When you buy a gallon of milk for $4, or order a burger at your favorite neighborhood restaurant for $15, what percentage goes back to where it begins – the farmers? The answer might surprise you and reflect the intricate paths food takes from farm to fork.
Farmers only received 15.9 cents of every dollar Americans spent on food last year, according to data from USDA’s Economic Research Service. That’s to say the other 84.1 cents were spent on everything else: processing, packaging, transportation, retail, marketing, and others, too.
This decomposition, called the “food dollar,” reveals the complex economics at play in our food supply chain and explains why high grocery prices don’t necessarily translate into higher farm income.
The Farm Share: Not What You’d Expect
Depending on where you buy your food, the farm share can vary wildly. Farmers receive around 24.3 cents of each dollar spent on groceries you buy to use at home. But when you go out to eat or order takeout, that farm share plummets to 5.4 cents per dollar. The added labor, prepping, and service costs are included in restaurant meals.
Whether you are entering the farm and ranch business, expanding an existing operation, understanding these economics is crucial for long-term success.
Where Do the Other 84 Cents Go?
Energy Costs Throughout the Supply Chain
Energy costs ripple through the different stages of food production and distribution. In 2023, for every food dollar, energy accounted for 4.3 cents. It might cover energy for refrigeration at every processing stage, fuel for transportation, natural gas for processing points, and power for farms and agriculture. These costs can change significantly depending on the energy market, directly affecting food prices.
Labor: The Biggest Individual Component
Unsurprisingly, the single largest component of the food dollar is labor. By 2023, the combined pay and benefits of workers across the food supply chain accounted for 53.9 cents of the dollars spent.
This would include farmworkers, truck drivers, food processing employees, grocery store workers, and restaurant personnel. This share has fallen from its 2020 high of 57.6 cents, but it remains the main cost driver of food prices.
Marketing, Advertising, and Other Services
This is all about marketing/advertising and other services. In 2023, marketing and advertising added 2.6 cents to every dollar of food. It supports promotional activities that stimulate consumer awareness and purchase decisions. Moreover, the price for clients’ legal services, accounting, insurance, and other professional services all contribute to the overall price consumers pay.
Historical Trends: The Losing Share of Farmers
The farmer’s piece of the food dollar has dwindled through the decades. Farmers generally contributed more than 18 cents for every dollar of food in the 1990s. The farm share has stayed below 16 cents since 2000 and hit record lows in recent years. This pattern has its origins in several reasons:
Changing Consumer Preferences: More Americans prefer convenience foods with added processing and packaging. By purchasing pre-cut vegetables, boneless chicken breast, or ready-to-eat meals, you are shifting greater value away from the farm and toward processing and retail.
Consolidation in Food Retailing and Processing: Bigger retail chains and food processors are finding it easier to achieve dominant market share, potentially capturing a larger share of food dollars.
Rising Input Costs: Farmers pay a larger share of the food dollar for agricultural equipment to fuel specialized inputs.
What It Means for Farmers
The “food dollar breakdown” provides some context that serves as a useful lens for some important truths about production, particularly by farmers:
Grocery Price Increases Don’t Mean Farmers Will Benefit Most: In general, when you see soaring food prices at the supermarket, it’s seldom the farmers who are the main recipients of price increases.
Gross Margins Must Be Kept Very Tight: Smart, efficient farm management for your financial well-being and access to the right financial instruments is critical if you are to thrive. Whether you’re building a farm, growing current operations, every dollar you invest has to be allocated with precision.
Control the Cost of Inputs: Farmers must spend on seeds, fertilizer, equipment, and more with the tiny fraction of the food dollar they already have, and controlling costs affects profit directly. Farmers can access more affordable financing, including FSA farm loans for inputs and equipment.
The Broader Picture
The food dollar analysis shows that food production in the modern era is essentially a web of specialized industries, each adding value and increasing costs to the system. Even if farmers share only a limited share of it, the system provides Americans with safe, affordable, and convenient food year-round.
For farmers, this is the economic truth that drives operational effectiveness, strategic planning, and good relationships with lenders. Whether you’re starting out or running a successful business on a small or large scale, understanding where your products fit in this broader value chain can inform better business decisions. That means being creditworthy, creating comprehensive business plans, and cooperating with informed lenders who are familiar with farm loan requirements and agricultural economics.
If you are assessing when and how you intend to use your farmland, or whether to enter agriculture, don’t forget that it’s not simply production skills that determine success. It demands knowing your actual costs and your share of the food dollar. No more waste or inefficiency in a system where farmers are receiving less than 16 cents of every food dollar.
Partner With a Lender Who Understands Your Share
At First Financial Bank, we know the economic stressors facing today’s small-scale farmers and ranchers. As you’re working from razor-thin margins and making less than 16 cents of each food dollar at First Financial Bank, we’ll give you more than a loan. At FFB, we understand the economic challenges the modern farmers and ranchers face.
Your local Farm & Ranch lending team is “in the trenches” and understands the need for agricultural financing, including operating loans for day-to-day expenses. Visit ffb1.com or contact our Farm & Ranch division today.
We’d love to hear from you.
