[MUSIC PLAYING] CHRIS BARRETT: I'm Chris Barrett. I'm the Steven B and Janice G Ashley Professor of Applied Economics and Management in the Charles H Dyson School of Applied Economics and Management within the Cornell SC Johnson College of Business.
How do we reduce unnecessary human suffering? So our work is engaged in poor communities around the world, especially in areas of rural Africa and Asia, addressing issues of hunger and sustainability, ill health and disaster management, among others.
Last year, we offered the first global estimates of the share of consumer food expenditures that flows back to farmers and the share that accrues to all of the other value chain stages, to the processors, the manufacturers, the wholesalers, the transporters, the food service firms. We find that on average only 27% of consumer expenditures on food consumed at home flows back to farmers. Put differently, about 3/4 of consumer food expenditures is accruing to all the actors along the agricultural value chain after the commodity leaves the farm. For those who are eating food from street vendors or in restaurants or in hotels, it's less than 10% of the value that the consumer is paying is going back to farmers.
People aren't paying for more food. There's a physiological limit to how much food I can take in any given day. Rather, people are paying more for greater convenience, for better packaging, for higher quality. And all of these attributes get added after a commodity is left to the farm. So it's all from post-harvest value addition. That's where the growth in the margin comes from as the process of economic development proceeds.
We document the absolutely explosive growth of modern food retail, food service chains, third-party logistics firms, as developing countries are growing and urbanizing. The pace of this change has gone largely unrecognized. And it comes back to this point that most of the expansion in consumer food expenditures is not expansion of payment for commodities. It's payment for all the value added services.
As people are earning higher incomes and they're busier in paid employment that is not on a farm, they are paying more for food that is already prepared. If these sorts of patterns sound familiar, that's because it's a ubiquitous pattern we see around the world. But it is equally true in the developing world.
The biggest impacts of the Russian invasion of Ukraine in the global food system are going to be felt not because of the loss of Ukrainian or Russian wheat or maize or fertilizer from the market. Those things are important and they're getting a lot of attention. But they ultimately account for a very small share of the consumer price of wheat or maize-based products.
The real price impact there is going to come much more from the increased cost of manufacturing and transport and refrigeration caused by rising energy prices because it's hitting that value addition that happens post-farm gate that is so important. So if we want to understand how big shocks like wars or floods or droughts impact food markets and the hungry, we really have to pay close attention to that post-harvest value chain, not just to what's happening on the farm.
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In the first global estimates of share of global food expenditures that goes back to farmers, Barrett and his collaborators find that, on average, 27% of consumer food expenditures goes back to farmers. The rest goes to costs related to convenience, packaging, and quality --all added after the commodity has left the farm. “The biggest impacts of the Russian invasion of Ukraine in the global food system are going to be felt not because of the loss of Ukranian or Russian wheat and maize and fertilizer fromthe market --those things are important and they’re getting a lot of attention, but they ultimately account for a very small share of the consumer price of these products. The real price impact is going to come from the increased cost of manufacturing, transporting, refrigeration caused by rise in energy prices.”