Where Are Your Grocery Dollars Going?

In March, the USDA released the newest figures in a series of data entitled The Food Dollar; an annual breakdown of food prices that tracks where each dollar spent on groceries actually goes.  The results are startling.  For 2008 (the most recent data), only $.15 of every $1 spent goes back to farmers.  The other $.85 falls into the nebula of ‘marketing,’ defined as:

[…] The remainder accruing to food supply chain industries involved in all post-farm activities that culminate in final market food dollar sales.

Since 1993, when the Food Dollar was first calculated, farmers have been making progressively less money on the dollar, while these “post-farm” activities have been absorbing more and more of the consumer profits.

With the number of farms in the US declining from 6.8 million in 1935 to just over 2 million today (with the population increasing from 127 million to 285 million) and global commodity prices forecasted to hit record highs this year, the farmer is becoming one of the most pivotal figures in the American economy.

Demand for food commodities in every sector is peaking.  Last year’s insufficient wheat and corn harvests (some of the biggest on record, but still not big enough to meet demand) have driven up the prices of livestock and dairy, with not enough feed to meet America’s hunger for the almighty cheeseburger.  Rising oil and gas prices are expected to drive up the cost of farming, as crude creeps toward record highs and despite American farmers sewing the second largest corn crop ever, this year’s harvest is still predicted to fall short of demand.  Sugar prices are hitting record highs.  Oils and fats are just below all-time highs.  While most Americans aren’t being hit in their wallet by prices now, if this trend continues, we all may be feeling the pinch by the end the year.

With the birth of the local/sustainable food movement, there has been a renewed interest in all things farmy, from farmers’ markets to personal gardens to simply knowing where your food comes from and how it’s produced.  Nevertheless, farmers in America are aging, and young people by and large are finding interest in farming as a hobby or leisure activity and not as a principal source of income.  Over 40% of farmers in America are over 55; 14% of farms are operated as “retirement farms,” and an overwhelming majority, 40%, are operated as “residential/lifestyle farms,” which means simply that the farm’s chief operator has another major occupation.  That means that more than half of US farms are run either as a side business, or as is the case with retired farmers, in the twilight of life, and I would be remiss not to question the degree of profitability of such farms.  As food supply becomes more crucial to the US economy, as demand continues to rise, can we really rely on the hard work of these folks alone to bear the burden of production?

And why are so few deciding to enter the farming industry?  Profitability.  Just under 8% of farms reported sales of $250,000 or more, and another 8% reported sales between $100,000 and $250,000.  Estimates for the living expenses of a family farm exceed $47,000 a year; however, only 1 in 4 farms gross over $50,000 a year.  Herein lies a paradox that is at the heart of the modern farming: prices for food are rising as demand is high and climbing, and supply is short, which means food prices are pushed even higher, but still farming remains unprofitable and the number of farmers are declining.

To understand how paradox, we must consider the Food Dollar and the breakdown of profits that are spread amongst many hands.  On every grocery dollar spent, food processing collects $.19, packaging $.04, transport $.04, retail trade $.14, food services (a devastating) $.34, energy $.07, finance $.04, with another $.04 split by advertising and accounting. (Note: values are rounded to the nearest cent.)  In this schematic too, farms only come out with the remaining $.11, which is considered their net profit after paying other expenses falling into categorizations like legal, advertising, transport, etc.

Buying local has its merits for profiting and growing local communities, but what many may not realize is that it makes the business of farming more profitable because it reduces so many extraneous expenses that are killing that farming industry.  Here’s a painfully simple idea: why not cut the cost of food by cutting the cost of ‘non-food’ tied into the price?  Short of overhauling the system or making sweeping changes, the best way to accomplish this is by buying local.

So next time you’re in the grocery store, picking through plastic bags full of Idaho potatoes, take one and look at it, heft it in your hands, feel the weight, the texture of the plastic packing, the colorful label design.  In that simple instance, you can observe the advertising fees, the legal counseling, the product design, packing, shipping, processing, all neatly tied together for your consumption.  As prices rise even further, you shouldn’t wonder why your food is so expensive; it’s symptomatic of the bureaucracy of consumerism which is weighing the farmer down, and all of us with them.