Why is fruit/vegetables so cheap despite the time and resources needed to produce them?
In: Economics
Economies of scale. Due to large overhead costs (equipment, land, etc) being present in farming even at low volumes, but being relatively stable as production grows, that overhead cost shrinks when calculating cost per unit as production increases.
Let’s say you have a $100k tractor to plant corn. If you plant 1000 stalks of corn, the cost of that tractor is allocated as $100k/1000 units, or $100/unit. If you plant 1 million stalks, your cost per unit shrinks to $0.10/unit in terms of operating that tractor, presuming you have the land to do it already and all else stays equal with the tractor.
Mass production farms capitalize on this significantly, but building these economies of scale takes time and investment. This is why there is a saying that farming only pays off by third generation if you’re starting fresh (pun intended, awww yeeeaahhh).
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