I guess I am in a crusading mood because I am going to go on another rant this morning, based again on something I heard at the Cornell Swine School this past Saturday.

It is widely known and becoming something of a cliche that industrial food prices “don’t reflect the true cost of raising food,” for a number of reasons: because a lot of those costs are shunted onto the public in the form of externalities like pollution, and because of low wages paid to farm workers and low prices paid to farmers, and subsidies, to name a few. For example, nitrogen run-off from industrial grain farms is one of the largest sources of water pollution in the country. If industrial farmers were forced to use nitrogen fertilizers that are less water soluble and/or that are formulated to be more completely absorbed by the plants, their costs would be substantially higher, and therefore food prices would be higher. In addition, rapaciously low wages on industrial farms keep costs down. Just wages paid to pickers and packers would substantially increase the cost of industrial food. (For information on picker wages, see the Coalition of Immokalee Workers) Also, rapaciously low prices paid to farmers, especially factory livestock farmers, help keep industrial food prices low. Finally, industrial farming is heavily subsidized with public money. It is clear, therefore, that the cost of food is higher than what we currently pay.

However, I believe very strongly that the current cost of local food, primarily meat, poultry, and eggs, is as dramatically and artificially high as industrial food is low. Note just for the sake of being thorough that people think that local vegetables (and fruit) are a lot more expensive than industrial, but, on average it is actually not the case. In August, for example, you can usually get a cucumber at my friends’ — who are full time farmers — farm stand for less than you can at Wal-Mart. When local vegetables (and fruit) are more expensive, it is usually by less than 50%, and very often less than 25%. Part of the problem is that many supermarkets charge by the pound for things like lettuce whereas farm stands generally charge by the piece for things like that, so on their face supermarket prices seem lower. The reality is that a big head of supermarket romaine at $0.69/lb is actually more expensive than a big head of local romaine for $1.50. Local meat, poultry, and eggs, however, are dramatically more expensive than industrial, often two, three, or even more times so. Are these dramatically higher prices legitimate, in the sense that they reflect the true cost of raising that food?

No, they are not, for a number of reasons: local farmers are unwilling or unable to scale up to reasonable production levels, so they compensate for low volume by charging exorbitantly high prices to get their cash flow up, local farmers demand extortionist profit margins (but, remember, their volume is low, so they are still barely making it), and the local niche premium is very high and is rooted very firmly in the b.s. rhetoric of the “true cost of raising food.” This is not to say that raising meat, poultry, and eggs on a small local scale is not more expensive than on an industrial scale. It is, and no matter how streamlined, no matter how efficient, it always will be. Livestock farming is one area where economies of scale and industrial efficiencies are incredible.

The next time you talk to your livestock farmer, ask him or her what their production volume is. You might be surprised to find out just how many local farmers are finishing just a dozen or two pigs (or even a few dozen), a few hundred chickens (or even a thousand), and/or a couple of cows (or even a dozen) per year. Based on reasonable prices, cash flow on that volume is extremely low, and the cash flow requirements of fixed costs especially like land, buildings, and equipment is very high, so those low-volume local farmers charge outrageous prices to bump up their cash flow. Also, farming needs to be worth it for the low-volume local farmer, so in addition to charging high prices to get cash flow up, he also demands what amounts to an extortionist profit margin. The going rate for a whole or half pasture-raised pig in my area is about $3.50/lb hanging weight (you will find even higher prices). At my current cost of production ($1.50/lb hanging weight), at that price I would make $300 per pig, or a 130% profit margin. With that per pig profit, it makes it worth it for a part time farmer to finish only two dozen pigs a year for a net of $7200. A 130% profit margin, however, is totally unreasonable, it is, as I said, extortionist.

Furthermore, consumers of local food have been totally swept up in the rhetoric of the “true cost of raising food,” and so they are willing, and some even happy, to pay substantially higher prices for local meat, poultry, and eggs. They unflinchingly believe that the prices they are paying are honest prices, not extortionist prices. Wake up consumers! The model you have bought into, based as it is on extremely low-volume farms, is not priced honestly and it is not fair, especially to people with limited means, who would very much like to purchase local meat, poultry, and eggs, but cannot afford it. The price you pay is not at all rooted in the cost of raising those animals, it is rooted in the cash flow and profit needs of low-volume farmers. Let’s use my current cost as the “true cost” to raise a pig — $225. If the “true cost” to raise a pig is $225, and the price charged to customers is supposed to reflect that true cost, what are farmers doing asking those customers to pay $525? I don’t know how long it takes other people to raise their pigs, but last year, when I only raised a dozen pigs, on average, there were nine hours of my labor in each finished pig, and last year I was hand feeding the pigs three times per day, a labor intensive way to raise them. At a $300 net per pig, therefore, I would have made $30 per hour. If I raised two dozen pigs, like the hypothetical farmer hanging around this post, it would have required no additional labor, so I would have made $60/hr!

I believe very strongly that farmers should make a good living. I think they should be comfortable. I don’t think they should struggle financially at all, although that does not mean they shouldn’t have a budget they need to stick to. Farming takes skill, lots of hard work, and involves substantial risks, both financial and physical, and farmers should be amply rewarded for those things. I think it is not unreasonable to ask that a full-time farmer be paid $40,000 per year for her efforts. Note that, contrary to our popular impression, this salary is actually quite good in our economy. In 2004, thirty-five percent of all New Yorkers in a two adult, two child family could not meet their basic family budget — about $43,000 per year in my area — according to the Economic Policy Institute. Most of those families have two working adults, so what that statistic means is that a substantial percentage of people living in New York earn half or less than half of what I think farmers should make. I think a couple farming together should make at least $60,000.

What I do not think is that farmers should get to this income level by charging extortionist prices. I think the small-scale local farming model should be based on a maximum average profit margin of 30% — not 130%! — which, as far as businesses go, is a very good profit margin. I know a lot of business people that would love to have such a margin. At a 30% profit margin, we should be charging closer to $2.00/lb hanging weight for a whole pig, a far cry from $3.50. What this 30% profit-margin based pricing model means is that small-scale local farmers are going to have to scale up. Instead of two dozen pigs, they’ll have to finish 300 or more, which on a pasture-based farm would take at least twenty to thirty acres. Six hundred pigs at a 30% profit margin given the above cost of production would result in a net income of $45,000 on forty acres in use. Three hundred pigs plus a nice sized flock of sheep, a good sized beef herd, and/or a few thousand meat chickens will get the farmer to $40,000 in net income.

Note, however, that at these numbers, a substantial percentage of the marketing on farms of this type will have to be wholesale — “non-commodity” wholesale — and it is likely that in the wholesale market — even the non-commodity wholesale market — consistently  getting a 30% profit margin will be difficult, if not impossible. Therefore, to maintain a 30% profit margin on average, a premium for direct sales will need to be added back in. For the time being, I have settled on $2.40/lb hanging weight for my direct sales, a 20% premium over the 30% profit margin, which I believe is about equivalent to where prices for meat coming out of the non-commodity wholesale market would end up, after taking into consideration profit for the wholesaler and the retailer.

When the model matures, I think meat, poultry, and eggs will certainly be more expensive than our current industrial prices, but the extortionist prices of the early 21st Century “Buy Local” movement based as they were on extremely low production volume farms will be a distant memory. Meat, poultry, and eggs in this mature model will be broadly affordable, not an exclusive niche for the well-heeled. I think when things shake out and the paradigm shift from our industrial import-export model to a local-regional model is complete, the small farm will look a lot like it used to (and on Amish farms still does), eighty to 100 acres with one full-time and one part-time adult with additional labor provided by family (children) and/or part-time (or full-time if it can be afforded) hired help. The production volume will be in the hundreds and/or thousands per species depending on the species and the mix of species on the farm. A substantial percentage of the farm marketing will be wholesale, but there will be a significant amount of direct sales, at farmers markets, on farm, and via CSAs.

Local meat is more expensive than industrial and always will be, there is no doubt about that, but I think it is time for a little honesty about just how much more expensive it really needs to and should be.