July 2001, Volume 7, Number 3
How We Eat: 1999 Data
About 2.5 million individuals do farm work for wages sometime during a typical year, so that farm workers represent less than two percent of the 140 million persons with work experience in the US. About 80 percent or two million of these farm workers are immigrants, and an estimated 55 percent were unauthorized in 1999.
One of the most frequently asked questions is what would happen to US food prices if legal and unauthorized farm workers were not readily available. It is important to emphasize that most of the flexibility in the farm labor market is on the demand, not the supply side. For example, when wages increased in the past, farmers responded by producing food with fewer workers, not by inducing more Americans to do farm work. Generally, substituting capital (machines) for workers reduced food prices.
According to the US Bureau of Labor Statistic's Consumer Expenditure Survey for 1999, there were 108 million "consumer units," with an average of 2.5 persons each. The average household had an income of $44,000 before taxes and $40,400 after taxes; average consumer unit expenditures were $37,000. http://stats.bls.gov/csxhome.htm)
These household expenditures included $5,000 for food (14 percent), and food spending included $2,900 for food eaten at home (eight percent) and $2,100 for food bought away from home (spending on alcoholic beverages averaged $320). Other significant expenditure items included housing and utilities, $12,100; transportation, $7,000; health care, $20,00; entertainment, $1,900; and tobacco products, $300.
The largest food-at-home expenditures were for meat and poultry, $750, and nonalcoholic beverages, $420. Expenditures on fresh fruits ($152) and fresh vegetables ($149) totaled $301, or about $6 a week.
Farmers received an average 20 percent of each retail dollar spent on food in 2000; the farm share of retail expenditures ranged from a high of 49 percent for beef to a low of five percent for cereal and bakery products. Farmers received an average 16 percent of the retail cost of fresh fruits and 19 percent of the retail cost of fresh vegetables (17 percent of the retail cost of processed fruits and vegetables).
In order to determine how much raising farm worker wages would affect food prices, we have to know: (1) the farmer's share of retail food prices, as well as; (2) what share farm worker wages and benefits are of farmer revenue or costs. For most fruits and vegetables, wages and benefits paid to farm workers are about one-third of a farmer's costs. Thus, farmers who get about $0.16 for a $1 pound of apples, and $0.19 for a $1 head of lettuce, have farm-worker costs of 5-6 cents on a typical $1 retail item of produce.
How much would farm worker wages increase if some of these immigrant workers were not available? In 1966, one year after the end of the bracero program, the fledgling United Farm Workers union won a 40 percent wage increase for table grape harvesters. Average hourly farm-worker earnings were about $7.56 for US field and livestock workers in 2000, according to a USDA survey of farm employers, and another 40 percent increase would raise them to $10.58.
If a 40 percent farm-worker wage increase were fully passed on to consumers, and if there were no farm productivity improvements in response to higher farm wages, the 5-6 cent farm labor cost of a pound of apples or a head of lettuce would rise to 7-8 cents, and the retail price would rise from $1 to $1.02-$1.03.
A large increase in farm wages translates into a small retail cost increase because: (1) farm labor is a third of farmers' costs; and (2) farmers receive only a fraction of the retail price of food. For a typical 2.5-person consumer unit, a 40 percent increase in farm worker wages that led to a three percent increase in retail fresh fruit and vegetable costs would increase the spending of a typical consumer unit by $9 a year, raising expenditures from $301 to $310.
USDA estimates average per capita consumption of commodities by their weight. Average per capita consumption of food in 1999 totaled 2,000 pounds, up nine percent from 1990. By weight, fruits and vegetables were 36 percent of the one ton of food consumed, followed by dairy products, 30 percent, flour and cereal products, 10 percent. For more information: http://www.ers.usda.gov/publications/agoutlook/)
The online grocer Webvan, which took orders on its Web site for groceries, spent $1.2 billion in venture capital before declaring bankruptcy in July 2001. Webvan built a 100,000-square foot automated warehouse in each city it served, and then sought to replicate the warehouse in 26 cities nationwide, at a cost of $35 million each, hoping to become profitable in each city within 15 months. Webvan never earned profits in any city it served.