Unfair fare: Why prices for meat from small local farms are too high
Editor's note: New York part-time farmer Bob Comis sent us a link to a post on his Stonybrook Farm blog for consideration in the Digest, but we liked it so much we asked him if we could publish an edited version in its entirety. His opinions are going to raise some hackles, not to mention hocks, but we think Bob's assertions are worth discussing, especially given the knee-jerk critique of SOLE food as an affectation and status symbol only the wealthy can afford.
By Bob Comis
It is becoming something of a cliche that industrial food prices “don’t reflect the true cost of raising food,” for a number of reasons: because a lot of those costs are shunted onto the public in the form of externalities like pollution, and because of low wages paid to farm workers and low prices paid to farmers, and subsidies, to name a few.
There's a common misperception that local vegetables (and fruit) are more expensive than industrial, but on average that is actually not the case. In August, for example, you can usually get a cucumber at my friends’ — who are full time farmers — farm stand for less than you can at Wal-Mart. When local vegetables (and fruit) are more expensive, it is usually by less than 50%, and very often by less than 25%. Part of the problem is that many supermarkets charge by the pound for things like lettuce whereas farm stands generally charge by the piece. A big head of supermarket romaine at $0.69/lb will cost you more at the checkout than a big head of local romaine for $1.50.
Local meat, poultry, and eggs, however, are dramatically more expensive than industrial, often two, three, or even more times so. Are these dramatically higher prices legitimate, in the sense that they reflect the true cost of raising that food?
I don't think so. I believe very strongly that these prices are as artificially high as industrial food is low.
Here's why. Local farmers are unwilling or unable to scale up to reasonable production levels, so they compensate for low volume by charging exorbitantly high prices to get their cash flow up. They rely on extortionate profit margins — but remember, their volume is low, so they are still barely making it.
This is not to say that raising meat, poultry, and eggs on a small local scale is not more expensive than on an industrial scale. It is, and no matter how streamlined, no matter how efficient, it always will be. Livestock farming is one area where economies of scale and industrial efficiencies are incredible.
Profit margins of error
The next time you talk to your livestock farmer, ask him or her what their production volume is. You might be surprised to find out just how many local farmers are finishing just a dozen pigs (or even a few dozen), a few hundred chickens (or even a thousand), and/or just a handful of cows per year. Based on reasonable prices, cash flow on that volume is extremely low, and the cash flow requirements of fixed costs such as land, buildings, and equipment is very high, so those low-volume local farmers have to charge outrageous prices to bump up their cash flow.
Also, for the low-volume local farmer to stay economically viable, he also has to demand what amounts to an extortionate profit margin. (From dictionary.com: Extortion — noun. 3. “An excessive or exorbitant charge.”) The going rate for a whole or half pasture-raised pig in my area is about $3.50/lb hanging weight, and you can find even higher prices. At my current cost of production, $1.50/lb hanging weight, at that price I would make $300 per pig, or a 130% profit margin. That per-pig profit makes it worth it for a part time farmer to finish only two dozen pigs a year for a net of $7,200.
A 130% profit margin, however, is a totally unreasonable expectation for a market to bear. It is, as I said, extortionate.
Consumers of local food have been so swept up in the rhetoric of the “true cost of raising food” that they are willing, and some even happy, to pay exorbitantly higher prices for local meat, poultry, and eggs. Mainly they do so because they believe these are fair prices. Wake up, consumers! The model you have bought into, based as it is on extremely low-volume farms, is not priced honestly. Nor is it fair, especially to people with limited means, who would very much like to purchase local meat, poultry, and eggs, but cannot afford to do so.
Let’s use my current cost as the “true cost” to raise a pig — $225. If the “true cost” to raise a pig is $225, and the price charged to customers is supposed to reflect that true cost, how can those farmers ask customers to pay $525? I don’t know how long it takes other people to raise their pigs, but last year, when I only raised a dozen pigs, on average there were nine hours of my labor in each finished pig. And last year I was hand-feeding the pigs three times per day, a very labor-intensive way to raise them. At a net $300 per pig, therefore, I would have made $30 per hour. If I had raised two dozen pigs, like the hypothetical farmer hanging around this post, it would have required very little additional labor, so I would have made $60 per hour!
Turn up the volume
I believe very strongly that farmers should make a good living. I think they should be comfortable. I don’t think they should struggle financially at all, although that does not mean they shouldn’t have a budget they need to stick to. Farming takes skill, lots of hard work, and involves substantial risks, both financial and physical, and farmers should be amply rewarded for those things.
I think it is not unreasonable to ask that a full-time farmer make at least $40,000 per year for her efforts. Contrary to the popular impression, this salary is actually quite good in our economy. In 2004, 35% of all New Yorkers in a two-adult, two-child family could not meet their basic family budget — about $43,000 per year in my area — according to the Economic Policy Institute. Most of those families comprise two working adults, so what that statistic means is that a substantial percentage of people living in New York earn half, or less than half, of what I think farmers should make. I believe a couple farming together should make at least $60,000.
What I do not believe is that farmers should get to this income level by charging extortionate prices. The small-scale local farming model should be based on a maximum average profit margin of 30%, not 130%!. Which, as far as businesses go, is a very good profit margin. I know a lot of businesses that would love to have such a margin. A 30% profit margin would mean we should be charging closer to $2/lb hanging weight for a whole pig, a far cry from $3.50/lb.
However, what this 30% profit-margin-based pricing model means is that small-scale local farmers are going to have to scale up. Instead of two dozen pigs, they’ll have to finish 300 or more, which on a pasture-based farm would take at least 20 to 30 acres. Given the above cost of production, six hundred pigs at a 30% profit margin would result in a net income of $45,000 on 40 acres in use. Three hundred pigs plus a nice-sized flock of sheep, a good-sized beef herd, and/or a few thousand meat chickens will get the farmer to $40,000 in net income.
Note, however, that at these numbers, a substantial percentage of the distribution on farms of this type will have to be wholesale — “non-commodity” wholesale, that is. It is unlikely that in the wholesale market a 30% profit margin will be possible. Therefore, to maintain a 30% profit margin on average, a premium for direct sales will need to be added back in.
Personally, I am attempting to put this theory into practice. I am pasture-raising 300 pigs this year, and I am in the process of increasing my sheep flock to 100 to 150 ewes. Most of those pigs will be sold non-commodity wholesale.
For the time being, I have settled on $2.40/lb hanging weight for my direct sales: a 20% premium over the 30% profit margin. I estimate that is about equivalent to where prices for meat coming out of the non-commodity wholesale market would end up, after taking into consideration profit for the wholesaler and the retailer.
Even once the model matures, meat, poultry, and eggs will certainly still be more expensive than our current industrial prices. But I hope the extortionate prices of the early 21st century “Buy Local” movement, based as they were on extremely low-production-volume farms, will be a distant memory. Meat, poultry, and eggs in this mature model will be broadly affordable, not an exclusive niche for the well-heeled.
When things shake out, and the paradigm shift from our industrial import-export model to a local-regional model is complete, I think the small farm will look a lot like it used to — and on Amish farms, it still does: 80 to 100 acres, tended by one full-time and one part-time adult, with additional labor provided by family (children) and/or part-time (or full-time if it can be afforded) hired help. The production volume will be in the hundreds and/or thousands per species depending on the species and the mix of animals on the farm. A substantial percentage of the farm marketing will be wholesale, but there will be a significant amount of direct sales via farmers markets, on-farm, and CSAs.
Local meat is more expensive than industrial and always will be, there is no doubt about that. But it's time for a little honesty about just how much more expensive it really needs to be.
Bob Comis grew up playing video games and eating fast food in a shopping mall in a suburb of Syracuse, New York. In his late twenties, he woke up to the unfortunate reality of the industrial food system, especially factory farms. After losing 15 pounds in his short three-month stint as a very unsuccessful vegan, Bob realized that he could move from Center City Philadelphia to the country with his horse-loving wife and start raising his own animals for slaughter. After five years of pasture farming a windy hillside farm in Schoharie, New York, Bob is so taken with it that he hopes someday to be able to do it full-time. Currently he works as a cyber-commuting PowerPoint specialist and communications project manager for a Philadelphia-based not-for-profit that promotes cancer research.) He has been blogging his adventures and ideas about farming here in an effort to share the farming life and generate discussion about what a local-regional farming and food system might look like.
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