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October 2017, Volume 23, Number 4

Farm Wages and Food Costs: 2016

The US Bureau of Labor Statistic's Consumer Expenditure Survey (www.bls.gov/cex) reported there were 129.5 million US "consumer units" or households in 2016. They had an average of 2.5 persons, 1.3 earners and 1.9 motor vehicles; 62 percent were homeowners and the average age of the reference person in the household was 51. Average consumer unit income before taxes was $74,664, and average annual expenditures were $57,311.

These expenditures included $7,203 for food, almost 13 percent of total expenditures. Food spending was split 55-45 percent, including $4,049 or $78 a week for food eaten at home and $3,154 or $60 a week for food bought away from home. The cost of food away from home largely reflects convenience, service, atmosphere and other factors. Food costs are about 35 percent of spending on food in cafeteria-style restaurants, 30 percent in fast food and 25 percent in fine dining.

Other significant consumer-unit expenditures were $18,886 for housing; $9,049 for transportation; $4,612 for health care; $1,803 for apparel; and $2,913 for entertainment.

The largest food-at-home expenditures were for meat and poultry, an average of $890 a year. Expenditures on cereal and bakery products, $524, exceeded the $410 spent on dairy products.

Expenditures on fresh fruits ($288) and fresh vegetables ($254) were $542 a year or $10 a week (consumer units spent an additional $109 on processed fruits and $133 on processed vegetables). Consumer units spent almost as much on alcoholic beverages, $484 per year, as on fresh fruits and vegetables, $542.

Farmers get less than 20 percent of the average retail food dollar, but slightly more for fresh fruits and vegetables (www.ers.usda.gov/data-products/price-spreads-from-farm-to-consumer/price-spreads-from-farm-to-consumer/#Fresh%20fruit). Farmers received an average 38 percent of the retail price of fresh fruits in 2015 and 28 percent of the retail price of fresh vegetables, so average consumer expenditures on these items meant $180 a year to the farmer (0.38 x 288 = $109 + 0.28 x 254 = $71).

Farm labor costs are typically less than a third of farm revenue for fresh fruits and vegetables, so farm worker wages and benefits for fresh fruits and vegetables cost the average consumer unit less than $60 a year; less because some of the fresh fruits and vegetables consumed are imported.

Even though strawberries are picked directly into the containers in which they are sold, and iceberg lettuce is wrapped in the field, farmers and farm workers get a very small share of the retail dollar. Consumers who pay $2 for a pound of strawberries are paying about 80 cents to the farmer and 30 cents to farm workers. For $2 of fresh field-grown tomatoes, farmers receive 50 cents and workers 15 cents.

About half of the workers employed on US crop farms are unauthorized. These unauthorized crop workers are aging and settling, making them less mobile and flexible. Farmers are adjusting to fewer unauthorized newcomers by substituting machines for workers and supplementing the current workforce with legal H-2A guest workers.

What would happen to expenditures on fresh fruits and vegetables if enforcement speeded the exit of unauthorized workers from agriculture? It is unlikely that all unauthorized workers would be removed quickly, producing a labor supply shock.

Some farmers did not anticipate the end of the Bracero program in 1964, which led to higher wages and labor-saving mechanization. Braceros were guaranteed a minimum wage of $1.40 an hour in 1964 at a time when US farm workers were not covered by the minimum wage.

Some grape growers in 1965 reduced the wage for US workers who worked alongside Braceros from $1.40 to $1.25 an hour, prompting a strike. Cesar Chavez assumed control and won a 40 percent wage increase in a first contract to $1.75 an hour in 1966, largely because Bracero workers were not available.

What would happen to consumer expenditures if there were a similar 40 percent wage increase today? The average earnings of field workers were $12.25 an hour in 2016, so a 40 percent increase would raise them by $4.90 to $17.15 an hour.

For a typical household, a 40 percent increase in farm labor costs translates into less than a four percent increase in retail prices (0.30 farm share of retail prices x 0.33 farm labor share of farm revenue = 10 percent, so that if farm labor costs rise 40 percent, retail spending rises 0.4 x 10 = 3.6 percent). If average farm worker earnings rose 40 percent, and the increase were passed on fully to consumers, average spending on fresh fruits and vegetables for a typical household would rise by $20 a year (3.6 percent x $542 = $19.51).

Giving seasonal farm workers a 40 percent wage increase, on the other hand, would raise their average earnings from $12,225 for 1,000 hours of work to $17,150, lifting the average farm worker household of four from half of the federal poverty line of $24,600 to over 70 percent of the poverty line income in 2016.