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Wonkblog | Analysis

Why farmers only get 7.8 cents of every dollar Americans spend on food

May 2, 2018 at 1:46 PM

(iStock)

For every dollar consumers spend on food, only 7.8 cents goes to farmers — a record low that reflects shifts in how Americans eat, according to the Department of Agriculture.

Where once consumers cooked most of their meals at home, they’re now buying just as many at cafes and restaurants. And while shoppers were once content to husk their own corn and slice their own apples, they now buy those foods — and thousands of others — pre-husked, pre-sliced and otherwise processed.

Economists say those trends, coupled with low commodity prices, caused farmers’ share of consumer food spending to fall 1.2 cents in 2016, reaching the lowest point, adjusted for inflation, since USDA began the measure in 1993. (It's the latest year for which data is available).

While falling share doesn’t hurt farmers, necessarily, it does expose the long-term, macro trends that shape the supply and cost of food.

“This measure basically asks, ‘what value was added at each stage of the process?'” said Patrick Canning, a senior economist at USDA. “Long-term, we definitely see the farm share trending down over several decades.”

Even a simple food, like an ear of corn, takes a long journey to get to consumers’ plates.

Before that corn is planted, farmers buy seeds, fertilizers and farm equipment to get it in the ground. Once the corn is grown, it must be picked, packed, sorted, stored and shipped to grocery stores and restaurants — and each of those steps incurs labor and logistical costs.

USDA’s food dollar series, which tracks average annual consumer expenditures in retail food stores and restaurants, attempts to break down which steps cost the most, relative to the final value of food.

In each of the past four years, farmers’ share has dropped sharply. The relative importance of farms, agribusinesses (such as seed and fertilizer suppliers), packagers and processors have also fallen slightly since 1993. In 2016, agribusiness saw two cents of every food dollar, according to USDA.

Canning cautions that it’s difficult to tease out individual causes. Higher transportation costs, which impact many crops, might have a lesser impact on produce from California, which is frequently consumed closer to the farm.

In general, however, economists agree that a recent dip in commodity prices, driven by a surplus of corn, soybeans and milk, has pushed the farmers’ share down in the short-term. There has also been a separate, long-term erosion of that share over the second half of the last century, thanks to growing consumer demand for convenient, ready-to-eat foods.

According to USDA, just over half of all consumer food dollars are spent at restaurants, cafes and other food service places, compared to 44.3 percent in 1994. Farmers receive a smaller share of away-from-home “food dollars” — roughly 2.4 cents, on average — because the price of restaurant meals includes additional preparation, service and marketing.

“That was the other shoe to drop,” said John Newton, the director of market intelligence at the American Farm Bureau Federation. “The on-the-go consumer leads to farmers getting a smaller share of the food total.”

On top of that, over the past decades, Americans have also embraced an incredible range of processed and prepared foods, from frozen pizzas and rotisserie chickens to meal-replacement bars, meal kits and riced vegetables. That trend is likely to accelerate, USDA predicts, because millennials buy proportionally more prepared foods than past generations.

While Canning has not studied the long-term effects of processed foods on farmers’ share of food spending, he said he suspects it represents a significant “structural change.” He points to the popularity of  pre-husked, shrink-wrapped sweet corn, which costs three to four times the price of corn consumers shuck themselves.

Farmers get only 16 to 17 cents of each dollar spent on that corn. They might get 60 cents of the old-fashioned version.

The farmers' share falls even more dramatically for more processed products: Farmers average five cents on a five-dollar box of cornflakes, according to estimates by the National Farmers Union.

“At some point, even for food at home, you started to get more and more processing of food post-harvest,” Canning said. That processing adds to the final retail cost of food, he said, but that money goes to food manufacturers — it doesn't trickle down to the farm level.

None of this hurts farmers, per se. But it does mean that, as consumers pay more for food, many farmers are failing to capture that “added value” themselves. It's an issue that has long troubled Stewart Smith, a Maine farmer who previously served as a senior economist at USDA and on the Joint Economic Committee of Congress.

Smith argues that, in a food system where farmers and consumers are separated by so many middlemen, farmers will never gain a bigger piece of the pie — even if the pie itself is growing. There are too many steps in the industrial food supply chain, he said, where large processors, retailers and restaurant chains can pad their margins.

Instead, he has advocated for alternative systems — such as farmers markets, community supported agriculture and regional sourcing — that move the supply chain back toward the farm. On his Lakeside Family Farm in Maine, Smith grows 30 different fruits and vegetables on 150 acres, which he supplies directly to Hannaford grocery stores. He also does basic processing in-house, such as peeling and cutting baby carrots.

Smith's share of those carrots, and the other produce he grows, is far more than 8 percent.

“Alternative food systems tend to keep a larger share of consumer expenditure in the farming sector,” he said. 

Read more:

It's a nightmare for grocery stores, but it might make your groceries cheaper

The slow death of the home-cooked meal

How corn made its way into just about everything we eat


Caitlin Dewey is The Washington Post's food policy writer for Wonkblog. She previously covered digital culture and technology for The Post.

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Wonkblog | Analysis

Why farmers only get 7.8 cents of every dollar Americans spend on food

May 2, 2018 at 1:46 PM

(iStock)

For every dollar consumers spend on food, only 7.8 cents goes to farmers — a record low that reflects shifts in how Americans eat, according to the Department of Agriculture.

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