Cost Components of Farm-Retail Price Spreads

The farm-retail price spread is the difference between the price paid for a food product by consumers and the payment that farmers receive for an equivalent quantity of farm product. It measures the costs of assembling, transporting, processing, and retailing food products. The cost of these functions and of various inputs, such as labor and packaging, varied widely in 1975 for 16 products studied. Costs of assembling products from farmers accounted for only 2 to 3 percent of the retail price of most products. Processing costs made up about a third of the retail price of canned tomatoes, margarine, and bread, but less than 15 percent of the price of beef, pork, broilers, eggs, and milk—products that are changed relatively little after they leave the farm. Labor and packaging costs accounted for half or more of the processing costs for most products. Food transportation costs were highest for fresh fruits and vegetables. Costs of wholesaling, consisting of warehousing and local delivery, ranged between 5 and 8 percent of the retail price of the items studied. Retailing costs accounted for less than 25 percent of the retail price for all items except fresh oranges, potatoes, and lettuce. Labor costs made up about half of the retailing costs, while rent accounted for around 7 percent.