Following the Food Dollar

Following the Food Dollar

Who gets paid for the food we eat every day?

By Brock Johnston, Iowa Soybean Association

Savory skewers, fresh vegetables or the perfectly crisped potato – all crowd favorites at summer backyard barbeques. The scents and sounds make it easy to overlook the long journey foods undergo before simmering on the grill.

The food supply chain, or a food item’s process from farm to store, shapes the costs consumers see at local supermarkets and restaurants. From the farmers growing crops and raising livestock to transporters, packers and more, many people receive a share of every food dollar spent.

7.4¢ Farm Production

As leading producers of many commodities, including soybeans, pork, eggs and corn, Iowa farmers play an invaluable role in producing the foods that keep consumers healthy and fed. On average, a farmer receives 7.4 cents of every dollar spent on food in the U.S. This reflects the share farmers receive after paying for production inputs like seed, fertilizer, electricity and more.

Scot Bailey, a Cass County farmer, says while commodity prices change over time based on supply and demand, the farmer’s cut of the food dollar doesn’t.

Farmers don't set their prices like other aspects of the supply chain do. We sell our products based on market price, meaning if my product costs increase, I don't pass that increase along.

Today, farm production’s share of the food dollar continues to narrow. The remaining portion is spread throughout the supply chain as it travels to consumers.

15.4¢ Food Processing

Food processors, including frozen food manufacturers, bakeries and dairy and meat processors, transform agricultural products into the items seen in stores and restaurants. This can include grinding grains, pasteurizing milk and deboning and cutting meat.

Twenty-nine of the largest 100 food manufacturers have operations in Iowa, including companies like Barilla, Hormel, Kraft Heinz, Tyson and Wells Enterprises – the maker of Blue Bunny ice cream.

2.9¢ Packaging

Packers help prepare food for sales, distribution and delivery. They utilize plastic, cardboard, bottles and other materials to ensure food remains fresh and undisturbed. The creation of renewable-based plastics, also known as bioplastics, is growing in popularity as consumers increasingly prioritize sustainability in their purchasing decisions. Bioplastics can be created from crops grown right here in Iowa, including soybeans and corn.

3.6¢ Transportation

Food has a long journey after leaving the farm. It must be transported, processed, packaged and transported again. This process involves a steady stream of trucks, trains, boats and planes. The average food product travels 1,500 miles before reaching the consumer.

Both fuel and labor shape overall transportation costs. As a leading food-producing state, Iowans enjoy food costs 1.7% below the national average. That’s an annual cost difference of between $2,800 and $3,200. Despite the savings, inflationary pressures continue to drive up costs for consumers.

10.7¢ Wholesale Trade

“Wholesalers are companies that sell to other businesses instead of directly to consumers,” says Michelle Hurd, executive director of the Iowa Grocery Industry Association.

For example, a company selling fresh vegetables to neighborhood grocers or restaurants is a wholesaler. These companies typically sell bulk products at lower prices and sometimes offer discounts for buying larger quantities.

12.7¢ Retail Trade

In retail, consumers are purchasing the product directly from the store.

"Your neighborhood supermarket is a good example of retail trade," says Hurd, who oversees the food industry state trade association.

Retailers commonly use "retail margins" to determine food item prices. A retailer wants to maintain an attractive price point while ensuring the cost of acquiring or producing the item results in a profit.

33.6¢ Food Services

The largest cost share of the food dollar goes to food services, including fast food and dine-in restaurants.

This pays for the workforce who prepare, serve and clean up after meals. The food service share has again reached an all-time high, following a sharp dip in 2020.

3.2¢ Energy

Power from energy sources such as oil and coal mining, gas and electric utilities, and refineries are essential to operate equipment and buildings necessary to produce a food item.

3.6¢ Finance and Insurance

This food dollar share covers all financial services and insurance related to producing food.

3¢ Advertising

Once food products are produced, businesses need to raise awareness that specific items are available for purchase. This share covers the promotional marketing of items and deals.

3.9¢ Other

This share provides accounting, legal and record-keeping services. It may also contain subcontractor work needed to produce food in the supply chain.