Food & Climate
Farmers will increasingly receive a smaller share of consumer spending, a measure known as (the farm share of the food dollar), according a report seen by “Food & Climate” platform.
In high-income countries like the U.S. or Germany, farmers receive less than a quarter of food spending, compared to over 70% in Sub-Saharan Africa, where farming costs make up a larger portion of food prices, David Meng-Chuen Chen, PIK scientist and lead author of the study published in Nature Food, said.
The researchers project that as economies develop and food systems industrialise, people consume more animal products, more highly processed foods and more food-away-from-home (FAFH).
Food systems become more complex, with the food processing and food service sectors taking up a large portion of consumer food spending; the agricultural producer’s share in final food expenditures (‘farm share of the food dollar’ or ‘farm share’) thus decreases.
For example, the farm share of a dollar spent on food in the United States has steadily declined, estimated at almost 50% in the 1950s to below 20% in 2017.
Farm share of the food dollar in wealthy countries
“In wealthy countries, we increasingly buy processed products like bread, cheese or candy where raw ingredients make up just a small fraction of the cost,” said Benjamin Bodirsky, PIK scientist and author of the study.
“The majority of the price is spent for processing, retail, marketing and transport. This also means that consumers are largely shielded from fluctuations in farm prices caused by climate policies such as taxes on pollution or restrictions on land expansion, but it also underscores how little farmers actually earn”, according to “Eurasia review”.
U.S. farm establishments received 15.9 cents per dollar spent on domestically produced food in 2023 as compensation for farm commodity production, according to USDA, Economic Research Service’s (ERS).
This amount, called the farm share of the food dollar, is a decrease of 0.1 cent from the 2022 share, which was revised up to 16.0 cents from 14.9 cents.
The farm share covers operating expenses as well as input costs from nonfarm establishments. The remaining portion of the food dollar—known as the marketing share—covers post-farm costs such as transporting, processing, and selling food to consumers.
To arrive at these conclusions, the team of scientists of the study combined statistical and process-based modelling to assess food price components across 136 countries and 11 food groups. They studied prices of food both consumed at home and away from home.
By analysing the entire food value chain, the researchers also provide new insights into how greenhouse gas mitigation policies impact consumers: “Climate policies aimed at reducing emissions in agriculture often raise concerns about rising food prices, particularly for consumers. Our analysis shows that long supply chains of modern food systems buffer consumer prices from drastic increases, especially in wealthier countries,”.
Climate policies and food prices
“Even under very ambitious climate policies with strong greenhouse gas pricing on farming activities the impact on consumer prices by the year 2050 would be far smaller in wealthier countries,” said Benjamin Bodirsky, PIK scientist and author of the study.
Consumer food prices in richer countries would be 1.25 times higher with climate policies, even if producer prices are 2.73 times higher by 2050. In contrast, lower-income countries would see consumer food prices rise by a factor of 2.45 under ambitious climate policies by 2050, while producer prices would rise by a factor of 3.3.
While even in lower-income countries consumer price rises are less pronounced than for farmers, it would still make it harder for people in lower-income countries to afford sufficient and healthy food.
Despite food price inflation, poor consumers do not necessarily need to suffer from climate mitigation policies. A previous study by PIK (Soergel et al 2021) showed that if revenues from carbon pricing were used to support low-income households, these households would be net better off despite food price inflation, due to their higher incomes.
“Climate policies might be challenging for consumers, farmers, and food producers in the short term, but they are essential for safeguarding agriculture and food systems in the long run,” says Hermann Lotze-Campen, Head of Research Department “Climate Resilience” at PIK and author of the study. “Without ambitious climate policies and emission reductions, much larger impacts of unabated climate change, such as crop harvest failures and supply chain disruptions, are likely to drive food prices even higher. Climate policies should be designed to include mechanisms that help producers and consumers to transition smoothly, such as fair carbon pricing, financial support for vulnerable regions and population groups, and investments in sustainable farming practices.”