Friday, September 2, 2011

Is there something wrong with farmers markets?


Why would someone who makes things worry that there are too many places to sell it?

The answer lies in what makes farmers markets tick. They are limited quantity events that allow farmers to sell food at a premium. 

In general, though you can find lots of exceptions, farmers market food is slightly more expensive than standard grocery store food. I won't get into whether that's good or bad or what's behind it, but from what I've read it seems to be mostly the case. The big deal for farmers, though, isn't that their prices are higher than at Kroger. It's that they get a chance to charge retail prices, period. Usually they are stuck being wholesalers. Selling wholesale, farmers can only charge 50-60% of the price they get to charge at a farmers market. So they're making more profit at the market than they would wholesale.

The prices that farmers get to charge are a big reason why there are so many new markets cropping up. It's classic economics, a lesson taken straight from the upward-sloping supply curve. When prices go up supply increases. In other words, where there's an opportunity to make money, business will follow. It's kind of like how nature abhors a vacuum. Business abhors big profits. Where they exist they will be swallowed whole.

Since farmers can get higher prices at a market than wholesaling more farmers want in on the action, hence more farmers markets. So far the growth in markets hasn't meant an oversupply. But the farmers are right to worry that they might. Textbook economic says that would result in lower prices and lower profits. After all, there are only so many people who can afford—or maybe want to pay?—six dollars a pound for heirloom tomatoes. That's the reason you can find ten farmers markets within a fifteen minute drive of downtown Ann Arbor (pop: 114,000, median income $46,000) but only nine in all of Detroit (pop: 714,000, median income $30,000).

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