Converging Patterns in Global Food Consumption and
Food Delivery Systems
Globalization and worldwide
income growth are increasing similarities across
countries in what consumers eat and where they shop
and dine.
Elizabeth
Frazão, Birgit
Meade, and Anita
Regmi
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Across
countries and income levels worldwide,
consumers are choosing to spend their
additional income on some combination
of increased quality, convenience, and
variety of foods.
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Food
delivery systems and consumption patterns
in middle-income countries like China
and Thailand are converging, or "catching
up" to countries with higher income
levels.
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Income
growth has been a primary force behind
converging global consumption patterns,
but globalization of the food industry
is also contributing. |
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This
article is drawn from . . . |
Food
Spending Patterns of Low-Income Households:
Will Increasing Purchasing Power Result in
Healthier Food Choices? by Elizabeth
Frazão, Margaret Andrews, David Smallwood,
and Mark Prell, EIB-29-4, USDA, Economic Research
Service, September 2007.
“The
Influence of Income on Global Food Spending,”
by Birgit Meade and Stacey Rosen, in Agricultural
Outlook, AO-242, USDA, Economic Research
Service, July 1997.
Food Expenditure Tables in the ERS
Briefing Room on Food CPI, Prices, and Expenditures. |
You
may also be interested in . . . |
Convergence in Food Demand and Delivery: Do Middle-Income Countries Follow High-Income Trends?, a page in the ERS
Briefing Room on Global Food Markets.
“Income
and Diet Differences Greatly Affect Food Spending
Around the Globe,” by Birgit Meade
and Stacey Rosen, FoodReview, Vol.
19, Issue 3, USDA, Economic Research Service,
Sept.-Dec. 1996.
“Processed
Food Trade Pressured by Evolving Global Supply
Chains,” by Anita Regmi, and Mark
Gehlhar, in Amber Waves, Vol. 3,
No.1, USDA, Economic Research Service, February
2005.
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With rising income levels and global
expansion of food retailing and foodservice outlets,
food consumption patterns, as measured by spending
on different types of food products, appear to be
converging across countries. Food products and multinational
retail and foodservice chains from the U.S. and
other high-income countries have become increasingly
common in middle-income nations such as China and
Thailand. For example, fast food sales in China
more than doubled between 1999 and 2005, while sales
from Western-style supermarkets increased almost
sixfold, from $16 to $91 billion during the same
period. Changes in food preferences and food delivery
mechanisms appear to be mutually enforcing, with
worldwide tastes and diets evolving along with increasingly
modern food retailing and foodservice outlets. This
cyclical relationship between food demand and delivery
mechanisms is increasing the similarity of food
delivery and consumption around the world—a
phenomenon referred to as “convergence.”
Food Budget Shares Decline
as Incomes Increase
The share of income or private
consumption expenditure (PCE) spent on food is often
used as an indicator for the relative well-being
of a country. The difference between income and
PCE is that income includes household savings. In
poor countries, households tend to spend a large
share of their incomes on food, leaving less income
for other essential items such as health care, housing,
education, and fuel. Households in high-income countries
spend a relatively low share of PCE or income on
food, which leaves sufficient income for other essential
items, as well as recreational and cultural activities.
According to Euromonitor data, in the U.S., for
example, at-home food spending accounts for less
than 10 percent of PCE, compared with China, where
it accounts for 26 percent.
Similarly, within a country, although
spending on food increases as income levels increase,
the proportion of total income devoted
to food declines. This phenomenon is known as Engel’s
Law, after the 19th century German statistician
Ernst Engel. The intuition behind Engel’s
Law might be described as a “food first”
budget allocation. Even low-income households must
devote at least a minimum amount to meet the basic
need for food. As income increases, households may
spend some of that additional income on food, but
will allocate proportionally more on other, nonfood
items. For a given gain in income, the increase
in food spending is larger at lower income levels
than at higher income levels. This explains why,
as incomes rise in lower income countries, their
food expenditures tend to catch up with those of
higher income countries.
Analysis of 2004-05 consumer expenditure
data confirms the trend in declining food budget
shares for the U.S. (see box, “Analysis
Required Data From Several Sources”).
Among four-person households, total food spending—including
food away from home—is slightly over $2,500
per year among the highest income group, roughly
double that of the lowest income group. However,
average annual after-tax income in the highest earning
households is more than eight times that of the
lowest income households ($116,290 versus $13,290).
Thus, the share of income devoted to food declines
from 37 percent for the lowest income households
to 9 percent for the highest income households,
reflecting Engel’s Law.
A similar trend in declining food
shares is noted across country groups with varying
average income levels. Euromonitor International’s
annual per capita food spending data (not including
food away from home) for 67 countries, revealed
that food spending increases from less than $200
per capita per year in low-income countries to $2,133
in high-income countries, while the food share of
PCE decreases from 42 percent in low-income countries
to 12 percent in high-income countries.
Increased Food Spending in
the U.S. Favors Increased Quality, Variety,
and Convenience
In the U.S., the rise in food
spending as income increases is driven largely by
food away from home, which captures two-thirds (65
percent) of the more than $450 increase in monthly
household food spending between the lowest and the
highest income groups. The highest income households
spend nearly half (47 percent) of their food budget
on food away from home, almost double the share
among the lowest income households.
Among at-home foods purchased
in grocery stores, spending on “other foods”
rises the most with increases in income. This category
includes high value-added foods such as frozen prepared
meals, canned and packaged foods—including
a variety of novel and ethnic products—snack
foods, and nonalcoholic beverages, in addition to
condiments, sugars and sweets, and fats and oils.
Spending on “other foods” increased
from $92 per month for the lowest income U.S. households
to $161 per month among the highest income households.
Interestingly, households in all income categories
consistently spend the largest share of their food
budget on “other foods,” followed by
meats, fruit and vegetables, cereals and bakery
products, and dairy products.
In contrast with the increased
spending on “other foods,” spending
on meats, cereals and bakery products, and dairy
products remains fairly steady across household
incomes until incomes reach $50,000 per year.
Similarly, U.S. spending on fruit
and vegetables rises only minimally across income
levels. Households in the highest income group—which
have an average of $8,000 more in after-tax monthly
income than households in the lowest income group
and spend over $450 more on food—choose to
spend just $26 more per month on fruit and vegetables,
which translates into an additional 21 cents per
person per day on fruit and vegetables. The small
change in spending on fruit and vegetables may explain
why many high-income households also fail to meet
intake recommendations for fruit and vegetables,
and suggests that income and prices are not likely
the main factors behind the low consumption of fruit
and vegetables among low-income households, as is
commonly believed.
The dramatic increases in spending
on food away from home and “other foods”
suggest that, as income increases, U.S. households
seek qualities such as taste, variety, convenience,
and enjoyment. Whereas this may sometimes occur
at the expense of greater nutritional value, this
study is unable to look at changes in the nutritional
value of diets in response to income increases.
What Global Food Spending
Trends Can Be Observed?
If we compare average food spending
of low-income countries with that of middle- and
high-income countries, global trends emerge, some
of which are comparable to those observed across
income groups in the U.S.
As income increases across country
groupings, consumers in those countries increase
their food spending to purchase more calories, typically
in more expensive forms. Per capita consumption
averages 2,618 calories per day in low-income countries,
3,000 calories in middle-income countries (a 15-percent
increase), and 3,348 calories in high-income countries
(an 11-percent increase). Yet, food spending more
than doubles from one country group to the next—from
less than $200 per capita per year in low-income
countries, to $440 in lower middle-income countries,
to $914 in the upper middle-income countries, to
$2,133 in high-income countries, which is 10 times
higher than that of low-income countries—even
as its share of income declines.
Lower income countries generally
have diets that are high in starchy vegetable components
(such as cereals or roots and tubers, which provide
mostly carbohydrates) and low in animal products.
Although the share of the food budget spent on cereals
is similar (15 to 16 percent) across country groups,
the contribution of cereals to overall calories
decreases from 57 percent in low-income countries
to 36 percent in high-income countries. This suggests
that consumers in wealthier countries are substituting
more expensive, higher quality, and value-added
forms of cereals (breakfast cereals and baked goods)
for the cheaper domestic staples (cornmeal or rice)
to increase the quality, variety, and convenience
of their diets.
Conversely, animal products, such
as meat and dairy products, are considered a luxury
in lower income countries due to their relatively
high cost, compared with cereal products. While
the meat and dairy food budget shares remain similar
across country groups, 22 to 25 percent for meat
and 10 to 12 percent for milk, their contribution
to overall calories increases with rising income
levels. Meat contributes just 4 percent to total
calories in low-income countries, 7 and 11 percent
in lower and upper middle-income countries, and
13 percent in high-income countries. Milk contributes
5 percent to total calories consumed in low-income
countries versus 11 percent in high-income countries.
The increased caloric contribution suggests that
as income increases, consumers buy more animal products,
thereby adding quality and variety to their diets.
The fact that rising incomes across
countries bring large absolute increases in food
spending but comparatively smaller increases in
calorie consumption implies an increase in the cost
per calorie. In low-income countries, 100 calories
cost an average of 2 cents; the cost doubles to
4.2 cents in lower middle-income countries, doubles
again to 8.3 cents in upper middle-income countries,
and more than doubles to 17.4 cents in high-income
countries.
There are many possible forces
at work behind the rise in cost per calorie. Consumers
could simply be buying more highly processed forms
of food which may not necessarily be higher quality,
just more expensive to produce. In this case, they
are most likely looking for convenience. However,
additional evidence, cited above, suggests that
a country’s rise in cost per calorie—which
occurs rapidly, at first, and then becomes more
gradual—does reflect a demand for some combination
of perceived quality (looks, sanitation, flavor,
cultural preferences, perhaps even nutritional quality),
variety, and convenience. Comparison of food budget
shares and the calorie contributions of different
food groups suggests that this increase in calorie
cost is largely driven by a shift toward more expensive
types of calories. Consumers are purchasing greater
quantities of more costly foods, such as animal
products in lower income countries, or organic produce
in higher income countries. They are also buying
more value-added forms of foods, and many are even
spending money on zero-calorie items such as diet
sodas.
In addition, foodservice sales
data from Euromonitor International also substantiate
a global trend of higher spending on food away from
home as income increases. In 2005, annual expenditures
on food service averaged $95 per capita in lower
middle-income countries, $260 in upper middle-income
countries, and $781 in high-income countries. Although
the spending levels are lower in middle-income countries,
the expenditure levels are growing very rapidly.
In the fast food sector, sales have more than doubled
in countries such as China and Indonesia, while
developed countries such as Japan register slower
growth rates of only 6 percent.
International Food Consumption
Patterns Are Converging
Income growth, which
is associated with increased demand for higher valued
foods, is a primary force driving convergence in
global diets. Consistent with Engel’s Law,
for a given change in income, lower income consumers
make bigger changes in food expenditures than do
higher income consumers. For example, a 10-percent
increase in income is estimated to increase meat
expenditures by 1 percent for the average U.S. consumer,
but 7 percent for a consumer in a middle-income
country such as Thailand.
Larger income-induced changes
in lower income countries drive the food consumption
trend toward convergence. The term convergence
implies a dynamic process—movement from different
starting levels toward some common outcome. In the
case of food consumption, the common outcome is
some universal “ceiling” or “saturation”
level of demand for a particular food or food group,
which is achieved at high income levels. Convergence
can be statistically estimated as the speed of food
expenditure changes over time across countries.
This speed varies considerably—growth in food
expenditures between 1998 and 2005 was as low as
14 percent in Japan and more than 100 percent in
Indonesia.
Regression analyses conducted
on food expenditure changes point to a high degree
of convergence between middle- and high-income countries,
particularly for total food expenditures and meat
expenditures. Although actual food spending levels
are higher in wealthier countries, middle-income
countries show faster growth in expenditures. Middle-income
countries thus appear to be “catching up”
to countries with higher expenditure levels, leading
to convergence (low-income countries had to be excluded
from this analysis due to lack of reliable data).
Globalization of the
food industry, as measured by the expansion of multinational
retail and food service chains, is also contributing
to converging trends. The last decade has witnessed
an unprecedented rise in standardized retail outlets
such as supermarkets, convenience stores, and large
discount stores in developing countries. For example,
supermarkets accounted for 15 to 30 percent of national
retail sales of food in Latin America before the
1980s, but 50 to 70 percent in 2001, registering
in two decades the level of growth experienced in
the U.S. in five decades. The food retail structure
in Asia is undergoing similar rapid changes.
Similarly, Western-style restaurants
and fast food chains are becoming more prevalent
in middle-income countries, where increasingly urban
and dual-income household demand for convenient
food supports expansion of these outlets.
Whereas local tastes and diets
typically determine what products are sold, consumer
choices are also being influenced by products sold
in these standardized retail and foodservice outlets,
which are often owned by multinational companies
operating in several countries. As a result, the
evolving food delivery system is also contributing
toward converging trends in global food consumption
patterns.
Regression analysis confirmed
converging trends in food delivery systems, as measured
by sales from modern standardized retail outlets
and the foodservice sector. Food sales through supermarkets
and fast food service outlets in middle-income countries
are moving toward the levels found in high-income
countries. (An explanation of the regression analysis
is available at: www.ers.usda.gov/amberwaves/)
Convergence analysis also provides
an estimate of the “half-life” of progress
toward convergence (i.e., the number of years required
for progress halfway toward the steady-state level
when convergence is assumed to have been achieved).
There is remarkable similarity in the half-life
estimates—between 16 and 21 years for total
food service, standardized retail outlets, and food/meat
expenditures across country groupings. Convergence
in fast food sales, with a half-life estimate of
9 years, appears to be occurring much more rapidly
than for any other type of expenditure. This is
not surprising, given that, in the U.S., among all
food categories, spending on food away from home
showed the largest response to increases in income.
In summary, income growth and
globalization of the food retail and foodservice
industry are giving rise to increasingly similar
food consumption patterns across the world. Food
consumption patterns of middle- and high-income
countries, as indicated by their food spending across
different food types over time, are converging.
The expansion of Western-style retail and foodservice
outlets is modernizing the food marketing sector
in developing countries. At the current rate, ERS
estimates that in about 20 years, food purchases
in middle-income countries through Western-style
grocery stores will approach 50 percent of the level
of the sales in higher income countries. Convergence
in the foodservice sector is moving faster, with
expenditures in middle-income countries expected
to reach 50 percent of the level of high-income
countries within a decade. However, given ERS research
showing that the foods U.S. consumers choose to
eat away from home, on average, are higher in calories
but lower in nutrients than foods eaten at home,
these trends have important implications for obesity
and health in developing countries.
Analysis Required Data From Several
Sources
Data for the U.S. are from
the 2004-05 Consumer Expenditure Survey conducted
by the Census Bureau for the Bureau of Labor
Statistics, for four-person households, using
the 14-day diary of expenditures.
International data for 2006
were available from Euromonitor International
for 67 countries, grouped according to income
using the World Bank classification: low-income
countries (4); low middle-income countries
(20); high middle-income countries (17); and
high-income countries (26). Extensive data
are more readily available for developed countries,
which skewed the sample toward the higher
income group.
Euromonitor data on per
capita food expenditures include spending
on foods and beverages from grocery stores,
but not spending on alcohol or foodservice
institutions, such as restaurants and fast
foods. Aggregate spending is divided by the
country’s population to provide per
capita spending.
Per capita calorie data
were obtained from FAOSTAT, Food and Agriculture
Organization. International data are not directly
comparable to the U.S. data presented here,
which include spending for both food at home
and food away from home; and only four-person
households, which, because of economies of
scale, typically spend less per person than
smaller households.
Data for convergence analysis
were also obtained from Euromonitor International.
Since the coverage of countries for historical
data (1998-2005) on sales from retail and
foodservice outlets were limited, this analysis
only used data for 47 high- and middle-income
countries.
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