Food: A Funny Thing Hap­pened On the Way to Your Table

Trillions - - In this Issue -

Once upon a time, all of us used to eat food grown, har­vested, or butchered not far from us, and with a min­i­mum num­ber of steps be­tween the farm­ers and the table where we eat. Those days are over. And along with them have come a com­plex maze of steps, value-added costs and more that make our food some of the costli­est for con­sumers and least prof­itable for pro­duc­ers.

Take this typ­i­cal tale of woe. A pro­ducer of blue­ber­ries re­cently was quoted as get­ting paid $0.30 per pound. Those same blue­ber­ries at the mar­ket go for $5.00 a pound, and yet the store claims that it only has a 5% markup. Where did the $4.70 dif­fer­ence “farm to fork” go?

The an­swer, as is so of­ten in com­plex prob­lems, is “it de­pends”.

Com­mon to all of the an­swers to this is the food de­liv­ery value chain, which in­cludes the fol­low­ing se­quen­tial steps, all of which have costs as­so­ci­ated with them.

1. Crop Plant­ing and Grow­ing

2. Crop Losses dur­ing the grow­ing sea­son

3. Gath­er­ing and Har­vest­ing

4. Losses as­so­ci­ated with Har­vest­ing, in­clud­ing sort­ing, pack­ag­ing and dam­age

5. Ini­tial han­dling/pro­cess­ing of the food and fur­ther pack­ag­ing

6. Sec­ondary pro­cess­ing losses (when the prod­uct is mod­i­fied fur­ther for fi­nal use and ship­ment; this in­cludes ev­ery­thing from pre-cut­ting the prod­uct to creat­ing fully-pro­cessed foods)

7. Dis­tri­bu­tion, in­clud­ing ship­ping and han­dling by mas­ter dis­trib­u­tors who ship to re­tail­ers, and di­rect ship­ping to the stores

8. Re­tail losses (in store, in han­dling, in stor­age, and in throw­ing out waste, which can be, ac­cord­ing to in­dus­try ex­perts, as much as 25% of the prod­ucts re­ceived)

9. Con­sump­tion Losses at the con­sumer end

Ac­cord­ing to an anal­y­sis done by the World Eco­nomic Fo­rum on the sub­ject of Sus­tain­able Con­sump­tion, in de­vel­oped mar­kets like North Amer­ica, the United King­dom and Europe, the losses as­so­ci­ated with pre-har­vest ac­tiv­i­ties are gen­er­ally quite low, with the fol­low­ing ma­jor value losses along the way:

• Har­vest­ing and pro­cess­ing losses (from steps 4 through 5) amount to 12 to 21% of the cost

• Sec­ondary pro­cess­ing steps (#6) add from 1 to 10% of the cost

• Dis­tri­bu­tion and re­tail losses (#7 and #8) amount to 2 to 26% of the cost

• Con­sump­tion losses (#9) amount to be­tween 3 and 40%, de­pend­ing on the prod­uct.

In de­vel­op­ing coun­tries, the cost struc­ture is very dif­fer­ent.

• Pre-har­vest losses (#s 2 and 3) amount to be­tween 26% and 40% of the cost

• The to­tal of Har­vest­ing and Pro­cess­ing, Sec­ondary Pro­cess­ing, Dis­tri­bu­tion and Re­tail Losses runs to a cost of 10 to 50%

• Con­sump­tion losses (#9) run at from 0 to 10%

Put an­other way, the food sup­ply chain in de­vel­oped coun­tries is very ef­fi­cient for the most part, even if it has many steps. There is lit­tle waste at the front end and the steps in be­tween, although they are re­spon­si­ble for high cost (es­pe­cially as con­sumers in­sist on hav­ing food avail­able year-round, with com­plex pack­ag­ing and more), most of the ‘waste’ in the process is at the tail end of the process – where we as con­sumers waste a fairly high per­cent­age of the food we buy.

In de­vel­op­ing coun­tries, the sit­u­a­tion is the op­po­site. The front end of the value chain is messy and un­sta­ble, with ev­ery­thing from in­ef­fi­cient pro­duc­tion meth­ods, in­abil­ity to plan for cli­matic changes over time, and lack of train­ing rack­ing up what is at a min­i­mum over 25% and as high as 40% of the to­tal costs. De­vel­oped coun­tries, likely be­cause of the prob­lems with en­sur­ing a sta­ble sup­ply of healthy food in gen­eral, are also far more se­ri­ous about keep­ing con­sump­tion waste to a min­i­mum.

The Ma­jor Play­ers as the Food Moves from Farm to Fork

That de­scribes the na­ture of the costs and their al­lo­ca­tion. But what fur­ther is go­ing on that makes those costs at so many steps so high?

The Farm­ers and Live­stock Pro­duc­ers

Whether it be a small farm or a big one, these are the peo­ple and com­pa­nies hav­ing to pre­pare the soil, plant the seeds, ir­ri­gate the crops, care for the live­stock, and man­age the har­vest­ing of all.

To be cost ef­fec­tive, farms must now be more tech-savvy in the use of the lat­est equip­ment and must find ways to max­i­mize yields with min­i­mum cost of hu­man la­bor. That means more and more equip­ment, more train­ing, and more con­scious track­ing of what makes farms most ef­fec­tive. It also means that more and more cap­i­tal is need to buy, main­tain, re­place and up­date the equip­ment used year af­ter year.

A sec­ond is­sue farms must now deal with is to be­come more mar­ket-fo­cused. In ear­lier times farm­ers would sell just what they thought was ap­pro­pri­ate to pro­duce, with lit­tle con­sid­er­a­tion of mar­ket trends. These days, how­ever, the farm­ers are of­ten chas­ing the next big de­mand that might come up from the mar­ket­place, such as spe­cific va­ri­eties of veg­eta­bles all the way to or­ganic prod­ucts and more un­usual vari­a­tions. These shifts may re­quire dif­fer­ent grow­ing cy­cles, dif­fer­ent soil prepa­ra­tion, dif­fer­ent equip­ment and more. But the higher mar­gins avail­able by sell­ing what’s “hot” in the mar­ket may be worth it.

A third is­sue driv­ing costs is hav­ing to deal with the increasing chal­lenges of cli­mate change for all the crops they grow. This can in­clude ev­ery­thing from deal­ing with dif­fer­ent rain and tem­per­a­ture cy­cles as the world gets hot­ter through­out. It also can in­volve hav­ing to deal with the increasing higher like­li­hoods of nat­u­ral dis­as­ters from flood­ing to even more se­ri­ous storm dam­age. Both of these more sig­nif­i­cant cli­matic events can pro­duce mas­sive short-term losses and of­ten many years be­fore the same land that used to pro­duce so more re­li­ably in the past.

The Food Pro­cessers

This group in­cludes those re­spon­si­ble for har­vest­ing the crops, butcher­ing meats, clean­ing and cut­ting fish for dis­tri­bu­tion, and more. The pro­duce may also be sorted for sale into dif­fer­ent ap­pli­ca­tions, de­pend­ing on qual­ity, which is of­ten some­thing the “food pro­ces­sor” group is re­spon­si­ble for. This group also in­cludes sim­ple pack­ag­ing for raw goods.

This group also in­cludes those in­volved in more com­plex fur­ther pro­cess­ing of the goods to make other prod­ucts. Peanut but­ter, canned sar­dines, tuna fish, ham­burger pat­ties and other goods, some­times pro­vided for re­tail stores and some­times for res­tau­rant dis­tri­bu­tion, all are part of the food pro­ces­sor mix.

For this group, one of the big­gest chal­lenges that drives cost is the con­stant chang­ing of what spe­cific foods cus­tomers may want – and what food pro­cess­ing “value-added” fea­tures need to be in­volved. It is a com­plex chain of items con­stantly shift­ing in de­mand. All of which means mar­ket­ing, strate­gic prod­uct plan­ning, in­vest­ment de­ci­sions in the nec­es­sary cap­i­tal equip­ment to sup­port the new items, and con­sid­er­a­tion of mar­ket cy­cles for both fads and longterm con­sumer shifts.

An­other is­sue this group has been in­creas­ingly faced with deal­ing with is food safety re­lated to the pro­cess­ing it­self. A lis­te­ria scare in a meat pro­cess­ing plant may be han­dled by lot num­ber con­trol, es­pe­cially when it is clear that bad food may have made it through the chain over a clearly-de­fined pe­riod of time. But other things, such as tainted food that may or may not have be­come tainted while in the pro­duc­ers’ hands, are more com­plex. Hence the increasing re­quire­ment of trace­abil­ity of the food ev­ery step of the way from farm to fork.

An­other thing the pro­duc­ers also need to deal with is how to jug­gle the var­i­ous pro­cess­ing steps they have so as to most cost-ef­fec­tively han­dle the food for all the pos­si­ble fi­nal forms that food may be in – when it leaves the pro­ces­sors hands. Think of it as not that much dif­fer­ent from the ‘mod­u­lar­ity of de­sign’ one of­ten hears about in man­u­fac­tur­ing. Be­cause this re­ally is about ‘man­u­fac­tur­ing’ food, not just pass­ing it along.

The Food Dis­trib­u­tors

This in­cludes the truck­ers, haulers, and shippers that bring the food from one place to the next in the value chain. It also in­cludes the mas­ter dis­trib­u­tors and ware­house op­er­a­tors who gather goods in one lo­ca­tion from mul­ti­ple sup­pli­ers, then move the prod­ucts out to their fi­nal desti­na­tions.

For this cat­e­gory, the food must be moved along as ef­fi­ciently as pos­si­ble from its re­ceipt by the dis­trib­u­tors to its de­liv­ery to the re­tail stores or restau­rants which will re­ceive it. It must be kept clean. It must be kept at the right tem­per­a­ture. It must be kept free from pests. It must be pro­tected from dam­age. And it must be packed in a way that sup­ports cost-ef­fec­tive load­ing and un­load­ing, es­pe­cially when a given truck

or ship­ping unit is car­ry­ing mixed quan­ti­ties of goods and be­ing dis­trib­uted to mul­ti­ple end desti­na­tions. And yes, ev­ery part of this process adds costs in­clud­ing trans­porta­tion ex­penses (e.g., trucks, fuel and driver ex­penses) and ma­te­rial hand­ing con­sid­er­a­tions.

This cat­e­gory of providers also re­quires food trace­abil­ity sys­tems as well ev­ery step of the way. These days it also re­quires track­ing of weight, losses in tran­sit, and even in-ship­ment tem­per­a­ture mon­i­tor­ing for cer­tain goods.


The end re­tail sup­plier of food prod­ucts has is­sues some­what sim­i­lar to those faced by both the food pro­ces­sor and the dis­trib­u­tors.

Most ma­jor re­tail stores do some re-pro­cess­ing of their goods af­ter re­ceipt, ei­ther into fi­nal pack­ag­ing or for dis­play pur­poses. They also build in­ter­nal pro­mo­tions around avail­abil­ity of var­i­ous goods, which makes them far more in­volved in the mar­ket­ing as­pects of their prod­ucts.

Re­tail stores also have the prob­lem of high losses from the least-pro­cessed of the var­i­ous kinds of foods. Be­cause con­sumers will not even con­sider pro­duce which is bruised or dam­aged even in the slight­est way -- even though the food may be per­fectly healthy and even taste good – that ends up tak­ing even the most slightly dam­aged foods and hav­ing to throw them away. An in­dus­try ex­pert at Kroger, one of the world’s big­ger gro­cery chains, stated that as much as 30% of cer­tain kinds of pro­duce are just thrown away for this rea­son. And the cra­zi­est part of this is that in many cases the bruis­ing is also di­rectly ac­count­able to the con­sumers them­selves, as they pick over the goods to find ‘the best ones’ for their home.

So – af­ter all that -- where does all that cost markup come from, from farm to fork?

It is in a lot of places. It in­volves the crit­i­cal ex­penses needed to sup­port all the var­i­ous con­cerns and needs of each step of the value chains as out­lined here. It in­cludes the losses, some hu­man-caused, some ac­ci­den­tal, and some trend­ing from what na­ture and cli­mate are hand­ing us to deal with, that af­fect ev­ery step of the chain. It also in­volves those of us in the de­vel­oped coun­tries be­ing an in­cred­i­bly waste­ful group of peo­ple even with what we buy, bring home and then even­tu­ally just throw out for one rea­son or an­other.

And it also in­volves us as con­sumers con­stantly de­mand­ing food va­ri­eties which re­ally should be sea­sonal if we sourced it from close to home, but for which we now de­mand to buy some­thing year-around and pro­duced far from us. It in­volves us as con­sumers con­stantly chang­ing what we want to eat, forc­ing ev­ery step to con­stantly shift and adapt.

With the cost markup in­volved comes an­other very chal­leng­ing prob­lem, how­ever. For as much as con­sumers may be con­stantly de­mand­ing more and more, we con­sumers are less and less will­ing to pay much higher prices for the goods. All of which puts pres­sure on the en­tire value chain, forc­ing prices down at ev­ery step or else the providers can­not stay com­pet­i­tive.

Un­for­tu­nately, it is of­ten the very first place in the value chain that ends up get­ting the tough­est pres­sure. For ev­ery other part of the chain, from re­tail store down through dis­trib­u­tors and pro­ces­sors, will find other ways to cre­ate value-adding to in­crease their own mar­gins else­where. But when you get to the raw pro­duc­ers – the farm­ers and live­stock providers – they have lit­tle place to go and the en­tire weight of the value chain telling them that their prod­ucts need to take the cost hit or else they just might not have the prod­ucts pur­chased by any­one.

So once again, it is about big busi­ness and the buy­ing clout that comes with that, plus the greed to push ev­ery­thing back to the farm­ers for them to do some­thing to solve the prob­lem.

Which is why, more and more, the lit­tle farm­ers we grew up with as chil­dren, the ones who de­liv­ered lo­cal eggs, milk and even veg­eta­bles as close to di­rect and with min­i­mum han­dling, are rapidly dis­ap­pear­ing from the so-called de­vel­oped world.

Photo by Laurl Ran­tala

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