Last week, the media made much of the fact that retail turkey prices were at their lowest level since 2013. Retail turkey prices at Thanksgiving are a joke and really do not bear any resemblance to the state of the farm economy, the turkey market, or to the farmer’s share of the food dollar. This is because retailers sharply discount the price of turkeys in order to get you in the store where you will pay full price for the other items on your holiday table. Yet, many farm groups took last week to point out that on average the farmer gets 16 cents out of every food dollar spent by consumers. Again, a not realistic assessment, but a point well made. Those who produce the food get a comparatively small percentage of the money spent on food, a point on which most consumers are totally oblivious.
The reason the farmer’s share of the food dollar is small is complicated. Many economic simpletons say, if you just raise the retail price of the food, the farmers can make more money. Local food advocates postulate that, with the development of more local food systems that shortens the distance between producer and consumer (i.e. cutout the retail middleman), small and midsized farms will thrive. While this may work in some local areas, it will not have any impact on the food system as a whole or benefit the farm economy in any meaningful way. Food processors and retailers get blamed for taking up so much of the food dollar that the farmer gets very little. In reality, the profit margins in many parts of the food chain are just as thin as the farmer’s margin.
So what can be done to increase the farmer’s share of the food dollar? Sarah Reinhardt, food systems & health analyst with the Union of Concerned Scientists, is calling for a new farm program that allows greater access to the retail food system for small and midsized farmers. However, it is farm programs, government price controls, and excessive regulations that are part of the reason the farmer’s share is so small. In fact, the label requirements and transportation regulations alone, supported by groups like UCS, are a large part of the cost of a retail food item. This is a cost that is borne by the processor and retailer, not the farmer.
Less regulation on both the farm and retail level would go a long way toward improving the profit margins of food producers. The farmer’s job is to produce; and, if he is allowed to produce for the market, he will be productive, and profitable. Farmers have proven that, when provided with the correct market signals (high prices or good profit margins), they will produce in a sustainable and responsible fashion. Today, if a corn farmer wants to switch to a crop that is more profitable, say for example organic, non-GMO, kumquats, he will be penalized by USDA safety net programs. If the organic, non-GMO kumquat market drops and the farmer wants to switch to pork, he will face a mountain of regulations before he can build his hog house and will likely face an environmental lawsuit from groups like UCS.
Most of the consumers who bought those 35 cent per pound turkeys, and the media who reported on them, were unaware that those birds were raised under contract: a contract between a large turkey processor and a farmer; a contract that was agreed to a year before and a price set well before the market price for turkey was known. In many of these contracts, the company provides the birds, the feed, and the transportation. While the farmer gets less per bird than if he had raised them independently, he also has far less risk.
Groups like UCS like to decry this kind of system as bad for farmers and consumers. Yet, the reality is much of the poultry and an increasing amount of the pork produced in this country uses such a system. It guarantees a consistent supply and relatively consistent price, something retailers want and consumers expect. It allows farmers to reduce their risk, but does take away much of their management control.
As long as most consumers want piles of low cost frozen turkey in their grocery store each November, this is what it is going to take. When enough of them demand something else and are willing to pay for it, farmers will change their production to a higher margin market – if they are allowed. As I explained in last week’s column, if you want a specialized turkey, you can find it because a farmer produces his product for a specific market and commands a higher price for it.
Increasing the farmer’s share of the food dollar is not something that can be legislated or regulated. It is also something that needs to be talked about all year long, not just at Thanksgiving.
By Gary Truitt