[Agriculture Fact Book 98]
Food prices include payments for both the raw farm product and marketing services. In 1997, the farm value, or payment for the raw product, averaged 23 percent of the retail cost of a market basket of U.S. farm foods sold in foodstores. The other 77 percent, the farm-retail price spread, consisted of all processing, transportation, wholesaling, and retailing charges incurred after farm products leave the farm.
Farm-retail spreads have increased every year for the past 30 years, largely reflecting rising costs of labor, packaging, and other processing and marketing inputs. In 1997, farm-to- retail spreads rose an average of 4.7 percent and farmers received 4.4 percent less for the food they produced. The farm value as a percentage of retail prices was slightly lower in 1997 than in 1996. Meanwhile, retail food prices rose 2.4 percent. Widening farm-retail spreads continued to push up food costs in 1997.
The Percentage of the retail price accounted for by the farm value varies widely among foods. Generally, it is larger for animal products than for crop-based foods, and smaller for foods that require considerable processing and packaging. The percentage generally decreases as the degree of processing increases. For example, the farm value of meat was 36 percent in 1997, while cereal and bakery products had a farm value of 7 percent. The additional manufacturing processes required for cereal and bakery products lower the farm value relative to the retail cost. Other factors that influence the farm value percentage include transportation cost, product perishability, and retailing cost.
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