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Price Gouging or Honest Business?

03/31/2022

Know why your prices are going up; it's probably not the farmworker's fault. Some thoughts about the produce industry supply chain.

We're all seeing prices go up in the supermarket for produce, and then we hear the farmworkers want to make more than $12,000/year, and we say, "No way; the prices are too high already!"

But what is the truth behind rising prices if farmworkers were to make a liveable wage? First, here's a chart and a summary if you don't want to wade through all the wonky shit that follows. Also, there are links to the data I used if you're interested or want to check my math. I've been known to screw things up; I get worked up and slam through something like this too quickly. Also, keep in mind that this speaks in generalities and averages. There are always degrees and gradations of anything like this; you can always find exceptions.

The Chart:

This is a fundamental chart. The primary cost categories in the left column are workers' wages, transportation, storage, and retail impact. The second column indicates the cost impact through the supply chain. The cost of harvesting the crop goes up, first for the farm owner; that's gets passed on, but not to everyone! The price to truckers does not change; strawberries at 20¢ a pound weigh the same and go the same distance as ones costing 15¢ a pound. The truckers have internal cost drivers like fuel, wages, etc., but the farmworker's salaries do not affect their cost structure. The same is true with any warehousing services provided along the supply chain; there is no reason to bump those up because the farmworkers got a raise.

There is an impact at the retail level; the wholesale cost of the strawberries goes up by some amount. The retailer is permitted to pass that along, but it should be only the base price that is affected. If the retailer is paying $1.50/pound (that's a made-up price), they should hit that with their wrap-rate (that includes all their overhead plus profit margins, let's say 200% or $3.00/pound); that's what you would be paying in the store. The retailer's overhead remains the same for wages, utilities, leasing, etc. None of those costs are impacted by the wholesale price of strawberries. All of those costs are driven by other factors. Using the increased cost of products to increase additional expenses and profits at the retail level artificially is disingenuous to the customer and, in my opinion, should be illegal.

So there you have my basic argument. Now I'll discuss some of the other issues with farmworkers' costs and why we, as consumers, should not be blaming them for rising prices.

First, let's look at the industry of growing and selling fruits, vegetables, and other field products. The total market for produce in the U.S. is around $40.77 billion, as in $40,770,000,000; that's a nice chunk of change. The breakdown looks like this:

  • CA: $29.2 billion
  • WA: $3.4 billion
  • FL: $2.8 billion
  • AZ: $1.8 billion
  • GA: $.82 billion
  • OR: $.65 billion
  • MI: $.58 billion
  • NC: $.56 billion
  • NY: $.50 billion
  • TX: $.35 billion

That is big money, my friends, and where there's that much money on the table, a lot of people will oppose giving workers a raise if they don't see themselves getting more prosperous, and others will scam the system to raise prices and say it's all the worker's fault.

Now, for perspective, some information about the economic dynamics of this issue:

This from foodbank.com: "Without the farmworker, the agriculture sector-and the berry industry in particular-cannot exist, Bjorn argues. "If you reflect back on the last two years living through this pandemic, the reality is there's been food on [grocery store] shelves every day. And that's only been made possible by the fact that farmworkers showed up to work every day."

And

USDA's Economic Research Service
ERS estimates agricultural output per worker grew by 16 times from 1948 through 2017. At the same time, agricultural output per hour worked grew even faster, by 17 times, implying that average hours worked per worker declined. Labor productivity estimates can vary based on different ways labor is measured. One factor in the increased labor productivity is the quality of labor, measured by attributes such as age, gender, and the highest level of education a worker has reached.

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From the Economic Policy Institute: (The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI believes every working person deserves a good job with fair pay, affordable health care, and retirement security.)

"What would happen if there were a similar 40% wage increase today and the entire wage increase was passed on to consumers? The average hourly earnings of U.S. field and livestock workers were $14 an hour in 2019; a 40% increase would raise their wages to $19.60 an hour.

For a typical household or consumer unit, a 40% increase in farm labor costs translates into a 4% increase in the retail price of fresh fruits and vegetables (0.30 farm share of retail prices x 0.33 farm labor share of farm revenue = 10%; if farm labor costs rise 40%, retail spending rises 4%). If average farmworker earnings rose by 40%, and the increase was passed on entirely to consumers, average spending on fresh fruits and vegetables for a typical household would rise by $25 per year (4% of $615 = $24.60)."

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Any business has to keep an eye on prices and ensure they turn a profit. But, it seems evident from multiple news stories and postings on the Internet that during a two-year pandemic, many multi-millionaires and billionaires were exponentially increasing their wealth while millions of Americans were suffering. I don't think anyone would fault anyone for finding ways to tweak the system and increase their income; that's the American way, but if it is done underhandedly or illegally, we need to end that.

And, we need to stop listening to the wealthiest 10%, and their political lackeys tell us that it's all the fault of labor and unions. There would be no such unions if businesses played fairly with the workers. Suppose you are working for a company that is proactive about making sure you keep up with the cost of living. You have a lovely basket of benefits for healthcare, childcare, vacations, and sick leave (including maternity/paternity leave). Why would you want a union and pay dues if companies provided what the union promises to fight for?