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

American farmers, particularly small-scale and specialty crop growers, struggle to maintain livelihoods due to low farm-gate prices. This is exacerbated by an unequal distribution of market share and political support within the food supply chain. Many propose a return to parity pricing, a system that historically set price floors representing “fair” farm-gate prices based on the 1910–1914 period. This paper investigates this proposal. The median household income from farming in 2022 was -$661, with small farms (89% of U.S. farms, but only 18% of production value) experiencing the most significant losses. Small farms heavily rely on off-farm income, loans, and government aid to survive. Federal crop insurance premiums and subsidies have increased, yet direct farm program payments were the lowest since 2018 ($15,611,120 in 2022). Subsidies disproportionately benefit large commercial farms, leaving small-scale producers, including specialty crop growers, with minimal support. Specialty crops, comprising fruits, vegetables, tree nuts, etc., receive indirect grant programs focused on marketing rather than direct income support. The increasing reliance on non-farm income highlights the failure of current structures to support farmers. The median household income for all farms in 2021 was significantly below the MIT living wage calculation of $100,498.60 for a family of four. The economic hardship faced by farmers extends to negative impacts on rural communities. The revitalization of parity pricing is presented as a potential solution by some, but evidence of its effectiveness is lacking. This study aims to evaluate the historical validity of the 1910–1914 parity period, investigate the correspondence between parity prices and actual market prices for specialty crops, and analyze the temporal relationship between the end of parity pricing and the subsequent decline in farm income. This will contribute to a critical assessment of the effectiveness of parity pricing as a solution for the current challenges in the US farming sector.

Existing literature frequently advocates for a return to parity pricing to address declining farm incomes. This approach is rooted in the belief that the 1910–1914 period represented a time of fair farm payments relative to inputs and living expenses. However, the paper notes a lack of robust evidence demonstrating that parity prices would sufficiently remedy the current economic struggles of farmers. The authors highlight the social connotation of parity pricing as signifying fair wages, contrasting this with the actual political application of parity prices within USDA policy. The authors draw upon existing research regarding consolidation in the food industry, increasing input costs, and policies that incentivize overproduction and low retail prices as contributing factors to the economic challenges faced by the farming sector. They review existing literature that analyzes the distribution of government farm payments, highlighting their disproportionate allocation toward large commercial farms.

The study employs a mixed-methods approach. First, to assess the validity of the 1910-1914 period as a baseline for parity, the researchers compare 1916 income data for farm households and non-farming households. They use Kolmogorov-Smirnov and Wilcoxon signed-ranked tests to determine if there was statistically significant difference in income distributions, thus validating or invalidating the premise of income parity during that reference period. Second, a case study is conducted to evaluate the correspondence between parity prices and actual market prices for 12 specialty crops commonly sold in U.S. farmers' markets. The crops selected provide diversity across food groups and growing regions. Data for 2014-2018 are used. The study analyzes the mean farm gate price (FGP), transfer terminal price (TTP), retail price (RP), parity price (PP), and production costs for each crop. Paired t-tests are employed to compare the differences between PPs and FGPs, TTPs, and RPs. The analysis investigates whether low FGPs translate to low RPs and if higher FGPs and PPs consistently correlate with higher production costs. Finally, a time-series analysis is conducted using data from 1934 to 2021 to illustrate the secular trend in the ratio of farm income to total household income, demonstrating the change in farmers’ reliance on off-farm income. Data sources include the USDA Economic Research Service (ERS) and the USDA National Agricultural Statistics Service (NASS) for income data, prices, and production costs.

The analysis of 1916 income data revealed no statistically significant difference between the income distributions of farm and non-farm households, suggesting that income parity may have existed during the 1910–1914 period. The case study of twelve specialty crops demonstrated that farm-gate prices (FGPs) were significantly lower than parity prices (PPs) for all crops studied. The disparities between parity prices and farm-gate, transfer terminal, and retail prices were substantial for some crops (e.g., tomatoes, green beans, asparagus, and cucumber). Importantly, low FGPs did not always correspond with low retail prices. For some crops, retail prices were significantly lower than terminal prices, indicating that low prices are not always passed on to consumers. The analysis also shows a lack of consistent correlation between high production costs and higher FGPs or PPs. Finally, the temporal analysis reveals a negative secular trend in the ratio of farm income to total household income since the 1940s, indicating a growing dependence on off-farm income to support farmers' livelihoods. The study found that across all commodities listed except for fresh potatoes, farm gate prices were below 50% of parity in Spring 2023, demonstrating a significant gap between current prices and parity prices.

The findings challenge the simplistic notion that restoring parity pricing alone would solve the economic challenges faced by farmers. While the existence of income parity during 1910-1914 is supported, the large disparity between current FGPs and PPs for specialty crops highlights the inadequacy of parity pricing as a standalone solution. The inconsistency between low FGPs and low retail prices, as well as the lack of consistent correlation between production costs and prices, reveals the complexities of the food supply chain. The declining ratio of farm income to total household income underscores the increasing reliance on off-farm income and the unsustainable nature of relying on farming as a sole source of income for many producers. The current system prioritizes low prices and maximal production at the expense of farmer well-being. Concentration in the food supply chain, contract farming practices, and unequal distribution of government support contribute to low FGPs. The study suggests that addressing these broader systemic issues is crucial for improving farm incomes.

This study demonstrates that the simple re-adoption of parity pricing is insufficient to address low farm-gate prices and ensure farmer well-being. While the historical validity of the 1910-1914 parity period is supported, the significant gap between parity prices and current market prices, combined with the complex realities of the food system, necessitates a multi-pronged approach. Parity prices could serve as a baseline for price support, adjusted for living wages and production costs. Alternative strategies, such as supporting local food systems and implementing effective marketing orders, are also critical. Further research on farmer preferences and perceptions regarding parity prices and the feasibility of alternative market strategies is recommended.

The analysis includes only twelve specialty crops and may not be fully representative of all U.S. specialty crops. The study does not fully account for the fact that major retailers often act as their own wholesalers, potentially influencing the relationship between retail and terminal prices. The high prices observed in farmers' markets reflect limited supply; increased supply would likely lower these prices. The transition to more sustainable agricultural practices requires significant investments and risk-taking. Despite these limitations, the study provides important insights into the inadequacy of parity pricing as a sole solution and the need for broader systemic change.