FARM-WHOLESALE-RETAIL COST/PRICE PASS THROUGH IN RETAIL FOOD-AT-HOME MARKETS

• Sponsoring Institution: Economic Research Service/USDA
• Project Status: ACTIVE
• Funding Source: USDA COOPERATIVE AGREEMENT
• Reporting Frequency: Annual
• Accession No.: 0406227
• Project Start Date: Oct 28, 2004
• Project End Date: Sep 15, 2007
• Program Code: [(N/A)]- (N/A)

Recipient Organization
USDA/ERS
1800 M STREET NW
WASHINGTON,DC 20036

Performing Department
ECONOMIC RESEARCH SERVICE

Non Technical Summary
This project will use publicly available price measurements for farm and wholesale food prices along with detailed retail scanner data to model price change at the retail level and measure the impact of changes at earlier stages of production on retail food prices.

Animal Health Component

80%

Research Effort Categories

Basic

20%

Applied

80%

Developmental

(N/A)

Classification

Knowledge Area (KA)	Subject of Investigation (SOI)	Field of Science (FOS)	Percent
603	5010	3010	50%
603	6230	3010	50%

Knowledge Area
603 - Market Economics;

Subject Of Investigation
6230 - Marketing systems and sectors thereof; 5010 - Food;

Field Of Science
3010 - Economics;

Keywords

retail price change

price-cost pass through

retail market dynamics

Goals / Objectives
This project is joint work with researchers at Harvard University to investigate and model price change at the retail level in response to changes in farm and/or wholesale prices.

Project Methods
This project will use publicly available price measurements for farm and wholesale food prices along with detailed retail scanner data to model price change at the retail level and measure the impact of changes at earlier stages of production on retail food prices.

Progress 10/01/07 to 09/30/08

Outputs
In 2008, data was collected and organized to use in an analysis of the impact of higher corn prices on retail food prices. This research was published as an Ambwe Waves feature article in 2008.

Impacts
The results of this research were highly cited and its author gave numerous presentations and conducted many interviews on the topic of the pass-through of higher corn price to retail food prices.

Publications

Progress 10/01/04 to 09/30/05

Outputs
In 2005, this project focused on the coffee industry to estimate the impact of changes in costs on manufacturer and retail coffee prices. We find that, on average, a 10 cent increase in green bean coffee prices yields a 5 cent increase in manufacturer prices in the current quarter, but almost no pass-through into retail prices until the quarter after the price change. If a cost change persists for several periods, it will be incorporated into manufacturer prices approximately cent-for-cent with the size of the change in the commodity cost. Given the substantial fixed costs involved in coffee manufacturing, this translates into a 5 to 7 percent change in retail prices for a 10 percent change in commodity prices. We do not find convincing evidence that coffee manufacturers take advantage of price variation to raise prices: prices do not respond more to commodity cost increases than commodity cost decreases.

Impacts
This project will impact how ERS explains changes in earlier stages of production and how they impact retail food prices.

Publications