# The Farmer's Share of the Food Dollar
## Introduction
Antitrust writers who criticize concentration in the agriculture industry often cite the decline in the farmer's share of the food dollar to make their case. These writers usually imply or state explicitly that this decline is principally or solely due to monopoly powers "squeezing" the farmer. Most antitrust writers also maintain that most farmers struggle to make a decent living. Therefore, when they discuss the fall in the farmer's share of the farm dollar, many readers will conclude that this fall helps explain supposed declines in farmer fortunes.
This post will demonstrate that this entire of line of reasoning is false. There is no direct connection between the farmer's share of the food dollar and farmer incomes. In fact, farmer incomes have risen as the farmer's share has declined. As for why the farmer's share has declined, the long-term decline is likely due to the increasing complexity of the food supply chain, with new industries entering the chain and reducing the relative share available for farmers. Over the shorter term, the most likely explanation for the (modest) fall in the farmer's share is the increasing share going to restaurants. This, in turn, is likely due to restaurants raising prices.
## Antitrust writers cite the farmer's share of the food dollar
One antitrust author writes that "monopoly power lurks everywhere you turn in our food production system. It’s the main reason that farmers and ranchers have lost a significant share of the retail food dollar, from 37¢ down to only 15¢" ("Monopolized" by Dayen, 50). A few pages later, the author writes that "more than half of all farm households are losing money" (56).
A forthcoming book by another antitrust writer states that "Yet for American farmers, this sort of consolidation \[referring to Cargill's consolidation of the grain business] has meant lower and lower prices for their crops as the number of potential buyers has collapsed. The share of each dollar spent on food that wind up in the hands of farmers has fallen from 53 cents in 1946 to 15 cents today, the lowest level ever recorded" ("Barons" by Frerick, 43-44).
## Understanding the farmer's share of the food dollar
The farmer's share of the food dollar refers to the share of food revenue that farmers capture, expressed as the number of cents or share of each dollar spent on food that farmers receive.
As we will show, there is no obvious relationship between the farmer's share of the food dollar and farm income, especially when we consider how food expenditures and the number of farms have changed over time.
Furthermore, the farmer's share of the food dollar can fluctuate based on factors besides agribusiness monopoly power. We will show that the recent decline in the farmer's share appears primarily due to increases in prices at restaurants.
Readers should also remember that many farmers sell agricultural products for non-food uses. For example, about as much corn goes to ethanol production as goes to animal feed ([USDA](https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58346)). The farmer's share of the food dollar does not have a direct bearing on farmer revenues from non-food products.
### Relating the farmer's share to farmer income
We have to consider three factors when we relate the farmer's share of the food dollar to average farmer income: (1) the total amount that consumers spend on food, (2) the farmer's share of food revenues, and (3) the number of farms.
$
Average\ farmer\ income = \frac{Total\ food\ expenditure\ \times Farmer's\ share}{Number\ of\ farmers}
$
If the farmer's share of the food dollar goes down and the other factors remain equal, then obviously average farmer income will decline.
However, if total food expenditures go up or the the number of farms goes down, then average farmer income could go up even as the farmer's share declines.
Since we know that real food expenditures have tended to go up and the number farmers has tended to go down over time, then whether average farmer income has gone up or down becomes an empirical question.
#### Food expenditures
As the graph below shows, food expenditures (adjusted for inflation) increased steadily since at least the mid-20th century. Expenditures on food away from home (e.g., in restaurants) increased at a much faster pace than overall food expenditures.
![[Real food expenditures 1947-2014.png]]
<font size=2>Source: Authors' calculations, from USDA ERS Food Expenditure Series "Nominal food and alcohol expenditures, with taxes and tips, for all purchasers" and FRED CPI for all urban consumers: food in U.S. city average </font>
For our purposes, we should note that (1) the increase in the relative importance of food-away-from-home expenditures tends to move the farmer's share of the *total* food dollar closer to their share of the food-away-from-home dollar and (2) the farmer's share of the food-away-from-home dollar tends to be smaller than the farmer's share of the food-at-home dollar because food is more expensive at restaurants than at grocery stores. These factors likely help explain the long-term decline in the farmer's share of the food dollar. Later in this post, we will show that food-away-from-home prices have increased in recent years, coinciding with a decline in the farmer's share of the food-away-from-home dollar.
#### The farmer's share of the food dollar
As many authors have pointed out, the farmer's share of the food dollar has fallen over time. The figure below illustrates the decline since 1950.
![[Pasted image 20240119150955.png]]
<font size=2>Source: "Who Gets Your Grocery Dollar?" by Bill Bishop in the Daily Yonder 2009. </font>
Whether this decline is due to other industries "stealing" what rightly belongs to the farmer bears some scrutiny. Farmers who can package, transport, and market their products directly to consumers will obviously capture a large share of those food dollars. But how often do farmers really sell food this way? Farmers typically participate in a complex and interconnected system of purchasers, packagers, transporters, suppliers, advertisers, and marketers, who each contribute varying amounts to the final cost of the food product. Since all of the participants in the supply chain contribute to the cost, then we should expect all of them to take some share of the food dollar. Based on this alone, we should expect the farmer's share to fall as the food supply chain becomes more complex. Furthermore, when a certain part of the supply chain contributes more to the final cost of the food than farmers, we should expect that industry to capture a greater share of the food dollar. This is why the food service industry captures most of the food-away-from-home dollar and why its share has increased in recent years as it has raised its prices.
This does not address whether the farmer receives their "fair share" of the food dollar. That would require a theoretical and empirical investigation beyond the scope of this post. However, we will present evidence that the recent decline in the farmer's share of the food dollar appears mainly due to price increases in food away from home.
#### The number of farms
As is well-known, the number of farms has been in steady decline since the early 20th century. Less well-known is that U.S. Department of Agriculture (USDA) data, by far the most commonly-cited data source on the matter, includes an enormous number of non-farm properties and other operations that do not meet the commonsense understanding of the term "farm" (see "Overstatements in USDA Census of Agriculture Data" in [The Stakeholders in Agricultural Policy](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4267345)). USDA's inclusion of these operations seriously distorts farm counts.
We can make a rough adjustment to correct for some of this problem. In 1974, the department introduced a sales cutoff to separate farms from non-farms. The department has never adjusted this threshold for inflation. If we adjust this threshold, we can get an estimate of the number of farms over time. This adjusted data series shows a dramatic decline in farms since the mid-1970s, as expected.^[We use the CPI to adjust for inflation. We will address whether the CPI is applicable for this task, alternative measures of inflation, and so on, in future work. We should also note that USDA's cutoff is for sales and government payments, whereas we only consider sales in our analysis.]
| Year | Farms above threshold | %Δ |
| ---- | ---- | ---- |
| 1974 | 2,314,013 | |
| 2017 | 1,065,178 | -54.0% |
<font size=2>Source: USDA Census of Agriculture for 1974 and 2017; BLS inflation calculator to get real value of $1,000 1974 dollars in 2017.</font>
<font size=2>Note: The 1974 threshold was $1,000. USDA only provides farm counts for certain cutoffs. For 2017, the inflation-adjusted cutoff was $4,750 whereas USDA provided a cutoff for $5,000. </font>
#### Average farmer income
We have established that average farm food income depends on total expenditures on food, the farmer's share of the food dollar, and the number of farms. We have also discussed some of the trends in these factors in the recent past. We can now use these numbers to estimate changes in average farm income from food over time.
| Year | Food expenditure (million 1984 $) | Farmer's share | Farmers | Average farm income (1984 $) |
| ---- | ---- | ---- | ---- | ---- |
| 1974 | $308,805 | 37.0% | 2,314,013 | $49,376 |
| 2017 | $461,287 | 15.5% | 1,065,178 | $67,124 |
<font size=2>Source: USDA ERS "Nominal food and alcohol expenditures, with taxes and tips, for all purchasers" for 1974 food expenditures, USDA ERS "Food dollar nominal data" for 2017 data, authors' estimates based on farmer's share of the food dollar graph above for farmer's share, authors' calculations presented earlier for farmers, and authors' calculations for average farm income. The author used the FRED CPI for food for urban consumers to adjust food expenditures.</font>
<font size=2>Note: The food expenditure amount for 1974 comes from a different series that appears to have systematically higher estimates than the series used for 2017. Therefore, the 1974 food expenditure may be an overestimate.</font>
The table above shows that even as the farmer's share of the food dollar declined, total food expenditures increased and the number of farms decreased such that the average farm income from food increased. This finding is consistent with other authors who have analyzed the same issue ([Brester et al.](https://www.jstor.org/stable/41548411), Fig. 1 on p 216).
### Sources of the decline in the farmer's share of the food dollar
We have so far shown that even as the farmer's share of the food dollar has fallen, average farmer incomes from food have increased. We now provide some preliminary analysis of why the farmer's share has fallen.
#### Development and complexity of food supply chains
The farmer's share of the food dollar depends on—among other factors—the development of the supply chain for food.
When Midwest farmers grew food or raised animals that they themselves took to market, then they naturally captured a relatively high share or all of the food dollar. As the packaging, transportation, and marketing industries became more developed in the late 1800s, Midwest hog farmers could send their animals by rail to Chicago processors, who would slaughter the hogs and prepare the meat for transport to the East Coast, where grocers could sell it. These developments tended to diminish the farmer's share of the food dollar, but opened up much larger markets, presumably increasing aggregate Midwest farmer income. We can take from this that as the economy becomes more complex and specialized, more industries will tend to enter the supply chain of a given product and thereby reduce the remaining share for the other industries in the chain. At the same time, total expenditure on the product may increase, so the effect on incomes for the supply chain industries is ambiguous.
One can imagine how the supply chain for pork products has gotten even more complex since that time, especially when taking into consideration that consumers now spend considerably more on food away from home. When restaurant patrons buy an expensive pork dish, the restaurant will likely pocket most of the "pork dollars." After all, they contributed more to the final price than other part of the supply chain. Consequently, the farmer's share would be lower for this transaction than a "food-at-home" purchase of the same amount of pork.
#### Recent changes in the farmer's share
USDA [provides](https://data.ers.usda.gov/reports.aspx?ID=17885&reportPath=/FoodDollar/Real) a fairly sophisticated analysis of different industry shares of the food dollar. The department's "Food Dollar Application" allows us to analyze trends in the shares of these industries in the recent past. From 1993 to 2022, the farm share of the food dollar (expressed in nominal terms) saw a general downward trend. The farm share averaged 17.7 cents from 1993-1997, moving down to 15.1 cents from 2018-2022.
When we parse out the sources of this decline in the farmer's share of the food dollar, we see that it is explained by their declining share of the food-away-from-home dollar.
##### Little change in the farm's share of the food at home dollar
The farm share of the food-at-home dollar has changed very little since 1993, when it was 23.8 cents, versus 24.1 cents in 2022.^[As an aside, the wholesale trade industry saw an increase in its share of about 3 percentage points while the food processing and packaging industries saw a collective decrease of 4-5 percentage points. Could wholesale trade have increased its share at the expense of these upstream industries? Also of note is that agribusiness (farm inputs) saw a slight decrease in its share, of about 1 percentage point. While there were fluctuations in between, farm production saw little change between the mid-1990s and the past several years.]
##### A notable decline in the farm's share of the food-away-from-home dollar
There was a clear decline in the farm's share of the food-away-from-home dollar from 1993 to 2022. From 1993-1997, the farmer's share averaged 9.2 cents, while the farm share averaged 3.6 cents from 2018-2022.
Over this period, the food services industry saw its share go from an average of 62.8 cents from 1993-1997, to an average of 73.7 cents from 2018-2022.
This increase appears due to restaurants raising their prices. Food-away-from-home prices have [outpaced](https://fred.stlouisfed.org/graph/?g=1elTK) general inflation for over a decade. In recent years, fast-food restaurants have [raised prices](https://www.salon.com/2023/11/05/fast-isnt-cheap-anymore-heres-why-thats-both-a-good-and-thing/), and fast-casual has [expanded](https://www.ers.usda.gov/amber-waves/2018/november/growth-in-quick-service-restaurants-outpaced-full-service-restaurants-in-most-us-counties/) at a rapid clip. While consumers have [increased](https://fred.stlouisfed.org/series/CXUCONSUNITLB0101M#0) food-away-from-home expenditures over the past two decades, various sources show that Americans do not actually consume more food away from home. A federal nutrition survey has [found](https://www.ars.usda.gov/northeast-area/beltsville-md-bhnrc/beltsville-human-nutrition-research-center/food-surveys-research-group/docs/wweianhanes-overview/) that Americans’ share of calories from eating out has stayed about the same since 2009-2010. A recent Bloomberg report [presented](https://www.bloomberg.com/news/articles/2018-09-11/fast-food-s-got-a-netflix-problem-as-americans-prefer-to-dine-in) data that showed a decline in restaurant meals per person since 2000 and especially since the late 2000s. Meanwhile, people have started [to cook](https://nutritionj.biomedcentral.com/articles/10.1186/s12937-018-0347-9) at home more often. Thus, higher prices seem to explain higher per household expenditures on food outside the house. This can also help explain why the food services share of the food-away-from-home dollar has increased.
#### Market concentration
Antitrust writers have pointed out many studies that show agribusiness companies and other food system corporations have used their market power to suppress prices paid to farmers. The precise degree to which this has affected the share of the food dollar captured by farmers is a matter we will leave to other researchers.
## Conclusion
Antitrust writers often attribute declines in the farmer's share of the food dollar principally or solely to monopolies squeezing farmers. These writers often mention the farmer's share in a context where they also argue farmer incomes are low. In this way, these authors suggest the decline in the farmer's share of the food dollar is linked with their current incomes.
These arguments are problematic. We have shown in this post that farmer incomes have no direct connection with the farmer's share of the food dollar. In fact, farmer incomes have increased as the farmer's share of the food dollar has decreased.
Over the long term, the farmer's share of the food dollar has likely declined due to the development of the food supply chain, with packaging, transportation, wholesale traders, retailers, and other industries taking a larger share of the food dollar as these downstream industries have come to play a larger role in the food system.
Over the nearer term, we have shown that the (modest) decline in the farmer's share of the food dollar is entirely due to the farmer's declining share of the food-away-from-home dollar, which is in turn very likely due to the increasing share going to foodservices. Since fast-food establishments and other restaurants have raised their prices in recent years, this likely explains why their share has increased.
These conclusions are in accord with a study co-authored by a USDA economist. This study found that "the growing difference in the two measures of farm share \[food-at-home farm share and food-away-from-home farm share] suggests the declining trend in \[overall] farm share is due in large part to the growing costs and expenditures of eating out. The growing gap in the two measures of farm share suggests that changing consumer preferences rather than market power by food retailers and/or processors is the reason for the declining value added by the farm sector" ([Canning et al.](https://onlinelibrary.wiley.com/doi/epdf/10.1111/agec.12250), 510).
Writers who want to analyze farmer incomes or market power should use evidence that bears directly on those matters. USDA provides data on farmer incomes and many scholars have published papers that analyze the effect of market power on farmer revenues. *When used correctly*, the farmer's share of the food dollar can provide insight into the food supply chain and changes in the supply chain. Without context about farmer incomes or developments in the supply chain, however, the metric is hard to interpret. Most writers would probably be better off ignoring it altogether.