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