Someone recently sent me an article that got me to reflect on how much of my spending on fresh produce actually goes to support the farmers who grew what I am consuming. I have to admit that I had never thought much about it. So what is the answer?.… Well, it depends.
Defining and Researching the Question
An article just published in Agricultural Economics and entitled
“Farm share of the food dollar”
looks at this topic in the United States and Canada dating back to 1997. The authors use a novel way of calculating the farm share, using annual government data looking at input-output (IO) techniques in which information about the entire agri-food system is gleaned from a single, consolidated data source. (The more common way of doing this analysis has been to look on a product-by-product basis, which risks overlooking the rise of niche products and convenience food products, and poses a challenge for accounting for supply chain losses, according to the authors. For more details, please refer to the article.)
How is food dollar expenditure defined?
“annual purchases of food products by domestic consumers that are produced on a domestic farm and undergo no off-farm processes beyond storage, transport, and basic packaging, or are processed at a domestic food-manufacturing establishment.” (p.507)
Imported food is not included.
The farm share is essentially the average payment from each dollar received by farmers for their raw food commodity. It is “calculated by dividing import-exclusive net farm sales by import-exclusive food dollar sales.” (p. 507)
According to this research, the farm share of the food dollar is approximately 17% in Canada and 14% in the United States, as shown in Table 1. Overall, the farm share has fallen steadily by approximately 20% since 1997.
The most interesting bit (to me) is this: the farm share differs considerably according to whether the food is intended for home consumption or for meals consumed away from home (namely, restaurants). For home consumption, the farm share of expenditures on food is approximately 22% across both countries. For meals consumed away from home, on the other hand, it is only 4% in the United States and 7% in Canada. This is shown graphically in Figure 1.
Why is the farm share for food at home consistently higher than the overall farm share, while the farm share for food away from the home is consistently lower?
Because food service establishments prepare and add value to the food products before selling them. For example, a head of cauliflower sold in a grocery store may cost $2-3 in season. This is considerably less than as a menu item in a restaurant, where a roasted and seasoned cauliflower could go for $10-12. Food service margins are much higher than those in grocery retail.
It is important to point out that the food share may be lower, but this does not mean that the actual payment given to farmers selling to restaurants and the like is lower.
There are some differences between the United States and Canada as well.
Most notably, according to the authors, the United States has much higher self-sufficiency in fresh fruits and vegetables than does Canada. This means that the Canadian farm share is lower due to greater reliance on imports. Also, Canada has more robust farm support programs.
In conclusion, according to the authors, in both the US and Canada,
“declining farm share appears to be driven by the changing structure of consumer purchases and the value added along the supply chain rather than market power by food processors or retailers.” (p. 511)
People are eating out more, and farm shares are thus declining.
For more information, see Patrick Canning, Alfons Weersink and Jessica Kelly, Farm share of the food dollar: an IO approach for the United States and Canada, Agricultural Economics 47, 5, September 2016, pp. 505–512.
Sarah Wayland, Principal Investigator