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Lesson 1: Overview of the Food System
The Economic Agents of Bread
There are many individuals involved in making bread. We shall call these economic agents. Agents’ decisions on buying and selling the materials and services (e.g., transportation) that are needed to produce bread contribute to making sure that loaves appear on supermarket shelves every day. We can divide the economic agents involved in bread making into several categories. These categories will be addressed in the interactive simulation below.
Bread is an everyday food product. Many individuals (economic agents) are involved in making sure that loaves appear in supermarkets every day. If we consider a dollar's worth of bread on the supermarket shelf, guess how many cents each of the economic agents involved in this process receives for her/his contribution.
The Farmer:
The farmer produces the grain (wheat in our example) that is the basic raw material for making bread. The farmer plows the land used to grow grain, seeds the land, applies fertilizer and chemicals to make the grain grow, and harvests the grain.
Elevator operator:
When grain is harvested it has to be moved to a place where it can be stored for future use. Grain elevators — storage bins or silos generally constructed of steel or reinforced concrete — that are often managed and operated by private companies, provide a place where grain can be protected from the weather and from being eaten by animals.
Flour miller:
The miller obtains grain from the elevator operator and turns it into flour. The flour is supplied to bakeries.
Baker:
The baker mixes the flour with other ingredients and bakes the bread. The bread is packaged and sent to the retailer.
Retailer:
The retailer sells the bread to consumers.
Trucker:
Transportation is an element in the operations of all the individuals listed above. Grain has to be transported from the farmer to the elevator operator, then to the miller. Flour has to be transported to the baker and bread from the baker to the retailer. While various forms of transportation can be involved (e.g., truck or rail), we'll simplify things and just assume that trucking companies provide these transportation services in the production of bread.
Other agents:
Flour is not the only ingredient in bread. Typically there is some type of leavening agent (e.g., yeast); there may be other additives to improve texture or shelf life. Bread may also be wrapped to protect it from contamination and to preserve its quality while being transported to the store and being displayed for sale. These other components go into the process of creating the loaf that we find on the shelf in our local store.
As we can see, there are quite a few steps involved in the production of a relatively simple and everyday food product, such as bread, and quite a few economic agents that contribute to making the product available to us. Obviously these agents have to be paid for the work that they do in producing that loaf of bread and the costs that they incur. If we consider a dollar's worth of bread in the store, how much of that dollar does each of these agents receive?
Enter the values for each agent here
After entering values,
check your answers
to see if they're
too high/low
check your answers
to see if they're
too high/low
When you're done guessing, show
the final answer for all agents
the final answer for all agents
How much of one dollar does each of these agents receive?
Farmer -
Bread cannot be made without wheat but the farmer receives only a small proportion of the value of a loaf of bread to cover the costs of producing the wheat it contains. Farmers receive only a small part of the value of a loaf of bread because substantial processing is needed to transform wheat into a consumer-ready product. It is in the process of transforming raw materials into food that is ready to be consumed that most of the costs are incurred in the food system. We examine the economics of farm production in lesson 05.
Elevator Operator -
Merchants who purchase wheat from farmers and store wheat for delivery to flour millers perform an important function but they receive a tiny share of the value to cover their costs. It doesn't even amount to 1 cent in a loaf costing one dollar. We discuss the economics of storage in lessons 12 and 13.
Flour Miller -
Wheat is the raw material from which flour is made, but the flour miller only obtains a small share of the value of bread. Flour mills are highly automated and very efficient, so the cost of turning the wheat into flour is low.
Trucker -
Transportation is an essential element in making the food system work. In making bread it involves transporting grain to elevators and from elevators to the flour mill; transporting flour to the baker and bread from the bakery to the retail store. We have an efficient transportation system in the United States, so given everything involved (labor and energy) the costs of transportation are relatively modest, accounting for around 4 cents in a dollar's worth of bread. We examine the economics of transportation in the food system in lesson 11.
Other Agents -
Non-farm ingredients, such as yeast, salt and preservatives, and packaging are needed to produce bread. These account for around 2 cents of a dollar's worth of bread. If we add this to the flour miller's and the baker's shares we can see that much of the value added in making bread is in the processing stage - around 2 cents for making the flour and 72 cents for turning the flour into bread (including the cost of other ingredients).
Baker -
Most of the costs involved in making bread are involved in transforming the flour into the edible product. This involves significant amounts of labor and energy (both of which are costly). As a result, roughly 70 cents of a dollar's worth of bread is paid to the baker to cover her/his costs. We discuss the economics of food processing in lesson 06.
Retailer -
Food retailers are very important in the food system. Supermarkets and other food stores employ a lot of people who have to be paid for their work. Retailers also have to cover other costs in operating their stores (building maintenance, energy costs etc.) so the retailing function also accounts for a significant share of the value of bread (18 cents of the one dollar value). We examine the economics of food retailing in lesson 07.
