changes hands

Instead of supplying restaurants and larger retailers, some producers are primarily selling products directly to consumers.

Retail food markets have experienced extraordinary volatility in 2020, creating a great deal of uncertainty concerning food prices in 2021. Grocery-food prices increased markedly in the aftermath of the onset of COVID-19. According to the U.S. Bureau of Labor Statistics, retail grocery prices spiked 2.6 percent from March to April 2020. That was the largest monthly change in the food-at-home consumer-price index since the inflation of the 1970s.

COVID-related disruptions led to a run on grocery stores as consumers avoided restaurants and sought to stock up, filling pantries and freezers. In the third week of March 2020, consumer spending at groceries was a whopping 68 percent more than at the first of the year. All that extra demand at grocery increased prices. Then in April and May shutdowns and slowdowns in beef and pork processing due to worker illnesses reduced the supply of meat products available, leading to a significant price increase for beef and pork.

Many food prices have come back from the spikes in late spring and early summer. But it remains the case that retail food prices are significantly more now than at the same time a year ago. In October 2020 – the last data available – prices of food at grocery were 4 percent more than the same time a year ago. It’s been almost a decade, since 2011, that we observed that rate of annual food-price inflation. Despite the restrictions on eating out, the price of food away from home is 3.9 percent more in October 2020 than in October 2019. That year-over-year change is greater than has been observed in at least a decade.

Those year-over-year increases are significantly more than what has typically been experienced. From 2000 to 2019 the average annual change in retail grocery prices was about 1.9 percent. Throughout much of 2015 and 2016 retail grocery prices actually decreased relative to the year prior.

Fluctuations in meat, dairy and egg prices have been the biggest drivers of the overall food-price hike. In June 2020 prices of those products at grocery were 12.8 percent more than the same time in 2019. As of October 2020 prices of those products are still running 6.1 percent more than in 2019.

But the price increases are not just limited to meat and animal products. Cereal and bakery-product prices are 3 percent more in October 2020 than in October 2019; Fruit and vegetable prices are 2.6 percent more in October 2020 than in 2019.

There’s good reason to believe that food-price inflation is even more than what’s reported by the Bureau of Labor Statistics. Many products were stocked out and groceries limited the amount consumers could buy, such as two packages of ground beef per customer. In those cases the real price experienced by the customer is much more than the sticker-price – one might say the price of a stocked-out item is infinitely inflated.

Moreover the Bureau of Labor Statistics explained that prior to COVID-19 most price data were collected in person. But when the bureau moved to online data collection to protect workers, it needed to dramatically reduce the volume of price data being collected. As a result there were many items, such as the prices of turkey prior to Thanksgiving, for which no data were reported.

Looking ahead to 2021, the U.S. Department of Agriculture’s Economic Research Service is projecting a return to more-modest levels of food inflation.

For food at home the service projects a 1 percent to 2 percent increase in prices; the 20-year historical average is 2.8 percent.

For food away from home the projection is 2 percent to 3 percent; the 20-year historical average is 2.3 percent.

Those projections seem to suggest an anticipation of a return to normal. But we’re not out of the woods. As of Nov. 1, 2020, consumer spending at grocery remained 11 percent more; restaurant and hotel spending was 30 percent less than the first of 2019. Even if food-price inflation reverts to historical norms, that just means prices have stopped increasing as fast as in 2020. Price levels remain more than they were previously. As such it will be important to keep an eye on food affordability and measures of food insecurity in 2021.

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Jayson Lusk is a distinguished professor and head of Purdue University-Department of Agricultural Economics.

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