The Farmer's Dilemma: Setting a Price

By Mike Madison, illustration by Helen Krayenhoff

If you grow rice or wheat or corn or cotton, the price is set in the commodities futures trading markets. When you’re ready to sell, just check on your computer, and there’s the price. But if you grow specialty crops for sale at farmers markets, setting the price is up to you. Should these apricots be two dollars a pound? Four dollars? Six dollars? How do you decide? This question has puzzled me for years, and I’ve talked to a lot of farmers about it. Some have a definite system, most just see what everyone else charges, and set their price about the same.

Half the production of my farm is olive oil (the rest is apricots, berries, figs, melons, and flowers), and for the purpose of this essay, I’ll consider the price of a half-liter bottle of organic, extra virgin olive oil offered for sale at a farmers’ market. I come up with four possible prices.

The Just Price

Consider two customers at the market. The first is a young woman with three shabbily dressed small children in tow. In her hand is a stack of EBT tokens (food stamps). Obviously she’s poor, and her children, considering the likely hardship of their circumstances, are probably more in need of healthful food than anybody. I’d be happy to sell her the oil for, say, five dollars.

The next customer, a smartly dressed woman, reaches into her Coach bag and pulls out her Gucci wallet, which, opened, shows neat rows of credit cards—36 of them! She plucks out a crisp $50 bill. Balzac’s words come to mind—“Behind every great fortune lies a crime”—and I think of charging her $40 dollars for the oil.

Of course, it is hopeless to attempt to make up a separate price for each customer. Most of my customers give no clear indicator of what their financial situation might be and what therefore might be an appropriate price to charge them. In an unjust society, there is no just price.

The Business School Price

I attended a conference on the business of olive oil. One of the speakers was a very successful producer who had her MBA degree. She showed a graph of two intersecting lines: one was the greed of the vendor, the other the gullibility of the purchaser. (She didn’t call them by those terms, but that’s the general idea.) Their intersection was the price point. In her case, this was $45 per bottle.

She made a point that extreme packaging and extreme marketing were necessary to create the impression of value. Interestingly, what mattered was not value, but the impression of value. And this leads to the observation that there is almost no correlation between price and quality in the direct food markets. Are five-dollar-a-pound tomatoes better than two-dollar-a-pound tomatoes? Sometimes they are, sometimes they’re not. Price tells you nothing much about quality in produce, or in olive oil, either. Mostly what price conveys is the chutzpah of the vendor.

One of the speakers at the conference referred to olive oil as a “luxury liquid,” sort of like single-malt Scots whiskey. The whiskey is indeed a luxury liquid, and if the distiller can get an outrageous price for it, more power to him. But olive oil is not a luxury liquid. It’s an essential food, and when you’re a producer of food, your business is not just about dollars, but inescapably also about community health and social justice. To be a food producer is somewhat like being a physician: Your responsibilities extend to the health of the whole community that you serve. In that way of thinking, to charge $45 for a bottle of olive oil is to be on pretty swampy moral ground.

The Comparable-Income Price

A young farmer and shrewd businessman I know makes the following argument: “I’m a skilled professional, I work hard, I have a lot of money invested, I endure a lot of risks. I ought to make as much income as an attorney or a banker or the owner of a car dealership. I deserve a six-figure income. And to do that, I need to charge $32 for a bottle of olive oil. Not only that, but by charging a higher price, I’m leading all of the farmers to better incomes. Why should the decision to be a farmer constitute a vow of poverty? I see myself as a pioneer, changing the public perception of the value of food, and that is going to raise the incomes of all of the farmers.”

It’s an interesting trick—striking a heroic pose while simultaneously stuffing money into your pockets with both hands. He’s right, of course, that there are people who make an extremely slender contribution to society and expect in return an oversize share of our common wealth. Just as there is little correlation between quality of fruit and its price, so there is little correlation between social value of work and its compensation. But why choose to emulate those who most abuse the system for personal gain? Is this who you would claim as your peers?

The Fair-Trade Price

The idea of fair trade involves careful stewardship of the land, good treatment of workers, and a fair price to the producer. In my own case, I farm with a biologically sound system, and, having no employees, I am both the only worker and the producer, so the question becomes one of what would be a fair price to me.

Let me approach this obliquely. Imagine for a moment the life of a certain accountant. Each morning he drives for an hour and a half through hideous traffic to his office, where he spends the day in a cubicle staring at a computer screen as he tries to invent plausible falsehoods on behalf of his clients who are hoping to evade their responsibilities, and then at five o’clock he gets back in his car and drives for an hour and a half through hideous traffic home again. What a life! Ah, but vacation is coming. He and his wife plan to go to Italy to an agritourism site. For two weeks they will live in a rustic little house set in an olive grove, and eat hearty peasant food served on an old wooden table, accompanied by a bottle of the local wine. During the day they will roam the olive groves, helping with the harvest, satisfying the most fundamental human instinct of gathering our food. Of course, this isn’t cheap; the agritourism portion of the vacation will cost $8,000.

I live in a rustic little house set in an olive grove. Every day I eat hearty peasant food at an old wooden table, and drink a bottle of the local wine. And I spend my days in my groves and orchards, harvesting, pruning, tending irrigation, or simply watching the hawks circling overhead. The accountant has given us the value of this—it’s $4,000 a week, or over $200,000 per year (tax free!) in “experiential compensation” (to give it a name). To me this compensation is not fictional—it’s real.

Each year at tax time I take out the shoebox full of chits and receipts, and add up my earnings, and subtract my expenses, and divide by my hours worked, and discover, almost every year, that I am making between six and seven dollars an hour (not including the $200,000 mentioned in the previous paragraph). We live very simply and have no debts, so this income is sufficient to pay our bills and have a bit left over, which suggests to me that my prices are about where they should be. By global standards (which I believe are the correct basis for comparison) I live like a king.

My friends with business degrees tell me that this analysis is delusional, that experiential compensation is meaningless, that business is business, and that I should be aiming for the $45 per bottle price. And once in a while some farmer will scold me for having my prices too low, which makes everyone else look bad, and undermines the market. I hear him out (it’s always a “him;” the women farmers are too polite for this, whatever they might think), and then I say to him that by all means he should charge the price he thinks is appropriate, and I’ll do the same. My price, by the way, is $15 per bottle. And if a customer can’t afford that, I’m willing to work with a lower price, though I haven’t yet figured out a tactful way of suggesting that possibility. And if a customer with 36 credit cards in her Gucci wallet wishes to pay more than $15, I’d be happy to oblige her. That hasn’t happened yet. •