My wife and I lived off $2.80AUD a day while she was finishing her last year of Uni.
It was really rough and Lucy end up developing iron deficiencies.
I am from Sydney, and I have been told by friends from other states that the food prices here are much higher than anywhere else: even Melbourne (for non-aussies: a similarly sized city - 4 mil inhabitants vs 4.5 mil in Sydney).
For some reason, eating out or takeaways is relatively cheap though.
I sometimes play with the idea of a food co-op to bring prices down, but haven't got far.
If it's any consolation, the price of consumer electronics, furniture, and clothing have deflated at an equal rate. :)
Veg like carrots are a good way to get full for not much. We found it was also helpful to have a weekend budget where you could treat yourself. Keeps you sane.