Is parity pricing enough? A critical analysis of parity pricing and the case for additional strategies

In recent decades the agricultural community has witnessed a widening gap between the prices received by farmers for their products from wholesalers (farm gate prices) and the prices needed to cover farm labor, materials, land tenure, and living costs of the farmer. Consolidation in the food industry, high input costs, and policies that motivate overproduction and cheap retail prices have resulted in an untenable economic environment for farmers^1,2. The median household income from farming for all farms in 2022 was -$661³. However, most impacted are small farm households, defined by the United States Department of Agriculture (USDA) as farm households that make less than $350,000 in annual gross farm income (Available at https://www.ers.usda.gov/topics/farm-economy/farm-household-well-being/glossary). Small farms account for 89% of farms in the U.S. but only 18% of the production value⁴. Among small residence farms--small farms in which the operator’s primary source of income comes from off the farm—the median farm income was -$1000 in 2021. Small farms in which farming is the primary occupation (referred to as intermediate farms by the USDA) brought home a median of -$250 in annual gross farm income³. On average, farm households have more than $200,000 in debt, with farm debt accounting for nearly half. The highest debts are incurred by commercial farms (farms that make $350,000 or more in annual gross farm income; x̄ debt = $834,327) where 78% is farm debt³.

To cope with such low farm prices, farm households look to loans, government aid, and off-farm sources of income. Since its initiation, there has been a steady increase in federal crop insurance premiums and subsidies, as well as the number of acres receiving federal crop insurance to protect against rising losses (Available at https://www.ers.usda.gov/topics/farm-economy/farm-commodity-policy/farm-bill-spending/ & https://www.ers.usda.gov/topics/farm-practices-management/risk-management/crop-insurance-at-a-glance/). In 2022, the federal government provided $15,611,120 to farms through direct farm program payments, the lowest annual payout since 2018⁵. According to Burchfield and colleagues, government farm payments make up 10% to 25% of farm household income². More than two-thirds of subsidy payments go to large commercial farms particularly those that produce non-specialty crops, such as corn, soy, and wheat, for animal feed, biofuel, and export^2,6. On the other hand, less than one-third of small-scale producers receive subsidies.

Many small-scale growers produce specialty crops. Specialty crops are defined as fruits, including dried fruits, vegetables, tree nuts, and crops cultivated via horticulture and/or nursery growing (USDA Definition of Specialty Crop). Most specialty crop farms are not eligible for revenue-support programs such as the Agricultural Risk Loss Coverage or Price Loss Coverage programs (Available at https://www.everycrsreport.com/files/20190114_R45459_b17e25c40e0cbfe75a4445715da04ed1af8d1dec.pdf. Rather, the U.S. government supports specialty crop production through indirect grant programs focused on marketing and competition. The 2018 Farm Bill reapproved the Specialty Block Grant Program which was authorized in 2013 and allotted $51.5 million to U.S. states and territories to fund projects related to specialty crop production (Available at https://www.ams.usda.gov/sites/default/files/media/SCBGPResearchBrief.pdf). Unlike other agricultural subsidies, the state independently receives and distributes the funding. The funds do not directly go to specialty crop farmers to supplement income losses or low farm gate prices.

As farm product prices have continually decreased, the percentage of non-farm income has steadily increased. Nonfarm income may include income from off-farm employment and/or businesses, investments, pensions, as well as income assistance such as social security⁷. Income from farming made up around 23% of total household income for all farms in 2021, but this is positively skewed by commercial farm income (Available at https://www.ers.usda.gov/data-products/farm-household-income-and-characteristics/). More than 70% of the total household income comes from farm income for commercial farms, which gain a median annual income of $261,992. On the other hand, 0% of farm income contributed to median household incomes for residence and intermediate farms in 2021, which see median annual incomes of $104,030 and $69,009, respectively.

Living wage is defined as “the minimum subsistence wage for persons living in the United States” (Available at https://livingwage.mit.edu/articles/99-a-calculation-of-the-living-wage). According to MIT’s living wage calculations, a family of four must earn a net income of $100,498.60 to meet living costs in the U.S. (Available at https://livingwage.mit.edu/articles/99-a-calculation-of-the-living-wage). Living costs vary by region and state and are the highest in the northern/northeastern ($110,477.80) and western ($101,720.90) regions of the U.S. Thus, even with most income coming from off the farm, current median farm household income does not meet the living wages in the U.S. Intermediate farm households have the lowest median household income likely because farming is the primary occupation despite little to no profits. Residence farms make below the living wage in the north/northeast. Low farm gate prices and incomes for producers not only negatively impact the livelihoods, well-being, and culture of farmers but have social and economic consequences for rural communities as a whole.

How did we get so far from farmer self-sufficiency in the U.S. and how can we return? Some scholars^8,9,10,11 and farm activists have called for the re-utilization of parity price in conjunction with improved production coordination to restore the U.S. farm sector to its former levels of profitability. Parity pricing refers to a farm gate price for a particular commodity that is comparatively equal, in terms of purchasing power and the ratio of the price received to farm inputs, to the farm gate price received for that commodity during the period of 1910–1914. This period is the index reference because it is a period in which farm organizations agreed farmers received fair payment for their products given inputs to farming and household expenses¹². Despite the advocacy for a return to parity, there is little evidence to show that ensuring parity prices would remedy declining farm income. Furthermore, the social connotation that parity pricing in the U.S. equates to fair wages does not entirely match the political (USDA) use of parity prices.

Starting with a brief historical overview of parity pricing, we describe the definitions and calculations of parity as they are used within contemporary policy and examine whether parity can act as a mechanism for ensuring higher returns to farming in the U.S. We investigate whether parity did indeed exist between the incomes of farming households and non-farming households during the set parity period. We present a novel case study of the production costs, farm gate prices, and parity prices for twelve specialty crops that are commonly found at farmers markets in the U.S. to highlight the growing gap between not only product versus parity prices but also the wider difference between current farm gate prices and fair wages (input vs. output/costs vs. profits). We chose to evaluate a variety of specialty crops, specifically, as these products are produced mainly for human consumption (food) and therefore can be incorporated into broader conversations related to alternative food systems and practices (e.g., local food systems). Furthermore, specialty crops have the highest labor cost, often representing nearly 40% of total farm expenses (Available at https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=104773). Specialty crop growers have primarily small and medium farms, receive only a small share of farm subsidies, and obtain virtually no price or income support from the U.S. government. Thus, they are among the most impacted by low farm gate prices. To our knowledge, this is the only assessment that has calculated parity prices and compared them to farm gate-, terminal, and retail prices for U.S. specialty crops. Lastly, we show the temporal correspondence between the end of parity pricing and declines in farm income. Based on our analyses and findings, we contribute a new perspective-- a critique of parity pricing—which is in contrast to the well-established literature that argues in favor of a return to parity pricing. We conclude with a review and discussion of alternative areas for policy interventions and markets that have shown positive impacts on producers’ income.

The development and use of ‘parity price’ or ‘fair exchange value’ was introduced in 1922 by Secretary of Agriculture Henry C. Wallace and was born from plummeting agricultural prices in the early 1920s caused by overproduction in the wake of World War I¹². The Agricultural Adjustment Act of 1933 formally incorporated parity price as a concept that “intended to convey to a unit of commodity, such as a bushel of wheat, the same purchasing power that it had in the January 1910—December 1914 base period” (Available at https://naldc.nal.usda.gov/download/CAT88907298/PDF). As mentioned, this period is considered to represent a time when farmers in the U.S. received fair payments for their products in relation to farming inputs and living expenses. Parity pricing was used initially to set price floors to cushion the economic hardships hitting the nation’s food producers¹⁰.

As a result of advances in agricultural technology and growing global trade markets, the Agricultural Adjustment Act of 1948 updated the definition of parity price to incorporate adjusted base price (ABP) and the parity index (Available at https://naldc.nal.usda.gov/download/CAT88907298/PDF). Both are used in conjunction with parity price to allow parity prices to fluctuate in response to the market. Today, parity prices continue to be calculated and published by the USDA within each “Agricultural Prices” report. However, they are no longer used to create price floors for all commodities. This role ended when the Agricultural Adjustment Act of 1948 was fully enacted in 1954. Now parity prices are only used as needed for price support policies and marketing orders for select commodities. Price support policies refer to policies enacted to support producers through setting a minimum price (price floor), controlling production quota, providing subsidies, and/or purchasing surplus. Marketing orders refer to initiatives that act on behalf of producers and handlers, generally from a determined geographical region, to develop industry-specific regulations regarding the production and sale of the industry product (Available at https://www.ams.usda.gov/rules-regulations/moa).

Currently, parity prices for any agricultural commodity are determined by multiplying the parity index by the adjusted base price of the commodity. The ABP is defined as the “average of the prices received by farmers for such commodity, at such time as the Secretary may select during each year of the ten-year period ending on the 31st of December last before such date, or during each marketing season beginning in such period if the Secretary determines the use of a calendar year basis to be impracticable, divided by the ratio of the general level of prices received by farmers for agricultural commodities during the period January 1910 to December 1914, inclusive”¹³. The Secretary of Agriculture has sole authority to set 10-year period utilized in calculating the adjusted base price and may use either a 10-year calendar period or a 10-year market period neither of which must be the same for each commodity. For example, the adjusted base price for cattle in 2021 uses the ten years January 1, 2011–December 31, 2020, while that for hogs uses November 1, 2010–October 31, 2020.

The parity index is defined as “the ratio of (i) the general level of prices for articles and services that farmers buy, wages paid to hired farm labor, interest on farm debts secured by farm real estate, and taxes on farm real estate, for the calendar month ending last before such date to (ii) the general level of such prices, wages, rates, and taxes during the period January 1910 to December 1914, inclusive¹³” (USDA, NASS, 2018, p. 4–1).

Thus, parity prices are currently calculated by first determining the ABP of each commodity (1). All grades and qualities of a given commodity, say corn, are represented in the ABP for that commodity. ABPc is a function of 10-year average commodity prices and 10-year average parity ratios adjusted to reflect government payments, cash receipts, and overall purchasing power relative to the base period of 1910–1914. Second, the ABP is multiplied by the current Parity Index and divided by 100 to determine the Parity Price (2). The two-step mathematical process is as follows:

Calculate the adjusted base price (ABP) for each product as:

where ABP is the adjusted base price of a given farm product, P is the ten-year average price of a given farm product. For example, P for 2019 would be the average price for a product from 2009 to 2018, adjusted for unredeemable loans and other supplemental payments from price support programs.

I is the ten-year average price received for all farm products. I for 2019 is also calculated for 2009–2018 and adjusted for unredeemable loans and other supplemental payments from price support programs.

Lastly, GP refers to government payments, and CR is total farm receipts.

Calculate parity price (PP) for each product as:

where PP is parity price, ABP is adjusted base price, and PI is the parity index.

As noted by the USDA, “parity prices and the parity index indicate price relationships. They do not indicate farmer well-being, net income, or production costs”¹³. Thus, parity price does not equate to profits and, even less, fair prices that amount to a living wage.

The model highlights the definition and calculation of parity price, which does not comply with what is often socially implied. “Farmer well-being” and the incorporation of input/output costs are implied based on the phenomenon of parity. This has created a socially constructed idea of parity pricing that is often used as a proxy for “fair prices” among farmer advocates. However, parity pricing as used in contemporary policy does not equate to profits and, even less, fair prices that amount to a living wage. Therefore, current parity pricing does not serve the role that it did when it was constructed and does not serve the role that is socially implied.

Assessing parity in 1916

The comparison of the 1916 income data (Fig. 1, p = 0.990) shows no statistically significant differences in the distribution of farm household incomes compared to the distribution of national household incomes. Thus, the 1916 data support the existence of parity during the established “parity period”, at least regarding income equality of farmers compared to the non-farming population.

Description: Line graph comparing Agriculturalist and National Personal Income in U.S. dollars as a Percentage of National in 1916. The solid blue line represents National Personal Income and the dotted orange line represents Agriculturist Personal Income. The graph shows that the percent of National Personal Income and Agriculturalist Personal Income were not significantly different across all income brackets. Source of data: USTD, IRS, 1918⁸².

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Comparing farm-gate prices, parity prices, and production costs for specialty crops

The mean farm gate price, transfer terminal price, retail price, parity price, and cost of production can be found in Table 1. On average, bell peppers, garlic, tomatoes, and lettuce are the most expensive crops to produce within the products evaluated, while green beans, carrots, sweet corn, and cabbage have the lowest production costs (on average). Farm gate prices (FGPs) were highest for asparagus, garlic, green beans, and broccoli, and the lowest for cabbage, cucumber, carrots, and sweet corn. Some of the lowest farm gate prices and parity prices correlate with the lowest production costs (e.g., for carrots, corn, and cabbage which all have relatively lower production costs, farm gate prices, and parity prices on average). However, on the other end of the spectrum—more costly production crops—there is not a consistent trend. Only broccoli is found among the top five in all categories: production costs, farm gate prices, and parity pricing. Bell peppers and tomatoes are some of the costliest to produce but are not among the top commodities in regard to farm gate prices.

Figure 2 displays a graphical comparison of the mean farm gate price, transfer terminal price, retail price, and parity price for each specialty crop. Table 2 provides the differences in means between parity prices and farm gate prices, terminal price, and retail price, as well as between retail price and terminal price. For all the crops, FGPs were significantly lower than parity prices (PPs) in 2014–2018. The largest differences between parity prices and farm gate prices were found among tomatoes, green beans, asparagus, and cucumber.

Description: Bar graph comparing Farm Gate Price, Transfer Terminal Price, Retail Price, and Parity Price for each specialty crop in U.S. dollars for the years 2014 to 2018. The bars are presented as a gradient of orange representing in order from the darkest gradient to the lightest gradient: Farm Gate Price, Terminal Price, Retail Price, and Parity Price.

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FGPs were also lower than transfer terminal prices (TTPs) and retail prices (RPs) for all commodities. The largest differences between FGPs and RPs were found among cucumber, bell pepper, garlic, and tomatoes.

At the retail level, most crops had mean RPs that were significantly lower than the PP. Only sweet corn and bell pepper prices were not significantly different from PP, and the RPs of garlic and lettuce were significantly higher than the relative PPs.

TTPs were not always lower than RPs. For example, the RP for asparagus, broccoli, carrots, and garlic was significantly lower than the TTP. Thus, low FGPs and TTPs do not necessarily create low RPs. TTP was significantly lower than PPs for most crops, but the difference in mean TTP and PP in the case of broccoli, lettuce, and bell peppers was not significant. Only the TTP for garlic was significantly higher than the relative PP.

Coping with low farm-gate prices

The 1948 policy changes and move away from parity did not necessarily reduce the household incomes of farmers, but it set in motion an upsurge in the proportion of household income that is considered nonfarm income. As Fig. 3 displays, the ratio of farm income to total household income has followed a negative secular trend since the 1940s. Over the last decade (2011–2021) farm income accounted for approximately 21% of total household income for farming households, on average.

Description: Line graph displaying the ratio of farm income to total household income for all farms in the U.S. for the years 1934 to 2021. Data sources: ERS 1980/1984, ERS 2022.

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Parity did exist in the early 20th century between the farm and non-farm sectors of the economy. Thus, the use of this period as a period of parity is validated. Using a case study of 12 specialty crops, we found that none of the crops received close to parity prices during the years 2014 to 2018 as parity prices were significantly higher than farm gate prices for all specialty crops analyzed. In addition, low farm gate prices did not consistently correlate with lower retail prices, and higher farm gate prices and parity prices were not consistently found among crops with the highest production costs. To our knowledge, this is the only published comparative analysis of parity-, farm gate-, terminal-, and retail prices for U.S. specialty crops. A report by Coppess (2019) showed the percent of parity for farm gate prices for corn, soybeans, wheat, cotton, peanuts, and rice, highlighting that all commodity farm gate prices were below 40% of the parity price in 2018¹⁴. USDA’s report of commodity parity prices and price as percent of parity from spring 2023 showed that all commodities listed except for fresh potatoes were below 50% parity¹⁵. Therefore, even though parity prices are not equal to fair wages, they are still higher than current farm gate prices indicating that farmers are far from receiving equal purchasing power compared to nonfarmers in the U.S.

As a result of low farm gate prices, consistently more income derives from off the farm, as small-scale producers can no longer financially support their households from farming alone, and the period surrounding the end of parity as a formal agricultural policy temporally corresponds to the period when farm household income from farming began to decline. Increasing concentration in the food supply chain, including both horizontal and vertical concentration, is one factor underpinning low farm gate prices and off-farm supplemental income. As horizontal and vertical consolidations have become more common¹, farm income has dropped from nearly 40% to less than 10% since the 1980s and has stayed under 20% until recent years. In the 1970s, only 1% of U.S. farming counties reported negative net farm incomes; today, nearly 30% report losses². Small-scale farmers, specialty crop growers, and minority farmers are particularly vulnerable to the effects of low farm gate prices and losses. At the federal level, little support is given to specialty crop farmers, especially small farms, beyond crop insurance. Furthermore, federal crop insurance is not available for many specialty crops including “artichokes, asparagus, blackberries, boysenberries, broccoli, cantaloupes, carrots (fresh and for processing), cauliflower, celery, dates, garlic, guavas, hazelnuts, honeydews, kiwi fruit, lettuce, spinach, squash, tart cherries, and watermelons”¹⁶. For eligible specialty crops, the percentage of eligible acres insured remains low for some commodities. For example, only 6% of fresh beans, 20% of peppers, and 24% of cucumber acreage were covered in 2015¹⁶. In addition, most U.S. farm subsidies go to white farm operators, who are more likely to own large commercial farmers and have historical access to more base acreage (farmers without land established before 2012 are not eligible for commodity subsidies) due to historic and systemic discrimination within the farm and credit industries^2,17. As a result, most losses are concentrated in counties with more minority farmers, and minority farm operators face more barriers to land access, credit, and loans² all of which are necessary to be profitable within today’s U.S. agricultural system.

Another aspect of contemporary agriculture that aids low farm gate prices is contract farming. Contracts are common among producers, especially specialty crop growers and livestock producers, and large distribution companies. These contracts allow the buyer control over most decisions regarding production strategies, prices, and volumes¹⁸. The contracts often limit or prohibit selling to other buyers, essentially removing producers’ autonomy and maintaining low farm gate prices for growers. Furthermore, contracts can have trickle down effects when large retailers are involved. For example, an analysis of New York state onions found that due retailers use of the “loss leader strategy”—taking losses on onions to attract customers and balancing their losses with other higher-priced products—maintains low farm gate prices (because lower retail prices correlate with lower prices at the transfer and farm-gate levels) without impacting large retailers¹⁹.

Implications for farmers

Even farmers with supplemental income can face economic challenges associated with ever-increasing living costs, inflation, increasing cost of equipment and inputs, high-interest rates, and debts. While off-farm income and the utilization of diverse marketing strategies may provide some farm households with sufficient resources, there are many implications of low farm-gate prices beyond low income and negative returns.

To start, rural economies suffer due to less local economic activity. Low wages for farmers mean less income available to spend within the local economy. Concentration, both horizontal and vertical integration, omits local businesses and consequently jobs. Less business and fewer jobs result in higher rates of poverty and increase rural outmigration while further decreasing local economic inputs^20,21,22. With rural outmigration, local communities become more isolated and lose their capital within the county and state. Small population sizes paired with poor economic activity leave rural towns overlooked and often ineligible for certain grants or social services²³. Thus, the concentrated agricultural food system in the U.S. not only harms farmers but also takes away from the local economy, reduces community resilience, and diminishes funding for institutions like schools and medical services.

Low prices and low wages can also take a toll on the health and well-being of farmers and their families. Economic circumstances of one’s farm positively associate with farmers’ self-reported quality of life²⁴. In the U.S., farmers with higher farm income also have a higher “standard of living enjoyed by household members”²⁵. Furthermore, the challenges of keeping one’s farm and the uncertainties associated with farming (e.g., markets, prices, weather, debts) have been connected to depression and poor mental health among farmers and ranchers²⁶. The CDC recently determined that, in 2016, male farmers, ranchers, and agricultural managers had significantly higher rates of suicide compared to the rest of the population²⁷, and high suicide rates have been documented by additional studies as well²⁶.

The drawbacks associated with contemporary farming, particularly for small farms, including the low prices paid by corporate buyers, are forcing some producers to exit the market^2,28. Moreso, they keep new farmers and younger generations from entering into or continuing the occupation¹⁸. As a result, farmers and ranchers are aging out without replacements. Thus, the current system is not sustainable if the goal is to maintain family farms as the majority of producers in the U.S.

Exploring areas for policy interventions and alternative models

In its current state, the U.S. food system does not support the livelihoods of small-scale farmers. Here we describe policies and alternative models that have shown benefits to producers.

Marketing orders

Marketing orders are initiatives that act on behalf of producers and handlers, generally from a determined geographical region, to develop industry-specific regulations regarding the production and sale of the industry product²⁹. The marketing order is requested along with proposed regulations to the Secretary of Agriculture and a US Patent Office Certification Mark (Available at https://www.canr.msu.edu/news/an_introduction_to_federal_marketing_orders). If approved by the Agricultural Marketing Service and voted in by producers, the regulations of the order are applied to producers and handlers in the defined geographic area. Marketing orders provide a way for producers and handlers to have some influence over their products, whether it’s research, marketing, production volume, prices, quality, packaging, or other aspects of the industry. However, once in place, the orders are overseen by the USDA’s Agricultural Marketing Service and enacted as government policy. Since orders only need a majority vote from producers, they may not represent the interests of all growers.

The U.S. has 28 marketing orders for specialty crops along with various orders for dairy (Available at https://www.ams.usda.gov/rules-regulations/moa/fv). An example can be found within the U.S. cranberry industry. In 2018 and 2019, the USDA set a 75% volume regulation for cranberry growers under the marketing agreement set by the Cranberry Marketing Committee³⁰. This was in an attempt to reconcile a large inventory, and concurrently low returns for growers, that resulted from years of increased production but static consumer demand³⁰.

Marketing orders have been a successful solution for protecting farmers and ensuring fair gains, but achieving a marketing order as policy is challenging²⁹. The process is long, often spanning years, and advocators need considerable political leverage along with interest from the state. It also may be difficult to get support from regional farmers as the orders create political control that may not be desired or accepted by all growers. For another example, see the case study on Vidalia onions below.

Price sets

Price sets refer to the setting of prices for specific goods by the government/commission with the goals of supporting farmers, ensuring a price over the cost of production for farmers’ products, and limiting the power of oligopolies in relation to how much they pay farmers for said products. Price sets can act as either price floors, setting a minimal price, or price ceilings, which establish a price cap. Price floors are sometimes referred to as price supports (Available at https://open.lib.umn.edu/principleseconomics/chapter/4-2-government-intervention-in-market-prices-price-floors-and-price-ceilings/). Parity prices once set price floors for all U.S. agricultural commodities. However, the Agricultural Act of 1954 changed legislation so that only flexible price supports for wheat, soy, and corn at 75% to 90% parity would be used²⁹. Now, additional price sets are only issued when there is a substantial threat to the food supply chain and industry. Thus, we look to India as a contemporary example. India sets price floors annually for 23 commodities through its Minimum Support Price program^10,31. The goal of the policy is to protect farmers who grow principal crops from unstable market prices. While the advantages of such price sets are inconclusive, largely due to the role of the states in implementing and regulating the policies, research and recent protests show that farmers throughout the country strongly support the price floors³¹.

Supply management

Supply management policies work to limit the supply of commodities so that prices remain profitable for producers³². They prevent overproduction and act to balance supply/demand concurrently preventing price drops and extremely low prices. The cranberry market order in the U.S. utilized a supply management system to successfully protect farmers from low prices. Canada also sets supply limits on dairy, eggs, and poultry as a result of overproduction in the 1960s due to technical advancements³³. At that time, prices dropped so low that the Canadian government could not continue providing price support for producers³³. Thus, a supply management system was put in place to reduce the federal burden, improve prices for producers, and improve sustainability³³. This paired with Canada’s high tariffs on imports, which makes local products more affordable and keeps the food system localized, maintains stable prices for producers, reduces external costs of agriculture, and produces local economic and environmental benefits. In contrast, The U.S. uses tax dollars to pay subsidies and maintain low retail prices, a system that is not sustainable.

Localized food systems

According to the definition provided by the U.S. Food, Safety, and Modernization Act, local food is a “locally or regionally produced agricultural food product” of which the final product is marketed in the same state that it was produced or has traveled less than 275 miles^34,35. The Economic Research Service highlights the importance of marketing strategy within the definition, explaining local food is “food sold directly to consumers, grocery stores, restaurants, schools, wholesalers, and food hubs”³⁶. However, for consumers, local food can refer to food grown or produced in close proximity, which leaves the definition to be arbitrary and subjective^34,37 varying from the same town to the same state or region. In other circumstances, local food may not necessarily signify that the food was grown nearby but could refer to food with a geographical indication that is marketed and consumed for its locality^37,38.

In the U.S., local food represents less than 4% of total farm sales, and less than 6% of local farms participate in USDA programs³⁶. Most local food is sold through intermediaries and institutions, with livestock followed by vegetables and fruit characterizing most local food sales^36,39. Despite recent social movements and policies promoting local food systems, direct-to-consumer agriculture sales in the U.S. have changed little since the 1970s⁴⁰. Most farms that participate in local marketing are small farms with an annual income of less than $75,000³⁶. However, there is recent evidence that using local intermediate markets and selling directly to retailers can have a positive impact on farmers’ profits and gross income, particularly among beginning, organic, and produce farmers. Consumers are willing to pay more for food that is produced locally, whether they buy it from the farmer or in-store^38,40,41, as they recognize the benefits including the positive impacts on their health, community, local economy, and the environment³⁸. Studies using the USDA Agriculture Resource Management Data, among others, document positive gross farm income among farmers in the U.S. who sell directly to local retailers^36,42. A recent paper focusing on sustainable agriculture in the Midwest argues that farmers utilizing local alternative markets sell their products at near parity prices⁴³. Organic farmers and medium-size farms seem to be more profitable in terms of gross farm income compared to non-organic and small farms^40,42,43, but small-scale producers are more likely to sell directly to consumers³⁹. Beginning farmers also seem to benefit more from local direct sales than more experienced farmers⁴⁴. A study conducted by Bauman and colleagues among farmers using direct/local marketing and sales found that the highest mean profits came from farmers who sold fruits and vegetables in comparison to field crops and livestock⁴². They propose this is largely due to efficient management of labor costs.

Farmers who sell locally also reap emotional and social benefits. Studies show that producers who are more connected to their community show higher levels of satisfaction with their occupation and quality of life²⁴. Social support systems for farmers are also associated with improved health and wellbeing cross-culturally⁴⁵, whereas social isolation and lack of support are risk factors for poor mental health among producers²⁶. Local food systems strengthen community relations, provide social capital, and can create long-term farm-to-consumer or farm-to-business opportunities^40,46. During times of disruption in the large, conventional food supply chain such as that witnessed during the COVID-19 pandemic, local food systems play an invaluable role in maintaining food supply, local economies, and community resilience^38,43,47.

To quote Jablonski et al., “given that only 28% of all beginning farmers have positive ROA and 58% have positive NFI, differentiation through local food markets seems to be a promising strategy”. It is important to acknowledge, however, that direct-to-consumer (DTC) spaces such as farmers markets and CSAs are places of privilege and exclusion^48,49 and this market is not representative of the majority of the U.S. population. Moreover, differences in prices between products sold within local alternative food systems and the industrialized food system further segregate consumers by class. As a result, DTC marketing and sales is not a fix-all solution for farmers or consumers and does not ameliorate other injustices within the US food system. Alternative initiatives, particularly those that tackle concentration and do not reduce affordability and/or access for most consumers, are necessary. We can look to New Zealand for a contemporary example of policies that have worked to improve farmer returns by changing value chain management and end goals. Saunder (2019) found improved prices and returns for farmers in food supply chains where the final retailer was not the main leader and supply/marketing systems were based on relationships and reinforced by personal relations, social support, and cultural activities⁴¹. Shifts in policy focus also played an important role in improved farm prices in New Zealand, where policies now focus on quality and diversification of products for consumers and incentives for producers who provide these⁴¹.

Local certifications, an underutilized option for advancement?

While organic products are associated with higher profits, receiving organic certifications is costly and can take years. As an alternative, some initiatives have created local labels specific to locations or communities and controlled by local producers, consumers, and retailers. These labels act as local participant guarantee systems (PGS) where they guarantee organic production and quality products without the challenges of federal or third-party certifications⁵⁰. In return, growers utilizing the labels can charge higher prices without the cost of state or federal certifications and fees. Consumers are willing to purchase the labeled products at higher prices because they know the product is local (or grown in a specific region/community), organic, and sustainably produced. Since these local PGS are typically community-based, they strengthen relationships between consumers and growers, constructing a community support network⁵⁰.

PGS have been employed and studied in various locations throughout the globe including Brazil, France, New Zealand, Peru, Mexico, Kenya, and Sri Lanka, among others. As a result of these labels and recognition, producers are more successful in terms of sales and receiving fair prices⁵¹. Furthermore, Lemeilleur and Allaire (2019) argue that PGS serve to regain control of the intellectual common-pool resource--that is local and organic labeling—and create more resilient and equitable food systems⁵¹.

Exemplary U.S. case study

An exemplary case of how policy, including marketing orders and local certifications, can maintain fair wages for farmers and the quality of products grown is the Vidalia® onion industry. Vidalia® onions are cultivated in southeastern Georgia, U.S. in a designated growing area of 13 counties as defined under the Vidalia Onion Act of 1986⁵². The growing region generates around 40% of the nation’s spring onions (Available at https://www.georgiaencyclopedia.org/articles/business-economy/vidalia-onions/), which are more profitable with higher farm gate prices compared to other varieties^53,54,55. The name Vidalia® onions is protected under a federal trademark and licensed by the Georgia Department of Agriculture^52,53,56. All Vidalia onions sold as raw, whole onions must also be inspected and meet US #1 grade^53,54, which is jointly paid for by growers and the State of Georgia⁵⁶.

The Vidalia Onion Committee serves as the official marketing board for Vidalia onions. The Committee launches annual campaigns to boost Vidalia consumption and funds research and development related to Vidalia onions^54,55. The marketing board also cooperates with growers to ensure compliance, keeps growers abreast of the latest legislation, and lobbies on behalf of growers⁵⁵.

According to Clemens (2002), “Vidalia onions are an example of how responding to consumer demand with a succession of marketing, legislative, and research events has protected a niche market from becoming oversupplied by producers. And, by protecting the name, quality, and image of an agricultural product through state ownership of the trademark, higher values are realized throughout the marketing chain”⁵⁶. The combination of state and federal legislation, particularly the federal marketing order and the State of Georgia’s ownership of the trademark, allows not only the levy of significant fines but also creates a substantial power of trademark enforcement (since states have significant resources to prosecute). The Vidalia Onion provides an example of how local certifications and marketing orders can provide increased value along an agricultural marketing chain and a substantial boon to Georgia farmers. It is an example that should and could be copied to a greater extent within the U.S.

Limitations

Our analysis only includes twelve specialty commodity crops and is not representative of all specialty crops produced in the U.S. However, the crops chosen are commonly found within U.S. farmers markets and represent a variety of food groups and growing regions. In addition, our analysis fails to take into account that many of the largest retailers in the U.S. are effectively their own wholesalers; and Wal-Mart is among the largest buyers of local food³⁵. This potentially leads to situations where retail prices may be lower than transfer terminal prices since these large retailers have the ability to purchase large volumes directly from farms. In addition, the current high prices received by producers at farmers’ markets, relative to farm gate prices, are to a degree dependent on limited supply, since flooding those markets with produce would inevitably lead to declining prices. Similarly, changing agricultural practices and landscapes requires large initial investments, training, education, and risk-taking. Nevertheless, we argue that, with the help of policy and support initiatives, rescaling agriculture to direct, local, and value-added markets can offer an avenue to greater small farm profitability and sustainability.

The readoption of parity pricing to establish price floors within U.S. agricultural policy has the potential to improve farm income. However, when considering increasing living costs, debts, input costs, and the percentage of income coming from off the farm, parity pricing is likely not enough to support contemporary farmer self-sufficiency. Even with parity prices, farmers would need to continue seeking income elsewhere. The factors underpinning the issue of low farm prices and incomes are multifaceted including market concentration at various levels of the supply chain, the agricultural contract system in the U.S., and unequal distribution of support from the U.S. government. While other major agricultural countries have chosen to prioritize fair prices and positive returns for producers, the U.S. continues to focus on low prices and maximal production, resulting in substantial negative impacts for farmers and their communities and a system that is not sustainable^1,17. Therefore, we argue that a shift in the political focus to equalizing market power and protecting small- and medium-scale producers is essential. The resurrection of parity pricing may be one area to start, but it must incorporate current regional living costs, cost of production, and farmer wellbeing to be of any use in improving the lives of farmers and supporting the continuation of family farming. Further research is needed among farmers and ranchers that evaluates the value of parity prices and producers’ opinions on whether the calculated prices are sufficient. In the meantime, we recommend policymakers consider alternative strategies. To start, parity prices could serve as a base for price support, given that the calculations (we repeat) are updated to incorporate living wages and production costs. While political price supports have been taboo, we quote Graddy-Lovelace and Diamond in that “by securing a price floor and stable income for growers, it could help make farming a viable, solid livelihood and encourage a new and diverse generation of growers to join–within and beyond the U.S.”²⁹. Another area for improved support is local food markets. Producers that utilize DTC sales along with other local marketing strategies show positive earnings. Thus, more opportunities and supportive policies for farmers to sell directly to local retailers and institutions is a solution, one that may be more inclusive, can improve gains, and provide fair prices to farmers, all while reducing the control that large intermediate distributors have on farm gate prices and the food supply chain.

Thus, there is much to be done in terms of supporting small intermediates and retailers in the U.S., but it is feasible. With a combination of policies that reduce supply and/or set fair prices and farmer/rancher utilization of PGS certifications, local agricultural systems, and other markets such as online markets and food hubs, farmers can improve their profits and returns. However, farmers cannot be expected to switch their marketing strategies and/or growing practices without assistance. Policies and programs that provide transitional support and are designed to be adapted for the farmer’s experience, timeline, and goals are essential. Likewise, support for the initiation and implementation of more marketing orders for regionally produced commodities, such as seen with Vidalia onions, would further ensure protections and backing for growers and induce power to set price floors and manage supply.

First, we investigated whether parity did indeed exist between the incomes of farming households and non-farming households in the early 20th century. Using Kolmogorov-Smirnov and the Wilcoxon signed-ranked tests, we compared income data from farm households and those from the US general population collected by the Internal Revenue Service in 1916, just after the parity price period, to establish whether farm households received returns economically equal with respect to the U.S population during the parity period. Weak-ordered test was used to test the difference in proportions among rank-ordered groups. Individuals within groups were not ordered. Secondly, we used exploratory analyses and t-tests to compare farm income and parity prices across twelve specialty crops that are commonly found at farmers markets in the U.S. The crops selected represent a variety of food groups and growing regions. We evaluated the extent to which the differences in farm gate prices and parity prices are captured within the wholesaling and retailing sectors of the industrial food system as opposed to being passed on to consumers. We used a paired-t-test for each commodity to compare farm gate prices (FGP), transfer terminal prices (TTP), retail prices (RP), and parity prices (PP). The data come from the weekly average prices at transfer terminals in 2021 available from the USDA Agricultural Marketing Service (AMS) “Terminal Market Report” and average monthly prices at retail stores from the 2021 USDA AMS “Retail Report”. Transfer terminal prices are those received by first receivers when selling to retailers or other large users of wholesale lots of generally good quality and condition. All data were converted to a hundredweight (cwt), equal to 50.8 kg, for comparison. We then graphed farm gate, transfer point, and retail prices against parity prices. Finally, to understand changes in farming self-sufficiency, we explored on and off-farm income ratios over time.