American farmers and agribusinesses receive just 11.6 cents of every dollar spent on food in the U.S., according to recent analysis from the U.S. Department of Agriculture (USDA). That is down from the nearly 20 cents USDA calculated, using a different method, in the past and undercuts arguments that farm prices for commodities and feedstuffs like corn are driving higher retail food prices.
“American farmers continue to produce more and more food and feed, yet they are receiving less and less of each dollar spent at the retail level,” said Geoff Cooper, Renewable Fuels Association Vice President of Research and Analysis. “Energy intensive activities like food processing, transportation, and packaging gobble up nearly three times the value farmers receive. And as oil prices continue to rise, an even larger share of every dollar spent on food is paying for the higher energy costs facing the entire supply chain.”
With news reports of food prices going higher, driven largely by dramatic mark ups in the price of fresh fruits and vegetables and meat products, many are seeking to blame farmers and biofuel producers for the run up. This USDA analysis, as well as a review of recent speculative activity in commodity markets, once again proves that volatile energy prices and Wall Street speculation are the primary factors driving food prices higher.
According to USDA, the second-largest contributor to food prices – only trailing labor costs – is the combination of food processing, packaging, transportation, all of which are highly energy-intensive activities. And, as labor costs tend to be more stable and predictable, the volatility in energy prices is driving the sticker shock Americans may be feeling now at the checkout counter. Totaling up the percentages for food processing, packaging, transportation – all energy intensive activities – and actual energy costs, nearly 33 percent of each food dollar is spent in these energy intensive areas. If you frequently eat away from home, labor and energy costs gobble up even more of your food dollar and leave just 3.4 percent for those involved in agriculture.
Since much of the criticism is aimed at American ethanol producers and their demand for corn, it is worthwhile to note that the corn value of each food dollar spent is negligible. Indeed, a rough back-of-the-envelope calculation can be used to approximate the contribution of corn to the 11.6 percent farm and agribusiness share of the overall food dollar. Over the past few years, corn has typically represented about 15 percent of the total farm value of all U.S. agricultural food and feed products. Thus, it could be argued that corn’s share of the food dollar is just 1.7 percent (15 percent of 11.6 percent).
“Admittedly, this math is rough but it serves to demonstrate the minimal impact corn price has in determining the retail price of food,” said Cooper. “Studies have shown that there is no statistical relationship between corn prices and retail food prices.”