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The U.S. Food and FiberIndustry
Chapter 2
Discussion Topics
Review of key measurement concepts before we start
What is the food and fiber industry?Changing complexion of farmingOther sectors in the food and fiber
industry
Output and Price IndicesApple Production Price of apples
Year (million pounds) Output Index ($/pound) Price index
1985 4,222 0.76 $0.68 0.94
1990 5,515 1.00 0.72 1.00
1997 5,832 1.06 0.91 1.26
1990 is the base year
1990 is the base year
Page 18
Output and Price IndicesApple Production Price of apples
Year (million pounds) Output Index ($/pound) Price index
1985 4,222 0.76 $0.68 0.94
1990 5,515 1.00 0.72 1.00
1997 5,832 1.06 0.91 1.26
1990 is the base year
1990 is the base year
1.06 = 5,823÷5,515Output 6% higher in1997 than it was in1990….
1.06 = 5,823÷5,515Output 6% higher in1997 than it was in1990…. Page 18
Output and Price IndicesApple Production Price of apples
Year (million pounds) Output Index ($/pound) Price index
1985 4,222 0.76 $0.68 0.94
1990 5,515 1.00 0.72 1.00
1997 5,832 1.06 0.91 1.26
1990 is the base year
1990 is the base year
1.06 = 5,823÷5,515Output 6% higher in1997 than it was in1990….
1.06 = 5,823÷5,515Output 6% higher in1997 than it was in1990…. Page 18
1.26 = 0.91÷0.72 Price 26% higher in 1997 that it was in 1990….
1.26 = 0.91÷0.72 Price 26% higher in 1997 that it was in 1990….
Nominal and Real Expenditures
Nominal Expenditures CPI Real Expenditures
Year (million dollars) 1982-84=100 (Million dollars)
1980 120.3 0.868 138.6
1985 170.5 1.056 161.5
1990 252.7 1.324 190.8
1995 354.4 1.611 219.9
1982-84 average is the base year for the CPI
1982-84 average is the base year for the CPI
Page 19
Nominal and Real Expenditures
Nominal Expenditures CPI Real Expenditures
Year (million dollars) 1982-84=100 (Million dollars)
1980 120.3 0.868 138.6
1985 170.5 1.056 161.5
1990 252.7 1.324 190.8
1995 354.4 1.611 219.9
1982-84 average is the base year for the CPI
1982-84 average is the base year for the CPI
CPI was 61.1% higher in 1995 than it was in1982-84 period
CPI was 61.1% higher in 1995 than it was in1982-84 period Page 19
Nominal and Real Expenditures
Nominal Expenditures CPI Real Expenditures
Year (million dollars) 1982-84=100 (Million dollars)
1980 120.3 0.868 138.6
1985 170.5 1.056 161.5
1990 252.7 1.324 190.8
1995 354.4 1.611 219.9
1982-84 average is the base year for the CPI
1982-84 average is the base year for the CPI
CPI was 61.1% higher in 1995 than it was in1982-84 period
CPI was 61.1% higher in 1995 than it was in1982-84 period
219.9 = 354.4÷1.611 The increasing CPI eroded the purchasing power of the dollar….
219.9 = 354.4÷1.611 The increasing CPI eroded the purchasing power of the dollar….
Characteristics of the Food and Fiber System
The Nation’s food and fiber system consists of four sectors that providefood and fiber products to their ultimate consumer. Page 21
The Nation’s food and fiber system consists of four sectors that providefood and fiber products to their ultimate consumer. Page 21
The Nation’s food and fiber system consists of four sectors that providefood and fiber products to their ultimate consumer. Page 21
The Nation’s food and fiber system consists of four sectors that providefood and fiber products to their ultimate consumer. Page 21
The Nation’s food and fiber system consists of four sectors that providefood and fiber products to their ultimate consumer. Page 21
Changing Complexion of Farming
Physical structure• Fewer number of farms but larger-sized farms
• Increasing use of capital relative to labor
• Increasing productivity or output per unit of input
Financial structure and performance• Volatility of net farm income reduced by by subsidies
• Declining debt use strengthens equity position
• Recovering real estate values after sharp declines during the financial crises in the mid-1980s
Pages 22-32
Page 29
Year
Expansion of Agricultural ProductionExpansion of Agricultural ProductionO
utp
ut
Ind
ex 1
996=
1.0
Page 27
Ind
ex o
f In
pu
ts 1
996=
1.0
Declining Role of Hired Farm LaborDeclining Role of Hired Farm Labor
Farm Profitability Cash receipts from farm marketings
+ Government payments
+ Other income from farm sources
= Gross farm income
Page 29
Farm Profitability Cash receipts from farm marketings
+ Government payments
+ Other income from farm sources
= Gross farm income
– Production expenses
= Nominal net farm income
Page 29
Farm Profitability Cash receipts from farm marketings
+ Government payments
+ Other income from farm sources
= Gross farm income
– Production expenses
= Nominal net farm income
÷ Broadly-based price deflator
= Real net farm incomePage 29
Page 30
Nominal Net Farm Income
Instability of Net Farm IncomeInstability of Net Farm Income
Real net farm income in 1983 had the same purchasing power as 1933
Real net farm income in 1983 had the same purchasing power as 1933
Financial Structure Value of real estate assets
+ Value of nonreal estate assets
+ Value of financial assets
= Total assets
Page 31
Financial Structure Value of real estate assets
+ Value of nonreal estate assets
+ Value of financial assets
= Total assets
– Total liabilities or debt
= Equity or net worth
Page 31
Page 31
LiabilitiesOr debt
LiabilitiesOr debt
AssetsAssets
Equity or net worth
Equity or net worth
Start of FarmFinancial crisis
Start of FarmFinancial crisis
Page 31
LiabilitiesOr debt
LiabilitiesOr debt
AssetsAssets
Equity or net worth
Equity or net worth
Duration of FarmFinancial crisis
Duration of FarmFinancial crisis
Other Sectors
Farm input suppliers• Providers of variable production inputs
• Providers of fixed production inputs
Page 33
Relative Importance of Farm Input ExpendituresRelative Importance of Farm Input Expenditures
Page 33
Other Sectors
Farm input suppliers• Providers of variable production inputs• Providers of fixed production inputs
Food processors, wholesalers and retailers• Agent middlemen firms• Speculative middlemen firms• Processors and manufacturers• Facilitative organizations
Pages 33-34
The bulk of farm production flows through assemblers and brokersto food manufacturers and processors….
The bulk of farm production flows through assemblers and brokersto food manufacturers and processors….
Agriculture
Assemblers,Brokers, etc.
Food manufacturersAnd processors
Page 37
After value is added by food processors and manufacturers, the next stop is wholesalers, brokers and chain warehouses...
After value is added by food processors and manufacturers, the next stop is wholesalers, brokers and chain warehouses...
ImportsFood manufacturersand processors
Wholesalers, brokers,Chain warehouses
Page 37
Finally, the bulk of value added production flows through grocery stores to consumers…..
Finally, the bulk of value added production flows through grocery stores to consumers…..
Consumers
Institutionalmarket
Grocerystores
Specialtyfood
stores
Wholesalers, brokers,Chain warehouses
Page 37
Military
Page 39
Where a food dollar goesWhere a food dollar goes
Only 20 percent of each dollar spent on food products goesto farmers and ranchers…
Only 20 percent of each dollar spent on food products goesto farmers and ranchers…
Page 39
Where a food dollar goesWhere a food dollar goes
In SummaryIncreasing role of capitalProductivityWeak real profitabilityGovernment subsidiesInterrelationship among
sectors in the food and fiber industry
Farmers/ranchers share of food dollar
Chapter 3 starts a series of three chapters that focus on the demand curve for food and fiber products….
