The U S Food and Fiber Industry Chapter

The U. S. Food and Fiber Industry Chapter 2

Discussion Topics üReview of key measurement concepts before we start üWhat is the food and fiber industry? üChanging complexion of farming üOther sectors in the food and fiber industry

Output and Price Indices Apple Production Year (million pounds) Price of apples 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 Page 18

Output and Price Indices Apple Production Year (million pounds) Price of apples 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 1. 06 = 5, 823÷ 5, 515 Output 6% higher in 1997 than it was in 1990…. Page 18

Output and Price Indices Apple Production Year (million pounds) Price of apples 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 1. 06 = 5, 823÷ 5, 515 Output 6% higher in 1997 than it was in 1990…. 1. 26 = 0. 91÷ 0. 72 Price 26% higher in 1997 that it was in 1990…. Page 18

Nominal and Real Expenditures Nominal Expenditures CPI Real Expenditures (million dollars) 1982 -84=100 (Million dollars) Year 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 Page 19

Nominal and Real Expenditures Nominal Expenditures CPI Real Expenditures (million dollars) 1982 -84=100 (Million dollars) Year 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 was 61. 1% higher in 1995 than it was in 1982 -84 period Page 19

Nominal and Real Expenditures Nominal Expenditures CPI Real Expenditures (million dollars) 1982 -84=100 (Million dollars) Year 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 was 61. 1% higher in 1995 than it was in 1982 -84 period 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 provide food and fiber products to their ultimate consumer. Page 21

Changing Complexion of Farming üPhysical structure • • • Fewer number of farms but larger-sized farms Increasing use of capital relative to labor Increasing productivity or output per unit of input üFinancial 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-1980 s Pages 22 -32

Output Index 1996=1. 0 Expansion of Agricultural Production Year Page 29

Index of Inputs 1996=1. 0 Declining Role of Hired Farm Labor Page 27

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 income Page 29

Instability of Net Farm Income Real net farm income in 1983 had the same purchasing power as 1933 Nominal Net Farm Income Page 30

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

Start of Farm Financial crisis Assets Equity or net worth Liabilities Or debt Page 31

Duration of Farm Financial crisis Assets Equity or net worth Liabilities Or debt Page 31

Other Sectors üFarm input suppliers • Providers of variable production inputs • Providers of fixed production inputs Page 33

Relative Importance of Farm Input Expenditures Page 33

Other Sectors üFarm input suppliers • Providers of variable production inputs • Providers of fixed production inputs üFood processors, wholesalers and retailers • Agent middlemen firms • Speculative middlemen firms • Processors and manufacturers • Facilitative organizations Pages 33 -34

Agriculture Assemblers, Brokers, etc. Food manufacturers And processors The bulk of farm production flows through assemblers and brokers to food manufacturers and processors…. Page 37

Food manufacturers and processors Imports Wholesalers, brokers, Chain warehouses After value is added by food processors and manufacturers, the next stop is wholesalers, brokers and chain warehouses. . . Page 37

Wholesalers, brokers, Chain warehouses Military Grocery stores Specialty food stores Institutional market Consumers Finally, the bulk of value added production flows through grocery stores to consumers…. . Page 37

Where a food dollar goes Page 39

Where a food dollar goes Only 20 percent of each dollar spent on food products goes to farmers and ranchers… Page 39

In Summary üIncreasing role of capital üProductivity üWeak real profitability üGovernment subsidies üInterrelationship among sectors in the food and fiber industry üFarmers/ranchers share of food dollar

Chapter 3 starts a series of three chapters that focus on the demand curve for food and fiber products….