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ERS calculates marketing bill statistics to show (1) the price spread for all foods, and (2) the distribution of the marketing bill among the various services and materials required to market food, such as labor, packaging, transportation, and energy.
The table Components of the Marketing Bill delineates the expenditures for the various services required to process and market raw farm food commodities. Labor is the largest single component of the marketing bill, accounting for 38 percent of total consumer expenditures on food. ERS estimates a variety of other cost components, including separate estimates for packaging, intercity transportation, fuel and electricity, corporate profits, depreciation, rents, advertising, interest, and business taxes.
Labor
The labor cost component of the marketing bill includes the following:
- Wages and salaries of employees.
- Imputed earnings of proprietors and active partners.
- Imputed earnings of unpaid family workers in retail stores and away-from-home eating places.
- Supplements to wages and salaries (e.g., as pensions and health insurance).
Labor costs are only for workers in establishments engaged in marketing farm-originated food products and do not include costs of labor engaged in for-hire transportation or in manufacturing and distributing packaging materials and other supplies used by marketing firms.
The general method of estimating labor costs is to construct benchmark payroll totals from the Employment and Wages (E&W) bulletin published by the Bureau of Labor Statistics (BLS). These data are based on unemployment insurance reports submitted to BLS by employers, but do not account for supplemental benefits, such as pensions and health insurance. Therefore, the payroll data are augmented by benefits data derived from the Survey of Current Business, published by the Bureau of Economic Analysis. The Censuses of Manufacturing and Retailing also provide data on employee supplements.
There is a 2-year lag between compilation of raw data and the publication of the E&W bulletin. Therefore, ERS extrapolates estimated payrolls of employees by using BLS annual estimates of the number of employees and weekly earnings of production workers for industries and business. ERS revises these preliminary estimates when new data become available.
Packaging
Firms that process and distribute foods purchase nearly half of all containers and packaging materials. Costs of packaging materials are the second-largest component of the marketing bill, exceeded only by labor costs.
Packaging material costs include the cost of paper products, and metal, glass, plastic, and wooden containers. ERS uses several sources of data to estimate the purchase value of containers and packaging materials. The value of shipments of various containers and packaging materials are available from the Census of Manufacturers taken once every 5 years. Estimates of the proportion of each type of container and packaging material used in food marketing are obtained from an encyclopedia on modern packaging and other sources. ERS analysts apply these data to the total value of shipments of each packaging material to estimate the value used for food packaging.
Energy
The energy bill includes only the costs of electricity, natural gas, and other fuels used in food processing, wholesaling, retailing, and foodservice establishments. Transportation fuel costs, except for those incurred for food wholesaling, are excluded.
The Censuses of Manufacturing, Wholesaling, and Retailing serve as the primary sources of data on energy use by the food industry. The total cost of the various fuels used by the food industry is divided by industry sales in order to determine the energy cost per dollar of sales. This ratio is then multiplied by the annual sales of food manufacturers, wholesalers, retailers, and foodservice establishments to obtain the estimated annual total energy cost for other years.
Profits
ERS estimates pre-tax profits earned by corporations for manufacturing, wholesaling, and retailing U.S. farm foods. Estimates of sales are multiplied by ratios of profits to sales (computed from Internal Revenue Service data) to arrive at total dollar profits. Due to a 2-year lag in the availability of the IRS data, profit estimates are developed by a two-step procedure. First, profit ratios per dollar of sales are derived from IRS corporate income tax returns for each food sector. This estimate is then multiplied by the annual sales of food retailers, wholesalers, manufacturers, and public eating places. These estimates are revised when more recent IRS data become available.
Miscellaneous
Several other miscellaneous costs make up the marketing bill:
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An allowance for the decline in value of capital assets caused by obsolescence and physical deterioration of buildings and equipment.
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Expenditures for activities such as television, radio, and newspaper advertising.
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Rent expense less rent income. Data on rent are reported by the IRS as both income and expense.
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Interest expense less interest income. Interest, like rent, is reported as both income and expense by the IRS.
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Expenditures for maintenance and incidental repairs and costs of labor, supplies, and other items that do not add to the value or appreciably prolong the life of the property.
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Property, State, unemployment insurance, and Social Security taxes but not Federal income taxes.
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The basic data for estimating these miscellaneous costs are derived from the IRS publication, Statistics of Income: Corporation Income Tax Returns.
The ratio of each individual cost component to total industry receipts is calculated and multiplied by annual sales for each food industry sector.
The Marketing Bill compiles a large volume of secondary data about the food marketing sector to describe long-term trends for marketing input costs. The Marketing Bill provides some insight into the sources of price spread changes by indicating shifts over time in the relative importance of costs associated with the processing and distribution functions.
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