Agriculture in the food value chain

Background and Objective

In the past, the latest results of the so-called ‘farm share calculation’ were presented here every year. They have illustrated the development of the share of agricultural revenues (‘farm share’) in consumption expenditure for selected foods. However, the interpretation of these farm share developments is challenging. A decreasing farm share often goes hand in hand with a decreasing contribution to real value added. It then reflects, for example, increasing specialisation and service intensity in the value chains. This structural change in agri-food value chains has slowed down in recent years. Over the last 20 years, the farm share has hardly decreased at all. For these and other reasons, which are discussed in the Thünen Report ‘Preise, Mengen und Margen’ (Margarian 2023), the farm share calculation will no longer be continued from 2024. 

The market margin for beef and pork The market margin for beef and pork is still being calculated. It is calculated as the simple difference between the consumer price (5 cuts of fresh beef and 3 cuts of fresh pork) and the average producer price. We calculate this for the average of all trade classes (warm) from the data that must be reported regularly according to the Meat Act Implementing Regulation (Fleischgesetz-Durchführungsverordnung).

The new annual monitoring of prices, costs and margins is based on the evaluation of various price indices, performance indicators by industry and national accounts data from the Federal Statistical Office. This new monitoring programme compares price trends at the various stages of different value chains and identifies potential inflation drivers. At the same time, the economic development of relevant industries is mapped using some performance indicators. The indicators and charts shown remain the same wherever possible, but are updated every autumn using the data available from the previous or preceding year. The complete monitoring can be found with all explanations under this link.

Target Group

Politics, Research, Agriculture, Business

Approach

The starting point for the new annual monitoring of prices, costs and margins in agri-food value chains is inflation, i.e. the percentage development of input, production and consumption prices along various agri-food value chains. Corresponding price indices are available for the years from 1991 onwards, so that the percentage inflation rate can be calculated as of 1992.

The different drivers of inflation are analysed using national accounts data. The deflator corresponds to the ratio of the production value determined in current prices to the production value determined at the previous year's prices. The deflator is therefore an indexed price. It can be used as a basis for calculating the so-called ‘implicit’ inflation of the economy as a whole. The cost components of the deflator can be mapped as unit costs. For this purpose, the various cost groups, i.e. net production taxes, depreciation, labour costs and input costs, are for their part divided by the adjusted or ‘real’ production value. The difference between the deflator and unit costs corresponds to the margins or net margins. The changes in unit costs and margins explain inflation. The corresponding results can be found on the monitoring website under this link.

For the years from 2018, a new data source is available from the Federal Statistical Office in the form of the ‘Cross-sector business statistics’. It contains key business figures for companies in most economic sectors outside of agriculture based in Germany. With these data, we can calculate indicators on the economic development of the industries at a detailed industry level. We document the return on sales, the net return on sales, the profit share of GVA and sales growth. The results and more detailed explanations of these calculations can be found on the monitoring website at this link.

Preliminary Results

The complete monitoring can be found under this link.

The figure above shows the respective annual inflation rates in their five-year moving averages for the aggregated stages of the agricultural value chain. This longer-term inflation is lower for agriculture than for processing and consumption until 2006. From 2007 up to and including 2014, the price trend in agriculture is then more positive than in the downstream stages. After 2014 and then again after 2020, the situation is reversed.

However, the figure also clearly shows that prices often move together. There are two main reasons for this: Firstly, the price trend at one stage of the value chain influences the cost trend and therefore the price trend at the next stage. Secondly, all industries in the value chain, as well as the economy as a whole, are jointly influenced by economic ups and downs. However, the inflation movement alone does not reveal what is driving the price development in each case, i.e. whether it is primarily the input costs that have risen, or whether it is perhaps rather the labour costs that have increased or the companies that are adding higher margins to the costs. The further results of the annual monitoring provide more detailed information about this on the monitoring website.

Links and Downloads

Chart market spreads for beef (png)

Chart market spreads for pigmeat (png)

Data of average market spreads per year for beef and pigmeat (csv)

(Monthly values available on request)