Is it Market Failure or a New Paradigm for Pricing?

Posted by Stacy on October 29, 2012

by Stacy Miller, Project Director

I was delighted to recently read Jeff Horwich’s blog post, Cutthroat or cartel? Analyzing the “markets” in farmers markets, as I think it presents some much needed analysis of the economics within markets.  We tend to see what some might call ‘alternative’ retail systems only in light of traditional ones, as if the chain grocery stores were the standard against which to compare, and their units of measurement the the only way to “play ball” with credibility in the food retail sector.

As farmers markets grow, we continue to learn more about the complexities of their moving parts, expanding our understanding of how, philosophically and mechanically, they offer an alternative to an alienating corporate food system fraught with all kinds of negative consequences.  Seldom do researchers or advocates try to dissect the elements of this unique kind of marketplace, with good reason– farmers markets not only defy conventional economics, but defy generalization as a system. As Horwich himself says, “It’s a great reminder that even the simplest-seeming market is vastly more complex than economic theory.”  He’s right to admit that price is not the only thing that matters.  The variables that converge to create a value tag are going to vary in weight depending on where a market is located, individual market’s policies, seasonality, vendor motivation, and even the degree of development pressure on agricultural land. But plotting these other things as variables in a chart (especially together at once!) is where things get complicated.

But let’s stick purely with price for a moment. Within the farmers market sector, price is in fact a big deal.  For decades (or more) agricultural producers have undercut themselves in the marketplace, taking whatever price wholesalers will offer, or, even when opting for direct-to-consumer sales, simply using the local grocery store chain prices as a gauge for their own.  This is problematic for them, surely, but also for consumers, who are only further conditioned to expect food as uniform and predictable in availability, quality, and price.  Among the recommendations Horwich makes in his thesis is “let vendors know that friendly agreement on pricing is not OK.”  Of course, price fixing is illegal, and bad for everyone.  I’d also agree with his recommendation to make it easier for new vendors to enter a market, provided that their products, location, and business model don’t violate market policies, and especially if the alternative is a closed circuit of only those producers who “got in” at the right time, and feel threatened if even a single other vendor offers a comparable, competing product line.

What I like to call “coopetition” in a farmers market works best when entrepreneurs are driven by competitors to innovate by improving their quality, diversity, or marketing– while at the same time knowing that their own sales are dependent on a healthy market, which itself relies on healthy relationships between vendors.  As Denise Beeden-Ost of Getty’s Creek Farm says in her Farmers Market Inspiration Award honorable mention essay Market Neighbors,  “You might think, being in the same business with the same customers, we’d see each other as competition. But as Jeff told Sean years ago, ‘Other farmers aren’t what hurts us; it’s Kroger’s that hurts us. And besides, who would you rather stand beside for five hours every summer Saturday- -a competitor, or a neighbor?’…At market, we’ve learned to be businesspeople as well as farmers–to be passionate about quality, ask fair prices without apology, and greet every customer with a smile.” This isn’t collusion– it’s simply consciousness and consideration of the sales environment of which they are a living, breathing member.

In the case of vegetables, for which there is high demand at most markets, there is often a lot of room for competition.  For something like high-end gluten-free pastries, maybe less so– and that’s a question of appropriate market mix that a good market manager can navigate without too much conflict.  However, I urge caution about managers urging producers to lower prices at mid-day, as Horwich suggests– unless, for example, they are marketing greens that have wilted from the heat.  It didn’t cost them any less to produce a product at 11 am as it did at 8 am, so why should they create a perception in the consumers’ minds that the suckers who paid full price first thing in the morning were being overcharged, and that this new discounted price is what the tomatoes are REALLY worth?

In his blog summary of the thesis research, Horwich postulates that price-fixing may be behind the reason that sometimes, an increase in the number of vendors for a particular product correlate with higher maximum prices, and therefore higher median prices.  In fact, the Fuji apple price example he offers seems to me a demonstration that the market succeeded in achieving the best case scenario: increased diversity of producers, product characteristics, and price options. Because alongside those higher maximum prices as the number of vendors selling fuji apples increased, the minimum price also decreased. Affordability and access was in fact improved, even if the averages don’t easily show it.
The idea that all lettuce, and all apples, for that matter, are created equal, is simply not true.  We attribute all kinds of values to our food, and I’ll use myself as a convenient example:

I am a cheapskate.  I use coupons, make irrational and time-consuming trips to co-ops and stores that have only one or two products I like on sale, and infamously deliberate over even the most prosaic purchases (e.g. if and where to buy paper towels).  But at the farmers market, where I shop every week, I am making conscious and sub-conscious decisions left and right, and few of them have to do with price.  I choose one mid-priced meat vendor over another because I like not only the quality of the meat, but the fact that the farming couple offers periodic sales to be more accessible to new shoppers, is consistent in showing up to the market, and because, for whatever reason, they are always smiling, helpful, and interested in how I end up preparing and eating their meats. Other comparable vendors may have higher prices with more slick marketing (and, I notice, fancier shoes), or lower prices but more questionable production practices.  Shopping for red peppers, cantaloupe, kale, etc. are all infused with these kinds of decision-making mini-matrices like these. At one point, with some small but still embarrassing degree of spite, I stopped buying from a farmer who dropped out of the market’s EBT program, because a) I knew I had other (even if less desirable) options, and b) think being accessible to SNAP participants is important. What good is “voting with our wallets,” if we don’t actually exercise the right to do so, at the micro level?

Horwich offers some provocative questions that acknowledge the wide diversity among farmers markets and the need for more research.  The Farmers Market Coalition, along with other partners, is interested in exploring indicators like these that expand our understanding of the farmers market-place.  What would it look like if we analyzed other indicators related to economic development, like sales per square foot, sales per hour, or new business start-ups per year? More robust analysis of farmers markets is much needed, and I look forward to increasingly nuanced dialogue shedding light on what could represent a new and much needed economic paradigm. Please use the comments section below to share your thoughts!