July 29, 2021

Study Finds Most Profit Made from Grocery Stores Does Not Go to Farmers

Study Finds Most Profit Made from Grocery Stores Does Not Go to Farmers

A new study published in Nature, Post-farmgate food value chains make up most of consumer food expenditures globally, discovered that farmers make less than 25% of what consumers spend at the grocery stores, and around 7% less than that for food that is consumed at restaurants, or outside of the home. The authors also found that that percentage decreases in higher-income countries. The research was supported by the Cornell SC Johnson College of Business and the United States Department of Agriculture’s (USDA) Economic Research Service (ERS). 

“The key insight, from my perspective, is that the overwhelming majority of the value addition is happening after the farm gate,” lead author Chris Barrett said. “People fall into thinking of food issues as being farm issues. And farm issues are important, but they’re comparatively less important than most people realize. And they’re becoming steadily less important over time.”

The researchers followed the global food value chain by analyzing data collected between 2005-2015 from 61 countries, representing 90% of the global economy. They estimate that up to 85% of the value is created beyond the farm. It was inferred that as income increases, consumers move away from farms, and are thus, willing to pay for the convenience of expanding the chain of stakeholders involved. 

To better understand what happens between the farm and the consumer’s plate, the research team developed the “Global Food Dollar” method, which measures the amount of money American consumers spend on domestically produced food and breaks down the cost of it. The Global Food Dollar is an extension of the ERS’ food dollar series, which measures annual expenditures by US consumers on domestically produced food. 

The farming and agricultural industries are often criticized for economic and climate-related struggles, so it is imperative that studies such as this highlight the middleman that is often forgotten. The publication explains that food processing techniques often add unhealthy levels of salt, sugar, and saturated fats, and these ultra-processed foods are taking an increasingly large share of diets in developing countries. Food processing also leaves a large and growing carbon footprint. “The big economic players in the food we consume aren’t actually the primary producers on farms,” Barrett said. “So, when we think about food issues … maybe we need to spend a little bit more time thinking about what’s happening in that post-farmgate value chain, with the processors, manufacturers, wholesalers, retailers, and restaurants.”

Read the full study here.