In producing a data series mandated by Congress and meant to measure the “farm share of the food dollar” and thus to account for the cost of processing and marketing food, the Economic Research Service of the U.S. Department of Agriculture has issued reports for many years comparing retail food prices to returns of farmers. Even as this elementary series underscored the shrinking farmers’ share of retail food spending, the data also posed many questions for anyone seeking comprehend the forces at work in a trend often cited by advocates of varied approaches to food and farm policies. Thus, it is positive that the E.R.S. undertook an in-depth study to determine how best to measure processing and marketing of foods. The result is the adoption of a new approach “to introduce a systematic method for measuring the marketing bill.”

Accepting that the new approach, based on advanced mathematics and Input-Output accounting conventions, is fair and right opens the way for new understanding as well as food industry insights into the important elements of the food supply chain. So far as the basic measure of the farm share of the food dollar is concerned, the new series places that at an even lower level than the old data, largely because the new series sensibly no longer counts as farm income business done with other farms. The best illustration of how these estimates have changed is in the figures for 2006, when the old series placed the farm share of the food dollar at 19%, while the new series has the same year at 14.2%.

As helpful as it may be to have an accurate calculation of the farm share of the food dollar, the food industry will find particularly helpful the breakdown along the supply chain. The E.R.S. explains that the new method provides an analysis of “the complete food dollar,” which in turn has its total value divided for 10 industry groups. These are: Farm and agribusiness, food processing, packaging, transportation services, energy, retail trade, food services, finance and insurance, advertising, and legal-accounting-bookkeeping services. As a result of this new tack, answers are provided not just as to the total marketing bill, but the complete “food dollar” is analyzed by three production factor groups: domestic hired labor, domestic industry assets and international imports.

A close look at food processing’s importance to consumer food expenditures is especially helpful. This sector’s share of the food dollar has declined, from a peak of 23.4% in 1998 to 18.6% in 2008, the latest data year. This increased efficiency in processing stems from declines in labor used, from 13.9% in 1998 to 10.9% in 2008, and for property, meaning plant and equipment, from 7.5% to 5.6%. That 21% decrease in food processing’s share of the food dollar in 1998-2008 owes nothing to savings in either taxes or imports.

The decrease in food processing’s share of the food dollar is accompanied by similar, but mostly smaller, declines in the farm share, in packaging, in transportation and in the retail trade. Moving in the other direction, rising from 27.6% in 1998 to 33.7% in 2008, is food service. That 22% advance reflects expanded spending on food eaten away from home. Food processing’s share of the at-home food dollar was 30.1% in 2008, while its share of away-from-home food spending was 4.6%. down from 8.4% a decade earlier. Those marked differences explain why processing ends up accounting for 18.6% of total food expenditures.

Breakdowns of spending on the principal factors are shown over a period of time in the detailed E.R.S. data. Not only is the new series invaluable in helping to decide issues that often are addressed in debating national agricultural support programs, but they also should help the food industry deal effectively with its own management of the many fast-changing factors that go into making food prices.