The complex system of the American food industry has come under increased scrutiny as reports that the parent company of U.S. Foodservice, the nation’s second-largest food distributor, has drastically overstated its earnings surface.

Over the last two years, Royal Ahold NV, the parent company, reportedly overstated its earnings by at least half a billion dollars, raising many public and private inquiries and prompting officials to examine U.S. Foodservice’s books.

The work of U.S. Foodservice is largely behind the scenes, but the company does affect consumers. Their role is combined with many other companies to make up the complex network of the U.S. food industry. One way to understand the system is to follow a product, such as a hot dog, from its origin on the farm to the consumer.

After birth, a calf is raised with its mother until it reaches about 800 pounds, at which time it is sold to a feedlot for about 75 cents per pound. At the feedlot, the animal is grain-fed until it weighs about 1,250 pounds and then sold to a packing plant for about 77 cents a pound.

At the packing plant the animal is slaughtered using an increasingly mechanized process. About 130,000 cattle are slaughtered each day in the United States. A 1,250-pound animal amounts to about 450 pounds of finished cuts of meat and 150 pounds of "trim." The trim, which has a higher fat content and lower market value, is often used for ground products like hamburgers and hot dogs.

The trim meat is then sold to processing plants for varying prices. The suppliers and processors are constantly trying to secure the best prices in the widely fluctuating market. Once at the hot-dog plant, the trim is ground into a paste, cooked and packed.

The U.S. Foodservice buys products from the manufacturers and then resells them at a profit to restaurants, schools, hospitals and other commercial outlets. Additionally, they receive another source of income from the manufacturers through what is known as "vendor allowances." These allowances are paid by manufacturers to retailers, restaurants and distributors to ensure that their products will be carried and widely circulated.

However, U.S. Foodservice reportedly had problems in accounting for its vendor allowances, causing Royal Ahold to inflate its earnings by at least $500 million in 2001 and 2002.

While grocery stores used to account for the largest share in American food money, this is changing. Currently, about 49 cents of every dollar spent on food is spent on food away from home.

The result is that manufacturers, which sold $180 billion of products in 2002 to distributors who supply restaurants, are constantly adding to their vendor allowances to gain leverage with food distributors.

According to experts, distributors may make more profit from vendor allowances than from selling food. In terms of the hot dog, the end product likely sells for about $2.00.

According to the food industry, the inexpensive cost of the end product, which had to pass through the hands of many people, is indicative of the sophistication of American food production.

Washington Post March 16, 2003; Page H01