What Makes Up the Price of Your Food

How the price you pay for food is divided between farmers, processors, transport, shops and restaurants, and why farmers often get a small share.

When you buy a loaf of bread, a packet of biscuits or a restaurant meal, who gets your money? Only part goes to the farmer who grew the ingredients. The rest pays for processing, packaging, transport, storage, retailing and, in restaurants, cooking and service.

The food dollar

The U.S. Department of Agriculture calculates a measure called the food dollar, showing how each dollar spent on food is divided. In recent years, it has found that farmers receive only around 15 cents of each dollar Americans spend on food, when restaurant meals are included. The rest goes to food processing, packaging, transport, wholesale and retail trade, food service, energy and other costs.

The farm share is higher for fresh, unprocessed foods like eggs or fruit, and much lower for highly processed foods like breakfast cereal, where the grain itself costs little compared with processing, packaging and marketing.

Value added along the chain

Each step adds value: turning wheat into flour and then bread, moving it to shops, keeping it fresh, and making it convenient. Consumers pay for this convenience. As countries grow richer, people buy more processed and prepared food and eat out more, so the farm share of food spending tends to fall.

In developing countries

In poorer countries, where people buy more unprocessed staples, farmers typically receive a larger share. But farmers may still receive low prices if they have to sell to a few traders, lack storage, or face high transport costs. In India, studies of vegetables and fruits have found that farmers often receive a modest share of the final retail price, with the rest going to transport, wastage and a chain of intermediaries.

A tomato's journey

A farmer sells tomatoes to a local trader, who sells them to a wholesaler in a city market, who sells them to a retailer. Along the way, some tomatoes spoil, and each trader adds transport, storage and a margin. By the time tomatoes reach a city shop, the price may be several times what the farmer received. Better roads, cold storage and direct links between farmers and buyers can raise the farmer's share.

Thinking middlemen add nothing

Traders and intermediaries are often blamed for high food prices. Some do earn excessive margins, especially where competition is weak. But many provide real services: transport, storage, grading and finding buyers. Removing them without replacing these services can make things worse.

Key takeaways

Farmers receive only part of what consumers spend on food.
In the United States, farmers get around 15 cents of each food dollar.
Processing, packaging, transport, retail and food service add value and cost.
In developing countries, better infrastructure and competition can raise farmers' share.