Documentation
ERS compares farm and retail prices for specific food items as
well as for commodity groups. For commodities, individual foods are
grouped into market baskets which contain a collection of foods
representing what an American household may buy at retail during 1
year. The costs of market baskets at retail are compared with the
prices received by farmers for a corresponding basket of
agricultural commodities.
Whether calculating statistics for individual foods or for
market baskets, ERS relies on conversion factors to specify the
amount of farm commodities in a retail product and to account for
coproducts made from these commodities where necessary.
The methodology behind this data series consists of three
parts:
How ERS Calculates Market
Basket Statistics
The process of generating market basket statistics has two
steps:
 A market basket of foods is constructed to represent what U.S.
households buy for athome consumption over a 1year period.
 Estimates of farm share and the farmtoretail price spread (or
difference between costs of the food basket at retail and the farm
basket) are calculated using annual consumer and farm price
data.
Data
Key sources of data are the Consumer Expenditure Survey (CE),
which includes a diary for recording purchases, and Neilsen
Homescan data. The CE is produced by the Bureau of Labor Statistics
(BLS), and the data are used by BLS to calculate expenditure
weights for the Consumer Price Index (CPI).
Households participating in Neilsen's "Homescan" panel keep a
record of their food purchases at retail stores using a scanner
installed in their homes. Upon returning from a shopping trip,
panelists rescan purchased items or manually enter information for
products lacking a bar code.
Constructing Baskets
Retail food baskets are specified, and then ERS determines the
farm products required to produce the contents of the retail food
baskets. For example, the consumer basket for dairy products
contains certain quantities of milk, cheese, and other foods. The
corresponding agricultural basket contains enough farm milk to
produce all of these foods. Conversion factors are used to
calculate farm quantities as well as coproduct amounts. For a
discussion of conversion factors, see Conversion Factors Used in Calculating Farm
Share Statistics.
Farm Share
A formal equation for the farm share of a retail basket at time
t, FS_{t}, is: FS_{t} =
Q'_{f}P_{ft} / Q'_{r}P_{rt}
where Q_{r} is a vector of food quantities bought by
households and P_{rt} is a vector of unit retail prices for
these same foods at time t. The arguments in the numerator include
Q_{f} which is also a vector of quantities. It includes the
agricultural goods used to make the foods in Q_{r} as well
as any coproducts. Agricultural inputs enter Q_{f} as a
positive number. Coproducts enter as a negative number.
P_{ft} is a vector of unit prices for the agricultural
goods and coproducts in Q_{f}.
Calculating Annual Data Series
To facilitate the calculation of an annual data series, retail
food baskets' contents are fixed over relatively long periods of
time. Estimates of farm share denote the proportion of the
consumer's dollar earned by agriculture for a basket of foods
representing what American households bought at a particular period
in time.
In reporting annual estimates, ERS assumes that retail food
baskets are similar to the foods which BLS prices for calculating
the CPI (U.S. cityaverage series). The value of a retail basket in
year t can then be approximated as the product of its base year
value, Q'_{r}P_{r0}, and an adjustment factor to
account for retail price inflation. This adjustment factor is the
ratio of the CPI for the commodity in question at time t,
CPI_{t}, to the same CPI in the base year of the data
series, CPI_{0}. ERS uses the following formula to
approximate the farm share of a retail basket:
FS_{t} = Q'_{f}P_{ft} /
(Q'_{r}P_{r0})(CPI_{t}/CPI_{0})
BLS publishes separate CPIs for major food groups. To estimate
the farm share of fresh vegetables, for example, ERS uses the CPI
for fresh vegetables. This approximation makes annual calculations
more convenient to implement as researchers do not need to collect
prices for individual foods at retail every year. Only the CPI for
the food group is required to update the value of the retail
basket.
Once published, market basket statistics may be revised
because:
 Updated estimates of average prices received by farmers for
their commodities are available (these updates may be available as
much as a year or two after preliminary figures).
 Conversion factors may be adjusted. For example, improved
efficiency in food packaging and shipping may reduce waste and
spoilage. If so, members of the food marketing system could buy a
smaller quantity from farmers to provide the same quantity at
retail.
The following discussion focuses on the market baskets for dairy products, fresh fruit,
and fresh vegetables.
Dairy Products
ERS calculates the farm share as well as the farmtoretail
price spread for a basket of dairy products representing what U.S.
households purchased in 2003 for athome consumption. ERS provides
estimates for each year since 2000.
Identifying a retail and an agricultural basket
Retail food basket
To identify the retail dairy basket, ERS uses the diary portion
of the CE to determine how much money American households spent on
several types of foods. On average, households participating in the
2003 diary spent about $328 for dairy products over the course of
the year. These expenditures included $112.58 for fluid milk,
$13.95 for fluid cream, $18.08 for butter, $97.04 for cheese,
$58.09 for ice cream and related foods, and $28.26 for "other dairy
products" like yogurt.
ERS uses data from Neilsen's Homescan panel to derive the
quantities purchased and prices of products. In 2003, sample
households divided their fluid milk expenditures among whole milk
(26 percent), reducedfat (54 percent), skim (20 percent), and
buttermilk (under 1 percent). For each type of milk, the total
amount households spent was divided by the number of gallons they
bought. For example, reducedfat milk sold for about $2.61 per
gallon, on average. It was assumed that 54 percent of the $112.58
spent on fluid milk by CE households was for reducedfat milk, or
$60.29. Based on the pergallon price, households bought 23.06
gallons of reducedfat milk in 2003.
Spending on cheese was divided among four categories. The
largest category included Cheddar, Colby, Swiss, Mozzarella,
Muenster, and other relatively hard, natural cheeses. In total,
these cheeses accounted for about 64 percent of the $97.04 that
Nielsen households spent on cheese. Thus, CE households were
assumed to have spent $61.66 for 17.02 pounds at $3.62 per
pound.
The second category of cheese included in the food basket is
Cottage cheese, accounting for about 8 percent of Nielsen household
expenditures on cheese. CE households were estimated to have spent
$7.68 for 4.99 pounds of lowfat Cottage cheese at $1.54 per
pound.
Cream and Neufchatel comprise the third category of cheese in
the retail food basket. These cheeses account for about 7 percent
of Nielsen household expenditures on cheese. Thus, CE households
were estimated to have spent $6.87 for 2.63 pounds of creamed
cheese at $2.61 per pound.
Processed foods account for the balance of cheeses in the retail
food basket. Natural cheeses can be blended together along with
other ingredients to make processed cheese, processed cheese food,
and processed cheese spread. In total, these three foods accounted
for about 21 percent of Nielsen household expenditures on cheese
products. CE households were estimated to have spent $20.83 for
7.77 pounds of these processed cheese products at $2.68 per
pound.
Based on these estimation procedures, CE households would have
bought 11.19 pounds of fluid cream, 33.91 pounds of ice cream, 4.9
pounds of ice milk, 1.6 pounds of sherbet, 8.5 pounds of butter,
and 21.53 pounds of yogurt.
The agricultural basket and its value relative to
the retail food basket
Once the contents of the retail food basket are specified, ERS
estimates the contents of a corresponding agricultural basket. How
much raw farm milk would be needed to supply the milkfat in the
foods? To answer this question, several assumptions were made about
the foods in the retail basket and conversion factors applied. The
following assumptions are in addition to those outlined in Conversion Factors Used in Calculating Farm
Share Statistics:
 The whole milk in the retail food basket contains, on average,
3.3 percent milkfat. By contrast, stores sell a variety of
reducedfat milk, such as 1percent and 2percent. The reducedfat
milk in the basket is assumed to have an average fat content of 1.5
percent, buttermilk is assumed to contain 1 percent, and skim milk
0.1 percent fat.
 Fluid cream is categorized according to the product's fat
content. Heavy cream is at least 36 percent fat and halfandhalf
is between 10.5 and 18 percent fat. Fluid cream in the retail
basket is assumed to have an average fat content of about 20
percent.
 The relatively hard natural cheeses that American households
buy are assumed to contain as much milkfat as Monterey cheese. Fat
solids from milk account for about 28 percent of the total weight
of Monterey, nonfat solids account for another 28 percent, and
moisture accounts for 44 percent of the product's weight. Natural
cheeses are often classified by moisture content, which relates to
their hardness. Monterey contains less fat per pound than harder
cheeses like Cheddar and Colby, but it has more fat per pound than
softer cheeses like Muenster and Mozzarella.
 Processed cheese food with a fat content of 23 percent was used
to represent the amount of milkfat in all types of processed cheese
products that American households buy. Processed cheese food
contains less fat than processed cheese on a per pound basis, but
more than processed cheese spread.
Milkfat Estimates
Combining the amount of milkfat in all products in the food
basket yields a basket containing fat from about 740 pounds of
milk. To produce the retail basket, manufacturers and processors
are assumed to source slightly more milk than the 740 pounds needed
to supply the fat contained in this basket. This combined amount
was inflated by 2.5 percent, and it was assumed that they purchased
759 pounds (740 / 0.975). The additional 2.5 percent of milk
accounts for the likelihood that some milk is wasted as dairy
products are processed, packaged, and transported.
The 2.5 percent additional milk purchased also provides a
cushion to account for variation in the composition of farm milk.
The conversion factors used in this analysis assume all farm milk
to be 3.7 percent fat and 8.62 percent nonfat solids on a per pound
basis. In reality, the composition of milk varies. For example, the
fat content of milk averaged 3.68 percent in 2006, 3.66 percent in
2005, and 3.67 percent in 2004. Variation in the fat and nonfat
components affects the quantities of dairy products that can be
produced.
The additional milk bought by processors and manufacturers is
also needed to satisfy the small amount of milkfat contained in
coproducts.
Farm Value
Farm receipts are estimated as the product of farm prices and
the quantity of milk bought by processors. The average price
received by farmers for all milk is reported monthly in
Agricultural Prices, a publication of USDA's National
Agricultural Statistics Service (NASS). ERS calculates a simple
average of NASS's 12 monthly prices. In 2003, this average was
$12.53 per 100 pounds of milk. Estimated farm receipts are thus $95
(759 x $0.1253).
ERS's retail basket, however, includes nonfat solids from only
about 573 pounds of milk. It follows that nonfat solids from 167
pounds of milk (740  573) would remain for making coproducts. Not
all of these solids are likely to be wasted; most are used for
producing other foods even though these foods are not included in
the retail food basket. It was assumed that nonfat solids from
about 108 pounds of milk are recovered from cheese production and
used to make 9.91 pounds of dry whey. It is also assumed that the
skim solids from about 59 pounds of milk are used to make 5.25
pounds of nonfat dry milk.
The total value added to the 759 pounds of milk bought from
farmers is the sum of the amount added to the parts consumed in
producing the retail basket and the amount added to the parts
consumed in making coproducts. To compare the retail price of the
food basket with the farm value of only the milk parts consumed in
making it, the farm value of any coproducts needs to be subtracted
from farm receipts.
ERS uses wholesale prices for dry whey and nonfat dry milk to
place an initial value on the coproducts. Monthly data published by
USDA's Agricultural Marketing Service (AMS) are used to calculate a
simple average of the 12 months for each coproduct. In 2003,
wholesale prices averaged $0.80 per pound for nonfat dry milk and
$0.17 per pound for dry whey.
Because wholesale prices include processing costs, these costs
are subtracted from average wholesale prices to estimate the farm
value of a pound of each coproduct using data published by AMS. In
2003, per pound processing costs were $0.14 for nonfat dry milk and
$0.159 for dry whey.
The farm value of ERS's agricultural basket equals farm receipts
less the farm value of coproducts. For 2003, farm value is
estimated to be: $91.48 or 95  (5.25 x (0.80  0.14))  (9.91 x
(0.17  0.159). Farm value can then be compared with the $328 spent
for the retail basket. The spread between farm and retail prices is
$328  $91.48 = $236.57, and farm share is (91.48 / 328) = 27.89
percent.
Dairy
foods: Contents of retail baskets, agricultural baskets, and
coproducts 
Retail foods

Farm commodities

Coproducts

Product

Pounds

Product

Pounds

Product

Pounds

Butter 
8.5

Milk 
758.5

Nonfat dry milk 
5.25

Buttermilk 
2.25

Dry whey 
9.91



Cottage cheese 
4.99





Cream 
11.19





Cream cheese 
2.63





Ice cream 
33.91





Ice milk 
4.9





Lowfat milk 
198.79





Monterey cheese 
17.02





Processed cheese food 
7.77





Sherbet 
1.6





Skim milk 
71.52





Whole milk 
89.19





Yogurt 
21.53





Note: Some numbers
have been rounded. 
Calculating annual estimates
Having specified the contents of the retail and agricultural
baskets, ERS uses a formula to estimate the farm share of dairy
food prices in years other than the base year of the data series,
2003. The following example shows implementation for 2005.
Step 1:
Estimation begins by plugging the BLScalculated CPI for dairy
and related products into the ERS formula previously specified. The
CPI was 167.9 in 2003 and 182.4 in 2005. Since 2003 is the base
year of the data series, CPI_{0} = 167.9. For t= 2005, it
further follows that 1.086 = (182.4 / 167.9) which is an adjustment
factor for retail price inflation.
Step 2:
The adjustment factor is next multiplied by the value of the
retail basket in the base year (Q'_{r}P_{r0} ). The
result is what CE households spent for dairy products in 2003:
$328.
Step 3:
The value of the denominator in the farm share equation is
estimated at ($328 x 1.086) = $356.33, which yields the approximate
value of the retail basket in 2005.
Step 4:
Farm prices and coproduct values are next collected from
Agricultural Prices; and AMS, respectively. For t = 2005,
the prices in the numerator (P_{ft}) need to be updated
from prior yearly values. However, neither the quantities
(Q_{f}) nor the methods for calculation change from those
used to estimate farm value for 2003. For t = 2005, using the
updated values of P_{ft}, the updated farm value of the
agricultural basket net coproducts, Q'_{f}P_{ft},
is $104.41.
Step 5:
Farm share is computed by dividing farm value by the value of
the retail basket. As noted in Step 4, in 2005, farm value was
$104.41, which amounts to about 29.3 percent of the approximate
value of $356.33 for the retail basket.
Step 6:
ERS also reports indices for retail cost, farm value, and the
farmtoretail price spread. Each is expressed as an index with a
value of 100 in the base year (2003) of the data series. These
indices show how the variable in question has changed over
time.
Retail Cost Index
The retail cost index shows retail price trends over time. This
is the ratio of the CPI in year t to the same CPI in the base year
(2003), CPI_{t} / CPI_{0}, multiplied by 100. For
t= 2005, the retail cost index is (1.086 x 100) = 108.6.
Farm Value Index
The farm value index shows farm value trends over time. This is
the ratio of the farm value in year t to the farm value in 2003,
Q_{f}P_{ft} / Q_{f}P_{f0},
multiplied by 100. As already shown, farm value was $91.48 in 2003
and $104.41 in 2005. It follows that the 2005 farm value index was
(($104.41 / $91.48) x 100) = 114.13 in 2005.
FarmtoRetail Price Spread Index
The farmtoretail price spread index measures changes in the
difference between the basket's retail and farm values. This is a
ratio of the spread in a year to the spread in the base year of the
data series, (Q_{r}P_{rt} 
Q_{f}P_{ft}) / (Q_{r}P_{r0} 
Q_{f}P_{f0}), multiplied by 100. In 2005, the
spread between retail and farm values was ($356.33  $104.41) =
$251.92. It was ($328  $91.48) = $236.52 in 2003. The value of the
farmretail spread index was ($251.92 / $236.52) x 100 = 106.51 in
2005.
Interpretation of Farm Value and Supporting Indices
The three reported indices show trends in each variable over
time. For example, farm share grew from 27.89 percent in 2003 to
29.3 percent in 2005. The three indices suggest a reason for this
change. They show growth in both farm value and in the amount of
value added to farm commodities as measured by the farmtoretail
price spread. The values of both indices exceeded 100 in 2005.
However, the farm value index grew relatively faster (114.13 versus
108.6).
Fresh fruit and vegetables
ERS calculates the farm share as well as the farmtoretail cost
spread for baskets of fresh fruit and fresh vegetables that are
representative of U.S. household purchases for athome consumption
between 1999 and 2003. ERS provides estimates for each year since
1997.
Identifying a representative market basket
Retail food baskets
ERS created food baskets to represent what households bought for
athome consumption in 1999 and 2003. The final retail baskets are
an average of the 1999 and 2003 baskets.
ERS uses the Consumer Expenditure Survey to help determine the
contents of retail food baskets. The diary portion of the CE
reports how much money American households spent on several types
of foods. For example, households spent, on average, $148.51 for
fresh vegetables in 1999, including $18.92 for lettuce, $26.91 for
tomatoes, $28.35 for potatoes, and $74.33 for "other fresh
vegetables."
Because the CE does not contain data on prices or quantities
purchased, ERS obtains this information for individual fresh fruits
and fresh vegetables from Neilsen's Homescan panel. Households
participating in this panel kept a record of their purchases at
retail foodstores using a scanner installed in their home. After a
shopping trip, panelists would rescan purchased items or manually
enter information on products lacking a bar code. The sample
available for this study contains data for 7,200 households in 1999
and 8,833 households in 2003.
Based on the Neilsen data, a representative household, for
example, split its 1999 CE expenditures of $18.92 for lettuce into
$11.73 for iceberg and $7.19 for romaine ("iceberg" lettuce
represents all purchases of head lettuce, which accounts for about
62 percent of the value of all lettuce purchased; "romaine"
represents all purchases of leafy lettuce). Using Neilsen national
average prices, ERS then estimates quantities purchased. For
example, since iceberg lettuce averaged $0.78/lb., a representative
household in 1999 could have bought 15.04 lb. with its $11.73.
A similar process was used to estimate quantities of fresh
potatoes, fresh tomatoes, and "other fresh vegetables" purchased.
To select items for inclusion in "other fresh vegetables", Neilsen
data were used to rank foods by expenditure share. The top 12 foods
are selected, and then the $74.33 spent by households in the CE on
other fresh vegetables in 1999 is allocated among the selected 12
foods. For example, broccoli accounted for 7.46 percent of Neilsen
panelist expenditures on the 12 other fresh vegetables, so 7.46
percent of the $74.33 spent on other fresh vegetables in the CE
($5.55) was allocated to expenditures on broccoli. Because the
price of broccoli averaged $0.88 per pound at retail, it was
further inferred that a representative household in 1999 bought 6.3
pounds.
ERS repeats the above procedures using data from 2003. The final
market baskets for fresh fruit and fresh vegetables were created by
averaging the contents of the 1999 and 2003 baskets.
Agricultural Baskets
Once the contents of the fresh fruit and fresh vegetables retail
food baskets are specified, ERS uses conversion factors to estimate
the contents of their corresponding agricultural baskets. For each
food in a retail basket, conversion factors inflate the retail
quantity by the amount necessary to compensate for waste and
shrinkage that occurs as goods are prepared for retail sales. For
example, the market basket for fresh vegetables contains 21.11
pounds of carrots, and ERS estimates that farmers must supply 1.031
pounds of carrots for every 1 pound supplied by marketers at
retail. Some carrots may spoil and, perhaps, others may need
trimming.
See Conversion Factors Used in Calculating
Farm Share Statistics
Fresh vegetables, contents of retail and
agricultural baskets (lbs.)


Retail quantity

Farm quantity

Asparagus 
2.00

2.19

Bell peppers 
6.47

7.04

Broccoli 
6.71

7.29

Cabbage 
7.51

8.08

Carrots 
21.11

21.76

Cauliflower 
2.18

2.37

Celery 
5.34

5.74

Corn on the cob 
4.38

4.76

Cucumber 
6.79

7.38

Iceberg lettuce 
15.37

16.53

Agaricus mushrooms 
3.12

3.32

Onions 
24.22

25.77

Potatoes 
82.92

86.37

Romaine lettuce 
7.97

8.57

Sweet potatoes 
4.67

5.19

Tomatoes 
20.91

24.60

Fresh fruit, contents of retail and
agricultural baskets (lbs.)


Retail quantity

Farm quantity

Apples 
34.07

35.49

Cantaloupe 
11.25

12.23

Cherries 
2.11

2.29

Grapefruit 
15.07

15.54

Grapes 
15.89

17.47

Honeydew melon 
1.80

1.96

Kiwifruit 
0.91

1.00

Lemons 
6.01

6.27

Oranges 
25.02

25.79

Peaches 
8.87

9.43

Pears 
3.87

4.07

Plums 
2.46

2.59

Strawberries 
8.27

8.99

Watermelon 
19.75

21.95

Calculating an
annual price series
Having identified the contents of retail food and agricultural
baskets, ERS estimates annual statistics by using information on
consumer and farm prices as well as the formula previously
specified.
When calculating statistics for fresh vegetables, for example,
the value of the denominator in the formula is estimated by using
the CPI for that commodity. In 2001, the CPI for fresh vegetables
was 230.6. To estimate the retail price of the market basket in,
say 2005, the retail value of the market basket in the base year
($162) is multiplied by the appropriate CPI for that year (271.1),
divided by its 2001 value (230.6). That is, $162 x (271.7 / 230.6)
= $190.87.
ERS uses prices received by farmers for their commodities to
update the value of the farm basket for each year of the data
series. In 2005, the total value of all the contents of the fresh
vegetables farm basket was $48.32, which amounts to about 25
percent of the estimated price of $190.87 for the retail
basket.
See also: How Low Has the Farm Share of Retail Food Prices
Really Fallen?
How ERS Calculates Farm Share
for Individual Foods
ERS estimates the farm share of the retail price for selected
foods. These calculations compare the retail price of a food with
the farm value of the commodities used to manufacture it. Data on
prices at retail and at the farm gate are needed to make these
comparisons. ERS results are sensitive to the prices adopted for
analysis. Because two different stores may sell the same food for
different prices, the farm share of a consumer's dollar would not
likely be the same at both stores.
Data
For retail prices, ERS obtains data on national average prices
(U.S. cityaverage price data) from the Bureau of Labor Statistics
(BLS). A simple average of monthly average prices reported by BLS
is used. When prices are not available for all 12 months of the
year, the prices for the months with data available are
averaged.
For prices at the farm gate, ERS relies primarily on data
published by ERSand other USDA agencies such as the National
Agricultural Statistical Service (NASS)and the Agricultural
Marketing Service (AMS). These data are available in publications
such as Agricultural Prices and Federal Milk Order
Market Statistics, or from the agencies' websites.
Conversion factors specify how much of a farm commodity is used
in a food's manufacture as well as the amount of coproducts that
are produced along with this food. For example, conversion factors
specify how much milk farmers supply for each pound of Cheddar
cheese sold by marketers. Conversion factors also state how much
dry whey can be made with the nonfat milk solids from this milk
that are not consumed in making the cheese.
Formula
The formal equation used to calculate the farm share of
different foods is: FS_{t} = Q'_{f}P_{ft} /
P_{rt}
where FS_{t} is the farm share at time t. The argument
in the denominator of the formula is the retail price of the food
at time t, P_{rt}. The first argument in the numerator,
Q_{f}, is a vector of quantities that includes amounts of
agricultural goods used to make the food as well as amounts used to
make coproducts. Agricultural inputs enter Q_{f} as a
positive number. Coproducts enter as a negative number.
P_{ft} is a vector of unit prices for the agricultural
goods and coproducts in Q_{f}.
Once published, farm share statistics may be revised for a
variety of reasons:
 Updated estimates of prices received by farmers for their
commodities become available as much as a year or two after
preliminary figures.
 Conversion factors may be adjusted. For example, improved
efficiency in food packaging and shipping may reduce waste and
spoilage. If so, food marketers could buy a smaller quantity from
farmers to provide the same quantity at retail.
ERS's processes for estimating the farm share of a food are
illustrated for selected dairy products,
fresh fruits, fresh
vegetables, processed fruit and
vegetables such as orange juice, and products like flour and
sugar that are processed from field
crops.
Dairy Products
General
ERS's calculations for whole milk, butter, ice cream, and
Cheddar cheese rely on U.S.city average retail price data from
BLS. In 2003, the monthly price of a gallon of whole milk ranged
from a low of $2.66 in March to a high of $2.95 in December. For
this data series, a simple average of monthly average prices is
calculatedfor 2003, the average is $2.76.
To estimate the farm value of whole milk, butter, and ice cream,
ERS uses data generated by AMS from the Federal milk order program.
This program sets minimum prices for fluidgrade milk. Not all milk
is priced at the same level. Instead, there is a classified pricing
system in which the minimum amount paid for milk is determined by
how the milk is used. There are four classes: Class I is defined as
milk for beverage products; Class II includes milk used to make
fluid cream, yogurt, ice cream, and other perishable foods; Class
III includes creamed and hard cheeses; and Class IV products are
butter and dried milk.
Dairy farmers and their cooperatives can bargain to sell milk at
prices higher than the regulated minimums. In these cases, the
difference between the regulated and transacted prices is called an
overorder payment. To estimate what is actually paid, ERS adds an
estimate of overorder payments to the class prices from AMS data
on overorder payments.
Because these estimates rely on data generated through the
administration of the Federal milk order program, ERS's farm share
estimates for whole milk, butter, and ice cream do not reflect
conditions in all parts of the United States. The current Federal
milk order program consists of 10 Federal orders. For example,
parts of New England and the MidAtlantic States make up the
Northeast Order. Some other places, however, are not covered by a
Federal order. California is an important example in that it has
its own Staterun program.
ERS's statistics for Cheddar cheese do not rely on minimum class
prices or information on overorder payments. These estimates are
based primarily on data from the NASS publication, Agricultural
Prices, which includes information on monthly average prices
received by farmers for manufacturinggrade milk. ERS also uses
data on monthly wholesale prices for dry whey along with estimates
of manufacturing costs for dry whey, both published by AMS.
For all four dairy products considered herewhole milk, ice
cream, Cheddar cheese, and butterERS's objective is to estimate
the contribution from dairy farmers' milk earnings to retail
prices. Estimates of farm value and farm share do not include farm
receipts for other types of ingredients included in dairy products,
such as sugar or fruit contained in ice cream.
Another assumption underlying estimates of the farm share of
dairy foods is that processors and manufacturers buy slightly more
milk than is contained in the dairy products produced. This
assumption is based on findings that a small amount of milk is
likely to be wasted as dairy products are processed, packaged, and
transported.
ERS calculates the farm share of the retail price of:
Milk, whole
fluid
Though marketed as "whole milk," farm milk generally has a small
amount of cream removed during processing. A gallon of whole milk
is assumed to contain 3.3 percent fat and weigh 8.6 pounds. ERS's
process for calculating the farm share of this product is
illustrated using data for 2003.
Step 1:
The retail price of a gallon of whole milk averaged $2.76 in
2003. Farm share is defined as the ratio of average retail price to
the amount received by farmers for milk components (skim and fat
solids) consumed in production.
Under the Federal milk order program, processors must pay at
least the Class I price for farm milk used in making beverage
products.
Step 2:
To estimate the farm value of whole milk, ERS first estimates
the farm value of one componentClass I skim milk. To begin, ERS
calculates a simple average of the monthly base skim milk price
reported by AMS$7.47 per hundredweight in 2003. Then, the required
Class I differential is added to the average skim milk price. AMS
adds this differential to the base skim milk price to generate the
minimum amount of money processors must pay for Class I skim milk.
Though the value of the differential varies geographically, a
principal pricing point is reported by AMS for each of the 10
Federal orders. ERS calculates a weighted average of the reported
figures. These weights are the amount of Class I milk sold in the
order divided by the amount marketed in all 10 orders. In 2003,
this weighted average was about $2.68 per hundred pounds of skim
milk.
Step 3:
To estimate minimum farm value for the butterfat in whole milk,
ERS uses the monthly advanced butterfat pricing factor reported by
AMS. The Class I differential is added to the pricing factor. In
2003, this pricing factor averaged $1.19 per pound, and the Class I
differential was $0.0268 per pound.
Step 4:
Combining the above values for the skim and fat solids in milk,
ERS next calculates the farm value of 100 pounds of Class I milk
that is 96.7 percent skim milk and 3.3 percent fat. If purchased at
minimum regulated prices, the milk has a value of $13.83 or (7.47 +
2.68) x (0.967) + ( $1.19 + 0.0268) x (3.3).
Step 5:
Because the regulated Class I price is a minimum price, ERS must
take into account overorder payments. For 2003, ERS estimates
these payments at $1.47 per hundredweight of milk at 3.5 percent
fat, approximately 10.6 percent of the same milk's regulated price.
The farm value of 100 pounds of Class I milk at 3.3 percent fat in
2003 is therefore ($13.83 x 1.106) = $15.30.
Starting with 2004, ERS uses AMSreported estimates of the
amount marketers paid in overorder charges for milk used in making
Class I products. For earlier years, ERS uses differences between
the announced cooperative Class I price and regulated prices.
Step 6:
A gallon of milk is assumed to weigh 8.6 pounds, but processors
purchase slightly more farm milk for every gallon of milk marketed
at retail. This extra amount accounts for waste and spoilage that
can occur in assembling and processing milk. It is assumed that
losses through waste and spoilage equal 2 percent of the value of
what farmers sell to marketers. Thus, in 2003, marketers were
assumed to pay farmers (($15.30 x 0.086) / 0.98) = $1.34 for each
gallon of milk marketed at retail, or 49 percent of the retail
price of $2.76.
Butter
Cream is the primary ingredient in butter. Butter manufacturers
may buy cream with less than the full fat content of farm milk or
purchase farm milk and skim off the cream. One pound of butter is
assumed to include 0.803 pounds of fat and 0.01 pounds of skim
solids. ERS's process for calculating the farm share of the retail
price of butter is illustrated using data for 2003.
The retail price of butter averaged $2.81 per pound in 2003. The
farm share of a pound of butter is the ratio of this average retail
price to the price farmers received for the milk componentsskim
and fat solidsused in making butter.
Under the Federal milk order program, processors must pay at
least the Class IV price for milk used to make butter.
Step 1:
To estimate the farm value of a pound of butter, ERS begins with
the Class IV price of skim milk. In 2003, the regulated minimum
Class IV skim milk price averaged $5.98 per hundredweight, or just
under $0.06 per pound. How much of this milk must manufacturers
purchase to acquire the 0.01 pounds of skim solids in a pound of
butter? Since 1 pound of this type of milk contains about 0.09
pounds of skim solids, manufacturers must buy 0.11 pounds
(0.01/0.09).
Step 2:
Manufacturers also must buy 0.803 pounds of fat for every pound
of butter they make. ERS uses the AMS data series to determine the
farm value of 0.803 pounds of fat from milk. In 2003, the Class IV
butterfat price averaged about $1.21 per pound.
Step 3:
Combining the above values for skim and fat solids in a pound of
butter, ERS then calculates the farm value of cream, assuming that
skim and fat solids were purchased at regulated minimum prices.
This estimate is (0.803 x $1.21) + (0.11 x $0.0598) = $0.98.
Step 4:
ERS makes adjustments to account for waste and spoilage that may
occur as butter is produced. These losses are assumed to equal 2
percent of what farmers sell. Thus, in 2003, to cover for waste and
spoilage, manufacturers must buy cream with a farm value of $1.00
($0.98 / 0.98) for each pound of butter marketed at retail.
Step 5:
Regulated prices, however, are only a minimum, to which ERS adds
an estimate of overorder payments. It is assumed that farmers
receive an overorder payment equal to 1.5 percent of the minimum
regulated price for milk used in making butter, based on data
published by AMS for 200407. During these years, buyers of farm
milk made overorder payments of 1 to 2 percent of the minimum
regulated price for milk used in Class IV products, on average. The
estimate of the farm value of a pound of butter in 2003 is
therefore $1.01 ($1.00 x 1.015).
Step 6:
ERS estimates the farm share of the retail price of butter in
2003 to be 36 percent ($1.01 / $2.81).
Cheddar
cheese
Fluid milk is curdled to make natural Cheddar cheese. Whey is a
coproduct that can be dried and used in animal feeds and other
products. From 2000 to 2003, ERS calculated the farm value of
Cheddar cheese based on the reported price of manufacturinggrade
milk. Since 2003, ERS's calculations are based on prices reported
by AMS/USDA for milk used in Class III products. The current
ERS procedure for calculating the farm share of a pound of Cheddar
cheese is illustrated using data for 2011, when the retail prices
averaged $5.42 per pound.
Step 1:
To estimate the farm share of Cheddar cheese, ERS uses the Van
Slyke formula to determine the amount of milk in a pound of Cheddar
cheese. ERS assumes that milk purchased to make Cheddar cheese has
an average fat content of 3.5 percent, and the Van Slyke formula
indicates that manufacturers must purchase 10.3 pounds of such milk
for every pound of Cheddar cheese they make. Along with cheese, it
is assumed that 0.5 pounds of the coproduct dry whey can also be
made from this quantity of farm milk.
Step 2:
ERS collects minimum monthly prices for milk manufactured into
Class III products under the Federal milk order (FMO) program. A
simple mean of these monthly prices is calculated to estimate
annual prices. In 2011, cheese manufacturers were required to pay,
on average, at least $18.37 per hundredweight of Class III milk (or
$0.1837 per pound).
Step 3:
Because FMO class prices are minimum prices, ERS also accounts
for overorder payments when calculating the farm value of Cheddar
cheese. AMS/USDA reports that users of Class III milk paid 1.3
percent more than the minimum price in 2011. Thus, ERS estimates
that they paid about $1.9167 for milk per pound of Cheddar cheese
produced ($0.1837 x 1.013 x 10.3).
Step 4:
Monthly dry whey prices published by NASS/USDA are then used to
value coproducts from cheese production. In 2011, NASS reported
that monthly average prices for dry whey ranged from $0.3789 to
$0.6538 per pound. These wholesale prices, however, reflect both
the value of the milk components in whey, and the value added to
these components through processing. ERS uses AMS's reported
estimates of processing costs to isolate the value for only the
milk components. In 2011, it cost $0.1991 to process 1 pound of
whey, and the monthly average cost of dry whey (net processing
costs) was $0.1667.
Step 5:
Altogether, in 2011, the net farm value of a pound of Cheddar
cheese was about $1.83, calculated as $1.9167  (0.5 x $0.1667),
which equals 34 percent of the retail price of $5.42.
Ice cream,
regular
Ice cream is made from a mix that includes fluid milk and cream.
Ice cream plants may buy these inputs from fluid milk processors.
ERS estimates farm share of the retail price for 1 halfgallon of
regular ice cream weighing 2.25 pounds. Fat solids account for 12
percent and skim solids account for 10 percent of the product's
weight. Thus, regular ice cream contains 0.27 (2.25 x 0.12) pounds
of fat from milk and 0.225 (2.25 x 0.1) pounds of skim solids.
ERS's process for calculating the farm share of the retail price
of regular ice cream is illustrated below using data from 2004, the
first year for which necessary data are available.
Step 1:
The retail price of a halfgallon of regular ice cream averaged
$3.84 in 2004. Farm share is the ratio of the average retail price
to the amount received by farmers for milk components (skim and fat
solids) consumed in production. Under the Federal milk order
program, marketers must pay at least the Class II price for milk
used in ice cream.
Step 2:
ERS first estimates the farm value of skim milk used in
producing ice cream. Since 1 pound of skim milk contains about 0.09
pounds of skim solids and ERS's ice cream product contains 0.225
pounds, marketers must buy 2.5 (0.225/0.09) pounds of skim milk for
each container of ice cream they make. To put a value on this milk,
ERS calculates a simple average of the monthly Class II skim milk
price reported by AMSfor 2004, the average is $6.90 per
hundredweight, or $0.069 per pound.
Step 3:
Marketers also must buy 0.27 pounds of fat from milk for every
container of ice cream produced. To determine the farm value of
this fat, ERS again uses the AMS data series. In 2004, the Class II
butterfat price averaged about $2.06 per pound.
Step 4:
Combining the above values for the skim and fat solids in a
container of ice cream, ERS then calculates the farm value of the
cream under the assumption that skim and fat solids were purchased
at regulated minimum prices. This estimate is $0.73, or ((0.27 x
$2.06) + (2.5 x $0.069)).
Step 5:
The regulated price, however, is only a minimum price to which
an estimate of overorder payments must be added. For 2004, these
payments equaled 5.4 percent of the regulated price for fluidgrade
milk used in making Class II products, based on data published by
AMS. The farm value of milk components in ice cream in 2004 is
therefore $0.77, or ($0.73 x 1.054).
Notably, because the necessary data on overorder payments are
not available, ERS does not report an estimate of the farm value of
ice cream for years prior to 2004.
Step 6:
Adjustments are next made to account for waste and spoilage that
tend to occur as ice cream is made. ERS assumes that these losses
equal 2 percent of what marketers buy. Thus, in 2004, to cover for
waste and spoilage, marketers must buy cream with a farm value of
$0.78 ($0.77 / 0.98) for each container of ice cream marketed at
retail.
Step 7:
ERS estimates that the farm share of the retail price of ice
cream in 2004 was 20 percent ($0.78 / $3.84).
Field Crops
General
ERS's calculations for flour, margarine, and sugar rely on
national average retail prices (U.S. cityaverage price data)
published by BLS. Annual figures are estimated by taking a simple
average of the reported monthly prices.
For prices at the farm gate, publicly available data published
by ERS, NASS, and AMS are used.
Coproducts account for a substantial share of overall farm
receipts for flour, margarine, and sugar. For example, wheat is
milled to produce flour, and its coproductsbran and wheat
middlingsmay be sold for use in food products or animal feed.
Similarly, sugar extracted from sugar beets and sugarcane yields
coproducts such as molasses and livestock feed.
Data on coproduct prices are obtained mostly from USDA agencies,
including NASS. For sugar, data from the Census Bureau are
used.
ERS calculates the farm share of the retail price of one pound
of:
Allpurpose white flour
Wheat is milled to produce flour. Wheat kernels, also known as
wheat berries, are seeds from which new wheat plants may grow.
Within a kernel are endosperm and wheat germ. Roller milling
involves crushing and gradually reducing wheat kernels to produce
flour which consists primarily of endosperm. Coproducts of flour
milling include bran (the hard, outermost shell of the wheat
kernel) and wheat middlings (bran, germ, and endosperm remnants).
These coproducts may be sold for use in food products or animal
feed.
Milling different classes of wheat yields different types of
flour. Many products, including allpurpose white flour, may
include several classes of wheat (depending on the region of the
country where the flour is produced). However, allpurpose flour is
primarily produced from hard red winter (HRW) wheat. For the
purposes of computing the farm value and farm share of the retail
price of allpurpose flour, we assume that it is made from 100
percent HRW.
Step 1:
Monthly retail prices for allpurpose white flour, per pound,
are obtained from BLS, published in conjunction with the BLS
Consumer Price Index reporting program. In 2008, the monthly price
of allpurpose white flour ranged from a low of $0.421 per pound in
January to a high of $0.544 per pound in July. For this data
series, a simple average of monthly average prices is
calculatedfor 2008, the average is $0.5067.
Step 2:
What are the farm receipts for the amount of wheat used to make
one pound of flour? Milling wheat yields approximately 73 percent
flour and 27 percent coproducts, so producing 1 pound of flour
requires 1.37 pounds of wheat (1 / 0.73). Monthly data on the farm
price per bushel of hard red wheat are available fromAgricultural
Prices(published by NASS). In 2008, the monthly farm price of hard
red winter wheat averaged $7.6642 per bushel. Since one bushel
weighs 60 pounds and 1.37 pounds of wheat are required, the
reported price is divided by 43.8 (60 / 1.37) to estimate farm
receipts. In 2008, the gross farm value of a pound of allpurpose
white flour was $0.175.
Step 3:
A mix of bran and middlings is produced in conjunction with the
flour, and the value of these coproducts must be subtracted from
the gross farm value. Prices of these two coproducts are very
similar, and, indeed, often identical. Because Kansas City
primarily mills HRW wheat, the price of middlings per ton for
Kansas City is used to calculate the aggregate coproduct value.
This information is obtained fromNational Monthly Feedstuff Prices,
published by AMS. In 2008, the monthly price of middlings in Kansas
City averaged $134.44 per ton. The price is divided by 2000 to
obtain the coproduct price per pound$0.0672 per pound.
Step 4:
What amount of coproducts is produced along with a pound of
flour? Since the wheattocoproduct yield is 27 percent, about 0.37
pounds of coproducts can also be produced from 1.37 pounds of wheat
that millers buy from farmers to produce a pound of flour (1.37 x
0.27 = 0.37). To estimate net farm value, the middlings price is
multiplied by 0.37 and this product subtracted from the gross farm
value. For 2008, net farm value is $0.175(0.37 x $0.0672) =
$0.1501.
Step 5:
The farm value share is determined by dividing the net farm
value by the retail price. The farm value share for 2008 is $0.1501
/$0.5067=29.63 percent.
Margarine, in
sticks
Margarine is produced from refined vegetable oils such as canola
oil, corn oil, peanut oil, or soybean oil. Manufacturers
hydrogenate these oils so that they are solid at room temperature.
Federal standards of identity require that oil must account for at
least 80 percent of the weight of the final product. Other
ingredients in margarine that are derived from farm products, such
as whey or nonfat dry milk, constitute only a small percentage of
the total ingredients, and thus contribute little to the total farm
value.
Soybeans are a major oilseed. We assume that manufacturers use
up 0.81 pounds of refined soybean oil when making one pound of
margarine. The additional 0.01 pounds of oil allows the final
product to contain slightly more oil than the Federal minimum.
Manufacturers may also lose a small amount of refined oil through
waste and shrinkage.
Vegetable oil must be refined before margarine can be produced.
We assume a 4percent loss from refining crude oil (vegetable oil
as it is extracted from oilseeds). Thus, in order to supply 0.81
pounds of refined oil, manufacturers need 0.844 pounds (0.81 /
0.96) of crude oil.
The farm value of a pound of stick margarine is estimated based
on farm receipts for the soybeans that manufacturers must purchase
from farmers to produce 0.844 pounds of crude oil. This value is
then adjusted for the value of coproducts and, finally, compared
with an estimate of nationalaverage retail prices. Estimates are
calculated for each month of the year. Annual estimates are a
simple average of the twelve monthly estimates.
August 2008 is used in the example for margarine.
Step 1:
Monthly retail prices for one pound of stick margarine are
obtained from BLS, published monthly in conjunction with the BLS
Consumer Price Index reporting program. This figure was $1.238 in
August, 2008.
Step 2:
The price for U.S. soybeans is available inAgricultural Prices,
published monthly by NASS. These figures are reported on a
dollarsperbushel basis. The farm price of U.S. soybeans was
$12.80 per bushel in August, 2008.
Step 3:
A bushel of soybeans weighs 60 pounds. Thus, the U.S. farm price
for soybeans discussed inStep 2is divided by 60 in order to obtain
a perpound price, yielding a farm price per pound of U.S. soybeans
of $0.21 in August, 2008.
Step 4:
Crushing soybeans produces three productsoil, meal, and hulls.
The amount of oil extracted from a bushel of soybeans (oil yield)
is obtained from the first column of Appendix Table 9 of theOil
Crops Yearbook, published by ERS. The yield was 11.72 pounds of oil
per bushel in August 2008.
Step 5:
The next step is to determine what share of a bushel of soybeans
is oil. To do so, the figure inStep 4is divided by the total weight
of a bushel of soybeans in pounds. For example, 11.72 is divided by
60 to determine that 19.54 percent of a bushel of soybeans was
allocated to soybean oil production.
Step 6:
The number of pounds of soybeans required to produce one pound
of margarine can now be estimated. Because roughly 0.844 pounds of
crude soybean oil are required to produce margarine, 0.844 is
divided by 0.1954 to determine that 4.3203 pounds of soybeans were
required to produce a pound of margarine.
Step 7:
Gross farm value is calculated by multiplying the U.S. farm
price of soybeans in pounds (obtained inStep 3) by the number of
pounds of soybeans required to make one pound of margarine (Step
6). For August 2008, multiply $0.21 by 4.3203 to obtain a gross
farm value of $0.9217.
Step 8:
The percent of the value from a bushel of soybeans that is
attributed to coproducts (soybean meal and hulls) is next obtained
from Table 9 of theOil Crops Yearbook. In August 2008, it is
reported that meal and hulls accounted for 57.55 percent of total
value of a bushel of soybeans. This share is multipied by the gross
farm value (Step 7), yielding a value of $0.5304 for coproducts in
4.3203 pounds of soybeans.
Step 9:
Net farm value is calculated by subtracting the value of
coproducts from the gross farm value. In August 2008, the net farm
value of a pound of margarine was estimated to be $0.9217  $0.5304
= $0.3913 per pound.
Step 10:
The farm value share is estimated as the net farm value of
margarine divided by the BLS retail price. For August 2008, ERS
estimates this share as 31.6 percent (100 x ($0.3913 /
$1.238)).
Step 11:
The above steps are repeated for each month of the year and,
finally, an average monthly farm value share is calculated by
averaging over the 12 monthly estimates. For 2008, ERS's estimate
is 30.5 percent.
White (refined) sugar
Because sugar sold in retail stores in the United States may
have been extracted from either sugar beets, sugarcane, or both, a
weighted average is used of the farm values of refined sugar from
both sources. Moreover, firms processing sugar beets or sugarcane
may produce coproducts such as molasses and livestock feed.
Quantities of coproducts obtained along with sugar are estimated
using data published by the Census Bureau for 19772007. In the
Census of Manufactures, the Census Bureau publishes the
value of both the sugar and the coproductsmolasses and livestock
feed manufactured (Table 6a, "Products Statistics"). These data are
used to estimate the share of industry shipments attributable to
coproducts. Before 1997, the SIC Code was used for data from two
industriesRaw Cane Sugar (SIC 2061) and Beet Sugar (SIC 2063).
Since 1997, the NAICS system is used, relying on data from two
industriesSugarcane Products (NAICS311311) and Beet Sugar (NAICS
311313). Regardless of the industry or classification system, the
same procedures are used to develop coproduct estimates. First, the
total value of industry shipments is estimated as the value of
sugar and coproduct shipments, excluding only the value of
shipments not specified by kind (n.s.k.). Next, the value of only
coproduct shipments is summed. Finally, the sum of the coproduct
shipments is divided by the value of total industry shipments.
Mathematically,
CR=C/(TNSK), where:
CR=coproduct ratio for a given industry
C=total coproduct value of shipments for a given industry
T=Total value of shipments for a given industry
NSK=Total value of shipments not specified by kind
The share of the value of sugar (cane or beet) processing
attributed to coproducts appears to have changed only a little over
the last 30 years. The share ranged from 4.84 percent to 7.48
percent for cane sugar processing and from 7.47 percent to 13.04
percent for beet sugar processing. In years where data were
incompletely reported (specifically, 2002 for sugar beets 2007 for
sugarcane), the coproduct ratios used in sugar computations were
determined by averaging the estimated coproduct ratios for each
Census from 1977 to 2007, for years and industries where data were
completely reported. The average coproduct ratios were 6 percent
for sugarcane and 10 percent for sugar beet processing.
Step 1:
The retail price per pound of bagged sugar (all sizes) is
obtained from the average retail price series published by BLS.
These figures are produced in conjunction with the monthly Consumer
Price Index (CPI) reporting program. Annual estimates are
calculated by taking simple averages of the monthly data. In 2007,
this figure came to $0.51 per pound.
Step 2:
The annual average price of U.S. sugarcane (per ton) is obtained
from Table 13 ("Sugarcane for sugar: price per ton, by State") of
the Sugar and Sweeteners Yearbook (SASY). In 2007, the
annual average price received by farmers was $29.40 per ton (2000
pounds) or, $0.0147 per pound.
Step 3:
In 2007, total production of sugarcane for making sugar was
28.273 million tons. The data are obtained from SASY Table
15 (U.S. sugarcane area, yield, production, sugar output, recovery
rate, and sugar yield per acre).
Step 4:
Total production of raw cane sugar cane also comes from Table 15
of SASY. In 2007, this figure was 3.454 million tons.
Step 5:
The amount of raw cane sugar extracted per pound of sugarcane is
estimated by dividing the figure in Step 4 by the figure
in Step 3. In 2007, manufacturers extracted 3.454 / 28.273
= 0.1222 pounds of cane sugar (on average) from each pound of
sugarcane processed.
Step 6:
USDA's Conversion Factors and Weights and Measures
(Statistical Bulletin No. 616, March 1979) reports that refining
1.07 pounds of raw sugar produces one pound of refined sugar. This
estimate is divided by the figure in Step 5 to further
obtain an estimate of the quantity of sugarcane required to produce
one pound of refined cane sugar. In 2007, food processors bought an
estimated 8.756 (1.07 / 0.1222) pounds of sugarcane for each pound
of cane sugar they produced.
Step 7:
The gross farm value per pound of cane sugar is estimated by
multiplying the figure in Step 6 by the farm price of a
pound of sugarcane (Step 2). For 2007, this value is 8.756
x $0.0147 = $0.1287.
Step 8:
Using data published by the Census Bureau, coproducts are
estimated to account for 6 percent of the farm value of sugarcane.
To estimate the net farm value of one pound of cane sugar, the
gross farm value obtained in Step 7 is multiplied by 0.94
(1  0.06). In 2007, the net farm value of one pound cane sugar was
about $0.12.
Step 9:
The sequence of steps employed for sugarcane is now repeated for
sugar beets. First, the U.S. sugar beet price received by farmers
is obtained from SASY Table 12 ("Sugar beet price per ton,
by State and United States"). In 2007, the annual average price
received by farmers was $42 per ton (2000 pounds) or, $0.021 per
pound.
Step 10:
Sugar beet production is reported in SASY Table 17
("U.S. sugar beet area, yield, and production"). In 2007, sugar
beet production totaled 31.834 million tons.
Step 11:
The quantity of sugar obtained from sugar beets on a raw value
basis is also recorded in SASY Table 17, and was 4.721
million tons in 2007.
Step 12:
The procedure for calculating the yield for sugar beets is
analogous to that used for sugar cane. Here, the figure obtained in
Step 11 is divided by the figure reported for Step
10. In 2007, manufacturers extracted 4.721 / 31.834 = 0.1483
pounds of beet sugar from each pound of sugar beets processed.
Step 13:
Sugar yield on a refined basis is then calculated using the same
conversion factor (1.07) used for sugarcane. Thus, divide 1.07 by
the result obtained in Step 12. In 2007, food processors
bought an estimated 1.07 / 0.1483 = 7.2152 pounds of sugar beets
for each pound of beet sugar produced.
Step 14:
The gross farm value per pound of beet sugar is estimated by
multiplying the figure in Step 13 by the farm price of a
pound of sugar beets (Step 9). For 2007, this value is
7.2152 x $0.021 = $0.1515.
Step 15:
Using data from the Census Bureau, coproducts are estimated to
account for 10 percent of the farm value of sugar beets. To
estimate the net farm value of one pound of beet sugar, we multiply
the gross farm value obtained in Step 14 by 0.90 (1 
0.10). In 2007, the net farm value of one pound beet sugar was
about $0.14.
Step 16:
The final step in calculating the farm value of sugar is to take
a weighted average of net farm values of refined cane and beet
sugar. These weights are the percentages of U.S. sugar production
derived from sugarcane and sugar beets, both of which are obtained
from SASY Table 16 ("U.S. beet and cane sugar
production"). In 2007, the weighted average, net farm value of a
pound of refined sugar at a retail store is (0.421 x $0.12) +
(0.579 x $0.14) =$0.13.
Step 17:
Finally, the farm value share is calculated by dividing the net
farm value determined in Step 16 by the retail price of
sugar reported in Step 1. For 2007, farm share was 0.13 /
0.51 = 0.25 or, 25 percent.
Fresh Fruit
ERS estimates the farm share of seven types of fresh
fruitapples, grapefruit, grapes, lemons, oranges, pears, and
strawberries. To illustrate the process behind the calculations,
consider apples in 2006 when the retail price of red delicious
apples averaged $1.07 per pound. Farm prices averaged $0.30 per
pound. Assuming that 4 percent of farm commodity volume is lost as
farm apples make their way through the marketing chain, farmers
must supply 1.04167 pounds (1/0.96) of apples per pound sold by
marketers. The farm share equation is: (1.04167 x 0.30) / 1.07 =
$0.29.
Although the values for conversion factors, retail prices, and
farm prices vary for other types of fresh fruit, ERS follows the
same process for calculating farm share.
The farm share statistics presented here are reproduced from the
Fruit and Tree Nuts Situation and Outlook Yearbook, which is
published annually by ERS.
Fresh Vegetables
ERS estimates the farm share of 4 types of fresh
vegetablesbroccoli, a head of iceberg lettuce, potatoes, and
fieldgrown tomatoes. For iceberg lettuce, the retail price
averaged $0.87 per pound in 2005. Farm prices averaged just under
$0.16 per pound. Under the assumption that 7 percent of farm
commodity volume is lost as the lettuce proceeds through the
marketing chain, farmers must supply 1.075 pounds (1 / 0.93) of
lettuce per pound sold by marketers. Farm share is thus (1.075 x
0.16) / 0.87 = $0.19.
Although the values for conversion factors, retail prices, and
farm prices vary for the other three types of fresh vegetables, the
same process for calculating the farm share is followed.
The farm share statistics presented here are reproduced from the
Vegetables and Melons Tree Nuts Situation and Outlook Yearbook,
which is published annually by ERS.
Processed Fruit and
Vegetables
Orange Juice
Orange juice is extracted from a variety of fresh oranges such
as Valencia and Navel. Most of the weight of juice ready for
consumption is from water. The soluble solids in orange juice
consist primarily of sugars, with some citric acid and minerals;
these soluble solids are measured in degrees brix. Fresh
squeezed juice averages about 11.8^{o} brix, meaning that
the juice is 11.8 percent soluble solids. The brix level of frozen
concentrate (FC) sold at retail stores is at least 41.8^{o}
brix; however, after adding three containers of water per container
of concentrate, the resulting consumable juice is also
11.8^{o} brix. The same quantity of fresh oranges is
needed to produce freshsqueezed (not frozen concentrate or NFC)
juice as frozen concentrate.
Fresh oranges are cleaned and graded at juice processing plants;
then the juice is extracted. A processor making NFC products
may pasteurize and bottle the extracted juice in a glass container,
paperboard carton, or other consumerready package. For FC
products, most of the water is removed and the concentrated juice
is chilled. This type of concentrate is commonly stored at
65^{o} brix and may be separated into different tanks
according to the variety of orange used in production. The
processor may later blend concentrate from various tanks according
to customer specifications. Before shipping to retailers, the
processor may also add filtered water to reduce the brix level to
41.8^{o}.
Coproducts such as citrus pulp pellets (mostly cattle feed),
Dlimonene, and molasses can be made from the peel, pulp, and seeds
that remain after producing orange juice. During the 200708 season
when prices for citrus pulp pellets were low, industry executives
stated that making coproducts was merely the least expensive way to
dispose of leftover orange parts. A study by the University
of Florida estimated that the value of juice (including orange and
grapefruit) produced in the State in 200708 was $3.45 billion and
the value of coproducts was $136 million. However, due to the
paucity of data available from yeartoyear on the quantity and
value of coproducts, ERS was unable to incorporate coproduct values
into the calculations. Thus, in years when coproducts values
are substantial, a comparison of farm receipts for oranges with
retail orange juice prices will overstate the farm share.
This is because retail prices alone understate the final value of
products made from the oranges.
Step 1:
The Florida Department of Citrus
(FDOC) publishes average retail prices for both NFC and FC
juice online (www.fdocgrower.com). For example, during the
200910 seasonfrom October 4, 2009 through October 2,
2010orange juice sold as concentrate at retail stores cost $4.57
per gallon after dilution by the consumer with three parts
water. NFC juice sold for $6.53 per gallon at retail.
Step 2:
The FDOC reports the quantity of concentrate that can be
processed each season from fresh Florida oranges. The yield
varies from season to season based on characteristics of the orange
crop. In the 200910 season, one 90pound box of fresh
oranges yielded 1.58 gallons of concentrate at 42^{o}
brix.
Step 3:
According to conversion factors published in the ERS Fruit and Tree
Nuts Yearbook, ERS estimated that 0.2476 gallons of
concentrate at 42^{o} brix makes one gallon of drinkable
juice at 11.8^{o} brix. The information in step 2 further
implies that 0.1567 boxes of fresh oranges (0.2476 / 1.58) were
needed to produce a gallon of consumable orange juice during the
200910 season.
Step 4:
What do farmers receive for the oranges in one gallon of
consumable orange juice? ERS publishes seasonaverage prices
received by Florida farmers per 90pound box of oranges
(equivalentontree returns) in the Fruit and Tree Nuts
Yearbook (table C22). Growers receive different prices
for oranges marketed for fresh use versus oranges sold for
processing. Farmers earned $6.72 per 90pound box of
processing oranges during the 200910 season. Farm receipts
for the oranges in one gallon of consumable juice likewise totaled
$1.053 that season (0.1567 x $6.72).
Step 5:
The farm share of retail prices is determined by dividing each
product's farm value by its retail price, with the ratios of the
prices then stated in percentage terms. For the 200910
season, ERS estimated the farm share of FC at 23 percent (based on
$1.053 / $4.57) and the farm share of NFC at 16 percent (based on
$1.053 / $6.53).
Conversion Factors
Used in Calculating Farm Share Statistics
ERS's comparisons of farm and retail prices for individual foods
and baskets of foods require estimating the quantity of farm
commodities in retail products and accounting for coproducts in
some cases.
Conversion factors behind ERS's estimates of farm share and
farmtoretail price spreads are described below for individual dairy products, fresh
fruits, and fresh vegetables. Conversion
factors for flour, sugar, and margarine are described in the
detailed examples under field crops.
Dairy Products
Dairy products are made primarily from milk. For this data
series, it is assumed that dairy products come from cow's milk, but
some products could have been manufactured from goat, sheep, or
another animal's milk.
Milk is composed of milkfat (fat) and nonfat (skim) solids. Fat
is assumed to account for 3.7 percent of the milk's weight, skim
solids (proteins, lactose, and minerals) account for 8.62 percent,
and the remainder is water. When manufacturing some dairy products,
a significant amount of either fat or nonfat solids can remain for
making coproducts.
The conversion factors used for dairy products are based on two
publications:
Weights, Measures, and Conversion Factors for Agricultural
Commodities and Their Products. Agricultural Handbook No. 697.
U.S. Department of Agriculture, Economics Research Service in
cooperation with the Agricultural Marketing Service, the
Agricultural Research Service, and the National Agricultural
Statistics Service, 1992.
Conversion Factors and Weights and Measures For Agricultural
Commodities and Their Products. Statistical Bulletin No. 616.
U.S. Department of Agriculture, Economics, Statistics, and
Cooperatives Service, 1979.
The conversion factors are described in greater detail for
specific dairy foods:
Fluid milk and cream
Fluid milk resembles farm milk. In processing fluid milk, some
fatrich cream is removed from farm milk. It is assumed that a
gallon of whole milk contains 3.3 percent fat. When making
reducedfat milk, such as 1percent and 2percent, much more cream
is removed. In 1 pound of 2percent milk, the fat that remains is
assumed to come from 0.541 pounds of raw milk (0.02 / 0.037).
Cream, removed from raw milk by centrifugal separation, may be
used to produce other dairy products including fluid cream. There
are many varieties of fluid cream defined according to fat content.
Heavy cream, for example, contains at least 36 percent fat. One
pound of heavy cream therefore contains as much fat as 9.237 pounds
of raw milk (0.36 / 0.037).
Other types of fluid cream include halfandhalf which has a fat
content of 10.5 to 18 percent.
Butter
Butter can be made by churning fluid cream. Federal regulations
require that butter have a minimum fat content of 80 percent,
although creameries allow for a margin of error. Assuming 1 pound
of butter contains 0.803 pounds of fat, fat from 21.702 pounds of
raw milk (0.803 / 0.037) would be required to manufacture 1 pound
of butter.
Nonfat solids account for only 1 percent of the weight of
butter. One pound of butter contains nonfat solids from 0.116
pounds of milk (0.01 / 0.0862).
Cheese
Fluid milk is curdled to make cheese. Curdling separates the
milk into solid curds and liquid whey. Most of the fat remains in
the solid curds which are then used to make cheese.
Cheddar cheese is a hard cheese. It is assumed that moisture
accounts for only 39 percent of the product's weight (the standard
maximum); fat and skim solids account for the remaining 61 percent.
Moreover, it is assumed that there are 0.305 pounds of fat and skim
solids each in 1 pound of cheese. Given the fat and skim solids in
a pound of milk, fat from 8.243 pounds of milk would be in 1 pound
of cheddar cheese (0.305 / 0.037). Skim solids from 3.538 pounds of
milk would also be included (0.305 / 0.0862).
Monterey cheese is assumed to have slightly more moisture than
Cheddar cheese, with moisture accounting for 44 percent of the
weight. In 1 pound of Monterey cheese, there are 0.28 pounds of fat
and skim solids each. The fat from 7.568 pounds of milk is in 1
pound of Monterey cheese (0.28 / 0.037) as are skim solids from
3.248 pounds of milk (0.28 / 0.0862).
Far less moisture is removed from cream cheese, a soft cheese
that is not ripened. Moisture may account for up to 55 percent of
the weight of cream cheese and fat for 37 percent. It follows that
the fat from 10 pounds of milk (0.37 / 0.037) is used to produce 1
pound of cream cheese.
Moisture may account for up to 82.5 percent of the weight of low
fat cottage cheese and fat for 2 percent. It follows that the fat
from 0.541 pounds (0.02 / 0.037) of milk is used to produce 1 pound
of low fat cottage cheese.
Cheddar cheese and cream cheese are both examples of natural
cheeses. Some natural cheeses can be blended together to make
processed cheese. For example, Cheddar and Colby can be combined to
make American cheese.
Cheesemakers blend other ingredients with natural cheeses
including emulsifiers that melt the final product evenly when
heated. Anhydrous milkfat, cream, salt, flavorings, and other
ingredients may also be added. Federal standards distinguish
between processed cheese, processed cheese food, and processed
cheese spread according to the amounts of natural cheese, fat, and
moisture they contain. The fat content of processed cheese is
closest to that of natural cheese. ERS assumes that processed
cheese food has 23 percent fat and processed cheese spread has 20
percent fat. A pound of processed cheese food would therefore
contain the fat from 6.216 pounds (0.23 / 0.037) of fluid milk.
Ice cream, ice milk, and
fruit sherbet
Ice cream is made by combining milk and cream in a mix that may
also include ingredients such as sugar, egg yolks, and stabilizers.
After homogenization and pasteurization, the mix is cooled and
flavorings can be added. Air is then incorporated into the mix
during freezing, which results in the volume of ice cream exceeding
the volume of the mix (known as overrun). Some amount of overrun is
necessary for ice cream to have a soft texture as opposed to the
solid texture of ice. Fruits or other foods may also be added
before the final product is packaged and hardened further in a
freezer.
Federal regulations require that ice cream weigh at least 4.5
pounds per gallon and have a minimum fat content of 10 percent.
However, many popular brands have less overrun and a higher fat
content, such as 12 or 16 percent. Regular ice cream has more
overrun and less fat than premium brands of ice cream do.
Consider 1 halfgallon of regular ice cream weighing 2.25
pounds. Fat solids account for 12 percent and skim solids 10
percent of the product's weight. It follows that the fat from 7.29
pounds (2.25 x (0.12 / 0.037)) of milk is included in the product.
This same container of ice cream also includes the skim solids from
2.61 pounds (2.25 x (0.1 / 0.0862)) of milk.
Ice milk has a lower fat content than ice cream does. Fat is
assumed to account for 4 percent of the weight of ice milk. Thus, 1
pound of ice milk contains the fat from 1.081 pounds of fluid milk
(0.04 / 0.037).
Fruit sherbet is assumed to be 2 percent fat. One pound of this
product contains the fat from 0.541 pounds of fluid milk (0.02 /
0.037).
Nonfat dry milk
Removing water from skim milk produces nonfat dry milk. A pound
of nonfat dry milk contains only 0.008 pounds of fat. Fat from
0.216 pounds of milk (0.008 / 0.037) is likewise contained in 1
pound of nonfat dry milk. This product is rich in protein and other
skim solids which constitute 96.2 percent of the product's weight.
As 1 pound of raw milk contains about 0.0862 pounds of these
solids, the skim solids from 11.16 pounds of raw milk (0.962 /
0.0862) are contained in 1 pound of nonfat dry milk.
Whey
When fluid milk is curdled to make cheese, it separates into
solid curds and liquid whey. Whey is low in fat, but high in
lactose, protein, vitamins, and some minerals. Water can be removed
to make dry whey which is added to animal feeds, nutritional
supplements, and infant formulas, among other products. Fat solids
are assumed to account for 1.2 percent and skim solids 94.3 percent
of the weight of dry whey. Thus, 1 pound of dry whey includes fat
from 0.324 pounds of milk (0.012 / 0.037) and the nonfat solids
from 10.94 pounds (0.943 / 0.0862) of milk.
Yogurt
Bacteria are added to lowfat milk to make yogurt which may be
sweetened and flavored to offset its natural bitterness. Fruit may
also be added. It is assumed that fat from 0.452 pounds of milk is
used in making 1 pound of yogurt.
Fresh Fruit
Conversion factors for fresh fruit reflect spoilage and
trimming. Much of the weight of a farm commodity is lost during
transportation and at other points in the marketing chain. For
grapes, some clusters may be trimmed to remove spoiled or damaged
grapes. It is assumed that marketers discard about 9 percent of
what they buy from farmers. Thus, the remaining retail weight is 91
percent of the original farm weight. Farmers therefore supply
1/0.91 = 1.099 pounds of grapes for 1 pound sold by retailers.
Although the values for ERS's conversion factors vary by type of
food, the same process is followed for all fresh fruit
calculations. Below is a table of conversion factors for fresh
fruit:
Fresh fruit conversion
factors 

Percentage loss

Conversion factor

Apples 
4

1.042

Cantaloupe 
8

1.087

Cherries 
1

1.087

Grapefruit 
3

1.031

Grapes 
9

1.099

Honeydew melon 
8

1.087

Kiwifruit 
9

1.099

Lemons 
4

1.042

Oranges 
3

1.031

Peaches 
6

1.064

Pears 
5

1.053

Plums 
5

1.053

Strawberries 
8

1.087

Watermelon 
10

1.111

Source: ERS Food Availability Per Capita Data
System 
Fresh Vegetables
Conversion factors for fresh vegetables also reflect spoilage
and trimming. For romaine lettuce, some damaged leaves may need to
be removed. It is assumed that marketers discard about 7 percent of
what they buy from farmers. The remaining retail weight is 93
percent of the weight at the farm gate. Farmers must likewise
supply 1.075 (1 / 0.93) pounds of romaine lettuce for 1 pound sold
by retailers.
Though the values of the conversion factors vary by the type of
food, the same process is followed for all fresh vegetable
calculations. Below is a table of conversion factors for fresh
vegetables:
Fresh vegetable conversion
factors 

Percentage loss

Conversion factor

Asparagus 
9

1.099

Bell peppers 
8

1.087

Broccoli 
8

1.087

Cabbage 
7

1.075

Carrots 
3

1.031

Cauliflower 
8

1.087

Celery 
7

1.075

Corn on the cob 
8

1.087

Cucumber 
8

1.087

Iceberg lettuce 
7

1.075

Agaricus mushrooms 
6

1.064

Onions 
6

1.064

Potatoes 
4

1.042

Romaine lettuce 
7

1.075

Sweet potatoes 
10

1.111

Tomatoes 
15

1.176

Source: ERS Food Availability Per Capita Data
System 