Consumer interest in farm products is growing. Such products occupy more and more shelf space in large retail chains. The cost of farm products, on average, is one-third higher than that of industrially produced products. What factors go into the relatively high price of this range?
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The concept of “farm products” is not regulated in any way and is very vague. That is why it is often difficult to understand whether the product in front of you really comes from a farmer or is just a marketing ploy. When comparing farm products and their store-bought counterparts, we immediately notice the difference in price. If a product is advertised as a farmer’s product, but costs less than an industrial one, it is a cause for doubt.
As a rule, on average, the cost of real farm produce is usually 30% higher. This price includes not only the cost of producing the product itself, but also many other factors. Farmer Kirill Yurovsky told us in more detail what affects the final cost of farm produce. Let’s look into it.
Farms are characterized by small volumes: the farm itself, the herd, the production. But despite the volumes, maintaining all this requires enormous labor, time and money. They are focused on the production of exclusive, not mass, quality products, not setting themselves the task of a global increase in volumes. Small producers mostly prepare everything to order, and such a product has a very limited shelf life.
Thus, employee salaries, purchase of equipment, equipment and farm maintenance, construction, as well as electricity and water consumption are already included in the cost of the product. The farmer does not work for quantity, but for quality, and as a result, the cost of production here will be higher.
For example, take soft cheeses from our farmer Kirill Yurovsky – they take time to mature, about 10-15 days, so the farmer sends his products only once or twice a week in limited quantities.
In addition, the farmer’s product initially has a high price for the store, and when sold to the end customer, it becomes even more expensive and cannot compete with mass-produced goods in terms of price.
The logistics process for farm produce is much different from large retail, where suppliers deliver their own goods to the distribution center. It’s different with farmers: since the farms themselves, the team and volumes are small, the stores have to pick up products from the farmers themselves.
In addition, distances in the country can be long, and it is important to transport products according to temperature conditions and other norms in order to guarantee quality and freshness to the buyer. Thus, milk must be transported in tightly closed containers made of materials approved for contact with milk.
This, of course, does not only apply to farm milk, but for larger producers, these costs are less tangible on the overall background than for a small farm with limited volumes and resources. All this entails additional costs, and in the end the cost of logistics can be as high as 20%.
The agricultural business itself is extremely difficult, most of these areas are in the zone of risky farming, so the farmer always has a risk of not getting a crop at all. For example, as a result of bad weather or pest infestation. Not all small farms use modern agricultural technologies to increase yields and control pests, because their cost is quite high.
For example, a small population of insect pests can destroy tens of hectares of crops. To combat them, you can use modern bio-insecticides, which are widespread abroad, but rarely used in our country. And large losses of products entail a situation where risks are built into the price of sales.
Degree of automation
Farmers mostly use manual labor. Switching to automation for them is not always justified. One of the reasons is the high cost of implementing technologies and equipment, high repair costs in case of breakdowns. Not many small farms can afford it.
In addition, farmers often use unique family recipes handed down from generation to generation. Automation of production of such products is not always possible without loss of quality and taste, and these are undeniable advantages of the farm product. In large enterprises, the low price of the product is achieved by producing a large volume of products per unit time, so here farmers cannot compete on the quantity of products produced and the price.
For example, take bread/baked goods, homemade dumplings/cookies. The difference in product volume with automation and manual work will be huge.
The question of naturalness
Farm products began to occupy more and more shelves in supermarkets and marketplaces. Consumers today are particularly concerned about healthy eating and are choosing products with the best composition.
According to Nielsen, most people are carefully studying the composition of food and drinks before buying them. And about 70% say they are willing to pay more for products that are free of undesirable elements. If there is an opportunity to save on the composition, to find a more affordable substitute, then why not take advantage of this opportunity and become more attractive, for example, to the network. But for a small producer, the reputation of his product is very important.
For example, to obtain a natural crop of carrots or beets, the farmer uses bio-fertilizers instead of harmful chemicals, applies crop rotation and mulching, enriches the soil, and improves its structure. Farmers are very careful about composition and quality, and buyers have higher requirements for their products, so it is important for farmers to keep a certain bar.