Farmers meet diverse demands, including keeping food affordable
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Key Findings
- Topping the list of American consumer demand is that food remains affordable. The 6.4 percent of our incomes we spend on food at home ranks as the lowest in the world.
- As price takers, farmers have little to no influence over their market price and are subject to global pressures.
- Profitability is achieved on the farm by balancing the three aspects of farm business: prices, management, and production.
- When external factors, like government regulation, limit farmers’ flexibility, they have less control over profitability. Regulations leave farmers vulnerable to volatile market prices, despite their best efforts to remain viable.
- A recent study found that had USDA and EPA regulations stayed at 1997 levels through 2012, the total productivity growth in agriculture would have been 10 percent higher and 13.5 percent higher, respectively.
Introduction
Though we admonish our children for being picky eaters, American consumers as a whole have become quite picky. We want our food to be, fresh, local, GMO-free, gluten-free, pesticide-free, salmon friendly, RBST-free, and the list goes on.
Those qualities are important, but topping the list of American consumer demand is that food remains affordable.
The median household in the U.S. only spends 13.1 percent of its income on food (including both food at home and away from home) though this percentage rises to 32 percent for households in lower income brackets. The 6.4 percent of our incomes we spend on food at home ranks the lowest in the world. Americans also have one of the highest levels of per-person calorie consumption in the world.
Of the small percentage of income we spend on food, only 8.6 cents of every dollar reaches the farmers who grow food. The rest is paid to retailing, processing, energy, marketing, packaging, transportation, wholesale trade, food services, finance and insurance, legal, and other important parts of the agribusinesses chain.
Additionally, the inflation-adjusted amount we spent on food over the past decade has remained relatively stable, whereas the inflation-adjusted price of commodities has experienced a long-term decline over the last century.
Farmers are faced with the reality that to continue their businesses they must meet the growing list of demands from American consumers while keeping costs low. The challenges of this competitive landscape make successful farming increasingly difficult.
Adding to this challenge is government regulation, costing family farmers vast amounts of time and money. Regulatory costs are transparent but are hidden within each category. For farmers, the diversion of 1-2 pennies from their 8.6 cents that they receive from every food dollar could mean the difference between their farms continued viability or its end.
As farmers work to meet America’s appetite for the next food adjective, consumers and policymakers must realize that many of the regulations faced by farmers could have disastrous consequences. Farms will be faced with consolidation, food prices could increase, and society will experience little to no benefit for these added regulatory costs.
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