July 21, 2002 | By: Aimee D. Heald
LEXINGTON, Ky.

Changes in consumer food choices may affect the farmer’s share of the food dollar, but they don’t necessarily indicate a farmer’s profitability according to a University of Kentucky agricultural economist.

The farmer’s share of the food dollar is a statistic given by the U.S. Department of Agriculture to represent how much farmers receive of a hypothetical dollar spent at the retail level.  Currently, that statistic is 19 cents.

“So, less than 1/5 of the money spent by consumers for food goes to the farmer,” said Larry Jones, UK agricultural economist.  “In fact, this farm share has been declining over time.  For example, in 1972 the share was 32 cents on the dollar.”

Jones said the farm share usually doesn’t mean that farming is not profitable or even indicate how much money can be made in specific enterprises.

“Another way to look at this statistic is that 81 percent of consumer dollars spent for food reflects the value added to food for such things as processing, transportation, packaging, labor, advertising and other factors associated with marketing food,” he said.  “Looking at it that way provides some clues as to why the farm share has been declining.”

It’s no secret that consumers are demanding more convenience items and value-added products.  Almost gone are the days of making popular food items from “scratch.”  Jones said a majority of consumers no longer want to bake a cake from basic ingredients.

“They either want to buy a mix or even buy the cake already baked and ready to eat,” he said.  “Consumers want convenience and that may mean individual portions, pre-packaged, pre-frozen and ready-for-the-microwave products.”

Consumers also are eating more meals away from home and that is a contributing factor to the decline in the farmer’s share of the food dollar.  Jones said that nearly half of all food expenditures these days are for food eaten away from home.

“The fact that more households are headed by single individuals or single parents, or households where two adults work outside the home has also helped fuel the trend toward buying more value-added products,” he said.  “Consumers are looking for more natural products and more convenience packaging and this trend has helped drive down the farm share of the food dollar.”

Although some producers may see these trends and think they need to find ways to meet consumers needs and in turn profit from those needs, Jones said much thought needs to be put into planning.

“If producers decide to get into packaging to add value they might be successful,” he said.  “But only with sound management skills and a well-run operation will any type of niche marketing work to increase a farmer’s income.”

Jones stressed that the food share declines have more to do with changing consumer preferences for food that is ready to heat and ready to eat in order to satisfy changing lifestyles and demographics.

“The fact that farmer’s share of the consumer dollar has declined does not address the profitability of farms,” he said.  “Rather it is an indication that processing, transportation, and other marketing costs have increased far more rapidly than the value of raw farm products.”

Contact: 

Larry Jones  859-257-7289