Page images
PDF
EPUB
[blocks in formation]

The farm-retail spread of the "market basket" of farm foods averaged $657 last year, up $3 from the 1961 average (table 1).' Since 1950 year-to-year increases in the annual average farm-retail spread have averaged $14. Since the increase in the spread from 1961 to 1962 was small, more than half of the rise in retail prices was reflected in higher prices to farmers.

The retail store cost of the market basket foods averaged $1,067 last year, compared with $1,060 in 1961. Last year's level topped the previous record established in 1958 by $3 (table 1). Farmers received $410 in 1962 for farm products equivalent to the foods in the market basket, about $4 more than in 1961. Most of this increase resulted from higher prices for beef cattle.

Farmers received an average of 38 cents of the dollar consumers spent in retail food stores for farm foods in 1962, the same share as in 1961 and 1959 (fig. 2).

The market basket contains the average quantities of farm-originated food products purchased per family in 1952 by urban wage earner and clerical worker families. The farm-retail spread is the difference between the retail cost and the farm value or return to farmers for farm products equivalent to the foods in the market basket.

TABLE 1.-The farm food market basket: Retail cost, farm value, farm-retail spread, and farmer's share of retail cost, 1952–62 1

[merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][subsumed][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][subsumed][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][subsumed][merged small][merged small][merged small][subsumed][merged small][merged small][merged small][merged small][subsumed][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][subsumed][merged small][merged small][merged small][merged small][subsumed][ocr errors][subsumed][merged small][subsumed][subsumed][subsumed][merged small][subsumed][merged small][subsumed][merged small][merged small][merged small][subsumed][merged small]

1 The farmer's share and index numbers of the retail cost, farm value, and farm-retail spread for the years 1913-61 (1957-59-100) are published in the February 1962 "Marketing and Transportation Situation" (MTS-144), p. 50.

2 Retail cost of average quantities purchased per family in 1952 by urban wage earner and clerical worker families, calculated from retail prices collected by the Bureau of Labor Statistics.

3 Payment to farmers for equivalent quantities of farm produce minus imputed value of byproducts obtained in processing.

+ Preliminary estimates.

NOTE.-Current data are given in the Statistical Summary, a monthly publication of the Statistical Reporting Service.

LITTLE CHANGE IN MARKETING COSTS IN 1962

The small rise in farm-retail spreads for farm food products in 1962 reflected relative stability in operating costs of marketing firms. This stability contrasts with sharply rising costs in the 1950's.

Labor costs.-Hourly earnings of food marketing workers averaged $2.10 last year compared with $2.04 in 1961. This increase was smaller than the average rise of 7.3 cents per year during the preceding 10 years. The rise from 1961 to 1962 was slightly smaller than the rise in average hourly earnings of employees in all manufacturing industries and all retail trade.

Hourly earnings in food manufacturing industries averaged $2.25 in 1962 compared with $2.39 in all manufacturing industries. The average of $1.82 in retail food stores compared with $1.75 in all retail trade.

Changes in average hourly earnings reflect changes in wage rates, in the propotion of employees in lower and higher paid groups, and in hours of overtime work for which premium rates were paid. Part of the rise in average hourly earnings has resulted from increases in the proportion of employees in higher paid (and higher skilled) jobs.

Increased output per man-hour has kept labor costs per unit of food marketed from rising as much as hourly earnings in recent years. Though hourly earn

[blocks in formation]

ings, including allowances for fringe benefits, jumped 51 percent from 1952 to 1962, unit labor costs increased no more than 16 percent (fig. 3). Gains in output per man-hour are attributed mainly to technological improvements in marketing facilities and in production and distribution practices, to increased skill and capability of management and workers, and to economies of scale.

TABLE 2.-Selected costs of food marketing firms, by function of firms, 1947-49 average, 1959 and 1961 1

[merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][subsumed][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small]

Preliminary estimates. Estimates are for both corporate and noncorporate firms.
Merchant wholesalers of groceries and related products.

* Includes property, social security, unemployment insurance, State income, and franchise taxes, license fees, etc., but does not include Federal income tax.

Includes retail food stores; does not include restaurants and other eating places.

NOTE.-Estimates based on "Statistics of Income," Internal Revenue Service, and census data.

Costs of labor employed by food marketing firms made up about 46 percent of the bill for marketing domestic farm food products in 1962. Since 1950 this proportion has varied from 44 to 49 percent.

Capital costs.-Prices of producers' durable equipment have changed little in the last year or two. Construction costs, however, have continued to edge

FIGURE 4

PRICES OF INTERMEDIATE
GOODS AND SERVICES AND
PRODUCERS' DURABLE EQUIPMENT

[blocks in formation]

* IMPLICIT PRICE DEFLATOR FOR PRODUCERS DURABLE EQUIPMENT, GROSS NATIONAL PRODUCT,
DEPT. OF COMMERCE.
▲ 1962 -3 QUARTER AVERAGE.

U. S. DEPARTMENT OF AGRICULTURE

NEG. ERS 1728-63 (1) ECONOMIC RESEARCH SERVICE

upward. Changes in costs of construction and equipment are reflected in depreciation charges, which have increased substantially in recent years. According to estimates developed by the Economic Research Service, depreciation charges taken by firms that process and distribute food products totaled $1.6 billion in 1961, compared with an average of $490 million in 1947-49 (table 2).

This increase in depreciation charges of more than 200 percent compares with a rise of about a third in the volume of food products marketed by farmers in this country. Thus, depreciation charges per unit of product increased sharply. Part of this increase resulted from substitution of machines and other forms of capital for labor. This substitution also was the principal cause of the improvement in the productivity of labor. Thus, part of the savings gained by increased output per man-hour has been offset by added depreciation charges.

Part of the rise in total depreciation charges resulted from growth in total gross depreciable assets through replacement, modernization, and extension of marketing facilities. A larger part of the rise came from charging off more per dollar of depreciable assets. This rise in writeoff was caused partly by the trend toward assets with shorter service lives-a trend resulting from more rapid obsolescence and increased investment in equipment relative to structures. The remainder of the rise in writeoff per dollar of assets was caused by greater use of rapid methods of depreciation rather than the traditional 'straight line method. Rapid depreciation has accounted for most of the rise since 1954.

New guidelines announced in 1962 by the Internal Revenue Service for determining lives of depreciable property are expected to increase further the rate at which assets will be depreciated. But the new investment tax credit, effective January 1, 1962, will decrease depreciation, as the credit will be subtracted from 'total depreciable assets. However, the strong upward push to writeoff rates

provided by the use of the new guideline lives probably will more than counterbalance both the decline caused by the tax credit and the waning effects of using rapid methods.

Rent is another capital cost item that has grown rapidly. In its studies of food marketing costs the Economic Research Service has developed estimates of total rents and some other aggregate expenses incurred by food marketing firms (table 2). It is estimated that rental payments by these firms totaled $1 billion in 1961, up from $276 million in 1947-49. Much of this rise resulted from the growing practice of leasing stores, equipment, and other facilities rather than owning them. The climb in interest payments from an average annual total of $88 million in 1947-49 to $267 million in 1961 was a consequence of increased capital requirements and higher interest rates.

Other costs. Prices of most goods and services (not including raw materials and labor) used by marketing firms have leveled off since 1959, after an almost steady rise during the 1950's (fig. 4). Included in this group are prices of containers and packaging materials; fuel, power, and light; office supplies; restaurant supplies; rents, property insurance, maintenance, and many other goods and services. Interest rates charged by banks on short-term loans to business were stable during 1961 and 1962 at rates that averaged lower than those prevailing during much of 1959 and 1960. But rates were considerably higher in 1962 than in the early and mid-1950's.

Advertising expenditures by food marketing firms have increased in total (table 2) and per unit of product marketed. Much of this growth has resulted from the introduction of new products and increases in media rates.

[blocks in formation]

Transportation charges.-The Economic Research Service index of railroad freight rates for agricultural commodities declined slightly in 1959-61, after rising almost every year since World War II (fig. 5). Complete data for 1962 are not yet available, but selective reductions in rates for individual commodities probably lowered the index again last year. The railroads reduced rates where they faced strong competition from truck or barge carriers or where shippers could conveniently haul their own traffic. Reduced rail rates are an indication of the railroads' continuing efforts to compete effectively with other modes of transportation for the agricultural traffic. Available information indicates that truck rates for agricultural commodities generally were stable in 1962.

« PreviousContinue »