Stop Paying Attention to the Farmers’ Share of the Food Dollar

Key Points

Recently released US Department of Agriculture data show that, in 2021, farmers received a record-low 14.5 cents for every dollar Americans spent on food. Nevertheless, total farm cash receipts are expected to reach an (inflation-adjusted) record of $541 billion in 2022.
Declines in the farmers’ share of the retail dollar spent on food have been driven by increasing consumer preferences for convenience foods and dining out, which require more processing.
The farmers’ share of consumer spending does not indicate the state of the farm economy. Trends in market revenues and net farm income, currently at near-record levels, are much more relevant for farmers’ well-being.

The US Department of Agriculture (USDA) releases regular statistics on the share of the retail food dollar that accrues to farmers. It recently released an update showing that in 2021 farmers received a record-low 14.5 cents for every dollar Americans spent on food.¹ Farmers and commenters from rural communities are likely to get upset about this new statistic, believing it implies that something damaging is being done to farmers. In reality, this simply reflects that Americans continue to buy more highly processed, time-saving, consumer-friendly foods. If anything, servicing the demand for convenience foods through more complex processing may increase demand for the crops and livestock farmers produce, benefiting rather than damaging farm incomes.

The Farmers’ Share of the Food Dollar

At the most basic level, there are two ingredients to the farmer share statistic: money collected by farmers from selling their produce and money spent by consumers buying food at grocery stores and restaurants. Divide the first by the second, and you have the farmers’ share of the food dollar. Thinking of the information this way quickly makes something clear: The farmers’ share can decline because farmers make less money or because consumers pay more for their food. The farmers’ share can also fall even if farmers make more money but consumer spending on food increases more quickly. A decrease in farmers’ share due to increased consumer spending should be of no concern to farmers as it has no impact on farmers’ incomes.

For example, I can go to my local store and buy a whole chicken for roasting, a cut-up chicken, or even a family pack of fried chicken. All of these options involve one whole chicken, so the farmer gets paid the same regardless of the form in which I choose to purchase my chicken. I, however, pay more for a cut-up chicken than a whole chicken and even more for a fried chicken. Just buying the cut-up chicken raises the cost at my local store from $1.65 per pound to $2.65. If I switch from buying a whole chicken to a cut-up chicken, farmers suddenly get a smaller share of the food dollar even if they get the exact same amount for the bird.

The same thing happens when we buy precut fruit, pre-marinated meats, prepared dinners that just need cooking, or pizza dough instead of flour. Over time, Americans have chosen to pay for convenience, and that naturally reduces the farmers’ share of the food dollar. Farmers aren’t getting paid less; processors and retailers are getting paid more because they are doing more work.

The Data and the Evidence

Data from the USDA’s Farm Income and Wealth Statistics help us understand what is going on. These data show that gross farm cash income (what farmers are paid for what they produce) is forecast to set a record high in 2022, even after adjusting for inflation. The year 1973 was a historical high point for cash receipts, with farmers earning $438 billion (in 2022 dollars), a figure not surpassed until 2011 when farmers earned $470 billion. Total farm cash receipts have not dropped below $400 billion since then and are forecast to hit $541 billion in 2022.²

Thus, in inflation-adjusted dollars, the total amount that farmers are getting paid is growing. Farmers’ revenues are not shrinking, and farmers are not being treated unfairly even though their share of the consumer dollar is falling. Their share is going down because consumers are buying more processed food and, thus, paying a higher total bill for all the food and processing services they want.

The USDA breaks the food dollar down in a way that makes this easy to see. In 2021, of each dollar the consumer spent, on average 33.6 cents went to food services (restaurant workers and other nonfood costs), 15.2 cents to food processors, 12.7 cents to retailers, and 10.7 cents to wholesalers.³ Thus, farmers, at 14.5 cents, get more than grocery store operators or wholesalers and just slightly less than food processors. The biggest share goes to food services, because when we buy food in a restaurant, we typically pay three times more for our meal than the food on the plate costs the restaurant. Further, the restaurant’s food cost includes some nonfarm costs such as food processing, transportation, and wholesaling.

The Roles of Consumer Demand for Convenience and Big Business

When the National Farmers Union and other agricultural groups routinely rail about big business taking advantage of farmers, they often cite the farmers’ share of the food dollar as evidence for their claims. The reality is that big business is not responsible for the downward trend in the farmers’ share of the food dollar. Rather, American consumers are to blame because they prioritize convenience over price at the grocery store.

In fact, farmers are being paid more than ever for their production. Inflation has certainly raised production expenses along with commodity prices, so over the longer term, net farm income (roughly, the farmers’ profits) has been holding steady or increasing slightly, but it is not falling.⁴

Farmers are not being shortchanged because people are choosing to pay money for more food-related services. We buy boneless, skinless chicken breast tenders instead of a whole chicken. We buy highly processed breakfast cereals and breakfast bars instead of eggs, oatmeal, or bacon. We buy steak kabobs already assembled from the butcher’s counter or ready-to-cook crab cakes from the seafood case. We buy apple pies and slices of cake from the deli department instead of baking those desserts the way our parents or grandparents likely did.

We do these things because we are rich enough to pay for the convenience and saved time that these ready-to-eat or readier-to-eat foods deliver. This is not a failure of the economic marketplace to treat farmers fairly; it is the economic marketplace seeing demand for a product (quick-to-prepare meals) and providing it to eager consumers.

Of course, the companies that provide us with convenience expect to cover their costs and receive some profit in return for their work. That is why food processors, retailers, and food services receive more than 60 cents of the food dollar, four times more than farmers earn. Most of that money goes to pay their workers and cover other costs, and a little bit ends up as profit.

The way to get farmers a larger share of the food dollar is not to attack food processors or retailers for some imagined market manipulation, but for large numbers of Americans to spend more time in the kitchen. If we all spent a few more hours a day baking bread from scratch, chopping up fruit and vegetables, simmering soup for hours to develop those deep flavors, and baking homemade desserts, farmers would get more of our food dollar, while food processors and restaurants would get less. However, farmers would not get more money. Our food bills would go down as we use our (unpaid) labor instead of paying someone else for the services we were previously receiving. Of course, this is not what consumers want, and so it is unlikely to happen anytime soon!

As long as we are willing to pay somebody at the supermarket to cut up our fruit, cook our rotisserie chicken, bake our bread, or peel our shrimp, the farmers’ share of the food dollar will stay small. As long as we spend half of our food dollars at restaurants, where people must be paid to purchase ingredients, combine and prepare our meals, and serve and clean up after us, the farmers’ share of our food dollars will stay small. As long as we buy highly processed items at the grocery store—such as frozen waffles, brownie mix, chicken and wild rice canned soup, and individual slices of frozen chocolate cream pie (a personal favorite)—the farmers’ share of the food dollar will stay small.

Summary

Every year, we are proffered stories about how little of what Americans spend on food goes to farmers, and that fact is true. However, in contrast to the claims too many commenters and farm groups make, this is not the outcome from some plot to impoverish farmers but simply an artifact of our choices to pay for convenience.

The farmers’ share of the food dollar is determined by what farmers are paid and what consumers spend for food at supermarkets and restaurants. Over time, the amount farmers are paid has been rising, even adjusted for inflation. The farmers’ share of the food dollar has been shrinking because the amount we spend on food is going up faster than the amount farmers get paid. This is because we are eating out more and buying more processed foods at the grocery store.

It should surprise nobody that as the share of American families in which both spouses work and average American household incomes have risen over time, families use some of that money to save themselves time and effort in food preparation. That time saving comes at a cost: higher food bills. Those higher food bills—not market power held by food processors nor any other issue that might cause farmers to be shortchanged—have led to farmers receiving a smaller share of that much larger food bill.

So, let’s stop worrying about the farmers’ share of the food dollar. If you want to know about the welfare or economic sustainability of American farmers, focus on net farm income or returns per acre. The farmers’ share of the food dollar tells us a lot about how and where we spend our food budgets but nothing about whether farmers are being fairly compensated for their important work.

Notes

US Department of Agriculture, Economic Research Service, “Quick Facts,” November 17, 2022, https://www.ers.usda.gov/data-products/food-dollar-series/quick-facts.
US Department of Agriculture, Economic Research Service, Annual Cash Receipts by Commodity, https://data.ers.usda.gov/reports.aspx?ID=17832.
US Department of Agriculture, Economic Research Service, Food Dollar Application, https://data.ers.usda.gov/reports.aspx?ID=17885.
See charts from US Department of Agriculture, Economic Research Service, “Farming and Farm Income,” https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/farming-and-farm-income.

Read the PDF.