By now, we’ve all seen the headlines predicting that this week’s Thanksgiving will be the most expensive on record. While it is technically true, food inflation also makes this statement true most years. Adjusting for inflation, the price of Thanksgiving staples has declined substantially over the past few decades. This decline in the “real” price can likely be attributed to gains from trade and improvements in agricultural production technology. That said, just because inflation occurs regularly does not mean that this Thanksgiving’s price increases are trivial.
Why so much fervor regarding U.S. food inflation this year? The panic can partly be explained via the theory of availability bias. Yes, it’s true that inflation-adjusted prices were higher in the 1980s, but human minds are cognitively preconditioned to remember more recent events better than they remember events that happened decades prior. In this case, our minds anchor on what we spent last year, and last year’s expenditures were lower. Because less than 1 percent of Americans are directly employed in agricultural production the potential for cognitive bias surrounding food production is even more likely to induce consumer panic.
Cognitive bias aside, three additional factors explain why this year’s high Thanksgiving prices are uniquely culturally relevant. First, the change in expenditures is likely to be what is driving the sticker shock. Not only were 2020 prices lower than the 2019 season, but the size of the median gathering also fell from six to 10 people to one to five people. The American Farm Bureau reports prices for this year’s meal will climb by 14 percent relative to last year’s prices, which were actually down 4 percent compared to 2019. These price increases will be felt particularly hard in middle America as annual inflation recently topped 7 percent in many Midwestern and Southern states. Holiday travel will also be more expensive than last year as more people plan to visit their family and friends while gas prices have also followed inflationary pressure. Because this year’s gathering sizes and prices will be higher, expenditures will undoubtedly draw attention.
Second, high prices are also accompanied by abnormal stockout rates at U.S. grocery stores. Labor shortages and wild price spikes in important transportation nodes such as long-road trucking have left shelves more bare than normal. For example, the U.S. Department of Agriculture recently reported that the amount of turkey meat in cold storage is 24 percent below the prior three-year average. Market research firm IRI reports that everything from refrigerated pies to cranberry sauce are already low in stock relative to what is typically expected this time of year.
Those stockouts are particularly salient for people who live in communities with limited access to grocery stores. For example, if sweet potatoes are out-of-stock in the one grocery store in a rural community, people might not have the flexibility to find an alternative store to shop.
Indeed, high food prices are most relevant for lower-income households, who have already endured the pandemic’s hardest pinch. The median consumer’s household might be able to weather high prices, but a substantial percentage of American households say they will opt out of holiday spending altogether. The poorest 20 percent of households spend 27 percent of their income on food, making these consumers feel the heaviest inflationary burden.
This Thanksgiving’s sticker price will sting, but what can be done to prevent painful price tags in the future? As we experienced during the early pandemic supply chain disruptions, steady reminders asking consumers not to panic are unlikely to have much impact on stockouts. That said, recent federal funding for supply chain support in the recent infrastructure spending bill is another important step. In addition, funding for research and development in agricultural production systems is likely to have a lasting positive influence on maintaining easily available, affordable food for U.S. families in the longer term. Expansion of social safety net programs such as the Supplemental Nutrition Assistance Program (SNAP) might be one place to start as the USDA recently issued a large increase in SNAP benefits, increasing food assistance by $36.24 per person, per month. More personally, private support of nonprofit programs such as Feeding America should be top-of-mind for those of us who can more comfortably afford this year’s Thanksgiving meal.
Trey Malone is an agricultural economist and Elton R. Smith endowed fellow in the Department of Agricultural, Food, and Resource Economics at Michigan State University. He also serves as the co-editor of the “Agricultural and Resource Economics Review.” Follow Malone on Twitter: @DrTreyMalone