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MOF&G Cover Winter 2011-2012

 


  You are here:  PublicationsMaine Organic Farmer & GardenerWinter 2011-2012Price Reports   
 MOFGA Organic Price Reports In Review, 2006-2011 Minimize

By Melissa White Pillsbury

Since 2006 I have been compiling and publishing MOFGA Organic Price Reports on www.mofga.org, monthly from May to October. All price reports are available at www.mofga.org/Publications/OrganicPriceReports/tabid/260/Default.aspx.

Method

Monthly from May to October, I e-mail MOFGA-certified organic farmers asking what wholesale and retail prices they received for products sold that month. Retail markets are sales directly to consumers or end users. Wholesale is generally any sale outside of sales directly to end users, such as to restaurants, natural food stores, distributors, institutions, etc.

Because the “wholesale” definition is so wide, prices reported in this category can be quite variable, making a mean price of limited use as a target price. Often the mean wholesale price for a product is close to or even higher than the mean retail price, which can seem counter-intuitive; but “wholesale” includes very small accounts to places such as high-end restaurants, so these prices might be higher than or comparable to prices typically received for the same or similar product sold retail at a place like a farmers’ market.

I have tried to develop and refine standard units for reporting prices, and I encourage farmers to use these when reporting; but farmers sell in a variety of ways, including bunches, quarts, each, pound and bag. Standardizing such diversity to compare “apples to apples” is a challenge.

Farmer participation in the price reports is voluntary and therefore limited. Generally I will not publish a report unless I have price data from at least 20 farms, with a target of getting prices from about 10 percent of our approximately 250 crop and livestock farms. If I lack the minimum by my submission deadline, I call and/or visit some farmers’ markets to collect more data.

Purpose

The purpose of the reports is not to establish the price for certified organic products in Maine but to provide information about the range of prices reported from a range of markets. Your (or your farmer’s) prices might be higher or lower for many reasons.

For example, because we collect data from, usually, only 20 to 30 farmers, none with the same set of products, there is no statistical significance to the mean price derived from the handful of prices received for any given product. If a few more farms had submitted prices that month, the mean could have differed significantly; so I also list the range and the number of prices received for each product.

Also, many variables go into a product’s price, and the costs associated with those variables can range among farms and markets. Transportation, standardization of units (size differences in “bunch” or “each” unit pricing), variety selection, packaging and “acts of God” are just a few factors that might explain why, for example, one farm got, in 2011, $2.75/lb. for bell peppers while another got $6/lb. Of course, if you observe that your prices are consistently higher or lower than those in the price reports, you might check your pricing strategy for the reason and consider whether your farm management or pricing should be adjusted.

Observations

I selected a few common products – green beans, tomatoes, spinach and eggs – reported over the last six years to look for interesting pricing observations. All are fairly common among our growers and are available for all or most of the typical May through October reporting period.

To observe seasonal trends, I compiled prices received in each month for a six-year mean price for each month. “N” in the x-axis labels represents the total number of prices received for that product in that month over the six years, with the total number of retail prices (R) listed first, then the total number of wholesale prices (W). (To see how these products break out year to year, see the year-end compilation reports on the Price Reports page on www.mofga.org.) This information helps when analyzing the charts. For example, it may seem odd that the price for tomatoes is lower in May than in June, but seeing that this is a mean of just three prices for the retail line and one for wholesale, the strength of any claim suggesting a seasonal trend in prices is diminished.

Aside from the limited amount of data for May, the month-to-month trend for tomato prices from June through October does appear to be downward. Of course we’ve all observed this demonstration of the economic law of supply and demand. When supply is low, demand is high, pushing prices up, like those noted for tomatoes in June and July. When supply is high, demand and prices fall, noted in tomato prices as the season progresses and production peaks. So the early bird does get the worm, but the important question for grower is this: Does the premium for being first to market a product offset (or more than offset) the increased cost of production for getting it there?

The second set of charts shows price data for each year in order to observe any trends over time. Since costs increase annually, I was hoping to see an upward trend in prices that at least keeps up with inflation – the measure of how much the value of a dollar decreases annually. According to the U.S. Department of Labor’s Bureau of Labor Statistics Inflation Calculator (www.bls.gov/data/inflation_calculator.htm), $1.00 in 2006 had the same buying power as $1.13 today.

We can look at green bean prices to see whether produce prices are keeping up with inflation. The mean retail price reported for green beans in 2006 was $2.78; in 2011, $3.52. Since ($3.52-$2.78)/2.78 x 100 = 27 percent, mean green bean prices increased at twice the rate of inflation in this period, among reporting growers.

Inflation is only one measure of increased costs and does not necessarily mean that farmers are making more money on green beans now than they did six years ago. For example, the cost of labor to harvest green beans may have increased more than inflation did over that time, influencing the price more.

These data also show how elastic or inelastic prices are. Price elasticity refers to the ability of a price to respond to changing market conditions. For example, 2009 was a terrible year for tomatoes because late blight killed many farmers’ crops early in the harvest season. The mean retail (but not wholesale) price of tomatoes spiked in 2009, indicating that prices in retail markets are more elastic than prices in wholesale markets. In other words, direct-to-consumer markets are more willing to accept an increase in price than are wholesale markets.

This makes sense: Consumers’ budgets won’t experience a huge impact when they pay an extra 50 cents/lb. for tomatoes, and farmers can communicate directly to customers the reason for the increase. But for businesses buying tomatoes to process or resell, that increase has a much bigger effect because they are buying larger quantities; and they are typically not as able to pass on the increased cost to their customers or make other adjustments in their budget to accommodate this increase. So the increased cost comes directly out of their profit, which is usually already slim in the restaurant and produce industries. They are therefore less willing or able to pay a higher price.

Elasticity can work both ways. The inelasticity of wholesale prices can work in your favor in “good” tomato years when an abundant supply drives the retail price down more than the wholesale price. This may have been the case in 2007 and 2008, where mean prices for tomatoes in retail and wholesale markets were virtually the same.

Lastly, the mean yearly prices tell us something comforting about prices for certified organic products in Maine: They are relatively stable. Each graph shows a positive trend (increase in prices over time) with very little volatility (drastic increases or decreases in prices), so farmers operate within a stable price environment and can plan for a profitable future!

Mean prices reported in a given month over the six-year period from 2006-2011 for four common products, retail and wholesale. (No October data in 2006 or 2011, no wholesale egg prices reported in September of any year.)
Price chart a1
Price chart a2
Price chart a3
Price chart a4
Mean price reported in a given year over the six-month period May-October for four common products, retail and wholesale. (No October data in 2006 or 2011; no wholesale egg prices reported in 2010.)
Price chart b1
Price chart b2
Price chart b3
Price chart b4


 


  

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