2. FOOD RETAILING Food retailing is an important part of the whole U.S. retail sector Establishment numbers, value of sales, and paid employees of retail trade, 2002 Number of Establishments Sales ($ Billion) Paid Employees (Million) U.S. Retail trade1,116,5063,066.814.7 Food and beverage stores148,901456.12.8

3. MARKETING CHANNEL Marketing Margin: –Difference between price paid by final consumer and price received by primary producer –Also called “farm-retail price spread” –Must be measured in equivalent units: Example: For steers, 2.4 lbs of live weight yield 1 lb of retail beef cuts 2000 retail beef price = $3.06/lb average all cuts 2000 steer price = $0.654/lb live weight 2000 farm-retail price spread = $1.57/lb retail cut (= $3.06/lb – 2.4 x $0.654/lb)

4. MARKETING CHANNEL Marketing Bill: –Difference between total consumer expenditures and what farmers receive for equivalent farm products

5. MARKETING CHANNEL Approaches to measure farmer’s share of consumer’s food dollar: 1.Marketing Bill Farm value of all domestically produced farm foods divided by consumers’ food expenditures –Includes foods eaten at home and away from home –Captures changes in price relationships and consumption patterns 2.Market Basket Farm value of a “constant” basket of domestically produced farm foods divided by its retail value –Uses only grocery store prices –Doesn’t allow substitution

6. MARKETING CHANNEL Nominal or Current Dollars Real or Constant Dollars Approximately 80% marketing 20% farm level

7. MARKETING CHANNEL Price Quantity P Production Consumption Farmers’ Market Demand Supply Consumer Expenditures = Farm Value

8. MARKETING CHANNEL Price Quantity P Production Consumption P retail Primary Demand Farmers’ MarketTypical Market Channel Demand Supply P farm Production Consumption Primary Supply Derived Demand Consumer Expenditures = Farm Value Cons. Expend. Marketing Bill Farm Value Price Spread

9. MARKETING CHANNEL Price Quantity Production Consumption P retail Primary Demand Small SpreadLarge Spread Primary Demand Primary Supply P farm Production Consumption Primary Supply Derived Demand Marketing Bill Farm Value Is a large farm-retail price spread necessarily “bad”? P retail P farm Price Spread Derived Demand Price Spread

10. MARKETING CHANNEL Price Quantity Production Consumption P retail Primary Demand Small SpreadLarge Spread Primary Demand Primary Supply P farm Production Consumption Primary Supply Derived Demand Is a large farm-retail price spread necessarily “bad”? P retail P farm Price Spread Derived Demand Consumer Surplus Producer Surplus Price Spread

11. MARKETING CHANNEL Price Quantity Production Consumption P retail Primary Demand Small SpreadLarge Spread Primary Demand P farm Production Consumption Primary Supply Derived Demand Is a large farm-retail price spread necessarily “bad”? P retail P farm Price Spread Consumer Surplus Producer Surplus Primary Supply Derived Demand Price Spread Consumer Surplus Producer Surplus

12. MARKETING CHANNEL Is a large farm-retail price spread necessarily “bad”? Retail Price ($/lb retail) Marketing Margin ($/lb retail) Farm Value ($/lb retail) Farmer’ Share (%) Fresh Potatoes0.370.310.0616 Frozen French Fried Potatoes 1.101.020.08 8 (Source: USDA, 2002)

13. MARKETING CHANNEL Price spreads increase with: –Processing –Perishability –Seasonality –Transportation –“Bulkiness”