Sunday, October 18, 2009

Money in the Middle?

(click on image to enlarge)

The Bureau of Labor Statistics publishes an immense amount of data. One item is the retail price of Cheddar cheese over time.

I noticed the Consumer Price Index, which compares prices with a base period of 1982-84 with later prices, had risen for dairy products but, since the Producer Price Index for September has not been released, I thought it would be interesting to look at the farm value going into a pound of Cheddar compared with retail price.

For 1984 farm value I used the roughly normal yield of 10 pounds per hundredweight. For 2009 I used California’s most recent analysis of 13.58 pounds per hundredweight.

Then I looked at how many times the farm value went into the retail value.

The result is the graph above.

No one can argue the fact farmers need more money. But, an important idea worth exploring, and I admit the data is very scarce, what happened to the money in the middle?

Economists like to talk about “efficient markets.” Well, was the money in the middle simply evaporated? Or, maybe those in the middle are not all that efficient and what does that mean if farmers are to get the money they deserve? The question is troubling.

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