Farm returns, food spending: is farmers’ share declining?

The debate over how much a farmer receives from retail food sales stretches back decades.


A recent study by a University of Guelph graduate student found that farmers receive 17 cents for every dollar spent. 


With help from Statistics Canada, Agriculture Canada and the U.S. Department of Agriculture, Jessica Kelly’s master’s thesis looked at the farm share of the food dollar in Canada from 1997 to 2010. The study covered commodity prices, value adding and inputs.


The farm share is the average portion from each dollar spent on food that is received by farmers for their agricultural commodities. It does not include weather or political events that might affect prices. 


For example, the price of meat is still high even when pork or beef markets collapse, which Kelly said is a topic for future study. 


“It is a comparison of how much people spend on food and how much did farmers get for that food,” she said.


“We didn’t attempt to tie the changes in the farm share to the specific events,” she said.


The concept of farmers’ share of the food dollar originated with the USDA’s Economic Research Service. Besides calculating what the farmer receives, it also includes the marketing margin, which shows where the rest of the money goes when products are sold beyond the farmgate. 


A recently released survey from the research service found the farmer share to be 17.4 cents and the marketing share to be 82. 6 cents, which is similar to what has been found in Canada.


“The farm share is commonly used in the U.S. and is one of the most misused statistics out there with this idea if the farm share is going down, then the farmer is being cheated. That isn’t necessarily the case. The consumers are demanding products that have more value adding to them: salad in a bag versus a head of lettuce,” said Kelly, who used this information for her master’s thesis.


“The problem with the farm share is it makes it appear as if people in the food supply chain are competitors for some fixed amount of value instead of partners to build a bigger pie to be shared.”


Input-output data is a complicated formula, but the results showed the overall farm share for food decreased from 19 percent to 17 percent be-tween 1997 and 2010. 


The farm share for food purchased away from home was even less. The more the food is processed and packaged, the smaller the farmer’s share.


Consider the price of a head of lettuce and the final retail product that is sold as a package of pre-made salad: the farmer receives less from the salad than from the single product. 


“You would expect a weaker connection between those prices when there is a lot more service added to it beyond the farm.”


Kelly speculated that the farmer’s share will continue to decline as more convenience food is offered. 


Rather than looking at the price of items in a grocery basket, the overall farm share provides a snapshot of how money is distributed along the value chain.


“I was trying to emphasize, one, what the farm share could tell us, but number two, and equally important, what the farm share can’t tell us,” she said. 


“The farm share can’t tell us what is fair or what is equitable.”


Kelly’s study did not break down prices into a specific grocery basket of products, but past researchers have found that dairy products have the highest farm share, grain products have the lowest and vegetables and meat fall in between. 


For example, eggs consistently have the highest farm share value because there is minimal post-farmgate processing. 


Pork is another example. 


Kelly’s research found a potential farm share of 30 percent, but it doesn’t mean hog farmers received 30 percent of all food products containing pork. It means they received 30 percent of consumer expenditures on fresh, chilled or frozen pork. 


Other food products, such as prepared meals and soups, could include 78 pork products. The farm shares for these more processed food products would include the value received by many different types of farms. 


The information was difficult to track, but all past research has showed a declining farmer share of the food dollar. 


Other academics and Keystone Agriculture Producers in Manitoba have done work in the past, but no sustained effort has been made to monitor this information. 


Conservative MP Ralph Ferguson attempted to show the relationship between farm returns and food spending in 1991 in a report called Compare the Share.


He concluded that low and declining farm share values were unsus-tainable, and farmers were being unfairly shortchanged. 


Kelly argues that a downward trend is not inherently negative for agricultural producers because it is simply a proportional breakdown of an unfixed value: farm revenues could be rising but not as fast as food ex-penditures.

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