Pricing & Parity
by Ridge Shinn

Establishing a fair price for our meat and milk is critical to establish a thriving, sustainable rural economy. But what determines a fair price?

Most of us are old enough to attest that prices in general have skyrocketed in our lifetime. But have the prices of meat and milk risen in accordance with the price of other everyday items? To clarify, Randy Cook of the National Organization for Raw Materials (NORM) provides the following calculations. Compare the price of a postage stamp in 1947--$.02—to the price of a postage stamp today--$.37. This ratio of almost 20 to 1 is reflected in many prices today in comparison to prices in 1947.

But look closely at the price comparison for milk and meat: the average price from 1947-1949 for milk was $4.37/hundredweight (cwt), and for beef was $20.13/cwt; the average market price as of January 2005 was $14.70/cwt for milk and $89.44/cwt for beef. Using the Consumer Price Index (CPI) of the base period 1947-1949 as 100, the value for 2004 would be 807.6. Therefore, to produce buying power equivalent to that in 1947-49, milk today should be priced at $35.29/cwt and beef should be priced at $162.57/cwt. At these prices, most farmers could make a living.

The year 1947 was not selected for this calculation arbitrarily. NORM, under the leadership of Carl Wilken and working with the National Association of State Departments of Agriculture (NASDA), determined that the years 1947 to 1949 mark a period in American history when prices paid to farmers actually reflected the cost of production: in other words parity prices (“parity” meaning equal or similar). This was because an Act of Congress established a government-backed loan program for commodities at the level of 90% of parity; this created a period of nearly full parity. After the War Price Stabilization Act ran out in 1951, it was not renewed; supports for parity pricing disappeared and pricing for agricultural commodities started a rapid descent.

Importance of Parity Pricing
A compelling description of the importance of parity prices is found in NORM’s summation of 60 years of analysis of the nation’s economic records.