Economics of Farming and Impact on Community Supported Agriculture

Community Supported Agriculture, CSA, “disintermediates” the food chain, that is it removes the intermediate stages in the food chain: the farmer sells directly to the end consumer or food preparer, bypassing the Retailer, Wholesaler, etc. 

Thus 100% of the retail price of food goes to the farmer, instead of 18.5% on average. The Internet has already driven Disintermediation in many other segments of the economy. Witness the growth of Amazon over brick-and-mortar stores for books and CD’s. I “subscribe” to specialty tuna fish on Amazon, so it is starting to affect the food sector as well.

And the farmers’ share of the money spend on food has been steadily declining.

Although the amount of money spend on food has increased substantially, the amount the farmers receive has remained constant, when adjusted for inflation.

Meanwhile, the cost of the Marketing Share has roughly tripled in constant dollars.

One of the major attractions of Community Supported Agriculture is that the farmer can earn the total amount of money spent on food, rather than seeing most of it go to others.

The farmer incurs some extra costs, including transportation to market, costs at the farmer market, advertising, and labor to package and sell, so there is still some additional Marketing Cost. However, the farmer can still earn all the money by doing all these functions as part of the CSA approach.

Note the farmer’s share varies widely by type of food, in part because of differences in processing and in the value of the food, so grains processed into bread and breakfast cereals have a much lower Farm Share than Poultry and Eggs.

For more details see the readable report from the Congressional Research Service including details of price variations for different crops and the dynamics of prices.

The low Farm Share percentage for Fresh Fruit, 16.7%, and Fresh Vegetables, 19%, helps explain why these are so common in farm stands and are excellent candidates for CSA’s, because the farmer can earn the much larger Marketing Share. Also freshness is impossible to maintain with many intermediaries in the food chain. Food varieties are chosen for ease of transport through a long food chain, rather than taste – thus by choosing different varieties of fruits and vegetables, not only are farm stand and CSA foods fresher, they taste better and you can get more variety. For example, you often see “Heritage” tomatoes advertised, but they aren’t sold in grocery stores because they can't survive long after being picked, or being squashed in shipping.

Many years ago my family and I were driving through a hilly section of California on our way to Sequoia National Park. Going up hill we would pass a truck pulling two large open trailers, and then going down the other side the truck would fly past us. I noticed on sharp corners that some round objects would bounce out of the trailers and bounce along the road. They were greenish, and at first I thought they might be tennis balls because of the way they bounced. But on closer inspection it turned out they were tomatoes – and we wonder why grocery store tomatoes don’t taste like “real” tomatoes J.

Meat and Diary have higher capital costs because you have to feed the animals for a relatively long time, so even though the farm share percentage is higher, these are candidates for CSA’s because of the higher value, and in part because of the up front capital needed. (Note this assumes the farmer can do the butchering, a complex issue I won’t deal with, see for example, the Connecticut Guide to Farmers on this subject.)

This shift of value to the farmer makes farming a more highly rewarded occupation, and thus can attract energetic and skilled people to farming -- witness the exciting people we are meeting running CSA's. Eliminating intermediate stages can also be more efficient, especially in the setting of a community.

These factors can lead to increased competition and differentiation of products, for example serving the needs of people with particular food preferences or allergies. For example, gluten-free diets have received a lot of publicity and foods are becoming available. But there are many other food allergies and sensitivities that have not been addressed, such as corn; it is hard for people with these conditions to find suitable food, and even if they can find it, the price tends to be high. I know people who are successfully working with CSA farmers to meet their particular needs.

Note Transportation represents about 4% of the total food bill, and Additional Energy is 3.8%. The transportation system can have a major influence on all aspects of the food system, as I’ll discuss in future posts.