Marketing margins for fruits and vegetables

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MARKETING MARGINS

FOR FRUITS
AND VEGETABLES

Reprinted From
The Marketing and Transportation Situation
January 1961

. A
U. S. DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service
Marketing Economics Research Division

AMS-298 (1961)

Growth Through Agricultural Progress

- 37 -

MARKETING MARGINS FOR FRUITS AND VEGETABLES yf

ee

mw ee ee

Marketing margins for fresh fruits and vegetables, together with :

; retail and grower prices, were higher
increased 4 percent;

>; keting margins
; 8 percent higher;
3 pencent.

in 1960 than in 1959. Mar-
retail prices averaged about :

and prices received by growers were up about 15 :
Much of the increase at both grower and retail levels re- ;_
; sulted from higher prices for apples, oranges, and potatoes.

Retail ;

3; prices of processed products declined 4 percent, reflecting mainly :

; reductions

; the same in both years.

a

in returns to growers.

Marketing charges were about ;

@@ co

Fresh Fruits and Vegetables

The retail cost of the fresh fruits inthe
family market basket increased to an
annual rate of $144 in 1960 from $133 in
1959 (table 19). 2/ About two-thirds of
this increase was reflected in higher
prices received by farmers and one-third
in higher marketing charges. Increases
in 1960 followed decreases in 1959. The
farmer’s share of the retail cost of fresh
fruits and vegetables increased to 37 per-
cent in 1960, up from 34 percent in 1959.

Sharp price increases in potatoes,
apples, and oranges at both farm and
retail levels accounted for much of the
increase in the retail cost and farm
value of the fresh fruits and vegetables
in the market basket. The retail price
of potatoes jumped from an average of
63.3 cents per 10 pounds in 1959 to
71.7 cents in 1960; the farm value rose
from 19.2 cents to 24.5 cents, and the
marketing margin from 44.1 cents to
47.2 cents. Stocks of potatoes on Jan-
uary 1, 1960, were 10 percent smaller
than a year earlier as a result of a
smaller late potato crop in 1959 than
in 1958. Further, the production of pota-
toes for harvest during the winter months
was much smaller in 1960 than in 1959

because of reduced acreage and severe
damage by cold weather. Prices received
by farmers were higher in 1960 than
in 1959 in each month except June, parti-
cularly in the early months of the year,
although the spring, summer, and fall
crops were larger in 1960 than in 1959.

For the quantity of apples equivalent to
a pound at retail, farmers received an
average of 5.4 cents in 1960, compared
with 4.0 cents in 1959. The gain at the
retail level was larger, since the farm-
retail spread increased from 10.2 cents
to 10.8 cents. Stocks of apples were
lighter on January 1, 1960, than a year
earlier, and the 1960 crop was 5 percent
smaller than average and 13 percent
smaller than the 1959 production.

In the first half of 1960, grower prices
for Florida oranges were lower, Califor-
nia oranges higher, than for the same
period a year earlier. United States ayer-
age prices of fresh oranges bothat grower
and retail levels were higher in most
months of 1960 than a year earlier. The
annual average retail price rose from
66.4 cents a dozen, in 1959 to 75.6 cents

Ly Prepared by Victor V. Bowman, agricultural economist, Marketing Economics
Research Division, Agricultural Marketing Service.

2/ The family market basket contains the average quantities of fruits, vegetables,
and other domestically produced farm food products bought by the typical urban wage-
earner or clerical-worker family in 1952, The farm value of a food in the market

basket is

the payment the farmer receives for its farm product equivalent. The

marketing margin or spread between the retail cost and farm value is the charge for

marketing services.

=) 36) -

in 1960. The marketing margin went up
from 44.3 to 48.3 cents; so growers re-
ceived more than half the gain in retail
prices. The volume of oranges sold fresh
from the 1959-60 crop was smaller than
that from the 1958-59 crop, largely be-
cause the California Navel and Valencia

crops were short. Prices in the final
quarter of the year were strengthened by
reduced marketings from the 1960-61
crop. Shipments from Florida were late
in starting and increased slower than
usual; the California crop was light again.

Processed Fruits and Vegetables

Total marketing charges for processed
fruits and vegetables in the family market
basket were about the same in 1960 as
in 1959 (table 19). The total farm value
of these products declined 14 percent,
accompanied by a 3 percent reduction in
the retail cost.

Lower prices for canned orange juice
and frozen juice concentrate accounted
for much of the reduction in the retail

cost of the processed products. Similar-
ly much of the decrease in the farm value
resulted from a sharp drop from 1959
to 1960 in prices received by growers
for oranges for processing. The bulk of
the processed products sold to consumers
in 1960 were processed from 1959-60
Florida oranges. Prices received by
growers for the 1959-60 crop were con-
siderably lower than those for the 1958=
59 erops

Marketing Margins for Oranges

Grower-retail marketing spreads have
been analyzed for Florida fresh oranges
sold in Atlanta, Chicago, Detroit, New
York and Pittsburgh, for California fresh
oranges marketed in New York and Chi-
cago, and for canned orange juice and
frozen orange juice retailed in New York
and Chicago.

Florida Fresh Oranges

Retail prices of Florida oranges mar-
keted in five large eastern and middle
western cities during the 1959-60 season
varied from $7.57 per 90=pound box in
Atlanta to $9.66 in New York (table 20). 3/
Prices at all market levels were lower
in 1959-60 than in the previous season.

Spreads between retail prices and re-=
turns to the grower (‘‘on-tree’’ returns)
in 1959-60 ranged from $5.92 in Atlanta
to $7.16 in Detroit (table 20). As per-
centages of retail prices, these spreads,
or marketing margins, ranged from 74
percent in New York to 80 percent in
Pittsburgh, Im each of the five cities ex-

cept Pittsburgh, marketing margins de-
creased from 1958-59 to 1959-60, along
with prices at retail and other market
levels. Though marketing margins de-
clined, decreases were not proportionate
to reductions in retail prices, so mar-
keting margins relative to retail prices
increased from 1958-59 to 1959-60.

Returns to growers in 1959-60 varied
from $1.05 per 90 pounds of oranges
shipped to Atlanta to $2.55 for those
marketed in New York. As percentages
of retail prices, returns to growers
varied from 20 percent for Pittsburgh
shipments to 26 percent for New York
shipments.

Differences in quality of fruit may ex-
plain part of the variation in on-tree
returns from oranges shipped to different
destinations, Thus, New York, for which
retail prices and on-tree returns were
highest, received fruit of a better average
quality than most other cities.

The drop in prices at all market levels

- 3/7 The retail price is for 87 pounds. For every 90 pounds of oranges bought by

retailers, about
were lost through waste and spoilage.

87 pounds on the average were sold to consumers and 3 pounds

- 39 -

Table 19.--Fruits and vegetables:

Retail cost, farm value, marketing margin, and

farmer's share of retail cost, annual, 1956-60 1/

Fresh fruits and vegetables

1

Year Retail cost Farm value Margin Beene tae

share

Dollars Dollars Dollars Percent
L956) 4 is koe ee & 129.34 48.10 81.24 37
LOIS aati tek nD Rem ots 130237 44.76 85.61 34
TO5'Bcasee cee Satie ee os ISOS 7 49.30 90.27 35
OS GRgeT Sis ee eae es 133,38 45.68 87.70 34
LOGON27 - Bt 4 et eae 143.56 52.44 91.12 37

Processed fruits and vegetables

L956: 2 se Jas oe a, es 90.47 18.62 lates) Dali
CS iia etaier Sho Re Deer ie he 88.35 17.48 70.87 20
VOS8i4. teen oh Lede at 94.02 ly pe) 76.73 18
O59) Gara SA oe eek one 97.23 22°32 74.91 23)
Col OIG dies cheno PON I 93.73 19.28 74.45 21

1/ Data are for quantities of fruits and vegetables bought for consumption at home
per urban wage-earner or clerical-worker family in 1952.

2/ Preliminary.

from 1958-59 to 1959-60 resulted from
an increase in the supply of Florida
fresh oranges. Shipments in the 1958-59
season were the smallest in a generation
and prices were the highest. The crop
was lighter than other recent crops and
a smaller proportion was marketed as
fresh fruit. The 1959-60 crop was larger
and a greater proportion was marketed
fresh. Sales of California fresh oranges,
however, declined sharply from 1958-59
to 1959-60.

Charges for retailing and wholesaling
are the largest segment of the total
marketing margin. As a percentage of
the retail price, the combined wholesale-
retail margin in 1958-59 varied from
33 percent in Chicago to 45 percent in
Detroit; in 1959-60, from 37 percent in
Chicago to 46 percent in Atlanta. Dollar-
and-cents wholesale-retail margins in
both seasons were largest in New York
and Detroit, where retail prices were
highest; margins were smallest in Chi-

cago and Pittsburgh, where prices were
near the lowest. The lowest retail price
was in Atlanta in both seasons. Transpor-
tation costs to Atlanta were the lowest,
but the wholesale-retail margin was the
third largest among the five cities in
both years. Wholesale-retail margins in
each of the cities, except Pittsburgh,
averaged lower in the 1959-60 season
than a year earlier.

Retail store margins vary among cities,
depending on pricing policies, operating
costs, and many other factors. Variations
in services performed by wholesalers
affect their margins. For fresh fruits and
vegetables, these margins tend to vary
directly with changes in prices of the
product. Thus, the wholesale-retail mar-
gin in all but one of thesecities decreased
from 1958-59 to 1959-60 when prices
of oranges at all marketing levels de-
creased,

Charges for marketing services per-

SHO: =

Table 20.--Florida Oranges: Retail prices, marketing margins, and on-tree
returns per 90-pound box, 1958-59 and 1959-60

: : ° ; > New York
Item : Atlanta ; Chicago :;: Detroit ;Pittsburgh: City
: Dollars Dollars Dollars Dollars Dollars
1958-59
Retail..price. 1/ -.-.. « - 9.13 he 10.34 9.16 10.91
Margins or charges: :
Wholesale-retail 2/ : 3.56 3.06 4.63 3.24 4.36
Terminal charges 3/ :; ~32 -43 34 36 -41
Transportation 4/ . : -38 1.05 | Be 2 1.10 pee2
Packer, Bl. - 6s = istics ms Let5 1p Leg Lei5 LS
EOE EL. eo iar jes he [S 6.01 6.29 7.84 6.45 7.64
On-tree return 6/ .. : 3.12 2.88 2.50 2 ak S227
1959-60
Retail’ price *h/' "=< ~ : Pod SB. 15 O22 8.26 9.66
Margins or charges: :
Wholesale-retail 2/ : Sipe! 2.97 3.88 350 Biss) |
Terminal charges 3/ : -23 -37 31 729 a /
Transportation 4/ . : Ae ts: £05 Peasy, eas | Oa ee
Packer S/o. « «2 «, 1.80 1.80 1.80 1.80 1.80
dia) a2) (ea er ee 5392 6.19 7.16 6.58 Tot
On-tree return 6/ .. : 165 1.94 2.06 1.68 2.55

1/ Calculated from retail prices collected by the Bureau of Labor Statistics;
3 percent allowance for waste and spoilage. Average of monthly prices during
marketing season November - May.

2/ Retail prices less average auction or wholesale price for the week preceed-
ing that in which the BLS collected prices. Margins include terminal cartage
charges.

3/ Auction and brokerage commissions and miscellaneous charges.

4/ Weighted average truck and rail freight and refrigeration charges.

5/ Weighted average of cost of packing in the three most commonly used
containers. Includes picking, hauling, selling, and advertising costs; data for
1959-60 season are preliminary.

6/ Retail price less total marketing margin.

ies

formed in the producing areas accounted
for the second largest segment of the
total marketing margin. They include
the costs of picking, hauling, packing, and
advertising and other selling costs. Local
marketing charges varied from 16 to
19 percent of the retail price in 1958-59
and from 19 to 24 percent in 1959-60.
Charges in cents per box were slightly
higher in 1959=60 and retail prices were
lower. Average packing and container
costs have risen in recent years, partly

because of the increased use of the
half-box.
Transportation charges made up the

third largest segment of the marketing
margin. As proportions of the average
retail prices of oranges sold in the
five cities, transportation charges in1958-
59 ranged from 4 percent for Atlanta
to 12 percent for Pittsburgh and in 1959=60
from 5 percent for Atlanta to 14 percent
for Pittsburgh.

Terminal market charges accounted for
the smallest portion ofthe marketing mar-
gin. They declined from 1958-59 to 1959-60
in line with prices, as they are made
up largely of commissions which vary
with selling prices.

California Oranges

The division of the retail price among
growers and marketing functions was
about the same for California oranges
retailed in New York and Chicago as for
Florida oranges sold in these cities.
During the California Navel seasons 1956-
57 through 1958-59 and the Valencia sea-
sons 1957 through 1959, the wholesale-
retail margin accounted for about 34 to
47 percent of retail prices, producing-
area marketing charges for about 13 to
16 percent, transportation charges also
from 13 to 16 percent, terminal market
changes for about 5 percent, and the
growers on-tree returns for 21 to 31
percent (table 21). Retail prices were
higher for California than for Florida
oranges marketed in New York and Chi-
cago. In New York during the 1958-59
season, retail prices of Florida oranges
averaged about 70 percent of those for

California oranges. Dollars-and-=cents
wholesale-retail margins also were con-
siderably higher for California oranges
than for Florida oranges.

Retail prices of California oranges
were higher in New York than in Chicago,
and generally the same was true for
wholesale-retail margins.

Comparative Costs of Fresh, Canned,

and Frozen Orange Juice

In New York and Chicago canned or
frozen concentrated orange juice was
cheaper than juice from fresh oranges
in 1958-59. The quantity of Florida fresh
oranges (approximately 3 pounds) re-
quired to yield 24 ounces of juice cost
New Yorkers an average of 36.4 cents.
Equivalent quantities of canned single-
strength juice (24-ounce can) cost 23.1
cents and of frozen concentrate (6-ounce
can) cost 25.4 cents (fig. 8). California
fresh oranges were more expensive than
Florida fresh oranges. Probably few
eastern consumers buy California Navel
oranges for juice.

It cost considerably less to market the
processed products than fresh oranges.
The average marketing margin for quan-
tities equivalent to 24 ounces of juice
marketed in New York during the 1958-
59 season was 13.5 cents for canned
orange juice, 15.8 cents for frozen con-
centrate, and 25.1 cents for fresh Florida
oranges. The marketing marginaccounted
for about 70 percent of the retail price
of fresh oranges and about 60 percent of
the retail prices of canned juice and
frozen concentrate.

Among the various segments of the
total marketing margin, the biggest dif-
ferences were for wholesaling and re-
tailing. The combined wholesale-retail
margin for Florida fresh oranges in
New York was five times that for canned
juice. The higher costs of handling fresh
oranges, which are more perishable and
bulky than the processed products, ac-
count for the big differences in these
margins. Transportation charges also
were considerably higher for fresh

ae) ee

-Table 21.--California Oranges, Navel and Valencia: Retail prices, marketing
margins and on-tree returns per 37z%-pound carton, 1957, 1958, 1959 seasons

New York City

Item Navels : Valencias
1956-57 1957-58 1958-59 £957 1958 1959

Dollars Dollars Dollars Dollars Dollars Dollars

Retail price 1/ . = ~.: 5.96 7-20 6.62 5.59 Tf S38: 6.135
Margins or charges: :

Wholesale-retail 2/ : Fgh ss. 2.79 3 u2 1.91 2.80 2.10

Terminal charges 3/ : -31 36 -29 -32 BS -30

Transportation 4/ . : .89 94 .88 -89 91 -88

Backer oo 4 a0 87 -96 295 Bow! .96 93

POUL Fc. st 4.62 5.02 522 3.99 5.04 4.81

On-tree return 5/ . . : 1.34 2.18 1.40 1.60 2.29 £532

Chicago

Retail price 1/ . . - : y= 56 6.32 Sieeul 5.47 7.00 5269
Margins or charges: :

Wholesale-retail 2/ : 2.35 2.30 Zoe 2.16 20, 2.23

Terminal charges 3/ : -25 -30 «2D -26 2 5 ea

Transportation 4/ . : .89 -91 88 .89 -91 . 88

Packer 5/ «9. = -% : -87 .96 93 87 -96 «93

PLAN etbe cs oe 4.36 4.47 4.58 4.18 4.86 4.31

On-tree return 6/ . . : Le 22 1.85 L523 1.29 2.14 1.38

1/ Calculated from retail prices collected by the Bureau of Labor Statistics;
3 percent allowance for waste and spoilage. Average of monthly prices during
marketing season: Navels, December-May; Valencias, June-November.

2/ Retail prices less average auction price for the week preceeding that in
which the BLS collected prices. Margins include terminal cartage charges.

3/ Auction and brokerage commissions and miscellaneous charges.

4/ Rail freight and standard refrigeration.

5/ Includes picking, hauling, packing, selling and advertising costs.

6/ Retail price less total marketing margin.

- 43 -

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Figure 8

Oranges than for equivalent quantities
of the processed products, principally
because of differences in weight. Shipping
charges for Florida oranges were nearly
five times those for frozen con-
centrate. Charges for processing canned
juice and frozen concentrate, however,
exceeded packing and other local market-
ing charges for fresh oranges. The
processing margin for frozen concentrate
was more than twice packing charges for

Florida fresh oranges.

Returns to Florida growers derived
from retail prices in New York and
Chicago during the 1958-59 marketing
season were higher for fresh oranges
than for oranges for processing. For
the entire 1958-59 crop, however, prices
received by Florida growers averaged
higher for oranges for processing than
those for fresh use.