F.A. Farm

In a previous post about Food Riots in Tunisia, Food Pricing and Food Security, I talked about how most of us are price-takers, while corporations use their market muscle to become price-makers. Consequently, if we want to be able to survive in a world ruled by corporations, it is to our advantage to become price-makers as well. Otherwise we have to just take whatever price we can get and are at the mercy of market volatility. In the process of becoming price-makers, the obvious first question is, “How do we go about becoming price-makers?” It does no good to just pull prices out of thin air. There has to be some sort of logic to your pricing model. Here are four alternative pricing models.

Market-basket triangulation model – In this model, you make a list of the products you offer and go to the competition’s stores and jot down their prices. For example, I have a sheet with 68 different kinds of produce that I track. I go to Haggens, Cost Cutter (2 local food chains), the Bellingham Co-op and the Bellingham Farmers Market and mark down their prices. The co-op staffers sometimes give me a funny look, as if I am doing something wrong, but the supermarkets are not bothered by someone comparing prices. The methodology is to find the lowest bulk price – irregardless of whether it is organic or not. [Disclaimer: As with any data collection, you have to make some adjustment decisions on the spot. I also price my organic produce in relation to industrial produce rather than supermarket organic produce. I always beat organic prices hands down.] If an item is measured by the piece or in bunches, I just weigh a representative amount and convert to pounds, which is my standard measure. Some items, like cherry tomatoes and raspberries, are quantified by pints in my sales model, so there are a few exceptions, but most items I sell are measured in pounds.

Once I have the data, I enter it into a spreadsheet and then crunch it as much as I want. I can use my own sales amounts to get a weighting for each item (I sell more pounds of tomatoes than leeks for example.) and I can also calculate a percentage above the store price for my pricing model. For example, my prices were 30% above Haggens prices, on average, in 2009 but only 5% above Haggens prices in 2010. The reason for this change was that even though I held my prices steady last year, Haggens increased their produce prices. I also averaged 25% below produce prices at the Bellingham Farmers Market both years. [Sidebar: Based on anecdotal evidence from other farmers, this is fairly common. In other words, if you buy a lot from a farmers market, you can probably save at least 25% by going directly out to the farm.]

To add more price data to my model, I can even get some wholesale prices, such as from the co-op wholesale price list or from the New Farm Organic Price Report at http://www.rodaleinstitute.org/Organic-Price-Report. (I usually use the San Francisco and Seattle indexes.) Then I can actually triangulate between multiple retail and wholesale outlets. This can become a complicated exercise, but the key here is that you have the data, so you can crunch it as you wish. As you do this more and more you will discover that you have a “feel” for the market that is not only accurate, but robust. In statistics, robusticity means you can throw all kinds of bad data at your model and still get valid results. Over the years, my model has proven to be quite robust.

Median income model – This model is based on the median income for Whatcom County of $46,188 from the Washington State Office of Financial Management. I use the median income instead of the mean because of the “Bill Gates phenomenon.” If a bunch of us are sitting in a room and we average our incomes we will likely get a statistical mean that is valid. However, if Bill Gates, one of the richest men on the planet, walks in and we take a new average, we will get a statistical mean that is invalid, simply because of the scale of his income. Using the median income gets rid of this potential problem. [Sidebar: This is why non-parametric statistical measures, such as the median, are so valuable for corroborating statistical tests.]

If we look at how many people a full-time farmer can feed, we should be able to figure out what he/she should make for an annual income and then divide this by the amount of food. In addition, we can use our sales figures to get an idea of a price for each item. For how many people we can feed, the National Cattlemen’s Beef Association says a farmer can feed 129 people now versus 25 in 1960 and this increase is due to technology. (There are other sources on the Web which are comparable to these numbers if you wish to fact-check.) However, in case anyone has forgotten, one of our implicit assumptions in this discussion is that we are looking at feeding people using low fossil fuel inputs. Even in 1960, most farmers were using tractors rather than horses. Labor was still a large component of farm life but fossil fuel inputs were a significant part of a farm’s total energy usage. In a post-peak oil world, we will have to rely on mostly human labor and very low fossil fuel inputs. Consequently, a much lower number of people fed per farmer is realistic. Since there is a dearth of research on this problem, I will use my dual-track sustainable model and the numbers I see on my own farm and on the food bank farm I manage in Lynden. These numbers are 3.0 people fed per acre and an average full-time farmer output of 1.5 acres tilled per full-time farmer at 3000 hours per year. This is with a mix of vegetables, fruit, dry beans and grain. Nuts could probably be included in this model as well, since nut production is comparable to tree fruit production, which is included.

Using my research numbers and the median income of $46,188, we would expect a post-peak oil farmer, what I call the postmodern farmer, to feed 5 people, including himself/herself. This calculates to $9,238 per person (rounded) paid to the farmer from each person and a farmer income of $36,952 ($9,238 accounted for by food grown for consumption on the farm). If we want to compare this calculated number to present conditions, we will be stymied by several facts. According to the USDA, we still have 60% of US farmers under $10,000 in gross sales and 40% of US farmers get some sort of subsidy (however small). This means that, as in the 129 people an industrial farmer feeds, we cannot really make a valid comparison between modern industrial agriculture and postmodern agriculture. We have to instead look to the robusticity of our model. Since the numbers at my farm were corroborated by my work at the Lynden food bank farm I manage, I am confident that the dual-track sustainable model is robust and we really can count on a postmodern farmer feeding 3 people per acre.

If we instead want to calculate price per pound, of potatoes for example, we can use our production and sales data to see what we actually should be getting per pound using this model. Potatoes generally yield 15,000 to 40,000 pounds per acre and the US average in 2010 was 41,000 pounds per acre. However, this is with plentiful irrigation and lots of chemicals in the modern industrial agricultural model. Using organic methods and saving as much water as possible, a good average is 20,000 pounds per acre. In comparison, we got the equivalent of the national average (41,000) at the Lynden food bank farm in 2010 using 2-foot row spacing and human labor only for planting, cultivation and harvesting. If we use the 20,000 pound figure times 1.5 acres and a median income of $46,188, we can calculate the price per pound for potatoes of $1.54. This has proven to be a robust price, by the way, since I have been selling potatoes for $1.50 per pound since 2006 with no problems moving them.

Calorie model – In this model, the price is based on calories produced per acre and how many calories a human needs. The main assumption in this model is a  2500 calorie-per-day diet needed to thrive (not just survive!). Even though an adult woman is usually listed as 2000 calories needed per day, using the 2500 calorie number for both sexes gives us a nice cushion in our margin of error and makes our final numbers more conservative. Based on my farm and the Lynden food bank farm, a postmodern farmer can produce 2.5-3.0 million calories per acre and this is how I originally calculated 3.0 people fed per acre. Now if we calculate the value of the vegetables, fruit, grain and beans produced on one acre as valued at $9,238 per person fed (from the median income above and 5 people fed per farmer) times 3 people per acre and divided by 2.75 million calories, we get a calorie price of $.01 per calorie. In other words, this model values food at 1 cent per calorie. This means potatoes, at 351 calories per pound would be priced at $3.51 per pound. Tomatoes, at 80 calories per pound, would be valued at $.80 per pound. Dry beans, at 1530 calories per pound, would be priced at the staggering value of $15.30 per pound! The fault with this model is obvious. Even though there may be a logical consistency to charging high prices for beans from the postmodern farmer because of all the time it takes to shell them by hand, this model is not going to fly in the real world anytime soon. On my own farm, I do not sell dry beans for just this reason, nor grain for that matter. Since I cannot get compensated for my time with these crops, I just grow for my own consumption.

Fair hourly wage model – This is an intriguing model and one that people sometimes refer to in passing, saying things like, “I have to charge $3.00 per pound for my tomatoes because of all the time it takes to care for them.” To work with this model, we first have to arrive at a fair wage for farmwork. I am sure most people would agree that farm work is worth $15.00 per hour, especially since it is skilled work. Some might even argue for $20.00 per hour, especially if you calculate in the lack of vacations, health insurance and other benefits, as well as paying the full cost of social security and medicare contributions (not just half like other jobs). So, if a farmer works 3000 hours per year (the real amount) or even 4000 hours for a dairy farmer (again, this is the real number), the wage a farmer should make comes out to $45,000 to $60,000 a year at 3000 hours per year. If you add in the $4,000 per acre cost of fertilizer, seeds, insurance, taxes, etc. (these are my numbers again), you should add $6,000 of costs for 1.5 acres on top of the farmer’s income. The spread then becomes $51,000 - $66,000 for a farmers income working 3000 hours per year.

There are several ways to calculate prices per pound once you have reached your yearly income figure. You can use calories, with enough calories to feed 5 people calculating to 1.1 cents per calorie (using $51,000) to 1.4 cents per calorie (using $66,000). You can calculate an overall price per pound, since we know from my farm, the Lynden food bank farm, and the Bellingham food bank farm, that you can produce about 10,000 pounds of food per acre over a broad range of vegetables, fruit, grain and beans. Again using 1.5 acres tilled per farmer, the value per pound ranges from $3.40 per pound (using $51,000) to $4.40 per pound (using $66,000). This seems quite steep as a value overall for the amount produced on a postmodern small farm. To put it into perspective, consider that over the years, the overall value of the food I have grown on my farm has ranged from $1.77 in 2007, to $2.00 in 2010. This is a 13% rise in prices over 3 years and my pricing is based on the market triangulation model above. [Sidebar: This is another indication of the robusticity of that model, by the way.] In Lynden in 2010, the value of the food grown was $2.25 per pound. I used the prices from my Ferndale farm to value all the produce and the greater value per pound came from more high-value crops – more tomatoes, less potatoes, etc.

This last model seems a little unwieldy, as well as pricing food so high that it is currently unworkable in our transition times. However, it is helpful in thinking about what food is worth overall. For those of you who have contributed to the Ferndale Food Bank, you know that you get a form for your taxes that values your food contribution at $1.50 per pound. Since this is acceptable to the IRS, I think we can safely assume that the overall value of a postmodern farm’s output is at least $1.50 per pound. Once this baseline is established, $2.00 a pound for fresh, organic, sustainably-grown produce starts to look like good value. However, this would mean only $30,000 in gross sales for 15,000 pounds on 1.5 acres. With expenses of $6,000 on that 1.5 acres, this would leave only $24,000 for the farmer for 3000 hours of work, or $8.00 per hour. This is not even the minimum wage in Washington!

Now that I have presented four different pricing models, it should be clear that they all have one or more flaws. The value of looking at these models is not in picking one, but rather in getting you the consumer to think about food pricing differently.