The Price of Lettuce

0
2283

Why does a head of iceberg lettuce cost $1.28 (here in TX, today)?  Why is it not $.25?  Why not $5?  Why does a head of ‘organic’ iceberg lettuce cost $2.26, at the same store?  What sounds like an easy answer is quite complicated—and is a very good example of how Capitalism works.  Let’s dig.

To get the head of iceberg lettuce, or its organic relative, to market, many pricing influencers have already taken place:

1.  The farmer(s) had to decide a growing season ago to commit valuable land, fertilizer, weeding, water, and such to grow lettuce (organic or otherwise).  If they are a large concern, they likely have labor to pay, machinery to buy and maintain.  They have to decide to grow lettuce, rather than green beans, corn, soy beans, or whatever, in that particular field.  They have to decide:  is it worth the extra cost to be ‘organic’?  Are there FDA inspections to be done?  Do they take their own harvested crop to the local farmer’s market, or do they sell to a wholesaler?  Does the wholesaler represent a grocery store chain, that may or may not add an additional level of inspection?  Does the farmer have enough resources to meet the scheduling demands of harvest?  Is the price offered to the farmer worth all of the above costs?  I am likely dramatically over-simplifying this process, as I am not a farmer—a farmer may read this and think I missed 1,000 major decision-points.  And he’d be right.  No one but a true farmer by trade knows the ins and outs better—no matter what Michael Bloomberg said to the contrary. 

2.  How to get the lettuce from where it is grown to where it is sold?  This is likely a more complicated answer than first glance would assume.  Does the farmer hire out that transportation?  Does he buy trucks and such, taking a long-haul approach?  Does he take his crop to point A, knowing that someone else will take it from point A to point Z?  Many different scenarios, with many different pricing factors.  One thing is certain:  none of that travel happens for free.  So, transportation is a factor in the final price, but really as a profit limiter for the farmer or seller, depending upon who pays for what.

3.  How good was that applicable growing season?  Was there adequate rain or was secondary irrigation necessary?  Was their too much rain?  (I have no idea how much is ideal for lettuce—STILL not a farmer).  Did the farmer experience loss due to wild animals eating or otherwise ruining crops?  Did the insecticides used do the trick, or did some new strain of bug hit his field?  Was the fertilizer chosen adequate?  Did the fertilizer, along with the existing soil condition and health, produce the expected crop volume?

4.  How many other growers decided lettuce was the thing to grow?  Is the final supply to market greater than or less than expectations?  Did a new big grower influence the entire market?  Did a big grower stop growing lettuce, making each head possibly a bit more valuable than otherwise?

5.  Do people still want to buy lettuce?  Has there been bad publicity, causing folks to buy less?  A nasty rumor is just as damaging as a real issue.  Do the sellers have enough special shelf space available to market enough of your crop?  Is the buying process too quick, causing shortages, or too slow, causing spoilage?  Most of those issues are absorbed by the final seller, but only for this season—big changes may effect future wholesale buying volume decisions.

6.  Is ‘organic’ still worth it?  Are there enough buyers to warrant the increased process costs, or was that an expired fad?

The interesting thing to note is that all 6 points above have to be forecast months, if not years, in advance by the farmer.  If he forecasts incorrectly, or if outside influences change unexpectedly (weather, labor, demand, competition, etc.), the farmer can experience HUGE losses pertinent to that specific crop.  Now, it could be that the farmer diversifies what he grows, and a loss in crop A may be absorbed by a windfall in crop B (once again, I’m NOT a farmer).  But that level of planning and pure chance is beyond most folk’s ability to make it work. 

In summary, Supply and Demand still rule Capitalist ventures, none more so than farming.  But the devil is in the details, as always.  When we see the $1.28 per head price, that is the RESULT of everything else.  That price, or an increase or decrease in that price, will absolutely impact future farming decisions.  In a Socialist or Communist economy, farmers are usually told by government what to grow.  But in Capitalism, each farmer decides what his best guess is for his own future.  Maybe it’s time to raise cattle, and abandon the farming thing altogether…