1. Department of Economics Factors That Determine The Cost of Food Chad Hart chart@iastate.edu 515-294-9911 ISU Extension ANR Lunch and Learn Bioeconomy Community Conversation II: Food, Feed, and Fuel Ames, Iowa October 10, 2008

2. Department of Economics U.S. Food Marketing System Five distinct sectors Agricultural production 2 million farms Food processing and manufacturing 25,000 food and beverage companies Wholesale distribution 33,000 food wholesalers Retail distribution 113,000 food retailers 378,000 foodservice companies Consumption 111 million households

3. Department of Economics U.S. Food Marketing System In 2001, government estimates showed: 23.7 million employed in the food system 12% of the nation’s gross domestic product Food is a major component of our economy Each step in the system adds value and costs

4. Department of Economics The Food Dollar Source: USDA-ERS

5. Department of Economics Declining Farm Value in Food Source: USDA-ERS In the 1950s, 25% of food was consumed away from home. Today, nearly 50% of food is consumed away from home.

6. Department of Economics Farm Value in Individual Foods Source: USDA-ERS Farm share of retail price 1 Food199819992000 (Percent) Milk, ½ gal. 41 39 34 Orange juice conc., 12 fl. oz. 38 37 33 Corn, 303 can (17 oz.) 23 22 22 Applesauce, 25-oz. jar 14 14 16 Tomatoes, whole, 303 can 7 7 7 Sugar, 1 lb. 32 31 27 Flour, wheat, 5 lbs. 20 18 19 Margarine, 1 lb. 26 17 15 Rice, long grain, 1 lb. 22 19 14 Peanut butter, 1 lb. 26 23 22 Potato chips, regular, 1-lb. bag 8 9 8 Chicken dinner, fried, frozen, 11 oz. 13 13 14 Potatoes, french fried, frozen, 1 lb. 11 11 10 Bread, 1 lb. 5 5 5 Corn flakes, 18-oz. box 4 4 4 1 Computed from unrounded farm values.

7. Department of Economics Changes in Food Price Indexes Sources: Bureau of Labor Statistics, USDA-ERS Consumer price indexesRelative importance 1 Final 2005 Final 2006 Final 2007 Forecast 2008 2 Forecast 2009 2 (Percent) All food100.02.4 4.05.0 - 6.04.0 - 5.0 Food away from home44.63.1 3.63.5 - 4.54.0 - 5.0 Food at home55.41.91.74.25.5 - 6.54.0 - 5.0 Meats, poultry, and fish12.22.40.83.82.5 - 3.55.0 - 6.0 Eggs0.9-13.74.929.213.5 - 14.52.5 - 3.5 Dairy products6.41.2-0.67.48.0 - 9.04.0 - 5.0 Fats and oils1.5-0.10.22.913.0 - 14.03.0 - 4.0 Fruits and vegetables8.43.74.83.85.0 - 6.03.5 - 4.5 Sugar and sweets2.01.23.83.14.5 - 5.53.0 - 4.0 Cereals and bakery products7.41.51.84.49.0 - 10.03.5 - 4.5 Nonalcoholic beverages6.72.92.04.13.5 - 4.53.0 - 4.0 Other foods9.91.61.41.84.0 - 5.03.0 - 4.0 1 BLS estimated expenditure shares, December 2007 2 Forecasts updated July 21, 2008

8. Department of Economics Quick Facts Farm value is less than 20% of the food dollar. Costs beyond the farm gate make up more than 80% of the food dollar. Labor, transportation, energy, advertising, etc. The farm value in the food dollar has dropped as people seek more food away from home and more processed foods.

9. Department of Economics Thanks for your time! Any questions?