May 28, 2024

Inflation, farm input costs shape farm market prices

Keeping up with the competition

To determine prices, most farm market managers consider a number of factors, including competitors’ pricing (58%), input costs (51%), grocery store prices (40%), availability of product (39%), grower input (28%), profit margins (22%), or based upon a specified set of markups (9%). Twenty-five percent chose “all of the above” to the question.

Brian Moyer, education program associate with Penn State Extension and founder/director of PA Farm Markets, noted the majority of respondents in part base their prices on their competitors’ pricing — a practice he counseled farm market operators to avoid.

“It is good to know what your peers are selling and how much, but don’t let it be the driver of your pricing strategy,” he said.

On the other hand, using expenses such as inputs, and considering multiple factors in determining prices, is a smarter strategy, Moyer said. Basing prices on the competition’s pricing “means you are letting someone else set your price,” he said.

Pricing considerations

In questions about the “three Cs of pricing” (costs, customers and competition), 82% of respondents noted they set prices with an eye on sensitivity to what their customers will support, with more than 75% basing prices on costs. Competition was of less importance, but still garnered 48% in the higher ratings in a scale of 1-5 importance.

Cost-plus pricing is a common way to price products and works well if the marketer understands the kind of profit margin required, Moyer said.

In rating the top price markups, most farm markets add 20%-40% with less than 20% choosing 50%-60%.

In the value pricing method, Moyer recommends that farm markets determine the unique qualities of their produce, such as freshness, distinctive varieties or organic certification.

Nearly 60% of those polled charge more for specific fruit varieties, while 49% charge more for particular vegetable varieties. In last year’s survey, 56% stated they charge more for specific produce varieties.

Strawberries, peaches, apples, heirlooms, Asian pears and berries are the leading fruits that draw premiums in the fruit category, and heirloom varieties, organics, peppers, specialty pumpkins and tomatoes lead vegetable premiums.

On fruit, a slim majority of respondents (52%) add 20%, 18% stated they mark up 30%, and 16% add 10%. For vegetables, 47% charge 20% with under a third affixing 10%.

In responding to how farm marketers communicate “premium” to customers, under 30% each stated “variety type” and “limited availability/high demand” while 34% chose “specialty/niche crop.”

On how farm markets set prices, comments included

• “Consumers.”
• “What we feel the market in
  our area will bear.”
• “Purely marketing.”
• “What customers will pay. IF they don’t buy, it isn’t sold at all.”
• “Agriculture chemicals and fertilizer.”
• “Marketplace determines the price.”
• “We monitor sales volume after price increases to estimate demand.”

The comment “Sell for a loss versus a ‘goose egg’” drew Moyer’s attention. He recommended farm markets consider bundling lower- demand commodities with other, more profitable items to gain some profit. If the farm has a community- supported agriculture (CSA) program, the farm market could move the item through the CSA.

“Set prices based on the perceived value by customers,” Moyer said. “Clearly communicate the value proposition to customers through signage, conversations and marketing materials.”

Supermarket influence

In gauging grocery store influence, 40% said they compare store prices. Grocery stores base pricing and profitability on many factors, with seasonal produce items often sold as “loss leaders” to attract customers, Moyer said.

“Some of the most successful markets I know have no idea what produce sells for in grocery stores,” Moyer said. “Farm Markets need to focus on freshness and quality, which rank as number one concerns in consumer surveys. Price is usually lower on the list of concerns.”

Most sell produce by per-pound (69%), pint (38%), piece (37%), bushel (34%) and peck (31%), in the multiple options responses.