The USDA Economic Research Service recently released the February update of the Choice beef values data. Among other things, the data breaks down retail beef prices and farmer’s share of that value.
The most recent data—complete through the end of January, 2018—shows that the all fresh beef retail value has been declining since last summer. At the same time, the farmer’s share of that value has been increasing.
For January, the all fresh beef retail value stood at $5.60/lb., down significantly from the December level of $5.68/lb. The recent high was set in July 2017 at $5.83/lb.
The same month saw the farmer’s share of retail beef value at 42.4 percent. For January 2018, the farmer’s share had climbed to 46.6 percent. The recent low for farmer’s share of retail beef value was 38.1 percent in October 2016.
The farmer’s share of the retail beef value represents the value of the commodity—in this case, the fed animal—as a portion of what the consumer spends at the grocery store. The higher the percentage, the more of that consumer dollar is “going back” to the cattle feeder.
A misused metric?
Fluctuations in the farmer’s share of retail beef value is often used as a sort of litmus test for how well ranchers are doing. The higher the percentage, the better for cattle producers—right?
Several researchers have argued against this common-sense association. Agricultural Economics professors from Montana State University—Gary Brester, John Marsh, and Joseph Atwood— asserted in a 2009 economic study that the farmer’s share statistic is not only not a reliable measure of producer welfare, but that it is more accurately related to “exogenous shocks.”
For the beef industry, they defined exogenous shocks as events such as changes in consumer income, changes in the prices of competing proteins, corn and other feed prices, and “the four-firm beef packing concentration ratio.”
The researchers noted that “some have argued that decreases in [farmer’s share] statistics (and, by construction, increases in farm-to-retail marketing margins) are indicators of anti-competitive behavior in the food processing industry.” They cited several instances where declining farmer’s share statistics were used as evidence of anti-competitive behavior on the part of packers.
“The widespread misuse of [farmer’s share] statistics is curious given that economic theory provides no support for their use as a proxy for producer welfare. In addition, the USDA clearly indicates that its farmer’s share data ‘…do not measure farm profitability or income.’”
The researchers added that “agricultural economists have long noted that such relationships cannot be justified on theoretic grounds,” citing research dating back to the 1950s.
In the conclusion to their study, which ran in the Journal of Agricultural and Resource Economics, the trio summarized their point: The relationship between [farmer’s share] statistics and producer surplus depends upon structural dynamics, the source of exogenous shocks, and relative demand and supply elasticities. In fact, little or no accurate information is conveyed by [farmer’s share] statistics.”
The researchers also pointed out they were not the first to find this out. They closed their study with a quote from researcher F.M. Atchley, who came to the same conclusion over 50 years before:
“I think we can say that the farmer’s best interests are not always served by increasing the farmer’s share of the consumer’s dollar. If they were, then farmers would sell directly to consumers. But the marketing system which we have developed does the job cheaper than farmers can do it. If an added marketing service increases the market or the value of the final product more than the costs, farmers stand to benefit for the added service even though it may lower the farmer’s share.” — WLJ
