A Reckoning in 2022 for NJ’s Wholesale Produce Farms?
By Al Murray, NJ Farm policy consultant & Peter Furey, NJ Farm Bureau executive director
PART 2 Continued from Ag Matters April 2022
Many wholesale produce farmers sell to brokers, wholesale companies, auctions, or through terminal markets. Sometimes their products go through one or more of these before they ultimately reach the supermarket. At each stop, the different businesses take their commission out of the price.
For a host of reasons, it is virtually impossible to ascertain farmgate prices (the price farmers receive for their produce.) Pricing behavior where prices are high one day, and plummet the next, make it hard to pinpoint an accurate figure. Additionally, farmers and other agri-businesses typically keep these figures as proprietary information and are reluctant to share them.
The USDA does attempt to track prices through their daily Terminal Produce Marketing report. USDA employees are assigned to the nation’s terminal markets where they capture pricing data on all commodities sold. The report even specifies the state/country of origin of the commodities as well as the unit (25-pound box, or 1 1/9 carton.) The Philadelphia Wholesale Produce Market sells New Jersey produce during the local growing season. Typically, the market charges a commission ranging from 20 – 25%. Thus, the price reported (minus an average of 23% commission) gives a rough estimate of what the grower might receive per box of a commodity.
Six signature New Jersey produce items were selected for the 2021 season review of prices at the Philadelphia Produce Market. The items were: corn (packed 4 ½ dozen), cucumbers (packed 1 1/9 bushel), eggplant (packed 1 1/9 bushel), peppers (packed 1 1/9 bushel), tomatoes (packed in 25-pound boxes) and peaches (packed in ½ bushel boxes). Predictably, as each commodity entered the market at the beginning of the production cycle, the products commanded higher prices than competing products from other states. Typically, these prices remain high for the first week to ten days, and then settle into a lower, regular pattern. For some New Jersey farmers, this short window of high prices determines if the crop will be profitable for the rest of the season. In some years, prices can settle down even if the prices are below the cost of production; but high prices commanded if only briefly earlier in the season can carry the farmer to at least break even for the year. Occasionally, weather events in New Jersey or other parts of the country can impact prices higher if there was a shortage of product.
Because the USDA’s data base contains daily reports going back many years, a review of those prices is available from 5 years ago (2017) and 10 years ago (2012) and showed that produce prices remained notoriously stable (regardless of increases in cost of production.) In other words, a box of peppers basically sold for the same amount in 2012 as they did last season. In some instances, prices were higher over longer periods of time in 2017 and 2012 than last year.
The USDA also publishes a weekly retail report that tracks average retail prices charged for over 150 different commodities. The report is broken down into regions and a stark difference emerged between the farmer’s return and the retailer. Some rough calculations calibrated to the prime production weeks show the following:
- Farmer: Corn, 55 ears packed in crate. Average price at Philadelphia Produce Market week of July 23, $13.00. Less 23% commission = $10.00/crate. Price per ear = 18 cents per ear.
Retail: Corn, 55 ears packed in crate. Average price in Northeast Supermarkets week of July 23, 77 cents per ear, or $42.35/crate.
- Farmer: Cucumbers, packed avg. 70 in a 1 1/9 bushel box. Average price at Philadelphia Produce Market week of August 3. $12.50. Less 23% commission = $9.62/ box or $13.7 cents per cucumber.
Retail: Cucumbers, average price in Northeast Supermarkets during the week of August 3. 65 cents per cucumber or $45.50 per 1 1/9 bushel box.
- Farmer: Eggplant, average weight 25 pounds per carton. Average price week of August 13. $8.00 less 23% commission = $6.16 or 24.6 cents per pound.
Retail: Eggplant, average price per pound during week of August 13. $1.33 or $33.25/carton.
- Farmer: Peppers, average weight 25 pounds per carton. Average price week of August 13. $10.50 less 23% commission = $8.08 or 32.3 cents per pound.
Retail: Peppers, average price per pound during week of August 13. $1.49 or $37.25/carton.
- Farmer: Tomatoes, packed in 25-pound boxes, average price per pound during week of August 13 $16.00 less 23% commission – 12.32. or 49 cents per pound.
Retailer: Tomatoes, average price per pound during week of August 13, $2.32 or $58.00/box.
- Farmer: Peaches, packed in 25 pound boxes average price August 13, $21.50 less 23% commission = $16.55 or 66 cents per pound.
Retailer: Peaches, average price per pound during week of August 13. $1.58 or $39.50/box.
Certainly, a large difference exists between what the farmer and retailer receive for the same product. But before the thought of price gouging comes to mind, running a profitable supermarket requires careful attention to costs. According to the Food Marketing Institute, US supermarkets sell over $600 billion each year. However, their average profit equals only 1.2%.
Like everyone else in the marketing chain, supermarkets add a markup to the cost of the items they sell. This markup determines the final price. Factors determining markup include operating expenses such as rent, utilities, wages, and taxes as well as profit margin. Markups also vary by products. Data shows the average markup on canned goods is 26 percent, while bottled water can be marked up as much as 1,000 percent. Markups on perishables are high to cover the costs of spoilage.
According to Daily Finance, it has been estimated that about 20 percent of all produce items must be thrown away before even reaching shelves. As a result, produce markups average 50 to 75 percent.
Other impacts to the marketing challenges include consolidation of the supermarket industry resulting in less buyers making decisions. In this highly competitive industry, buyers are under constant pressure to meet profit goals, and the business has become much more cost conscious. As the food business becomes increasingly global, buyers sometimes secure 52-week consistent supply chains for their products. New Jersey with its limited growing season must compete to reintroduce themselves to the industry every spring and offer products at competitive prices despite facing a multitude of challenges not experienced in other states or countries. Examples include high taxes, high land prices, high cost of living, higher labor costs, as well as development pressure and environmental/regulatory issues facing their farms.
While the future outlook for growers relying on the wholesale market is difficult, some farmers have explored different opportunities beyond the scope of their traditional product mix. Some farmers have replaced unprofitable crops and turned to growing grain and other crops needed to sustain their farm. Other farmers have made a foray into selling directly to the public, whether it be through a farm market, U-pick, community supported agriculture (CSA’s) or participating in community farmers markets. Selling directly to the consumer allows the farmer to capture a better share of the food dollar.
Other farmers have attempted to vertically integrate their operations by controlling their sales, bypassing brokers and other wholesalers, and deal directly with the retail trade by their own shipping of their farm products. Some have partnered directly with individual brokers, and have become exclusive growers under special brand names.
Recent interruptions in the nation’s supply chain underscores the importance of local agriculture in our food system. It is imperative that the public as well as government entities understand and support local agriculture before these talented growers retire prematurely or otherwise leave this important but very stressful occupation.
NOTE: Al Murray is the former Assistant Secretary of Agriculture and past Director of the Jersey Fresh Marketing Promotion Program who retired December 2016.