Photo Courtesy of Travis Brooks Photography
“Fresh chicken… for THAT price?”
Each time I scroll through social media, I’m faced with a cacophony of people demanding to know why local produce and products are always so much more expensive than those from commercial producers. Some even raise concerns that we may be hiking the prices for more of a profit.
Instead of waving it off with the ol’ “love costs extra” line that most small farmers tend to use, I figured – why not just break it down with logistics? I mean, nobody wants to feel like they’re being overcharged and small farmers are dying to be understood. It would be in everyone’s best interest to see how exactly costs differ between the two very opposite ends of the agricultural industry.
So, here I am – doing the work so you don’t have to!
Important Details
Firstly, when I’m talking about “large-scale/commercial farms”, I mean the big players in the game. If you can get it frozen at a Walmart, or Meijers, or Target, or any other large grocery store chain – then that’s probably a brand or company that this applies to.
Secondly, we’re going to be talking a lot about “units” and “unit cost”. “Units” are any one product in its complete form. For example, this could mean one dozen eggs, one whole chicken, one package of drumsticks, one gallon of milk, and so on. A “unit” is a completed product and its cost (“unit cost”) is the amount it costs the farmer to grow, produce, or raise it.
Bulk Discounts
From the start, small farmers are charged way more for feed, bedding, and other animal and farm supplies than large commercial farms. In general, the more you buy in bulk, the better deals you can get. This is where local farms get priced out, because most of us can’t afford nor store the sheer amount of resources that commercial farms buy in bulk.
For example, our local feed store has corn for $12.29 for 50lbs, but if you buy it in bulk from a farmer or mill, the current price per bushel (about 54lbs) at the time of writing this article – comes down to $4.56.
The small farmer buying 50lb bags of corn and storing it in their feed shed is paying $0.245 per lb, while the commercial producer is filling their silos for $0.084 per lb. That’s already a 291.67% difference!
Now imagine that on a giant scale for feed, bedding, supplies, etc.
We’re essentially paying almost triple what commercial farms do per “unit”, right off the bat, and making less from it.
Flexible Unit Price
Because of the significant cost difference that comes with buying in such bulk, increasing a farm’s production drastically increases the flexibility of its unit price.
“What does that mean?”
Let’s pretend that it costs a commercial producer $1 to produce a dozen eggs. Using the previous corn prices as a baseline (for simplicity’s sake), it would cost a small farmer about $3 to produce a dozen eggs from their hens. This leaves the commercial farmer with three options:
- Price their eggs just above production cost ($1) to make a small profit.
- This price is lower than what the small farmer can offer without losing money. Selling (as the small farmer) at this point would be basically paying people to take their eggs.
- Price their eggs equal to the cost of the small farmer ($3) to make a much larger profit.
- This price is equal to what the small farmer would need to simply break even. Selling (as the small farmer) at this point would be doing all of the work to produce the eggs for other people for free, with zero income.
- Price their eggs at the profitable price of the small farmer (>$3) to compete with them and make the most profit.
- This price is higher than the break even point of the small farmer, but only enough for them to make a small profit. Selling (as the small farmer) at this point is the only option which generates any income for their work whatsoever.
In this scenario, the small farmer must sell their eggs for almost three times the price of the commercial producer in order to simply break even. However, the commercial producer has the flexibility of three different pricing margins, each one making them some level of profit.
Basically, when you scale up production, your costs per “unit” go down, so you’re able to offer products for cheaper, while still coming out with a higher profit percentage.
Certainty of Sales vs. Overproduction
In fact, the more a commercial farm increases production, the cheaper their overall “unit cost” and – when they have a solid path to consumers through grocery store displays and contracts – they don’t have to wonder if it’ll sell. It is highly competitive in price (more-so than the local farm products are able to be), along with being easily available and conveniently purchased. Therefore, there’s a good chance it will be the choice product for anyone with a lower grocery budget or those who don’t want to frequent multiple different places for their shopping.
With a store contract, the product is instantly exposed to everyone who walks through that store. At that point, very little marketing is needed. The commercial producers are almost guaranteed some level of sales.
Unfortunately, smaller producers don’t have that luxury. Most of us have to struggle on the fine line between producing enough to cover our “unit cost” while keeping prices down, while also avoiding overproducing and having excess that’ll go bad (because we’re talking food, after all!).
If we produce too little, our “unit” costs are high and our prices have to reflect it.
If we produce too much, our “unit” costs are lower, but the excess isn’t selling so we’re still taking a loss on those “units”, effectively causing us to have to raise prices anyways.
And, if we don’t get enough customers or advertising? Nothing sells. Total loss. We either have to raise prices next time to make up for it, or suffer the loss long-term.
Other Expenses
A big misconception about commercial farming is the belief that the cost of their infrastructure, staffing, and other large expenses levels the playing field.
That would be true… if small farmers didn’t have the same expenses.
It’s no secret that barns aren’t cheap. However, the cost disparity between feed and supplies also applies to what the farmer can afford to build/hire. That same 291.67% difference in feed costs (using our corn example) gives the commercial producer a spending budget almost three times more than that of a small farmer. So, if a small producer has a $100,000 budget for a new barn (they’re ridiculously expensive, trust me!), a proportional budget for a commercial producer would be $300,000. While that may seem like a lot more money comparatively, it would be directly proportional to their difference in business costs.
Now obviously those are just numbers for the sake of this example, but you get the idea.
Commercial producers are able to pay less money, to produce more product, while selling for higher profits and using the money to build bigger facilities.
Does it suck? Of course! But, it’s just the way it is.
While commercial farms may be paying more than we do for the infrastructure to house, store, and process their animals, resources, and products, they’re also saving a truck-load of money doing it that way, and (quite frankly) leaving us in the dust.
These are just a few of the reasons why local produce and products are almost always going to cost more than commercially-produced ones. There are many more factors that play into it, but I don’t think they’d ever fit into just one article.
I think you get the picture.
Just know that local farmers aren’t trying to overcharge you for a quick buck. We price our products high enough to make a measly profit, while still taking the best care of our animals that we can. It’s not much, but our passion lies in producing humanely-raised food… not in competing with large corporations (although unfortunately it’s still a part of our job).
Those of you who know me, know that I absolutely will not price-gouge anyone. Life is expensive enough. However, what I will do is charge enough to keep my animals happy, healthy, and well-fed.
To me? That’s non-negotiable.
That being said, I seriously appreciate each and every one of you who’s supported us and our “local farm prices” without complaint over the years! You mean more to us than you’ll ever know.
Hayyy Farms 