The record operating margins for packers following the fire at the Tyson facility in Holcomb, Kansas, elevated ongoing concerns in the cow/calf sector regarding the share ranchers receive of the retail value of beef.
The concerns center around the spread between retail prices and the prices received for cattle. The USDA keeps and tracks data on the farm-to-wholesale price spread, wholesale-to-retail spread, and the overall farm-to-retail spread. The farm-to-retail spread is the difference between prices producers receive and consumers pay. It represents the costs and profits of the processing and marketing system following the sale of the animal to a packer.
Figure 1 illustrates the farm-to-retail price spread in cents per pound from 1990-2018. The price spread is broken into two portions: (1) the farm-to-wholesale spread (blue), and (2) the wholesale-to-retail spread (red). The farm-to-retail spread is the red and blue portions combined. The farm-to-wholesale spread, while not exactly measuring packer margins, is highly correlated to packer margins. Two things stand out in Figure 1. First, the farm-to-retail beef price spread has widened considerably since 1990. Second, the widening has occurred in the wholesale-to-retail portion, between the packer and the retailer, and not so much in the farm-to-wholesale portion. So, while the farm-to-wholesale price spread has grown, suggesting a greater packer share, the growth pales in comparison to the widening wholesale-to-retail spread, meaning greater value is being added to the product after leaving the packer.
There could be many reasons for the widening of the wholesale-to-retail price spread. It could be indicative of growing margins in the retail sector, increased trimming costs for packaging the product for sale, or increased transportation costs. The widening could also be due to the transition to “case-ready” products on the retail shelf. In other words, retailers and intermediaries could be adding more value to the final product today compared to 1990. In the end, as more value is added beyond the farm gate, producer share of the retail dollar as a percentage will shrink.
Figure 1. Price Spread for Beef, 1990-2018
Source: USDA Economic Research Service calculations based on USDA Agricultural Marketing Service data