Economic agents provide a range of inputs needed by farmers to produce the crops and livestock products that are the basis of the food system. Farm inputs range from seeds and breeding stock, to agro-chemicals (such as fertilizer and plant protection products used to control pests and disease), as well as machinery and equipment.

Farmers take these inputs and use their land, labor and buildings to produce agricultural products such as wheat or livestock such as beef cattle.

The farm products are usually combined with non-farm products by processors to transform them into forms that are suitable for human consumption. The amount of processing can vary considerably. There is a big difference between the processing involved in making apples ready for consumption (typically sorting, grading and packing) and that involved in assembling the ingredients for a microwave dinner.

Processors will typically deal with wholesalers or food distributors who deliver products to retailers and the food service industry (restaurants etc.).

All these steps mean that products flow through the food system from left to right in the diagram. As products flow through the system value is added to them. We saw this in the case of bread, where value was added to wheat as it was transformed into flour and then into bread and then provided to consumers in stores. The value adding process is also from left to right in the diagram.

There is an important flow that goes the other way in the diagram and this refers to information. The last link in the food system is us – the consumers of food. The decisions that we make about what we purchase provides information to retailers and the food service industry on which they base their decisions about supplying food products to us. They act on that information by ordering products from wholesalers and food distributors. Those orders will be transmitted to food processors and so-on back down the food system. Ultimately they affect the decisions of suppliers of inputs to farmers – the economic agents at the very end of the food system.

Let’s consider an example of how this works. Suppose that consumers decide they do not want to buy bread made from wheat any more. Maybe they have decided that cornbread is the only type of bread they want to consume. Supermarkets will stop ordering wheat bread, since they do not want to have unsold wheat bread cluttering up their shelves. Food wholesalers will stop ordering wheat bread from bakeries (the processors) and bakeries will stop ordering wheat flour. They will be more interested in buying cornmeal to make corn bread. Wheat farmers will not have much of a market for wheat. They could still sell some wheat for use as animal feed perhaps, but they will reduce the amount of wheat they grow. All the input suppliers that are tied to wheat production will also cut back their operations in response to the fall in wheat production.

So, at the end of the day it is consumers – what we decide to purchase – that provide the signals to the participants in the food system about what they should be supplying. It is important to realize that consumers are in the driving seat in the food system.