Farm price margins constructed under alternative price calculation

Hyunok Lee*, Daniel Sumner**, and Jessica Vergati*** 1

June 2012

*********************************************

This research was funded by California Department of Food and Agriculture, Specialty Crop Block Grant Program (SCBGP) Grant CFDA #10.170: “Measuring and Understanding the Pattern of Margins between Farm and Retail Prices for California Specialty Crops to Increase Growers Returns”**********************************************

Issues and background

In the past decades, the increase in retail fruit price has been much higher than the increase in other retail food prices. At the same time, the price received by fruit growers has either remained constant or risen only slightly. This price divergence between retail and grower prices has been widely accepted and there has been some concern about this widening price margin among farm policy analysts.

Agricultural products are linked from farms to consumers through food marketing systems such as food manufacturing, wholesaling, and retailing. At each level of marketing system, the cost of marketing services are added, such as transportation, processing, and distribution of farm products, and they constitute a substantial portion of food prices.

We present two figures which describe the historical movement of aggregate price indices. The first figure presents annual Consumer Price Indexes (CPI) for urban consumers for general food and two different food bundles, fresh fruit and fresh vegetables, for the period of 1950-2009 with the index values based on the prices of 1982-84. All three CPIs increased together at a relatively low rate until the early 1980s. However, since then, all three indexes have increased at considerably different rates, showing that fresh produce prices rose far more than general food prices. Compared to 1982 prices, the CPIs for fresh fruit and vegetables rose 3.5 times and 3.1 times in 2008, respectively, while the general food index rose 2.3 times.

The second figure presents the producer price index (PPI) and the consumer price index (CPI) for fresh fruit, representing the general producer price and retail price levels for fresh fruit. The

1 *Department of Agricultural and Resource Economics, University of California, Davis; **Department of Agricultural and Resource Economics, University of California, Davis and University of California Agricultural Issues Center;*** University of California Agricultural Issues Center.

1

diversion between these two price indices can be consistent with the widening spread between retail price and farm price. Up to the early 1980s, the producer price index (PPI) (representing farmgate prices) is slightly higher than the consumer price index (CPI). However, after this period, the CPI rose very rapidly while there was little change in the PPI. As a result, the gap between the CPI and PPI widened. These two graphs show the central point of our project—for the past two decades, fresh fruit retail prices have risen more than any other food groups. On the other hand, producer-received prices have either decreased or changed little.

Figure 1.

0

50

100

150

200

250

300

350 Historical Consumer Price Index for Urban Consumers

General foodFresh fruitFresh vegetables

Figure 2.

0

50

100

150

200

250

300

350Historical Consumer Price Index and Producer Price

Index for Fresh Fruit

CPI for fresh fruitPPI for fresh fruit

Source: BLS http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

2

Table 1 below presents the retail farm price margins for fresh fruit since 1997. Table 2 presents farm shares in retail prices for various commodity categories. Compared to the overall market basket, fresh fruit tends to generate a relatively low farm share, whereas animal (meat and products) tend to generate a relatively high farm share. However, the lowest farm share was generated by the cereal and bakery products, which in general are processed and contain high value added. Table 2 confirms our usual expectation that product perishability lowers the farm share (such as for fresh fruit or vegetables) and that more processed products are associated with lower farm shares.

Table 1. Farm share (%) in retail price for fresh fruit

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201017.7 17.3 16.5 15.7 15.8 16.4 16.7 19.3 16.6 17.6 16.6 15.8 14.9 15.9

Table 2. Farm share in retail price for major commodity groups

2008 2009 2010Market basket1

Farm value-retail cost (%) 22.9 19.8 22.5Meat products Farm value-retail cost (%) 31.2 28.8 31.6Dairy products Farm value-retail cost (%) 33.2 25.3 31.9Poultry Farm value-retail cost (%) 41.4 38.4 42.3Eggs Farm value-retail cost (%) 46.3 38.0 40.0Cereal and bakery products Farm value-retail cost (%) 9.6 6.9 7.1Fresh fruit Farm value-retail cost (%) 15.8 14.9 15.9Fresh vegetables Farm value-retail cost (%) 18.7 19.0 21.1Processed fruits and vegetables Farm value-retail cost (%) 17.0 15.3 15.6

Source: Agricultural Outlook: Statistical Indicators, January 2011http://www.ers.usda.gov/publications/agoutlook/aotables/

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Previous studies

Stewart (2006)2 investigated the farm share of consumer food expenditures using the updated market basket data for fresh fruits and fresh vegetables. His study found that the farm share of consumer food expenditures has been shrinking and the farm share for these two commodity groups has decreased less than previously believed. The updated estimates show a larger farm share than the current, unadjusted data series. The unadjusted data series estimates the 2004 farm share at 19 percent for fresh vegetables and 20 percent for fresh fruit; the updated consumer baskets yield farm shares of 23.5 percent for fresh vegetables and 26.6 percent for fresh fruit. His study indicates that the existing (unadjusted) series has overstated the decrease in farm share.

Leibtag (2006, 2010)3 investigated the relationship between the emergence of large discount food stores and retail food price. Nontraditional stores, such as mass merchandisers, supercenters, club warehouse and dollar stores have increased their presence over the past decades and often present lower-priced alternatives to conventional supermarkets. According to Martinez (2007)4, the U.S. food system has the increasing presence of nontraditional grocery retailers, and these developments have contributed to sharp increases in concentration in the grocery retail sector, changing conventional relationships among retailers, wholesalers, and manufacturers. The share of food retail by type of outlet indicates that nontraditional retail has increased its 17 percent share in consumer food retail purchase in 1994 to 32 percent in 2005.

He pointed out that the current CPI for food does not fully take into account the lower price option of nontraditional retailers and thus a gap exists between price changes as measured using scanner data versus the CPI estimate. Comparisons of identical items, at the Universal Product Code (UPC) level, show an expenditure-weighted average price discount of 7.5 percent (with differences ranging from 3 to 28 percent) lower in nontraditional stores than in traditional stores.

2 Hayden Stewart, “How Low Has the Farm Share of Retail Food Prices Really Fallen?” Economic Research Report No. (ERR-24) 23 pp, August 20063 Ephraim Leibtag, The Impact of Big-Box Stores on Retail Food Prices and the Consumer Price Index, Economic Research Report No. (ERR-33) 41 pp, December 2006Ephraim Leibtag, Catherine Barker, and Paula Dutko How Much Lower Are Prices at Discount Stores? An Examination of Retail Food Prices, Economic Research Report No. (ERR-105) 51 pp, October 2010

4 Steve Martinez, 2007. The U.S. Food Marketing System: Recent Developments, 1997-2006, Economic Research Report No. (ERR-42) 57 pp, May 2007 http://www.ers.usda.gov/Publications/ERR42/

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Possible causes for farm share for fresh fruits

Among the possible explanations for the relatively low farm share for fresh fruits, a few stand out.

Existence of retailers’ market power: There are many studies examining this possibility and past research indicates the existence of retailers’ market power. Nevertheless, this is not fully convincing given the high level of competition among grocery retail chains. However, this hypothesis would be consistent with falling farm income.

Increasing marketing costs: The increase in marketing cost can be due to two sources. 1) Increase in regulatory compliance (or institutional) costs: These regulations may

be associated with public health and exotic pest outbreaks. The increasing levels of regulations are placed in response to higher awareness of potential losses from pest outbreaks or other food contaminations. Firms incur costs from regulation and these costs are passed down to consumers in the form of higher retail prices.

2) Implicit quality improvement: There has been inexplicit quality improvement of products, and this improvement is reflected in the retail price but not in product counting. For example, consumers demand better and fresher quality of products along with improvement in post-harvest technology. Thus, a higher share of cost is allocated to this process. Quality improvement incurs costs and these costs are reflected in higher retail prices, which subsequently increase the margin between retail and producers’ prices.

Price accounting: In price accounting, there are three layers of issues. Retailers’ constant pricing behavior: Fruits are available throughout the year

due to the expanded global market. There is an incentive for retailers to maintain the same price during the off-season as during the season. Keeping the retailers’ profit constant and the presumption that off-season producer prices are higher than in-season producer prices, such pricing behavior leads to higher in-season retail prices and lower off-season retail prices. As such behavior intensifies (and accordingly, prices become more uniform throughout the in-season and off-season), the gap between retail price and producer in-season price widens.

Overestimated retail prices due to the expanding share of nontraditional stores: BLS data do not accurately reflect the expanding share of nontraditional retailers, e.g., big-box stores, which tend to offer lower prices than traditional retailers (Leibtag, 2006 and 2010)5.

Longer season in retail markets: Even in the absence of constant pricing, falling farm shares can be realized as fresh produce is increasingly available to consumers (because of the increase in off-season imports). Retail price data

5 Ephraim Leibtag, The Impact of Big-Box Stores on Retail Food Prices and the Consumer Price Index, Economic Research Report No. (ERR-33) 41 pp, December 2006Ephraim Leibtag, Catherine Barker, and Paula Dutko How Much Lower Are Prices at Discount Stores? An Examination of Retail Food Prices, Economic Research Report No. (ERR-105) 51 pp, October 2010

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include non-season prices which may be relatively high compared to the season price. However, producer prices include values only during the season.

Due to the BLS’s retail pricing calculation, retail prices are overestimated, which results in widening marketing margins over time. The possibility of retail prices being overestimated is based on the following facts. Retail prices are mostly collected from BLS. Grower-received prices are collected from USDA. Increased imports during the off-season and the wider availability of early and late fruit varieties expand the availability of fruits at the retail level beyond the period that is considered traditionally as a season for each fruit. Thus, retail prices are collected over the span that expands beyond the season.

Impact on farm incomeFarm share in retail price has decreased over time. Retail prices increased more rapidly than farm prices or general food prices, and the farm share in retail value has decreased over time. Given rising retail value, the falling farm share does not necessarily mean a reduction in producers’ net profit. Producers’ net profit may be either unchanging or falling.

Issues regarding BLS commodity prices and indexes

The primary issue regarding price data in the context of grower margins concerns aggregation issues surrounding retail prices.

Commodity level prices and price indexes are available at the grower as well as retail levels mostly from USDA and BLS. USDA collects and provides market level price data for many major agricultural products. Even though USDA provides data at all marketing levels, their data effort especially focuses on the grower level. For the retail level, USDA does not provide a comprehensive data base, and often relies on BLS sources. For example, grower margins provided by USDA are based on BLS retail price data. Thus, in understanding and interpreting these values, it is very important to understand how these BLS price data are generated.

All prices or indexes published by BLS (as well as other places) are the products resulting from some type of aggregation process. Publicly accessible data are usually generated from initially disaggregated information. That is, monthly prices can be created by aggregating weekly or daily prices, or in the case of spatial aggregation, urban prices in a region, for example, can be created by aggregating prices collected from designated urban locations in that region. In general, the data collection agency initially collects data on a daily, weekly or monthly basis (depending on the transaction of commodity) at many locations of the country for a given commodity. In general, this initially very detailed data information is further summarized (or aggregated) over time and locations, which then is published as monthly or annual data for a region or the nation as a whole.

BLS usually uses the simple average method to construct annual data, rather than the quantity-weighted method. USDA uses both weighted average and simple average methods in the construction of annual grower-received prices. (Shipment quantities are supplied by USDA’s Agricultural Marketing Service.) During the peak season, market quantities tend to be high and

6

prices tend to be low, and during the early or late season, market quantities tend to be small and prices are usually high. A similar situation extends even to off-seasons. In the past decades, imports of fresh fruit have continued to increase and fresh fruits have been more readily available during the off-season. Naturally, off-season products consist mostly of imports, and off-season prices are typically higher than the season price. This implies that the annual consumer prices generated using in-season as well as off-season prices are expected to be higher than the typical price that would prevail during the season. The consequence of the simple average (say, a simple average of monthly prices) method used in generating annual retail prices is the upward bias of the price compared to say, the weighted average.

USDA relies on BLS for retail price information in their analysis of price, including marketing margins. For instance, the Economic Research Service obtains retail data on national average prices (U.S. city-average price data) from the BLS and uses them in their calculation of grower margins (published in the USDA yearbook for fruits and nuts). (For documentation of data collection descriptions, refer to the website: http://www.ers.usda.gov/Data/FarmToConsumer/pricespreadsdoc.htm) The implication of these higher retail prices in farm share calculation may lead to a consistently biased number, in this case, a lower farm share.

Construction of weighted prices

We have selected five representative fruits as our focus commodities: oranges, apples, grapes, peaches and strawberries. These five fruits represent between 60–70 percent of cash receipts for all fruits received by U.S. fruit farmers.

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Value share for selected fruits in total cash receipt from all fruits

Year Orange Apples Grapes Peaches Strawberries Sum of Shares

1980 0.23 0.12 0.23 0.06 0.04 0.69 1981 0.22 0.13 0.22 0.07 0.05 0.70 1982 0.22 0.14 0.23 0.04 0.07 0.70 1983 0.24 0.13 0.19 0.05 0.07 0.69 1984 0.23 0.16 0.16 0.05 0.07 0.67 1985 0.22 0.14 0.15 0.05 0.07 0.64 1986 0.19 0.14 0.18 0.05 0.08 0.64 1987 0.19 0.15 0.19 0.04 0.08 0.66 1988 0.22 0.12 0.20 0.05 0.07 0.65 1989 0.22 0.12 0.22 0.04 0.07 0.67 1990 0.20 0.13 0.20 0.05 0.07 0.65 1991 0.17 0.18 0.20 0.04 0.07 0.67 1992 0.16 0.18 0.21 0.04 0.08 0.67 1993 0.17 0.16 0.23 0.04 0.08 0.68 1994 0.18 0.15 0.21 0.04 0.09 0.68 1995 0.18 0.16 0.21 0.04 0.09 0.68 1996 0.17 0.18 0.23 0.04 0.07 0.69 1997 0.16 0.13 0.28 0.04 0.08 0.69 1998 0.21 0.13 0.24 0.04 0.09 0.72 1999 0.14 0.13 0.28 0.04 0.11 0.70 2000 0.16 0.13 0.28 0.04 0.09 0.70 2001 0.15 0.12 0.28 0.05 0.10 0.69 2002 0.15 0.13 0.26 0.04 0.11 0.68 2003 0.14 0.15 0.23 0.04 0.12 0.68 2004 0.12 0.14 0.25 0.04 0.11 0.66 2005 0.14 0.13 0.26 0.04 0.10 0.66 2006 0.14 0.14 0.23 0.04 0.11 0.66 2007 0.12 0.14 0.23 0.03 0.12 0.64 2008 0.13 0.17 0.21 0.03 0.12 0.66 2009 0.12 0.13 0.23 0.04 0.14 0.66 2010 0.12 0.13 0.21 0.04 0.13 0.63

8

Source: Fruit and tree nut yearbook 2011 Economic Research Service, USDA

9

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Value share of selected fruits in total fruit receipt

Oranges Apples Grapes Peaches Strawberries

Comparison of weighted and unweighted retail and grower prices

Description of weighted and unweighted prices

Real prices are calculated using the CPI Unweighted annual prices are annual prices which are published by USDA. USDA

calculated these prices by simply averaging monthly prices. A weighted annual price, calculated by Lee, is a weighted average of monthly prices with

weights equal to monthly shipments. The months used in calculation include only the months during the domestic season for

the fruit in question. In general, grower prices are available only for the domestic season. However, often times retail prices are reported during the off season for the imported products. Thus, we used the prices only for the months corresponding to the domestic season to develop compatible retail prices in the comparison of retail and grower prices.

ERS figures are used (below ERS numbers are labeled as unweighted prices) as a benchmark.

To obtain representative monthly shipments during the season, for table grapes, oranges, and fresh peaches, we use the three-year average (2007, 2008, 2009) of U.S. monthly shipments (data source: AMS/USDA). For fresh strawberries and apples, we use historical monthly shipment data published by ERS.

Apples

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Weighted and unweighted retail and grower prices of apples in real value: weights=monthly shipments of domestic production

weighted retail $/lb weighted grower $/lb

unweighted retail $/lb unweighted grower $/lb

10

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20080

5

10

15

20

25

30

35

Grower percentage share in retail price of apples calculated using weighted and unweighted prices: weights=monthly

shipments of domestic production

Share using weighted price Share using unweighted price

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0

50

100

150

200

250

300

350

400

450

500

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Prod

uctio

n, M

illio

n po

unds

Impo

rts,

Mill

ion

poun

ds

Annual supply of apples 1980-2009

Imports

Utilized Production

11

Data source:

Monthly retail fresh apple prices: BLS, Average price data, area=west urban, item=apples, red delicious, per lb.

Monthly grower fresh apple prices and U.S. monthly shipments of domestically produced apples: USDA, Economics, Statistics and Market Information System, U.S. Apple Statistics, 2010, http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1825

Points of observation on apple prices Both real retail and grower prices of apples tend to be steady with little fluctuation

over the last 30 years. Real retail prices range between 80 cents to a dollar and real grower prices fluctuate

near 20 cents. Weighted retail prices are in general higher than unweighted prices, but for grower

prices, these two pricing schemes make little difference. The share of imported apples in the US market is small; over the decades, the import

share fluctuates at around 5–6 percent. The grower share over the decades tends to be steady at around 25 percent. However,

the level of fluctuation increased after the early 1990s. Grower shares, which ranged between 20–25 percent until the early 1990s, began to fluctuate in a wide range between 20–30 percent in the recent two decades.

Fresh Peaches

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20080.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Weighted and unweighted retail and grower prices of peaches in real value: weights=monthly shipments of

domestic production

weighted retail $/lb weighted grower $/lbunweighted retail $/lb unweighted grower $/lb

12

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20080

5

10

15

20

25

30

35

Grower percentage share in retail price of peaches calcu-lated using weighted and unweighted prices:

weights=monthly shipments of domestic production

Share using weighted price Share using unweighted price

Data source:Monthly retail price: BLS, U.S average, $/lbMonthly grower received price: Fruit and Tree Nut Yearbook Spread Sheet, 2010, USDA/Economics, statistics and market information system, http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1377Monthly shipments: AMS/USDA, the season includes June through September, and their respective monthly shipment shares are 24.4%, 31.2%, 28.1%, and 16.3%.

Annual peach supply (utilized production and imports), 1980-2009

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

0

20

40

60

80

100

120

140

160

180

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Prod

uctio

n, m

illio

n lb

s

Impo

rts,

mill

ion

lbs

Peach supply, 1980-2009

Imports

Utilized production

Source: USDA, ERS. Supply and utilization

13

Points of observation In real value, retail prices of fresh peaches have steadily gone up, while the grower prices

have been steady with little change. In real term, the retail price has gone up more than 50 percent over the last three decades.

This implies that the grower share in retail price has been steadily falling. Roughly, the grower share has fallen more than 40% percent since 1980.

When prices are weighted by shipments, retail prices tend to be slightly lower than unweighted prices while grower prices change little between these two sets of prices.

In terms of grower share, weighted grower shares are in fact slightly lower than unweighted shares.

Strawberries

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Weighted and unweighted retail and grower prices of strawberries in real value: weights=monthly shipments of

domestic production

weighted retail $/lb weighted grower $/lbunweighted retail $/lb unweighted grower $/lb

14

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20080

10

20

30

40

50

60

Grower percentage in retail price of strawberries calculated using weighted and unweighted prices: weights=monthly

shipments of domestic production

Share using weighted priceShare using unweighted price

Data source:

Monthly retail price: BLS, Monthly U.S. averageMonthly grower price: USDA/ERS/Economics, Statistics, Market Information System/U.S. Strawberry Industry (95003)Monthly U.S. fresh strawberry shipments (domestic production): USDA/ERS/Economics, Statistics, Market Information System/U.S. Strawberry Industry (95003)http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1381

Annual strawberry supply (utilized production and imports), 1980-2009

0

20

40

60

80

100

120

140

160

180

200

0

500

1,000

1,500

2,000

2,500

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Impo

rts,

mill

ion

poun

ds

Prod

uctio

n, m

illio

n po

unds

Annual strawberry supply, 1980-2009

Utilized production

Imports

15

Source: USDA, ERS. Supply and utilization.

In real terms, grower prices have been steady while retail prices have risen considerably (about 60 percent), even though they showed a slightly decreasing trend in recent years.

This implies that the grower share in retail price has been falling. The grower share has fallen from more than 50 percent to about 30 percent over the three decades.

For fresh strawberries, between the weighted and unweighted prices, we found little deviation for retail prices but large deviation for grower prices. Weighted grower prices tend to deviate considerably from unweighted prices. Unweighted grower prices are consistently about 15 percent higher than weighted grower prices, which causes about a15–20% difference in grower share.

Table grapes

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20100.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Weighted and unweighted retail and grower prices of grapes in real value: weights=monthly shipments of domestic pro-

duction

weighted retail $/lb weighted grower $/lb

16

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20100

5

10

15

20

25

30

35

Grower percentage in retail price of grapes calculated using weighted and unweighted prices: weights=monthly ship-

ments of domestic production

Share using weighted price Share using unweighted price

Data source:Monthly retail price: BLS, U.S. city average, Thompson seedlessMonthly grower price: Fruit and Tree Nut Yearbook Spread Sheet, 2010, USDA/Economics, statistics and market information system, http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1377

Monthly U.S. grape shipments (domestic production): AMS/USDA, http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDc5075607 Movement of all grapes (except for organic) from California, season includes July though Novemenber and their monthly respective shares are 17%, 25%, 23%, 20% and 15%.

Fresh grape supply (utilized production and imports), 1980-2009

0

500

1,000

1,500

2,000

2,500

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Mill

ion

poun

ds

Grape supply, 1980-2009

Utilized production

Imports

Source: USDA, ERS. Supply and utilization.

17

In real terms, grower prices have been steady while retail prices have gone up until 2006 (over 40 percent) and then begun to decrease, which also implies that the grower share in retail price has fallen and then rebounded.

For table grapes, in terms of deviation between the weighted and unweighted prices, we found no consistent pattern for retail prices but a considerable deviation for grower prices. Unweighted grower prices are consistently over 10 percent higher than weighted grower prices.

This also implies that the grower shares are higher under the unweighted price scheme. Under the weighted price scheme, the grower share fell from 22 percent to about 15 percent (using weighted prices) by 2005, but since then has fluctuated between 13–22 percent.

Oranges

1980/81

1982/83

1984/85

1986/87

1988/89

1990/91

1992/93

1994/95

1996/97

1998/99

2000/01

2002/03

2004/05

2006/07

2008/09

0.00

0.20

0.40

0.60

0.80

1.00

1.20

Weighted and unweighted retail and grower prices of or-anges in real value: weights=monthly shipments of do-

mestic production

weighted retail $/lb weighted grower $/lb

18

1980/81

1981/82

1982/83

1983/84

1984/85

1985/86

1986/87

1987/88

1988/89

1989/90

1990/91

1991/92

1992/93

1993/94

1994/95

1995/96

1996/97

1997/98

1998/99

1999/00

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

0

5

10

15

20

25

30

35

40

45

Grower percentage share in retail price of orange calculated using weighted and unweighted prices: weights=monthly

shipments of domestic production

Share using weighted price Share using unweighted price

Data source:Monthly retail price: BLS, U.S. city average, Monthly grower price: Monthly equivalent on-tree returns received by growers, California, Fruit and Tree Nut Yearbook Spread Sheet, 2010, USDA/Economics, statistics and market information system, http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1377

Monthly orange shipments (domestic production): AMS/USDA, http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDc5075607 Movement of California navel oranges by month, season includes Novembers though June next year and their monthly respective shares starting from November are 10%, 9.8%, 13.2%, 12.8%, 16.1%, 18.1%, 12.4%, and 7.6%.

Annual navel orange supply (utilized production and imports), 1980–2009

0

50

100

150

200

250

300

0

1,000

2,000

3,000

4,000

5,000

6,000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Impo

rts,

mill

ion

lbs

Prod

uctio

n, m

illio

n lb

s

Navel orange supply, 1980-2009

Utilized production

Imports

Source: USDA, ERS. Supply and utilization

19

In real terms, grower prices have been steady while retail prices have gone up slightly. The comparison of weighted and unweighted prices shows that unweighted prices have

been slightly higher than weighted prices for both retail and grower prices. Unweighted grower shares are consistently higher than weighted grower shares. The

weighted grower share fluctuated around 15 percent until about 1999, but since then it shows a slight downturn and fluctuates between 10–15 percent.

Unweighted grower shares, showing a similar trend, fluctuated at around 20 percent before the downturn and between 15–20 percent after the downturn.

Conclusions

Among the fruits we examined, real retail prices have gone up all except for apples.

On the other hand, real grower prices have been relatively steady or declining over the time we examined.

With an exclusion of apples, grower shares have been also declining under both weighted and unweighted schemes.

With the exception of apples, weighted real prices are lower for both retail and grower prices. However, the divergence between weighted and unweighted real prices was more pronounced for grower prices.

Among all fruits considered, the widest divergence between these two price calculations was found with the grower prices for strawberries.

Our results show that grower shares were in general lower under the weighted price scheme, suggesting that the ERS calculation may overestimate farm marketing margins.

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