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An Economic Investigation Into Inflation Passthrough To The Farm Sector

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  • Tweeten, Luther G.

Abstract

The purpose of this study is to estimate the impact of general inflation on prices paid and received by farmers. Specific objectives are: (1) to test the hypothesis that the farm commodity domestic demand function at the farm level is homogeneous of degree zero in price and income; and (2), conditional on not rejecting the hypothesis in (1), to test the hypothesis that general inflation changes the ratio of prices received to prices paid by farmers because of impacts unevenly on prices and income in the demand function versus the supply function for farm output. Empirical results provided no basis to reject the hypothesis that economic functions determining demand for output at the farm level are homogenous of degree zero in income and prices. A truly general increment in overall price level appears to increase nominal prices received and farm demand in proportion to the general price level but leaves real farm demand and hence real demand price unchanged. This hypothesis could not be rejected based on the domestic components of demand for farm output examined in this study. Given demand and supply functions homogeneous of degree zero in all prices and income, the second hypothesis that general inflation impacts evenly on all prices and income was rejected for the 1963-77 period. In that period, national inflation moved upward the supply curve through prices paid by farmers proportionately more than it moved upward the demand curve and prices received by farmers, contributing to a cost-price squeeze.

Suggested Citation

  • Tweeten, Luther G., 1980. "An Economic Investigation Into Inflation Passthrough To The Farm Sector," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 5(2), pages 1-18, December.
    • Handle: RePEc:ags:wjagec:32398
    DOI: 10.22004/ag.econ.32398
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    References listed on IDEAS

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    1. Tweeten, Luther G., 1967. "The Demand for United States Farm Output," Food Research Institute Studies, Stanford University, Food Research Institute, vol. 7(3), pages 1-28.
    2. Waugh, Frederick V., 1964. "Demand and Price Analysis: Some Examples from Agriculture," Technical Bulletins 171213, United States Department of Agriculture, Economic Research Service.
    3. George, P.S. & King, Gordon A., 1971. "Consumer Demand for Food Commodities in the United States with Projections for 1980," Monographs, University of California, Davis, Giannini Foundation, number 11936, December.
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    Cited by:

    1. Bulent Guloglu & Saban Nazlioglu, 2013. "Impacts of Inflation on Agricultural Prices: Panel Smooth Transition Regression Analysis," Research Journal of Politics, Economics and Management, Sakarya University, Faculty of Economics and Administrative Sciences, vol. 1(1), pages 1-20, January.
    2. Duffy, Patricia A. & Richardson, James W. & Smith, Edward G., 1986. "Effects of Alternative Farm Programs and Levels of Price Variability on Texas Cotton Farms," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 18(2), pages 97-106, December.
    3. Jiawu Dai & Liurui Deng & Lan Yang, 2021. "Testing the absorber hypothesis of exchange rates for the overshooting of agricultural prices in China," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(8), pages 327-336.
    4. Campiche, Jody L. & Bryant, Henry L. & Richardson, James W. & Outlaw, Joe L., 2006. "An Analysis of Cointegration: Investigation of the Cost-Price Squeeze in Agriculture," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35357, Southern Agricultural Economics Association.
    5. Tan, Ying & Sha, Wenbiao & Paudel, Krishna, 2017. "The Impact of Monetary Policy on Agricultural Price Index in China: A FAVAR Approach," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252676, Southern Agricultural Economics Association.
    6. Devadoss, S., 1985. "The impacts of monetary policies on US agriculture," ISU General Staff Papers 198501010800008837, Iowa State University, Department of Economics.
    7. Tweeten, Luther, 1981. "Puzzles for Agricultural Economists in the 1980's," Journal of the Northeastern Agricultural Economics Council, Northeastern Agricultural and Resource Economics Association, vol. 10(2), pages 1-8, October.
    8. Tweeten, Luther, 1981. "Puzzles for Agricultural Economists in the 1980's," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 0(Number 2), pages 1-8, October.
    9. Drabenstott, Mark & Jolly, Robert W. & Learn, Elmer W. & Zulauf, Carl & Guither, Harold D. & Frew, Burdette & Hanman, Gary & Hitzhusen, Robert & Jennings, Dan & Raup, Philip M. & Womack, Abner & Bullo, 1985. "Farm Policy - The Emerging Agenda," Miscellaneous Reports 257834, University of Missouri Columbia, Department of Agricultural Economics.
    10. Smith, Edward G. & Richardson, James W. & Knutson, Ronald D., 1985. "Impact Of Alternative Farm Programs On Different Size Cotton Farms In The Texas Southern High Plains: A Simulation Approach," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 10(2), pages 1-10, December.

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