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The U.S. Food and Fiber Industry

The U.S. Food and Fiber Industry. Chapter 2. Discussion Topics. Review of key measurement concepts before we start What is the food and fiber industry? Changing complexion of farming Other sectors in the food and fiber industry. Output and Price Indices.

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The U.S. Food and Fiber Industry

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  1. The U.S. Food and FiberIndustry Chapter 2

  2. Discussion Topics • Review of key measurement concepts before we start • What is the food and fiber industry? • Changing complexion of farming • Other sectors in the food and fiber industry

  3. Output and Price Indices Apple Production Price of apples Year (million pounds) Output Index ($/pound) Price index 1985 4,222 0.76 $0.68 0.94 1990 5,515 1.00 0.72 1.00 1997 5,832 1.06 0.91 1.26 1990 is the base year Page 18

  4. Output and Price Indices Apple Production Price of apples Year (million pounds) Output Index ($/pound) Price index 1985 4,222 0.76 $0.68 0.94 1990 5,515 1.00 0.72 1.00 1997 5,832 1.06 0.91 1.26 1990 is the base year 1.06 = 5,823÷5,515 Output 6% higher in 1997 than it was in 1990…. Page 18

  5. Output and Price Indices Apple Production Price of apples Year (million pounds) Output Index ($/pound) Price index 1985 4,222 0.76 $0.68 0.94 1990 5,515 1.00 0.72 1.00 1997 5,832 1.06 0.91 1.26 1990 is the base year 1.06 = 5,823÷5,515 Output 6% higher in 1997 than it was in 1990…. 1.26 = 0.91÷0.72 Price 26% higher in 1997 that it was in 1990…. Page 18

  6. Nominal and Real Expenditures Nominal Expenditures CPI Real Expenditures Year (million dollars) 1982-84=100 (Million dollars) 1980 120.3 0.868 138.6 1985 170.5 1.056 161.5 1990 252.7 1.324 190.8 1995 354.4 1.611 219.9 1982-84 average is the base year for the CPI Page 19

  7. Nominal and Real Expenditures Nominal Expenditures CPI Real Expenditures Year (million dollars) 1982-84=100 (Million dollars) 1980 120.3 0.868 138.6 1985 170.5 1.056 161.5 1990 252.7 1.324 190.8 1995 354.4 1.611 219.9 1982-84 average is the base year for the CPI CPI was 61.1% higher in 1995 than it was in 1982-84 period Page 19

  8. Nominal and Real Expenditures Nominal Expenditures CPI Real Expenditures Year (million dollars) 1982-84=100 (Million dollars) 1980 120.3 0.868 138.6 1985 170.5 1.056 161.5 1990 252.7 1.324 190.8 1995 354.4 1.611 219.9 1982-84 average is the base year for the CPI CPI was 61.1% higher in 1995 than it was in 1982-84 period 219.9 = 354.4÷1.611 The increasing CPI eroded the purchasing power of the dollar….

  9. Characteristics of the Food and Fiber System

  10. The Nation’s food and fiber system consists of four sectors that provide food and fiber products to their ultimate consumer. Page 21

  11. The Nation’s food and fiber system consists of four sectors that provide food and fiber products to their ultimate consumer. Page 21

  12. The Nation’s food and fiber system consists of four sectors that provide food and fiber products to their ultimate consumer. Page 21

  13. The Nation’s food and fiber system consists of four sectors that provide food and fiber products to their ultimate consumer. Page 21

  14. The Nation’s food and fiber system consists of four sectors that provide food and fiber products to their ultimate consumer. Page 21

  15. Changing Complexion of Farming • Physical structure • Fewer number of farms but larger-sized farms • Increasing use of capital relative to labor • Increasing productivity or output per unit of input • Financial structure and performance • Volatility of net farm income reduced by by subsidies • Declining debt use strengthens equity position • Recovering real estate values after sharp declines during the financial crises in the mid-1980s Pages 22-32

  16. Expansion of Agricultural Production Output Index 1996=1.0 Year Page 29

  17. Declining Role of Hired Farm Labor Index of Inputs 1996=1.0 Page 27

  18. Farm Profitability Cash receipts from farm marketings + Government payments + Other income from farm sources = Gross farm income Page 29

  19. Farm Profitability Cash receipts from farm marketings + Government payments + Other income from farm sources = Gross farm income – Production expenses = Nominal net farm income Page 29

  20. Farm Profitability Cash receipts from farm marketings + Government payments + Other income from farm sources = Gross farm income – Production expenses = Nominal net farm income ÷ Broadly-based price deflator = Real net farm income Page 29

  21. Instability of Net Farm Income Real net farm income in 1983 had the same purchasing power as 1933 Nominal Net Farm Income Page 30

  22. Financial Structure Value of real estate assets + Value of nonreal estate assets + Value of financial assets = Total assets Page 31

  23. Financial Structure Value of real estate assets + Value of nonreal estate assets + Value of financial assets = Total assets – Total liabilities or debt = Equity or net worth Page 31

  24. Start of Farm Financial crisis Assets Equity or net worth Liabilities Or debt Page 31

  25. Duration of Farm Financial crisis Assets Equity or net worth Liabilities Or debt Page 31

  26. Other Sectors • Farm input suppliers • Providers of variable production inputs • Providers of fixed production inputs Page 33

  27. Relative Importance of Farm Input Expenditures Page 33

  28. Other Sectors • Farm input suppliers • Providers of variable production inputs • Providers of fixed production inputs • Food processors, wholesalers and retailers • Agent middlemen firms • Speculative middlemen firms • Processors and manufacturers • Facilitative organizations Pages 33-34

  29. Agriculture Assemblers, Brokers, etc. Food manufacturers And processors The bulk of farm production flows through assemblers and brokers to food manufacturers and processors…. Page 37

  30. Food manufacturers and processors Imports Wholesalers, brokers, Chain warehouses After value is added by food processors and manufacturers, the next stop is wholesalers, brokers and chain warehouses... Page 37

  31. Wholesalers, brokers, Chain warehouses Military Grocery stores Specialty food stores Institutional market Consumers Finally, the bulk of value added production flows through grocery stores to consumers….. Page 37

  32. Where a food dollar goes Page 39

  33. Where a food dollar goes Only 20 percent of each dollar spent on food products goes to farmers and ranchers… Page 39

  34. In Summary • Increasing role of capital • Productivity • Weak real profitability • Government subsidies • Interrelationship among sectors in the food and fiber industry • Farmers/ranchers share of food dollar

  35. Chapter 3 starts a series of three chapters that focus on the demand curve for food and fiber products….

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