In North America, the relatively high incidence of expanded family households in the lower class is

As noted in Chapter 2, the heterogeneous U.S. food and fiber system accounts for roughly 5 percent of the gross domestic product (GDP) (ERS, 2014e) and nearly one in five jobs in the United States (King et al., 2012). The non-farm sectors of the food industry have become the most significant sources of employment. In 2012, they contributed to approximately 90 percent of the economic value added to the food products purchased by U.S. consumers (see Figure 2-6 in Chapter 2). The primary functions of the non-farm sectors are to transport and transform raw agricultural products into edible foodstuffs. These subsectors (see Figure 2-1 in Chapter 2) are the technology and input suppliers, first line handlers and food manufacturers, wholesale/logistic suppliers, retail food stores, and food service establishments. In addition, a secondary market exists for food recovery in the form of food banks and food shelves plus the food disposal and waste sector.

In this section, we highlight some of the differences in social and economic outcomes for participants in each of the major post-farming subsectors of the U.S. food supply chain. These sectors are highly interdependent, and changes in any one sector influence the performance of other sectors as well as the price and availability of food. Competitive pressures within each sector (and across sectors) have been major drivers of changes in technology and organizational structure (e.g., consolidation, vertical integration, market expansion, and market differentiation). These, in turn, drive economic efficiencies, opportunities and rewards to labor, and food options to consumers.

A recent study by Robert King et al. (2012) provides an overview of the total and heterogeneous employment opportunities and wages/benefits in each major subsector of the U.S. food industry. They find that about 23 million workers are involved in food system jobs, with average annual earnings of slightly more than $19,000 per year (less than half the average annual income of all workers in the United States in 2007) (see Figure 5-8). By far the largest number of workers is found in the retailing and food service sectors, where annual average earnings tend to be low. Two subsectors—distribution/wholesale and waste recovery—have mean payrolls slightly above the national average income of $41,525; food processing and manufacturing workers and input supply workers have mean payrolls slightly below.

Farmers in the primary production sector, discussed above, obtain a wide range of materials and services from the agricultural input sector. These inputs include seeds, chemicals, equipment, animal health services, animal breeding/genetics, financing, and information needed for modern commercial farming. As discussed in Chapter 2, over the past few decades, the agricultural input sector has consolidated as a result of numerous mergers and acquisitions. Many agricultural input firms are now global in scope, with diverse types of inputs integrated under relatively few corporate umbrellas.

Structure and profitability of the sector Historically, many first line–handling firms as well as input suppliers were organized as agricultural cooperatives that provided fuel, chemicals, seed, and other inputs to their members. Members of a cooperative are paid a dividend annually that depends on company profits. Cooperative organizations enabled many small producers to band together to gain bulk discounts on farm input purchases and to find markets for their products. The total number of marketing, supply, and service cooperatives declined from 4,663 in 1990 to 2,549 in 2007 as cooperatives merged and farmers shifted to selling through other channels (USDA, 2014a). Concomitantly, the number of members declined from 4.1 million to 2.5 million as net sales rose from $77.3 billion to $127.8 billion. The average returns to the members in 2007 were more than three times as much as they were in 1990 (USDA, 2014a).

Globalization, technological innovation, and organizational restructuring have created competitive advantages for large agribusiness firms with superior products that thrive with economies of scale. In addition to providing inputs, many major agricultural input suppliers contract with farmers to purchase their output. Closer coordination of production, processing, and distribution in vertically integrated operations can lead to gains (e.g., increased efficiency, more uniform food products, and reduced prices for consumers). Consolidation, however, can lead to costs to the workforce (e.g., less employment opportunities in the sector) and to smaller operations that might not have the resources to compete.

Concentration of food and agricultural input firms can lead to shifts in market power and affect the distribution of economic returns among food chain sectors (Myers et al., 2010; Sexton, 2013). Because larger firms generally incur more research and development costs than do most small firms, they must recover these costs as well as capital, regulatory, labor, and other costs. Because these larger firms also experience economies of scale, their ability to raise prices does not always mean that they do raise prices. Moreover, when fewer firms operate in an industry sector, they compete fiercely with each other, which can hold down prices to their customers (Chung and Tostao, 2012; Sexton, 2013). However, in the case of agricultural input suppliers, farmers are willing to pay higher prices if doing so results in greater yields on crops and livestock or results in higher prices for better quality output. As shown in Figure 5-9, the prices of most farm inputs rose more rapidly than the commodity prices received by farmers between 1990 and 2012 (Fuglie et al., 2012).

Workers As shown in Figure 5-8, this sector has relatively few workers compared to other subsectors of the U.S. food supply chain. The average incomes of half a million workers in the farm input sector are the third highest in the overall food industry at about $30,000 per year.

Given the global nature of many farm input companies, as well as the skills in chemistry and biological systems needed, it seems likely that demand for workers with higher education levels to fill these jobs will grow.

Communities Agricultural input industries have historically contributed to the economic health and employment of rural communities, particularly when they are locally owned and managed or at least maintain production and sales operations in local trade centers. The restructuring of the input industries has led to some consolidation of retail outlets (e.g., for farm machinery and farm chemical inputs), and larger farming operations are known to source their inputs in bulk (at a discount) at greater distances from nonlocal businesses (Foltz et al., 2002; Sfiligoj, 2012). The net result of changes in the structure of both farming and farm input businesses has been to diminish economic opportunities for locally owned agricultural input and supply businesses in many rural communities, particularly those located further from industrial and transportation centers (Drabenstott, 2000; Foltz and Zeuli, 2005; Kilkenny, 2010; Lambert et al., 2009).

This sector is composed of first line handlers who receive, package, and store raw agricultural products in preparation for shipment to the next party down the food supply chain and of food processors and manufacturers who turn ingredients into edible, packaged, storable, and safe food for final preparation and consumption by consumers or food service establishments (see Chapter 2).

Many companies that buy farmers' goods do so through contracts that guarantee the purchase of a certain amount of product for a predetermined price, assuming that the raw goods meet the quality specifications of the buyer. The benefit of this arrangement is that it alleviates the farmer's risk of not finding a market and of not knowing what the price will be at harvest time. It also can provide an opportunity to hedge against price declines in case of unforeseen market circumstances. The companies' contracts also provide technical advice and set standards of quality and safety that help to ensure a uniform supply of product that will be accepted by the downstream market. The demand from processors and retailers for uniform size and quality of product plays a large role in the benefits from contract farming.

Structure of the sector Changes in the structure of first line handlers can affect competitive pressures and returns to farmers. One example is the livestock supply chain, where vertical coordination has led to changes in the business relationships. In the poultry industry, producers are paid according to their productivity relative to other farmers and have much less certainty about the price they will receive at the end of a season (Leonard, 2014). Concentration of market shares in the hands of few firms can also lead to potential loss in competition and decline in the transparency of markets.

Food processors and manufacturers tend to be large corporations, and many are multinational in scope. They are focused on learning consumer preferences and designing foods to increase their market share. Food and beverage plants in the United States are widely distributed throughout the country, but some areas have seen a decrease in numbers since the 1980s (Edmonson, 2004; ERS, 2014c).

The food processing and manufacturing sector ships about 14 percent of the value shipped by all U.S. manufacturing plants (ERS, 2014c). Food processors and manufacturers are constantly adapting to feedback from retailers' sales and orders. As shown in Figure 2-6 in Chapter 2, food manufacturing adds about 16 percent of all value added in the food supply chain, the second highest amount after the food service sector. In 2011, processing and manufacturing of meat products composed the largest part of that value added by food manufacturers (17 percent), followed by beverages (16 percent), bakery and tortilla products (11 percent), fruits and vegetables (10 percent), and dairy products (10 percent) (ERS, 2014c). The U.S. Census reports 14,487 food processing and manufacturing companies, including 1,510 meat and 421 poultry companies, 3,097 beverage companies, 2,813 bakeries, 1,798 fruit and vegetable preserving companies, 1,007 dairy firms, and 4,050 soft drink manufacturers in 2011 (U.S. Census Bureau, 2014).

Workers Overall, the food processing and manufacturing subsector employs 1.5 million workers. This represents 14 percent of the total manufacturing sector workforce and about 1 percent of the non-farm labor in the United States. Thirty-two percent of these workers are in the meat processing sector, 9 percent are in dairy product manufacturing, 17 percent are in bakery, and 11 percent are in fruits and vegetables (ERS, 2014f). The payroll per employee in the meat and poultry sectors was $41,000 and $29,000, respectively, in 2011 (U.S. Census Bureau, 2014). The payroll per employee in grains and oilseed milling is higher than the national average at $73,000 per year. The payroll per employee in the fruit and vegetable processing sector was $57,000 in 2011 (U.S. Census Bureau, 2014).

Census statistics report that U.S. food manufacturing establishments had an average of 2,661 employees per establishment (plant), with a payroll per employee of $53,090 in 2011. Thirteen percent of the sales receipts were dedicated to payroll in the food manufacturing sector (U.S. Census Bureau, 2014). U.S. manufacturers overall had an average of 2,102 employees per establishment, with an average payroll per employee of $70,000 (U.S. Census Bureau, 2014).

A typical hourly wage worker in a food manufacturing plant earned approximately $12.50 to $14.00 per hour in 2013 (BLS, 2013). At $13.00 per hour, a full-time worker would make an income of $27,040 per year. Plants use a mix of skilled and unskilled labor, though even unskilled workers must be familiar with handling animals, foods, heavy equipment, and/or computerized equipment. Skilled labor requires some formal education in food science, chemistry, management, and marketing.

A recent survey of 2,456 food scientists and technologists, 66 percent of whom were employed in the food industry, shows a median salary of $90,000 in 2013. These employees have degrees in higher education, such as a bachelor's or a graduate degree. About 90 percent reported receiving health insurance and a retirement investment plan (Kuhn, 2014). This illustrates some of the more attractive employment opportunities in this industry. In contrast, this industry also has many part-time workers making minimum wages.

Worker health and safety Food processing workers tend to work in manufacturing facilities and operate equipment that mixes, cooks, or processes ingredients used to manufacture food (BLS, 2014b). The meat and poultry slaughtering and processing industries have long been associated with a high rate of injuries, fatalities, and illnesses (OSHA, 2014). Processing workers are typically exposed to noise as well as extreme heat—for workers interfacing with cooking machinery—or extreme cold—for employees involved with frozen or refrigerated goods. Workers are usually standing for most of these shifts and needing to stretch and reach to clean or operate large equipment. Musculoskeletal injuries, especially low back pain, are therefore a major problem. Injuries related to repetitive motion also are significant, especially in processing plants where employees are working the line and have to conduct the same motion repeatedly during a single shift. Other risks include hazards on the plant floors that increase the risk of slips, trips, and falls.

Communities Because community social and economic well-being is influenced by a wide range of factors, it is often difficult to link community outcomes with the presence or absence of any single business or firm. Because they have relatively small and less diversified economies, rural communities are more affected by changes in local business or employment opportunities. One recent example of this type of change is the dramatic shift in the location of meat processing plants from major urban areas to rural towns during the 1980s and 1990s, which has been linked to a wide range of social and economic impacts (Artz, 2012; Stull et al., 1995).

This sector of the food system provides the transportation and warehousing of food and agricultural products between the other sectors. It involves warehousing, trucking and other transportation, and procurement services. This sector is critical to the availability of food in remote areas and in cities far from production location. It also is vital to global trade.

Structure of the sector The total number of companies in the wholesale business related to food, beverage, and agricultural products was 3,810 in 2011 (U.S. Census Bureau, 2014).

On the food service side, traditional wholesalers still dominate because they serve many small retail enterprises with specialized orders. The agricultural input sector also has wholesalers. Nine percent of the wholesale companies listed in the Census data deliver farm supplies and another 9 percent deal in raw farm products destined for processors (U.S. Census Bureau, 2014).

Not traditionally counted among the wholesale sector are the numerous food banks that act as wholesalers to food shelves around the country. The largest nonprofit wholesaler in this business is Feeding America and its members, such as Second Harvest Heartland. Feeding America has 200 member food banks that collect food and redistribute it to food shelves, soup kitchens, and other charitable feeding establishments in every county in the United States. In 2013, they distributed more than 3,878 million pounds of food (Feeding America, 2014a). This amount is only 0.06 percent of the total edible food listed in Figure 2-2, but it provides more than 3 billion meals per year. In addition to the additional meals provided, food companies and individuals who donate food or cash receive a charitable tax deduction and companies save waste disposal costs.

Workers Wholesale companies related to food and agricultural products employ at least 357,790 people, an average of 78 per establishment (U.S. Census Bureau, 2014). They are among the higher paid workers in the food industry, with an average payroll per employee of $57,000. Six percent of sales receipts is dedicated to payroll in the wholesale sector.

The skills required in the wholesale sector are heterogeneous, from laborers to truck drivers, forklift operators, warehouse managers, computer programmers who optimize the efficiency of loading trucks and truck routes, sales and procurement experts, and food safety experts (e.g., cold chain managers). The distribution of wages across all of these types of workers varies according to their skills, the alternative market for their skills, and where they are located in the country. In addition, Feeding America reports using 8.6 million hours of volunteer labor in 2013 (Feeding America, 2013).

Worker health and safety A significant component of distribution involves transportation, in addition to warehousing (FCWA, 2012). The health and safety risks faced by these workers, especially those involved in warehousing, are repetitive motion and lifting. Warehouse workers have the highest rates of chronic debilitating injuries due to repetitive motion, bending and squatting, and improper lifting techniques (Free Library, 2014). Safety reports indicate a lack of personal protective equipment among these workers, which places them at risk of injury by allowing exposure to injury-producing hazards. Workers load most warehouses and trucks with forklifts that alleviate heavy lifting, but the speed of operation in closed spaces is a potential hazard. Because distribution involves the transport of goods, motor vehicle crashes are a significant cause of death and injury. Motor vehicle-related crashes are the leading cause of work-related fatalities in the United States (CDC/NIOSH, 2014). Truckers who haul food products are exposed to all of the hazards of trucking, including stress and fatigue due to routes and schedules, illness, night driving, and risk of back injuries from heavy lifting.

This subsector includes traditional grocery stores and, increasingly, the large box retailers who sell food as part of a vast mix of general merchandise. Retail stores also include convenience stores and a host of newer venues, such as drug stores, gas stations with convenience stores, specialty foods, and online food companies. Retail food stores had a total of $742.3 billion in sales in 2013. Food sales in retail stores represent 53 percent of all food sales of $1.4 trillion, with the rest of food sales taking place in some form of food service establishment (ERS, 2014d).

Structure of the sector Due in large part to price competition from “big box” stores, stores in this sector have been consolidating to adapt to information and transportation technologies that allow them to minimize in-store inventories. New strategies to attract and hold customers began in the mid-1990s. They involved using information technologies to track customer purchases, instituting loyalty programs, and lowering prices and/or finding market niches that larger stores do not fill. Competition was fierce and the structure of the retail industry began to bifurcate into big companies with generally lower priced goods and companies specializing in smaller stores with specialty products and services at higher prices. In the big box stores, lower food prices can be sustained because they are balanced by more profitable sales of general merchandise. The volume and velocity of turnover of foods that move through retail food stores calls for efficient logistics, efficient aggregation and analysis of data, and energy savings in transportation. It facilitates great buying power, including the power to dictate product quality and safety specifications, quantities, timing, and price. Suppliers are obligated to adapt to the demands of large retailers. For example, roughly one-third of all products sold by major manufacturers are sold through the largest retail company in the United States, which is also the second largest publicly traded company in the world. Retailers are increasingly buying products with their own brand label, further diminishing the market power of food manufacturers with national and international brand names.

Large food retailers (those with more than 100 stores) have developed their own distribution warehouses, cutting out the wholesaler for most products. This enables them to cut costs and compete on price. Nationally, prices at discount stores are 7.5 percent lower than at traditional grocery stores, which puts price pressure on all retail food sellers (ERS, 2014h).

Workers Overall, 56,786 retail food and beverage companies employ more than 2.4 million people, for an average of 43 people per establishment (U.S. Census Bureau, 2014). These employees include stockers, checkers, and managers. This sector also includes workers who cook and prepare food for bakeries and delis within the retail outlets, as well as those who clean the facilities (FCWA, 2012). The payroll per employee is $25,600, or 19 percent of sales receipts. Payroll per employee is lower than in retail businesses in general, where payroll per employee is $28,000, or 11 percent of sales receipts (U.S. Census Bureau, 2014).

The labor in this sector is not generally highly skilled except for management. Although the ubiquitous nature of retail food stores provides employment opportunities in most communities, wages tend to be near minimum wage for many workers. The average earnings of $25,600 is 114 percent of the U.S. poverty level for a single person in 2014 and almost equal to the poverty level of $23,850 for a household of four people (HHS, 2014).

Worker health and safety Jobs in retailing involve heavy lifting and the use of potentially hazardous equipment, which places workers at risk of back injuries and lacerations or amputations. In addition, psychosocial factors, such as work-related stress and shift work, are important considerations for these employees.

This sector includes individually owned restaurants, mid-priced chains, quick service (fast food) establishments, hotels, and beverage establishments. They cater to the tastes of their particular customers and are often leaders of food innovation. Also in this sector are institutional food service establishments such as schools, hospitals, prisons, food (soup) kitchens, and Meals on Wheels.

Structure of the sector The food service sector has at least 125,951 companies and approximately 4 million employees. It employs an average of 32 people per establishment; payroll is more than 27 percent of their sales revenue (U.S. Census Bureau, 2014). It is a labor-intensive business, mostly because it is largely a service business with few opportunities to substitute capital for labor. The cost of the food in most food service places is no more than one-third of their total costs.

In 2013, 47 percent of all food sales were in this sector, consistent with the division of sales over the past several decades (ERS, 2014g). As data from USDA's Economic Research Service show, however, sales at fast food establishments increased the most in the mid-1980s, while institutional food sales were down (see Figure 5-10).

Workers The average income of food service workers, $24,857, is about the same as the poverty level for a household of four persons, $23,850 in 2014 (HHS, 2014; U.S. Census Bureau, 2014). The skill level in this sector is relatively low except for management and a few very skilled chefs. This sector provides employment in nearly every community.

Not surprisingly, turnover also is a problem among retail workers, especially among those who experience wage theft (e.g., not receiving overtime payments, tip misappropriations) (FCWA, 2012). For the most part, these wage inequities are present at the largest companies (Kelly et al., 2012). It is important to note, however, that while many wage violations occur, this sector also demonstrates promising examples of best practices for worker wages, career mobility, and good supply chain policies and programs (Kelly et al., 2012; Liu, 2012).

Worker health and safety Food service workers perform a variety of customer service, food preparation, and cleaning duties. Shift work is very common, and in 2012, about half of these workers were employed part time (BLS, 2014b). Food and beverage serving and related workers are on their feet most of the time and they have to lift heavy objects, such as trays of food. During busy dining periods throughout the day, workers are called to serve customers quickly and efficiently. Injuries among these workers tend to be nonfatal and are mainly due to slips/trips/falls, burns, and lacerations that may lead to time away from work.

Teen workers are overrepresented in this sector, primarily because the option to work various shifts allows for flexible schedules. Young workers have high occupational injury rates, which are partially attributed to the number of injury hazards in food service establishments (e.g., slippery floors and use of knives and cooking equipment) (CDC, 2014c). The rate for occupational injuries of young workers treated in emergency departments from 1998 to 2006 was approximately two times higher than among workers age 25 and older (CDC, 2014c). In addition to these hazards, inexperience and lack of safety training also may increase workplace injury risks for young workers (CDC, 2014c).

Many food service workers also report having no access to paid sick days. One survey of more than 600 food system workers in the United States found that only 21 percent confirmed they had paid sick days (the rest either did not have them or were unaware if they had them) (FCWA, 2012). Reports also have documented working long hours and the inability to take breaks because of a need to maintain the output demands (CDC, 2014a). Employees who work with food when infected by norovirus or other contagious illnesses can spread disease to others by easily contaminating food and drinks that are touched. Because of the lack of sick leave, food service workers have an economic incentive to return to work as soon as possible. Food establishments are generally very busy, and not showing up during a busy time (e.g., holidays and weekends) can potentially lead to losing a job.

Poverty and injustice in the food system has been described in the literature for centuries (VanDeCruze and Wiggins, 2008). Evidence shows that 40 percent of food industry jobs provide a wage at the federal poverty level; only 13.5 percent of the jobs provide wages that yield an annual income at 150 percent of the poverty level (FCWA, 2012). As the previous sections of this chapter have described, some food system workers receive a livable wage, but many do not, and they have little or no career mobility in these jobs. Estimates from 2010 indicate that median hourly wages for employees in U.S. food industry sectors vary slightly by segment (median hourly wages of approximately $9.00 to $13.00 for workers in production, processing, distribution, and services), but incomes for positions within the sectors vary greatly (Kelly et al., 2012). For example, of the top 100 chief executive officers in the United States, 8 are from the food system and their total salaries in 2012 equaled that of more than 10,300 food service workers (FCWA, 2012).

Among the top five companies taking the lead globally with promising policies and programs, four are European companies. This suggests that U.S. companies can learn important lessons about promoting fair wages, mobility, and other social and economic advancements for food system workers (Kelly et al., 2012). Fortune magazine publishes an annual list of the 100 best companies to work for in the United States. In 2014, three grocery companies, two restaurant chains, and two food manufacturing companies were on the list. Among these seven companies, average salaries ranged from $45,684 to $115,007, while the average hourly workers' annual wage income ranged from $26,240 to $52,318. Of note, none of these companies offered wage benefits or paid for health insurance, but amenities that employees praised were flexible work hours, training and upward mobility in the company, on-site child care and fitness centers, or paid health club benefits (Fortune magazine, 2014).

Two measures of the performance of companies are size and profitability. The Fortune 500 is an annual list of the top 500 publicly traded companies registered in the United States with U.S. operations. This list does not include privately held companies in any industry, but it serves to compare food firms to firms in other U.S. industries. Firms are ranked by total revenue, and profitability also is reported (Fortune magazine, 2014). The profitability of each of these companies indicates their contribution to the economy in general and to the wealth of their stockholders as well as the stability of employment for their employees. For 2013, 39 of the top 500 companies were in the food industry. Annual revenue of these 39 food companies ranged from $6.5 to $469.3 billion. Table 5-1 shows the distribution of Fortune 500 food system companies across the food supply chain. The most numerous firms represent the food manufacturing and retail food sectors.

In general, the largest profits are found in the food manufacturing sector, primarily among large multinational companies and in the food service sector. Economic returns to manufacturing companies and their investors are larger than in most other sectors partly because this sector has relatively high concentration through merger and acquisition and global markets. In the food service sector, consumers pay for experiences and convenience as well as food; several of the chain operations operate on a global scale.

Trends that mitigate the profits in this sector are fluctuating raw commodity prices and the trend toward private retail store labels instead of (inter-) national brands. Rising commodity prices are often hedged forward to reduce uncertainty and smooth out manufacturing costs and wholesale prices of product. Food manufacturers that are producing the products are skilled in selling them under various private labels to mitigate competition from other private store labels. Wholesalers are perhaps the most vulnerable sector and struggle for profitability as retailers contract directly with processors to deliver product to stores and/or set up their own distribution centers and logistics operations. The exception to this is in the wholesale business for the food service sector.

Retail food stores traditionally struggle for profitability mostly because of fierce horizontal competition. Many stores go out of business as consumers seek the lowest prices for homogeneous products or unique shopping experiences and products in upscale stores. The bifurcation of retailers has been occurring since the 1990s, with the big box stores on one side and unique food offerings like organic and total private labels on the other. Retailers that try to supply middle-of-the-road grocery stores are disappearing. Profits on grocery store sales are traditionally stated as 2 percent, meaning they operate at very small margins (FMI, 2013).