Cost Components of Farm-Retail Price Spreads for Selected Foods

The farm-retail price spread accounts for over half of each dollar consumers pay for most food products in retail stores. The farm-retail spread measures the marketing charges for assembling, transporting, processing, and distributing food products. Cost of these functions and of various inputs, such as labor and packaging, varied widely in 1974 for 16 products studied. Costs of assembling products from farmers averaged only 2 to 3 percent of the retail price of most products. Processing costs were about a third of the retail price of canned tomatoes, margarine and bread, but less than 15 percent of the price of beef, pork, broilers, eggs, and milk which are changed relatively little after they leave the farm. Estimated labor and packaging costs accounted for half or more of the processing costs for most products. Food transportation costs were highest for fresh fruits and vegetables, accounting for 10 to 15 percent of the retail price of potatoes and California lettuce and oranges. Costs of wholesaling, consisting of warehousing and local delivery, ranged between 5 and 8 percent of the retail price. Retailing margins were less than 25 percent of the retail price for all items except fresh oranges, potatoes, and lettuce. Labor costs made up about half of the store margin, while rent averaged around 7 percent.