food prices, and also a demand for agricultural 

 products that is income inelastic (when income 

 increases by one percent, food expenditures in- 

 crease by something less than one percent). 



The Farm Share 



Modestly increasing food prices, which have 

 contributed to the declining share of income 

 spent for food, have occurred partly because of 

 efficiencies and competition in food marketing, 

 but also, because of very slowly increasing farm 

 prices. The farm value of a "market basket" of 

 food purchased by consumers increased by only 

 five percent from 1982 to 1992 - less than one- 

 half of one percent per year. (The "market bas- 

 ket" referred to here is a group of 74 domestically 

 produced food products used by the U.S.D.A. for 

 its food price and cost studies.) In contrast, 

 Massachusetts per capita, personal disposable 

 income increased more than 200 percent from 

 1980 to 1991: $10,612 to $22,897 (Andrews and 

 McNeel. 1993. Personal income per capita in 

 current dollars by state. 1970-91. p. 244. In: 

 The Universal Almanac - 1993). 



Over the same time, retail prices for food 

 products increased by 40 percent, resulting in a 

 decline in the farm share of consumer expendi- 

 tures for the U.S.D.A. "market basket." For 

 example, in 1982, farmers received 35 percent of 

 the dollars spent by consumers for food, as 

 payment for their products. By 1992, that share 

 had fallen to 26 percent. 



The farm share of consumer expenditures 

 varies widely among food products. It tends to be 

 greatest for products requiring httle packaging, 

 processing, and handling, and vice-versa. Thus, 

 farmers receive a relatively large share (over 

 50%) of the retail price of products such as eggs, 

 chicken, and beef and 10 percent or less for 

 others such as tomatoes, bread, and com syrup. 



The difference between retail prices and the 

 amount received by farmers for an equivalent 

 amount of product (e.g., it takes an average of 

 2.4 pounds of Choice grade steer, to produce 

 each pound of beef sold in retail stores) is re- 

 ferred to as the farm-to-retail price spread. The 

 farm-to- re tail price spread might be considered 

 the marketing cost (or "marketing msu-gin") for 

 farm products, being absorbed by the labor. 



packaging, promotion, energy, and other costs 

 involved in the processing and marketing of 

 farm products. In recent years that cost has 

 risen at an average rate of 5.6 percent, meaning 

 that the cost of marketing farm products has 

 been increasing faster than the farm value of 

 those same products. 



There are two important points to be made 

 here. First, whether the farm share (or the 

 marketing margin) is increasing or decreasing 

 says very httle about the welfare of farmers or 

 the relative profitability of farming vs. market- 

 ing. Products sold in retail stores are much 

 different from those sold by farmers, and the 

 cost of creating those differences is included in 

 the farm-to-retail price spread. If, as has been 

 occurring recently, consumers purchase in- 

 creasing amounts of the more highly- processed 

 products, the farm-to-retail price spread must 

 increase, even if farmers continue to receive the 

 same prices for their products. 



Second, there are major differences in the 

 different markets involved that contribute to 

 the fact that farmers often receive lower price 

 increases for their products than do the market- 

 ing firms. There is little benevolence in any 

 market; market participants pay what they 

 have to pay to receive needed products and 

 services. In the markets where farmers sell their 

 products, they usually have less bargaining 

 power than do the buyers to whom they must 

 sell. As a result, farmers tend to be "residual 

 claimants" to returns in the market place. 



On the other hand, in the market for inputs 

 such as labor, energy, and packaging materials, 

 marketing firms encounter sellers with bargain- 

 ing power equal to or greater than their own, 

 £uid the resulting prices are negotiated or bar- 

 gained prices. In the market for the final prod- 

 ucts, marketing firms usually have sufficient 

 marketing power visa- viz consumers, to at least 

 be able to obtain adequately profitable prices. 



Who Gets What Part Of The 

 Consumer Food Dollar? 



The final question addressed in this article 

 is, where does the consumer food dollar go; who 

 receives what part of it? In 1992, 26 cents of 

 every food dollar spent by consumers was re- 



FruH Notes, Fall, 1993 



15 



