WASHINGTON, D.C. - Slower
rising food prices last year partly
reflected slower rising farm
prices.
Farm value—prices farmers
receive for products later used for
food—rose only 5.3 percent, half as
much as in 1979.
Depressed livestock prices,
particularly in the first half of the
year, take much of the blame.
These developments contributed to
the sharp drop in 1980 farm in
come.
The modest gain in farm value
also had an effect at the retail
level. It helped limit the overall
increase in foodstore* prices" to 8
percent, down from more than 10
percent in each of the two previous
years, according to USDA
economist Denis Dunham.
However, not all of last year’s
restraint in retail food prices came
from the farm side, Dunham notes.
The farm-to-retail price spread
representing the food industry’s
charges for handling, processing,
transporting, and retailing food
rose 8.4 percent,'only two-thirds as
much asm 1979.
On the other hand, prices rose
sharply for fish and imported foods
(farm value and the farm-to-retail
price spread cover- only
domestically-produced farm
foods). These prices jumped 11.7
percent, much faster than in 1979.
Of course, this doesn’t Mean that
fish and imports - were mostly
responsible for higher foodstore.
prices.
Farm value, the farm-to-retail
spread, and fish and imports each
play a different role in the total
food price picture. How big a role
each plays depends on how much it
rises and its contributions to the
cost of food, Dunham explains.
How are food s|s/divided
For example, USDA estimates
that only about one-third of con
sumers’ foodstore spending goes
back to farmers as farm value
Thus, the 5.3 percent increase in
farm value last year contributed a
mere 1.6 percent to the overall 8-
percent rise in foodstore prices.
Far more important was the 8.4-
percent runup in marketing
charges. This larger farm-to-retail
price spread accounted for 4.3
percent—or more than half—of the
total gain in foodstore prices
because marketing, charges make
up the biggest share of the price of
most foods. ,
Even fish and imported foods,
which represent only about a fifth
of consumer food purchases,
played a bigger role than farm
value last year. Due to their steep
11.7-percent price climb, they
added 2.1 percent to foodstore
prices.
“Farm value not only showed
the smallest individual increase of
the three components, but it also
' made the smallest contribution to
the .overall foodstore price runup
;last year,” Dunham notes. -
To a considerable extent, the
restrained nse in farm value—and
consequently in retail food prices—
can be traced back to develop
ments in the farm livestock sector.
- Farm prices for livestock suf
fered last year from larger meat
supplies.'Pork supplies were up 7.6
percent from 1979, and poultry
supplies were up about 2 percent.
And even though the amount of
beef was about the same as in 1979,
it was somewhat huger than it
might have been had the drought
not forced many ranchers to
slaughter cattle they would
otherwise have kept.
But why were these develop-
ments so influential in determining
retail prices when there were
sharp farm price increases for
grains and other products? A
major reason: Meat is one of the
product groups m which farm
value represents a relatively large
share of the total retail price.
The farm value of the retail food
dollar varies from one product to
another based partly on how much
processing the product needs to
prepare it for the retail customer.
For example, the farm share is
about 9 cents for each retail dollar
spent on white bread (wheat only),
30 cents for each dollar spent on
potatoes, 55 cents for milk, adn 61
cents for beef.
Thus, a 10-percent change in the
farm value of wheat may make a
difference of less than 1-percent in
the retail pnce of white bread. In
contrast, a 10-percent change in
the farm value of Choice beef may
translate into a 6-percent price
move at retail because about 61
cents of every grocery dollar spent
on beef goes to the producer,
Dunham says.
Mostly as a result of what
happened in the farm livestock
sector, retail pork prices averaged
more than 3 percent lower than in
1979, and beef and poultry prices
rose only about 5 percent.
The small increases in retail
beef and poultry prices coupled
with lower porkprices help explain
the relatively small rise in total
1980 retail food prices. That’s
because meat accounts for such a
large share—about 30 percent—of
consumers’ food spending.
How muchdid consumers spend
for U.S. farm foods and what did
their money pay for? That’s
another good way to examine the
role of -farm value, and par
ticularJy of marketing costs in the
farm-to-retail price spread,
Dunham says.
He notes, however, that these
figures are for spending on
domestic farm foods—excluding
fish and imports—and encompass
not only grocery store food pur
chases but also meals in
restaurants and other public
establishments.
Consumers' expenditures on
domestic farm foods totaled $269
billion last year, up $24 billion from
1979 due to higher prices and a
slightly larger quantity of food
purchased. About 72 cents of each
retail food dolar was spent for
foods consumed at home.
Farmers received about $B6
billion of the total, up $5.4 billion
from 1979. About 40 percent of the
farm value went to meat
producers, and another 18 percent
to dairy farmers.
The rest, of consumers’ food
expenditures—slB3 billion—went
to pay for marketing costs. These
costs were up $18.5 billion last
year,-accounting for three-fourths
of the s2£bilhon increase in food
spending.
Labor costs for processing and
marketing foods accounted for
neriy 45 percent of 1980 food
marketing costs. This meant that
$B2 billion, or 30 percent of total
consumer expenditures for U.S.
farm foods, went to pay the labor
bill—almost as much as went to
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Labor costs, including wages
and benefits for food industry
employees, rose nearly 11 percent
in 1960. Hourly earnings were up
more than 9 percent, and benefits
rose even more.
Also, more workers were on the
payroll than in 1979. Over 7 million
people are employed in processing
and marketing farm foods. Nearly
half of these work in restaurants,
fast food outlets, and other eating
places.
Food packaging expenses, the
second largest food marketing
cost, rose 16 percent last year to
more than $2l billion. Intercity
transportation costs also increased
16 percent to an estimated $l4
billion.
The fastest rising item in the
marketing bill—although still one
of the smallest—was fuels and
electricity.
Altogether, the costs of labor,
packaging, transporation, and
energy accounted for two-thirds of
the marketing bill. Other costs
mclude depreciation, rent, ad
vertising, property taxes, repairs,
and interest.
Dunham estimates before-tax
food industry profits at $10.2
billion, up perhaps only $lOO
million from 1979. Profit margins
as a percent of sales declined as
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