The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
H □ a rm AND ANCH B ulletin December 1964 Vol. 19, No. 12 TH E W H Y O F F O O D PR IC ES Supplying food to 192 million U. S. con sumers is a major endeavor of the marketing system. The food industry is one of the more important segments of our economy and faces new demands from consumers each day. Marketing firms have increased in some lines — such as fully processed, ready-to-cook, and specialty items — and have grown larger in others, while the numbers of producers of raw food products have decreased. The movement from rural areas to cities has contributed to the need for specialization among farmer groups and has encouraged the more complete preparation of food items by processors in order to meet the changing pat tern of family activities. The demand for pre pared foods, more variety, and different methods of packaging has changed the mar keting structure and increased the spread between the price farmers receive and the price consumers pay. The costs of the marketing functions, includ ing transportation and packaging, have in creased, since more is demanded of each function before a product reaches the con sumer. The addition of built-in services, how ever, has not added proportionately to the cost, since gains in productivity also have been increasing. Fewer farmers and ranchers have provided the total volume at a cost lower than it would have been without the adoption of new technological advances. During the past 15 years, tremendous strides have been made in all phases of marketing FEDERAL RESERVE DALLAS, from the producer to the consumer. The food marketing industry is presently a $46 billion a year operation and employs 4.8 million people. The increasing volume of business and the growing number of employees have been needed because the marketing services de manded by consumers have more than doubled. The result of these demands has been an in crease in overall prices of food since 1947-49. Prices for unprocessed raw farm products at the same time have tended downward. The marketing share of the consumer’s food dollar is the greatest in almost three decades, but the farmer and rancher receive an average of only 37 cents of this dollar. The farmer’s share of the consumer’s food dollar fluctuates in relation to the need for marketing services before reaching the consumer. The amount of processing and packaging, the length and type of storage, and the extent of other services needed determine, in large part, what the farmer’s share will be. Changes in the preferences and tastes of consumers for different foods, as well as in the form desired, have also kept the dynamic food industry and the producer active in mak ing the necessary adjustments. The shift in consumer demands among the various products has resulted in some products being faced with a growth equal only to that of population increases, while other products, such as frozen foods, account for an increasing percentage of food purchased, as consumers have more in come to exercise their demands for a greater variety. A reduction in the manual effort ex- BANK TEXAS OF DALLAS FOOD PRICE! F ood C osts C onsumers M ore T hough F armers G et L ess. Retail prices of food, excluding seafood and imports, were 15 percent higher in 1963 than in 1947-49. How com e — when farmers got 15 percent less? The answer is a 44 percent in crease in marketing costs. R etail P rice R ise H asn’t H it A ll F ood G roups. Bakery and cereal products, and fruits and vegetables have each climbed around 40 percent. But poultry and eggs, and fats and oils actually cost considerably less today than in 1947-49. c o n s u m e r ’s MARKETING SHARE f a r m e r ’s SHARE M arketing T akes E ver M ore of C onsumers’ R etail F ood D ollar. At war’s end, farmers got over half of every retail dollar. Today they receive just over one-third. The rest goes to process, package, transport and distribute the food the farmer grows. food d o l l a r 59$ 39$ 1945 1955 U.S. DEPARTMENT OF AGRICULTURE I960 1963 t\ND WHY— SH ARE OF M A R K E T IN G B IL L 0 8 45% LABOR _____________ ~ i [521 $ r< a 10% t ra n spo rta tio n CORPORATE PROF IT BE F OR E T A X E S 5% O THER; PACKAGING, A D V E R T I S I N G , DEPRECIATION, RENT, ETC. ,40% R ising C osts A re K ey to M arketing Bill. Food market ing is a giant $46 billion a year operation, employing 4.8 mil lion workers. All costs have risen in the last 15 years, but labor costs — the biggest item — count most. Average hourly earnings, now $2.17, have doubled since 1947-49. Still workers in food processing firms don’t make as much as those in manufacturing as a whole. M A R K E T IN G S E R V IC E S AN D EM PLO YM EN T 1940 f a # f a # f a t f a # 100 M ARKETIN G SE R V IC E S 100 EM PLO YM EN T 1950 f a * f a * f a # f a * f a i t) I960 f a * f a * f a * f a * f a * fa l f a fa 190 123 1963 f a f a * f a # f a f a * f a f a d 201 123 145 118 f a CHANGE IN PER CAPITA INCOM E AN D SPEN D IN G IN C R E A SE S IN C E 1947-49 PER PERSON 80% DISPOSABLE INCOME S P E N T FOR A L L NON-FOOD GOODS AN D S E R V I C E S SPENT FOR FOOD W orkers E arn M ore B ut P roduce M ore , T oo . Retail food prices would be higher to day if output per man-hour hadn’t increased. While earn ings have nearly doubled since 1947-49, labor costs per unit of product have gone up only 36 percent. Marketing services have mushroomed since 1940 with a smaller increase in em ployment. F ood I s a B argain D espite M arketing C ost I ncreases . Personal income has increased far more than food expendi tures in the last 15 years. W hat’s m ore, w e’re buying more meat and other high qual ity foods which would have added to the food bill even if prices hadn’t risen. Figures are for U SD A ’s market basket of farm foods represent ing quantities purchased by an urban wage earner or clerical worker family in 1952. pended on many jobs has reduced food energy requirements and thus affected the buying habits of consumers. From 1962 to 1963, the cost of the farm food market basket had the greatest year-toyear advance that has occurred since 1958, as the charges for assembling, processing, and distributing rose rather sharply. Labor has been, and continues to be, the largest single cost in the marketing system, even though pro ductivity per man-hour worked has been in creasing. Despite the rising cost of marketing, which is attributed to more services being added, the American consumer is the best fed in the world on the lowest percentage of dis posable income spent by consumers for food. Credit — A Boon to Agribusiness? Unless all factors involved in developing a credit policy are carefully considered, the ex tension of credit to customers can be a risky business, says Kenneth Wolf, Extension Econo mist with Texas A&M University. Mr. Wolf points out that serious financial trouble often develops when managers of agribusiness firms fail in this respect. Advantages to granting credit include: 1. It provides the setting for a more per sonal relationship with customers. 2. Credit customers are more regular; they usually do not pursue bargains as much as do cash customers. 3. Quality usually is of more interest to credit customers than is price. 4. Goods may be exchanged and adjust ments may be made more easily. 3. Some customers overestimate their abil ities to pay. 4. The privilege of returning goods often is more easily abused by credit customers. 5. Additional administrative costs are in curred in handling accounts receivable. 6. Losses from delinquent accounts occur. 7. Delinquent customers hesitate to con tinue to patronize the business as they may feel embarrassed. Mr. Wolf says that wise agribusinessmen should weigh these advantages and disadvan tages carefully before formulating their credit policies. Those who do extend credit should insure that they are receiving all of the benefits that can be derived from the advantages such a policy affords. New Mexico Agricultural Experiment Station, University Park: Effects of Wounding on Sweetpotato Sprout Production, Research Report 92, by David C. H. Hsi and David B. Ferguson. Performance of Dryland Winter Barley Va rieties at the Plains Branch Station, 19541963, Research Report 96, by N. R. Malm. Performance of Dryland Spring Grain Va rieties, Plains Branch Station, 1960-1962, Research Report 97, by N. R. Malm. 5. Credit customers provide a permanent mailing list for special promotions. Pump Irrigation Costs, Curry County, New Mexico, Research Report 100, by Roger B. Long and William P. Stephens. 6. A study of credit customer accounts re veals buying trends and habits — useful information in planning sales. New Mexico Extension Service, University Park: Disadvantages to granting credit include: 1. Operating capital is tied up. 2. Pricing must include interest on bor rowed capital needed to grant credit. Producing Tomatoes for Processing, Circu lar 369, by J. N. Corgan and M. D. Bryant. ies of these publications may be obrequest to the respective publishers.
@FedFRASER