Profits after taxes as a percentage of stockholders' equity (an indication of return on investment) likewise made a steep decline from 1947 to 1952, dropping from 16.2 to 7.6 percent. During the years 1953-61 this ratio varied from 8.1 to 9.3 percent. Profits before taxes followed a pattern similar to profits after taxes with slight variations caused by changes in tax rates. Profit ratios for food manufacturers tend to be lower than the average for all manufacturers. One reason probably is the comparatively stable demand for food which results in less uncertainty than in some other manufacturing industries. Profits of the leading retail food store chains in the first three quarters of 1962 totaled about the same as in the like period of 1961. Profits of these companies, both before and after taxes, represented about the same percentage of sales in the first three quarters of 1962 as in the comparable period of 1961. Profits of food chains as a percentage of stockholders' equity are not yet available for 1962. During the 10 years, 1952-61, pretax profits of the eight leading food chain companies varied between 22.5 percent of stockholders' equity in 1952 to 29.9 percent in 1957. After-tax profits varied between 10 percent in 1952 and 14.2 percent in 1957. As a percentage of sales, profits before taxes varied between 1.9 percent in 1952 and 2.6 percent in each of the years 1957-60. Aftertax profits of these leading food chains varied between 0.8 percent of sales in 1952 and 1.2 percent in 1957-61. Corporate profits (before taxes) as a percentage of the total bill for marketing farm foods did not change significantly from 1952 to 1961 and in 1961 represented about 5 percent of the total marketing bill. About half of 1961 profits were paid to the Government as taxes, so profits after taxes amounted to about 2.5 percent of the marketing bill. RETAIL FOOD PRICES RISE LESS THAN CONSUMER INCOMES Retail food prices rose less than disposable personal income per capita in 1962, as was true in most other years of the last decade. Retail food prices of domestic farm-originated foods averaged less than 1 percent higher in 1962 than in 1961. Disposable income per capita was up 3.6 percent last year. In 1962 * Changes in retail prices of domestic farm foods are measured by the retail cost of the farm food market basket. retail prices of domestic farm foods were 3.2 percent higher than in 1952, and per capita disposable income was up 35 percent. Per capita expenditures for food increased 12 percent from 1952 to 1962. Thus, consumer expenditures for food have not kept pace with the rise in income. Consumers spent 19 percent of their income for food in 1962, compared with 23 percent in 1952. Price increases accounted for approximately half of the rise in food expenditures per person. The other part resulted mainly from consumers' substituting relatively expensive foods for cheaper foods and purchases of more marketing services with foods. Consumer expenditures for food averaged $397 per person in 1962, including expenditures for food eaten away from home. Prices of food in restaurants and other eating places have risen more than food bought to be eaten at home. The Bureau of Labor Statistics publishes indexes of prices consumers pay for "food away from home," "food at home," and "all food," a weighted average of the first two indexes. The "food away from home" index increased 24 percent from 1953 (the first year for which it is available) to 1962. During the same period the "food at home" index rose 5.6 percent and the "all food" index, 8.4 percent. The index of farm food retail prices, published by the Economic Research Service, increased 6.4 percent from 1953 to 1962, slightly more than the BLS "food at home" index. The Economic Research Service measures prices of food bought to be eaten at home. It covers prices of most of the domestic farmoriginated foods included in the BLS "food at home" index, but it does not include prices of coffee, bananas, and other imported foods and seafoods and other foods not originating on farms that are included in the BLS index. Retail prices of food increased considerably less than the BLS index of consumer prices in the past decade. The Consumer Price Index rose 13.9 percent from 1952 to 1962, compared with a rise of 6.7 percent in the “all food" component. Prices of apparel, which increased 4.5 percent during this period, made up the only major component of the Consumer Price Index that increased less than the food component. Increases from 1952 to 1962 for the other major components ranged from 16.2 percent for the "other goods and services" group to 40.7 percent for the "medical care" group. SPECIAL STUDIES OF MARKETING SPREADS AND COSTS The Marketing Economics Division conducted several special studies of marketing spreads and costs last year. In several of these studies, prices and costs were collected for individual products sold in specific markets. From these data the Division estimated the way in which marketing spreads for these products were divided among the various marketing agencies. The results of these studies have been widely disseminated to improve public understanding of marketing functions and costs and the factors affecting food prices and to aid in pointing out possibilities of reducing marketing costs. Some of the results of these studies for individual products are presented in the following pages of this report. Marketing spreads for beef and pork The annual average farm-retail spread for choice grade beef decreased to 29.9 cents per retail pound in 1962, about 7 percent below the record high established in 1961. This was the second decrease in the annual average since 1953. From 1954 to 1961, the farm-retail spread increased at an overage rate of 1.2 cents per year (fig. 8). It was 20 percent larger in 1962 than in 1953. FIGURE 8 Retail Price, Farm Value, and Spread BEEF, CHOICE GRADE Retail prices and wholesale and farm values of beef increased in 1962; but farm values increased faster than retail prices; consequently, farm-retail spreads narrowed. Both the farm-wholesale and wholesale-retail segments of the total spread decreased. Farmers received an average of 64 cents of the dollar consumers spent for choice grade beef in 1962, 5 cents more than in 1961. The farm-retail spread for pork (retail cuts) averaged 28.1 cents per retail pound in 1962, the second highest annual average recorded. During the 10-year period 1953-62, the farm-retail spread for pork increased each year except in 1953, 1956, and 1960 when there were small decreases (fig. 9). It was about 25 percent larger in 1962 than in 1953. Rétail and wholesale prices and the farm value for pork remained practically the same in 1962 as in 1961. The farmer's share of the dollar the consumer spent for pork in retail food stores in 1962 was 53 cents, the same as in 1961. Since 1944, the farmer's share generally has been larger for beef than for pork. Movements in the farm-retail spread for pork during 1962 followed the usual Several developments in 1962 may affect the costs of transportation services to shippers of agricultural commodities and the quality of these services. The Department is studying the possible impact of these developments on farmers and marketing firms. Some of these are listed below: 1. The Presidential Railroad Commission issued a report in February that called for a gradual reduction in the railroads' labor force, increases in the productivity of operating employees, and modification of certain rules that have prevented costs from being reduced by increasing productivity. Other proposals would reduce the length of the working day and change salary bases of many employees. Some employees would receive more pay than at present. 2. After the Presidential Railroad Commission report, the Nation's railroads attempted to put into effect revised work rules, aimed at implementing the major recommendations of the report. Railroad operating brotherhoods vigorously opposed these revisions in the courts. The Supreme Court has ruled in favor of the railroads. It seems reasonable to expect that the agricultural economy would benefit to the extent that the railroads eventually increase efficiency and improve service through these work rule changes. Competition would control the extent to which savings from such increased efficiency were shared by consumers, producers, and the railroads. 3. The President's transportation message delivered to the Congress in April contained a recommendation to extend to all modes of transportation the exemptions from economic regulation by the Interstate Commerce Commission now granted to motor carriers hauling unmanufactured agricultural commodities and to water carriers hauling bulk commodities. This recommendation was included in legislation proposed during the last session of Congress. Hearings were held, but no legislation was enacted. 4. The Department of Agriculture has actively supported lowered freight rates for movements of grain into the South from Mississippi and Ohio River crossings. In late 1961, the Southern Railway asked the ICC for permission to reduce freight rates on grain by as much as 60 percent when moved over its lines via multiple-car shipments of five or more "jumbo" covered hopper cars (of 90 tons each). The Southern contended that economies achieved through multiple shipments could be shared with grain shippers in the form of reduced rates, and still provide increased income for the railroad. Competing barge carriers have been successful in preventing the use of the lowered rates. A Division of the ICC examined the railroad's proposal and recently approved the lower rates for movements consisting of five "jumbo" carlots. Other parts of the proposal were denied. Bargeline interests are likely to appeal this initial ruling, forestalling, at least temporarily, the rate cut. In addition, the rates cannot take effect until the Supreme Court decides on the legality of a lower court order enjoining the carrier from making the rates effective after the normal 7-month suspension period. Corporate profits.-Total profits (after taxes on income) of food manufacturing corporations were higher in the first three quarters of 1962 than in the corresponding period of 1961, according to a joint report of the Federal Trade Commission and Securities and Exchange Commission. The ratio of these profits to sales remained about the same in 1962 as in 1961. Profits as a percentage of stockholders' equity declined slightly. Profits of food manufacturing corporations decreased sharply from 1947 to 1952 (fig. 6). After-taxes profits decreased from 3.6 percent of sales in 1947 to 1.9 percent in 1952. During the years 1953-61, this ratio varied from 2.1 to 2.4 percent. Profits after taxes as a percentage of stockholders' equity (an indication of return on investment) likewise made a steep decline from 1947 to 1952, dropping from 16.2 to 7.6 percent. During the years 1953-61 this ratio varied from 8.1 to 9.3 percent. Profits before taxes followed a pattern similar to profits after taxes with slight variations caused by changes in tax rates. Profit ratios for food manufacturers tend to be lower than the average for all manufacturers. One reason probably is the comparatively stable demand for food which results in less uncertainty than in some other manufacturing industries. Profits of the leading retail food store chains in the first three quarters of 1962 totaled about the same as in the like period of 1961. Profits of these companies, both before and after taxes, represented about the same percentage of sales in the first three quarters of 1962 as in the comparable period of 1961. Profits of food chains as a percentage of stockholders' equity are not yet available for 1962. During the 10 years, 1952-61, pretax profits of the eight leading food chain companies varied between 22.5 percent of stockholders' equity in 1952 to 29.9 percent in 1957. After-tax profits varied between 10 percent in 1952 and 14.2 percent in 1957. As a percentage of sales, profits before taxes varied between 1.9 percent in 1952 and 2.6 percent in each of the years 1957-60. Aftertax profits of these leading food chains varied between 0.8 percent of sales in 1952 and 1.2 percent in 1957-61. Corporate profits (before taxes) as a percentage of the total bill for marketing farm foods did not change significantly from 1952 to 1961 and in 1961 represented about 5 percent of the total marketing bill. About half of 1961 profits were paid to the Government as taxes, so profits after taxes amounted to about 2.5 percent of the marketing bill. RETAIL FOOD PRICES RISE LESS THAN CONSUMER INCOMES Retail food prices rose less than disposable personal income per capita in 1962, as was true in most other years of the last decade. Retail food prices of domestic farm-originated foods averaged less than 1 percent higher in 1962 than in 1961. Disposable income per capita was up 3.6 percent last year. In 1962 2 Changes in retail prices of domestic farm foods are measured by the retail cost of the farm food market basket. |