The Expensive Thanksgiving
Plus: Are Food Drives Helpful?
Welcome to The Sunday Morning Post. Each week I write about the economy with a focus on real estate and investing. Sometimes I write about other topics, too, like how to fix baseball, why there are so many craft breweries in Maine, and at this time last year, The Tired Thanksgiving. To get my articles each week, just click Subscribe below. Thanks for being here.
The Expensive Thanksgiving
As we gather around our Thanksgiving tables this fourth Thursday of November, we can be thankful for many things in the overall economy:
The unemployment rate of 3.7% is still near historical lows and 261,000 new jobs were created last month with strong gains in healthcare and manufacturing. It would be rare (though not impossible) for an economy to go into a meaningful recession with such a strong labor market.
After dropping by nearly 25% for the year so far, the S&P 500 has bounced back by about 10% since its October lows. The Dow Jones and NASDAQ have done similarly.
The cost of building materials is falling, which could provide positive support to the real estate market and the construction industry despite some other challenges.
For borrowers with long-term fixed debt like a pre-July 2022 fixed-rate mortgage, the benefits of those historically low rates will only continue to accrue over time, a product of good timing and dumb luck.
While COVID-19 is still annoyingly with us, case loads are down significantly, those who are contracting the virus seem to be getting milder cases, and for most people, life has basically moved on.
But economic storm clouds abound in the form of stubborn inflation, sharply higher interest rates, and a real estate market in near-paralysis with prices set to fall especially in some of the most bubbly markets (which is good news or bad news depending on where you sit in the real estate market).
The Rising Cost of Food
Inflation, which has been defined by some including Milton Friedman as “the cruelest tax,” has been particularly impactful over the past 18 months because it is largely the non-discretionary items that ordinary Americans spend the largest portions of their paychecks on that have risen the most in cost: shelter, utilities, gasoline, and food. The notable run-up in food costs is clearly evident on the chart below of food prices over the last decade:
Things like entertainment, airline tickets, and apparel have also risen quite a bit, but these are at least things that people have a bit more control over. Not so at the grocery store, however, where you can only trade down from item to item so much in price before you run out of lower cost substitutes.
The USDA’s “Thrifty Food Plan,” estimated the average monthly cost of food for a family of four to be $887 as of February 2022. Yet food prices are up 10.9% in the past year, which would be a difference of $96/month using the USDA’s estimate or nearly $1,200/year - and that is just for the USDA’s lowest cost food budget. And this double-digit increase was on the heels of a similar jump in the year before.
This is money that many families simply do not have, especially when the prices of so many other things have also gone up. And although wages have also increased over the past year, it has not been enough to keep with inflation. According to data from the St. Louis Fed, the average hourly wage nationwide went from $31.11 in October 2021 to $32.58 in October 2022, an increase of 4.7%.
The challenge is also being seen at food pantries across the country including from where I write here in Maine. Demand for food pantry services is increasing, yet the cost of the food that is provided continues to rise. Yes, food pantries do receive charitable gifts of food from companies and individuals, but a large amount of the food that ends up in the food pantry network is purchased, and as those costs rise, so too do the costs to the schools, churches, childcare providers, and hundreds of other organizations providing healthy meals for those who need the help.
Why is Food So Much More Expensive?
Like all economic goods and services, food prices are largely a function of supply and demand, although there are countless variables at play on both the supply and demand sides of the equation. Droughts in the western United States, for example, have greatly reduced the supply of all sorts of different fruits, vegetables, and nuts, which has helped to send prices soaring. Flooding in Australia has impacted meat and milk production, also destroying millions of dollars of equipment in the process. And the Russian invasion of Ukraine has greatly disrupted markets for wheat, corn, and various oils, leading to sharp price spikes.
There is only so much the Federal Reserve can do with its interest rate levers to impact food prices; in fact, this particular category of inflation is not going to be controlled much by the Fed. There is a larger conversation here about climate change and global cooperation (or lack there of) as far as long-term solutions are concerned, which is a topic I would like to come back to in the future. Safe to say for now, however, that food prices are up because of things like strong demand, global stimulus, and other variables, but perhaps more directly due to some of these complex geopolitical and environmental factors.
What Comes Next
The winter ahead is going to be very challenging. Utilities including oil and natural gas for heat have gone up. Rents are high. And food prices are unlikely to immediately come down as environmental issues do not get turned on and off with a switch and the war in Ukraine seems not to be fully abating.
Nearly 1 in 10 Americans is food insecure, and the numbers are higher among the elderly, children, and communities of color. One positive thing we learned during the pandemic, though, is that government can move the needle in significant ways on reducing hunger through strategic policy. Enhanced SNAP benefits during the pandemic, for example, reduced the number of Americans experiencing hunger; for the first time in practically a generation, hunger rates dropped.
Other policies like the one here in Maine to provide free school lunches to all students regardless of socioeconomic status have reduced stigma and provided more meals to hungry kids. And food banks around the country including Good Shepherd Food Bank here in Maine, an organization that I am proud to be currently serving as the Chair of the Board of Directors, have been strategically thinking about how to not just provide food to those who need it, but also asking ourselves how to help reduce the overall need, thereby shortening the line of people who are hungry to begin with. This is a big shift in thinking and strategy. Ideally food banks would work themselves out of existence by helping to eliminate the need for such services.
But the months ahead will be hard for many people. Even in a land of such bounty as ours, there are far too many people who are struggling with hunger.
What can any one person do? First, having compassion for those who are going through challenges is something we could all be better at collectively. I am hesitant to introduce religiosity to my writing here, but I do also believe that when Jesus was faced with a hungry person he simply fed them rather than ask for proof of income or a recent balance statement to verify the worthiness of that person’s hunger claim. If someone is hungry, feed them. And what is the best way to feed people? By supporting organizations that do just that.
Are Food Drives Worth It?
This is time of year when there are all types of well-meaning food drives taking place organized by altruistic and high-minded people. Unfortunately much of this energy is misplaced. Food drivers just are not the most efficient way to provide help in fighting hunger and there are several reasons why.
First, food donated at food drives then has to be transported, sorted, and distributed, which takes a large amount of labor and cost. Conversely, food banks like Good Shepherd are able to buy food through other mechanisms in a more streamlined way and can efficiently fill many more boxes, pallets, and trucks than they can after obtaining a hodgepodge mix of donated foods delivered to their door, sometimes unexpectedly.
Second, a fair amount of food donated at local food drives is either perishable and needs to be quickly refrigerated in order to be preserved, which is often easier said than done, or some of the donated food is already nearly expired. Certain food donations that people make are coming deep from the back of their pantries or it is the food they bought and then did not end up wanting, which is not always the best for the food pantry network. This is really not that funny a story, but I remember being about ten-years-old and someone from The Salvation Army knocking on our door who was collecting food for the hungry. I proceeded to clean out all the food I didn’t like from our pantry to give to them before my parents realized what was happening.
Third, and this is not necessarily easy for well-minded people to hear, food drives can give the inaccurate perception that a meaningful dent has been made in the challenge of local hunger. Who among us has not felt this way in the past, myself included, where you participate in a local food drive and leave with that warm, fuzzy feeling of having done something good. That short-term feeling of warmth can mistakenly relieve a person of pursuing a more impactful course.
So what should be done instead? It is not necessarily as much fun or it certainly doesn’t provide the same sense of immediate accomplishment, but what food banks need more than anything is money. As noted above, food banks are able to leverage dollars to provide a significant amount of meals to those who are hungry, many more meals than the same value of actual donated food products would represent.
Lastly, and perhaps most importantly, the conversation around solving hunger has to pivot from a focus on individual charitable acts of goodness to systematic changes that help lift people out of poverty and more equitably allocate resources. Hunger will not be solved by local food drives and drop-off baskets for donated goods at supermarkets and local businesses; it will only be solved when there are fewer people who lack the resources to buy and prepare food for themselves and their families.
The Silver Lining and Saving Grace of Local Food Drives
So are food drives worth it? Well, despite what I’ve written above, there are still some important things about local food drives. Food drives do at least draw attention to the hunger needs in a community. It is good for people to pause every once in awhile when they see a story on the news or an ad on the radio about a food drive to consider the needs of their neighbors. For children, especially, giving a physical item of food like a box of pasta or a can of beans is always going to be more tangible than donating a dollar and if that helps them to understand the need better and helps them to feel more connected to the cause, of course that is wonderful and important.
Lastly, certain specific efforts like all of the turkey drives that happen this particular month of the year, for example, often have value as the donated turkeys are given directly to families in need without much need for sorting, transportation, or other logistical complexity. And there is a lot to be said for the value of the community pride that swells in the coming together on a cause like getting a certain number of donated turkeys (although the best way to do this is like how a local radio station here in Bangor does it, where a $15 donation represents one turkey; hopefully that money is then leveraged into many more meals).
A Final Word of Thanks
I would just like to end by saying thank you to you, the readers, for supporting this weekly series of articles. Thank you for indulging me a stray topic like today’s, which touches on one of my most common themes (inflation), while tackling something from a different direction (hunger). I enjoy the opportunity to write each week and I appreciate you, the readers, for being here. I hope you all have a wonderful Thanksgiving and that time spent with family brings peace and comfort. See you next week.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com. Follow Ben on Twitter, Facebook, or Instagram. Opinions and analysis do not represent First National Bank. As noted in the article, Ben is currently the Chair of the Good Shepherd Food Bank Board of Directors.