Price takers or price makers?

Posted 11/16/22

Have you ever come across the saying, “The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays freight both ways”? 

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Price takers or price makers?


Have you ever come across the saying, “The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays freight both ways”? 

When I first read it, I couldn’t help but take a moment to really consider the importance of its meaning. 

When you go to the grocery store to purchase your goods, you’re paying the retail value of the item. That’s the highest price asked for that item. 

When that same grocery store buys an item from a company, say a lot of 100 boxes of cereal, the store pays the manufacturer or distributor a wholesale price, which is lower per item than the retail price. 

The difference between the wholesale price and the retail price is the price margin that the grocery store puts on an item to make a profit. 

Now think about the saying above, and consider the dairy industry. When a farmer sells their milk to the company with which they have an arrangement, they’re getting a wholesale or “bulk” per hundredweight (cwt.) price for their milk. 

According to the CME Group, a financial-risk management company, class III milk (the milk used for spreadable cheese and hard cheeses) is at a market value of $20.95 for November 2022. This means that for every 100 pounds of milk produced by a farmer, that farmer receives an average of $20.95. Prices can vary, depending on the cooperative to which the farmer belongs, and the quality premiums earned per farm.1

Now, let’s break that down to a number that is consumer-friendly.

A gallon of milk weighs approximately 8.6 pounds, so 100 pounds of milk works out to about 11.6 gallons. That equates to the farmer getting paid about $1.81 per gallon. 

The average price charged by multiple businesses selling milk locally is about $5 per gallon retail at the store. 

Obviously, there is a cost to process that milk after it leaves the farm and is sold to you in the store. There are the manufacturer and transportation to consider. 

However, farmers get charged for fuel costs and some other fees when the milk-processing company picks up their milk each month. That bites into that $20.95/cwt. (The fees vary depending on the company involved.) So in reality, the farmer is receiving less than $1.81 per gallon from the company. 

Now I’ll name some of the costs that the farmer has to cover: feed, fertilizer, taxes, fuel, labor—assuming they even pay themselves, supplies like paper towels, detergents, disinfectants, etc. All of these items are usually paid for at a retail price—and remember, most manufacturers incorporate the freight or transport charge in the retail cost they put on items.

In this example, our farmer charges wholesale prices for their product, pays retail for their inputs2, and pays the freight or transport cost both ways. 

This is just one ag industry example where that saying at the beginning of the column fits, but there are many others out there. 

I honestly don’t know the origins of this type of price-taking system that our ag producers have found themselves in, but the good news is that a lot of farmers are starting to understand that if they don’t start becoming the price makers, we may not have the luxury of supporting local farmers in the future. 

It’s this farmer’s take that although the price you pay for local products might be slightly higher than mainstream, you should remember that the money you pay goes to support that family, not another CEO’s vacation home. 

1A dairy cooperative, according to the USDA, negotiates prices on behalf of its members, and assembles, hauls, manufactures, processes or markets milk and dairy products to wholesalers, retailers or in its own stores.

2Inputs are the operating costs for a farm—stuff the farmer needs to buy in order to do his or her job.

farmer, economy, grocery store, raising prices


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