Understanding your food dollar
Only 22 cents stays on the farm - and the farmer gets a nickel of that

When you hear of farm prices plummeting as they have recently for some products, you naturally expect food prices to go down. In many instances, they don't.
   Why don't consumers get the benefit of these lower farm prices? Primarily because the farmer's share is such a small portion of the total food dollar.
   For every $1 the consumer spends at the grocery store, only 22 cents makes its way back to the farm. Seventy-eight cents on the dollar goes for distribution, packaging, processing and retailing of food products.
   Food costs may be more affected by recent increases in oil prices, for example, than the value of the farm products themselves. Given the energy used for food delivery, processing and packaging, rising oil prices may have offset any drop in food costs that results from depressed price at the farm in the past year.
   The 22 cents that returns to the farm is an average for food products. It varies from food item to food item. The United States Department of Agriculture says that of each $1, the farm value of meat products is 40 cents, and of dairy products is 30 cents. Fruits and vegetables are valued at 20 cents and grain products at 7 cents.
   In other words, if a loaf of bread costs $1, the farmer can just give the wheat away and the bread will still cost 93 cents!
   If a dairy farmer gives away his milk, the gallon you buy at the store still will cost you more than $2.
   Of that 22 cents going back to the farm, only a nickel represents net income to the farmer. With such a slim profit margin, even small shifts in farm prices can cause his income to fluctuate wildly.
   Overall, farm prices are down 20 percent from a year ago. What does this mean to the average farmer's income? Ever increasing costs, coupled with lower prices the farmer receives, have put many producers in financial jeopardy!
   You might expect this bad news for farmers to be good news for you. How will a 20-percent drop in what the farmer makes affect your grocery dollar?
   Unfortunately, grocery store prices do not fully reflect fluctuations in farm prices. Therefore, your food costs probably will remain the same, at best. In fact, you might even pay more because of greater expenses beyond the farm gate.
   It's pretty easy, if you think about it, to see how drought or higher labor or equipment prices might affect a farmer's income. We all know from first-hand experience about rising costs.
   What about other factors, though, that seem far removed from our everyday lives? like the Asian financial crisis, for example or proliferating government regulations?
   Asian countries are the largest buyers of American farm products. Dire financial conditions in that part of the world, however, have helped drive down U.S. farm exports there more than 20 percent. That makes it harder for those nations to afford our farm goods.
   And it has slashed the incomes of U.S. farmers and ranchers drastically. Since one-third of Arkansas agriculture production is exported, farmers here are especially sensitive to the whims of foreign markets.
   For farming, as well as most other industries, regulatory burden also adds to the cost of doing business. Farmers bear much of the financial burden of complying with rules on animal wastes, endangered species, farm chemicals, wildlife habitat and other equally important concerns. Unlike other industries, however, the system simply doesn't allow agricultural producers (farmers and ranchers) to pass such costs along to consumers.
   Other social concerns such as food safety, worker protection, climate change and politics all can affect farm and food prices in the same ways.
   For the past 30 years, the farm share of the food dollar has shriveled. At the same time, prices have become less stable, and farmers' production expenses have soared. Nevertheless, they've survived by embracing new technologies and becoming more efficient managers.
   And consumers have benefited.