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Historically, farmers’ main objective was to keep up with the food demand generated by a growing population. Over time, people wanted not only to ensure their basic energy requirements were met, but also to eat better through access to a wider variety of nutritious foods.

Today, domestic food needs grow only when the population expands, and it is growing slowly by historical standards. As the U.S. food market has matured, consumption growth for one food product increasingly comes at the expense of another. The number of foods labeled "low-fat" or "health food" shows how the food system has evolved to address consumer demand.

As our markets have matured, we have seen an explosion in new product introductions. More than 12,000 new food products have been introduced across 14 major food categories. Retail food stores offer choices that provide novelty, variety and convenience, from organic produce, exotic fruits and marinated meat to bottled water.

Food marketing also is changing in other ways. The supermarket share of grocery food sales that was 78 percent in 1992 fell to 70 percent by 1997 as mass merchandisers and warehouse club operators increased their market share from 6 to 12 percent.

Meanwhile, Americans continue to eat away from home, reflecting the premium on convenience.

The farm and food industry, of course, is enormously affected by the changing profile of this mature market. It is responding by better coordinating the supply chain so consumer signals are translated swiftly and effectively. By establishing direct ties to growers through contracts, food retailers can ensure they provide specific product qualities tailored to consumer demand.

Biotechnology is another tool that promises to help meet consumers’ demands for services, illustrating how demand and technology interact to create new markets. The food sector will further capitalize on the growing interest in "functional foods," products differentiated by nutritional (and perhaps medicinal) content that appeal to consumers’ concerns about diet and health.

Larger farm sizes, specialized production methods and greater coordination characterize the structural change well under way in commercial agriculture. For these farms, a decided change in their role in the overall food system is occurring. Farmers once purchased inputs and sold products in arms-length transactions and largely were price takers in both markets. But, those lines are fast blurring. Buyers and sellers of agricultural commodities and producers rely less on cash markets and more on dozens of kinds of contractual arrangements. New production, a variety of joint venture/marketing arrangements, and information technology are lowering the costs of doing business by introducing size economies and reducing transaction costs.

While this structural change clearly is advantageous for some, it also prompts concerns about competition, market access, and the use of the market power by some participants to the disadvantage of others. Moreover, reduced competition could limit society’s gain from structural change by stifling innovation or tilting the market’s results in favor of those with the greatest market power.