I got a shock when reading a post titled “Conversations with a Nebraska farmer” at Eaton Rapids Joe’s blog the other day. The last few paragraphs caught my attention.
He said a 14 ounce package of Doritos has about 5 cents of corn in it when corn is $4 a bushel. That package of Doritos went up $2.50 when the cost of the corn went up to ten cents per package.
It is highly probably that the cost of the multi-color, metalized, mylar package the Doritos are sold in cost Frito-Lay more than twice what they paid for the corn. Furthermore, the advertising probably cost twice as much as the corn and the package combined.
It isn’t the farmer who is raising prices.
An anonymous commenter then explained:
Yeah, but Frito-lay is doing their best by making the package half the size of the one last year, and charging the same price. Just trying to help out the consumer, by minimizing the mylar.
There’s more at the link.
A 14.5-ounce pack of Doritos is what the brand calls its “party pack” – the biggest they make. I’d never correlated the size of the chip packet with the amount of actual grain involved in making the chips inside. To learn that it’s only a few cents’ worth of corn is an eye-opener.
Just extrapolating from Eaton Rapids Joe’s figures without worrying about price changes, that means a $4 bushel of corn would have produced about 80 14.5-ounce bags of Doritos, which at current retail prices would cost $4.98 each at Walmart, for a total revenue at retail level of $398.40. At $4 per bushel, the farmer would have received approximately 1% of that amount for the corn in that packet; at $8 per bushel, he’d have received about 2% of it. That says a bundle about how much profit the manufacturer and retailer are making.
Makes you think, doesn’t it?
Peter
Not to defend the manufacturer but what's the energy cost to move that corn from the field to the factory, process it and then cook it? What's the cost of all the chemicals, packaging, and even regulatory compliance? What's the capital cost and how is that amortized? What's the cost of all that corporate debt and debt service? How much of the foreign market revenue went 'poof' recently due to all the same factors impacting the market here? Their money isn't inflation free, unlike ours, is it? Just some thoughts.
And it isn't like they can load a huge weight onto a truck to get it to market. The stuff is mostly air and can't be packed tight without crushing the bags of chips. So how many bags can they get in a truck, and then factor in that diesel is well over $5/gallon still. So the shipping cost alone is probably a huge percentage of the price.
Fredrik has a good point.
The film for the bag is likely the most expensive individual consumable in the product
It is better to look at it as $$ vs. Calories and nutrition as much as anything.
A farmer won the lottery.
The lottery guy asked the farmer if he was going to buy a mansion, a fancy car… all the usual frivolous purchases.
The farmer replied " No, I'll just keep farming until it's all gone.".
The price of corn went up. That does not mean it all goes into the farmer's pocket. His costs went way up, which is what drove the price up. How can we all understand that, but fail to understand that the rest of the material and production costs also went up, for much the same reasons (transport and labor costs going through the roof, when you can GET transport and labor). Doritos is not the only thing going through the roof. Soft drinks are skyrocketing, meat was skyrocketing (backing off now, but that is going to change next year, it is going down because people are downsizing their herds). Get ready, inflation is not done yet. And the morons at the Fed are trying to choke off the money supply, crashing the real economy, while the government continues to print money, thus continuing the inflation. If the Biden administration was TRYING to ruin the country they would be doing less damage.
The margins in beer are even better.
A few years ago (2015), a 6-location new & used car dealer in this area had total GROSS revenues of $400 million. That's new and used cars, parts, body shop, and service sales, total.
Hold my beer!
A friend of mine was in charge of all marketing expenses for Miller Beer in 1985 or so. That included all the bar napkins, glasses, signs, gadgets and paraphernalia, plus the traveling bands that the brewery sponsored. This was only for Miller, NOT for Miller Lite.
His budget then?
$400 million.
Dad29,
where were these 6 locations, Milwaukee? Because @ 30K a vehicle that's only 225 vehicles a year per location. Less that one car a day. Of course that wasn't just vehciles, so 400 million Gross revenue isn't a surprise. What was net revenue?
Transportation and getting product to shelf is often the biggest cost of getting any item on the shelf. Back when CDs were the state of the art the Artist got 25cents, I think it cost a dime to make the CD and case, but the rest of the cost was getting the CD to where the customer could grab it. I don't remember the margin, but not all that high as I recall.
First world economies depend on cheap energy. Take away cheap energy and take away the first world economy.
I used to work for one of the largest private label trash bag manufacturers (if not the #1) in the US. We did spend more on the box the bags were sold in than the bags themselves. That even goes for the giant economy size you get at Sam's or Costco.
Fun fact – both of those brands are made on the same production lines. The only difference is the packaging and the color of the drawstring (if the bag has one).
As a wheat farmer, I’ve been thinking about it for years.
Wheat is currently – at rather inflated prices – worth about 15c/pound on-farm.. keep in mind that your 1pound loaf of bread is less than 100% wheat flour.
Frederic is correct, tho. The costs involved in transport, milling, more transport, baking, more transport and retail, are fairly high. The profit margin stays slim because there are dozens of other bakers who will undercut you if you price your bread too high, and there is zero profit if you can’t convince the customer to buy it.
Part of what drives the price up at this end is supply. Mr Businessman has a lot of money invested in his bakery or flour-mill, so he can’t afford to just shut it down. He loses business, loses customers , loses skilled employees and no longer has a cash-flow to pay the interest on his borrowings, so he is driven to pay more just to keep things moving. All the fun of operating in a free market.
I’m not even sure that the packaging is particularly expensive. Single-use packaging is so inexpensive tgat supermarkets were giving it away until government got involved.
The people that I really feel sorry for, are those whose business is based on non-essential goods and services. We saw what happened to restaurants during the China-Flu lockdowns. When people can’t use and/or cannot afford a product and/or service, that hurts the owners and employees big-time.
Cheers…..
It's always like that.
Local radio went on a tear after liberals had hissyfits about deporting illegals, and they detailed that the labor cost of a $1/head lettuce was only 5 cents, and so that if you doubled the salaries to lettuce pickers, the same head would leap to only $1.05/head.
The Karens finally shut up, after being whack-a-moled into oblivion with that fact day after day.
And if that happened, odds are they'd make lettuce pickable by machine, and cut out labor entirely, except for the machine driver.
(Which, BTW, is why your cherry tomatoes are now oblong: genetically developed so that machines can pick them easier that way. True fact.)
Frito-lay spikes prices for the same reason Shell or Standard or Exxon jacks gas prices by 50 cents/gallon every time one refinery in BFEgypt goes offline for thirty seconds, but doesn't lower it again until six months after that refinery is back up to full capacity: because they can.