Fair Price & Wages

Towards an integrated approach for project analysis for small farmers: the Living Income / Fair Price method

The paper provides a basis for an integrated approach of agricultural project analysis with special attention to small farmers by expanding FAO’s Commodity Chain Analysis to an approach that includes power relations, both national and international, and 

income distribution. In order to be able to invest in production increasing techniques, the farmer must get enough revenue for his products to maintain his family in an appropriate way, as well as to be able to invest in tools and equipment. The economic, financial and social consequences of the prevailing system of market prices on small farmers are analysed and ‘fair’ prices for the products are calculated. These fair prices are based on a Living Income concept that allows farmers a decent standard of living and some funds to invest.

The policy paper can be foundhere

'Fair' Prices : Peasants and the possibilities of a Living Income (including a case study of Burkina Faso)

InfoBridge published a study paper: 'Fair' Prices : Peasants and the possibilities of a Living Income (including a case study of Burkina Faso)

After a brief discussion of the main approaches to the concept of the ‘Living Wage’ (LW), a methodology is developed how to apply this concept to the case of peasants. Since peasants do not receive a wage, the Living Wage definition is adapted to that of a ‘Living Income’ (LI). 

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A peasant should earn sufficient to pay seasonal workers and family members a Living Wage for the time they work, while himself earning a Living Income. The Living Income is the sum of the Living Wages for all workers involved, plus an additional percentage to enable investments to raise production in time. Instead of taking market prices as point of reference, the Living Income approach for peasants is a method to calculate what producer prices should be, given the size of the area and existing production methods, in order to be able to earn a Living Income. These prices may be different from market prices that often are not equilibrium prices, because of food aid, subsidies on imports, power positions of market parties etc. Comparison of the prices needed for a Living Income with actual market prices may lead to a further reflection on the prevailing price system for food crops, and to questions about the long-term food security and development prospects of the country, and of peasants especially. A calculation of prices needed to achieve a Living Income and the differences with market prices is worked out for a case in Burkina Faso. 

The study paper can be found here

InfoBridge published a Guide in "Fair Price Resources": 'Guide How to Calculate Fair Prices' by Ruud Bronkhorst

Additional income goats 2.1

A practical example is given how to calculate Fair Prices for agricultural products originating from small-holders. It starts with the calculation of a Living Wage as it is known in industry (esp. textile), based on the needs of a worker to maintain his/her family. This Living Wage is the basis for the calculation of a Living Income for the farmer. The Living Income per household combined with production costs, determines the amount the farmer has to receive for his products. Based on this income needed and the actual production costs, a Fair Price can be calculated for each different crop.

An Excel-sheet is attached showing the different steps to be taken to calculate a Fair Price. The Guide can be found here.