The Two Margins
As stated, the margin between the farmer and consumer falls into two divisions—one of
which predominantly affects the farmer and the other the consumer. It is really the wholesale prices that govern the farmer, rather than retail prices, for it is in wholesale prices that the farmer competes with the world. As the prices paid by the wholesaler are mostly fixed by overseas trade at the datum point on the Atlantic seaboard or in Europe, then if the margins between the wholesaler and the farmer are unduly large, or increase, it is mostly to the farmer's detriment. For instance, as the price of the farmer's wheat in normal times is made in Liverpool, any increase in handling comes out of the farmer's price. Likewise, as the wholesale price of butter is made by the import of Danish butter into New York, any increase in the numbers or charges between our farmer and the wholesale buyer comes, to a considerable degree, out of the farmer.
As the datum point of determining prices is at the wholesaler, the accretion by the charges for distribution from that point forward to the consumer's door will not affect the farmer, but will affect the consumer. When competition decreases through shortage the consumer pays the added profits of these trades.
Studies of the cost of our distribution system, made by the Food Administration during the war, established two prime conditions. The
first is that the margins between our farmers and the wholesaler in commodities other than grain in some instances, are, even in normal times, the highest in any civilized state—fully 25 per cent higher than in most European countries. The expensiveness of our chain of distribution in most commodities in normal times, as compared to Continental countries, is due partly to the wide distances of the producing areas from the dominating consuming areas, but there are other contributing causes that can be remedied. In Europe, the great public markets in the cities bring farmer and consumer closely together in many commodities, but in the United States the bulk of products are too far afield for this. The farmer must market through a long chain of manufacturers, brokers, jobbers and wholesalers with or without their own distribution system, who must establish a clientele of direct retailers; and thus public markets, except in special locations and in comparatively few commodities, have not been successful. Another major factor in our cost of distribution is the increasing demand for expensive service by our consumers. There are many other factors that bear on the problem and the economic results of our system which are discussed, together with some suggestion of remedy, later on.
The second result of these studies was to show the great widening of this margin during the war. During the year of the Food Administration's active restraint on this margin, there was an advance of six points in the wholesale index while the farmer's index moved up 25 points. Both before and after that period the two indexes moved up together. The same can be said of the margins between the wholesaler and the consumer. Taking the period of the war as a whole, the margin between the farmer and consumer has widened to an extravagant degree.
A good instance of a movement in margins is shown in flour in 1917. The farmer's average return for wheat of the 1916 harvest, as shown by the Department of Agriculture, was about $1.42. As about four and one-half bushels of wheat are required to make a barrel of flour, the farmer's share of the receipts from this harvest was about $6.40 per barrel. In 1917, before the Food Administration came into being, flour rose to $17.50 per barrel to the consumer, or, at that time, a margin of $11.00 per barrel. During the Administration, the farmer received an average of about $2.00 for wheat at the farm, or about $9.00 out of a barrel of flour. The consumer paid $12.50, the margin being about $3.50 per barrel.