I am constantly reminding myself that I need to write more blog posts, but it seems that something else always distracts from the writing. Maybe it is just not having a topic that I wanted to write about. Well, as luck would have it, yesterday I saw a tweet that stoked the fire.
— D'Arce McMillan (@DArceMcMillan) September 15, 2014
This is one of the kinds of things that really gets me shaking my head. I mean, what’s the point of it? Yes, a loaf of bread in Canada can run anywhere from $1.99 to $4.59, but does that mean a bushel of wheat should be worth $270?
What this tweet misses is the fact that when I want to make a sandwich, I do not want to have to go and find a wheat farmer who has high quality wheat so I can make my own bread. I also assume said farmer doesn’t want to sell me just enough wheat so I can make a single loaf of bread as I do not have the capacity to make 100 loaves at the time. Either way, now that I have all this wheat, I need to mill it into flour. I do not own such equipment, nor do I want to.
What we often forget when we see food dollar comments, is the price for a good (in this case a loaf of bread) includes much more than just the raw input. It includes the costs of coordinating the value chain so a loaf of bread can be in my grocery store when I want to buy one. It includes the costs (and normal profits) for several firms within the channel, including the grain handlers, the millers, the bakers, the transporters, and the grocery stores. So a farmer gets $0.07 for a loaf of bread, which all things considered, seems pretty close. In order for firms to receive (earn) higher prices for their inputs, they need to transform these inputs into usable forms for the consumer and get the inputs to where the consumer wants them. Then, and possibly only then, will farmers receive more than $0.07 for a loaf of bread.