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Energy Price Transmission and Retail Milk Prices

Author

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  • Li, Xun
  • Lopez, Rigoberto A.

Abstract

This paper estimates the pass-through between diesel fuel and retail milk prices at the product brand level, based on a random coefficient logit demand model along with a market channel marginal cost function in order to estimate energy price pass-through rates to the consumer. It takes into account the partial and net impact of energy prices through the multi-market effects on other inputs. It also exploits a natural experiment of energy hyperinflation and the great recession in 2008. Empirical results show that energy prices (e.g., diesel price) significantly impact the retail prices of milk products and are, therefore, an important determinant of food price inflation. Pass-through rates are estimated to be in the range from 0.15 to approximately 0.50 before March 2008 and from 0.09 to 0.19 after March 2009, with an average of 0.26. This indicates that a $1.00 per gallon increase in diesel prices would on average result in a 26¢ per gallon increase in the retail price of milk. Statistical test indicates pass-through rates before March 2008 are significantly higher than that after March 2008. Interestingly, private label brands have the lowest energy (diesel) pass-through rates, implying that compared to manufacturer brands, private label prices are more insulated from energy price shocks.

Suggested Citation

  • Li, Xun & Lopez, Rigoberto A., 2015. "Energy Price Transmission and Retail Milk Prices," Working Paper series 290112, University of Connecticut, Charles J. Zwick Center for Food and Resource Policy.
    • Handle: RePEc:ags:ucozwp:290112
    DOI: 10.22004/ag.econ.290112
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    7. Alanne, Kari & Cao, Sunliang, 2019. "An overview of the concept and technology of ubiquitous energy," Applied Energy, Elsevier, vol. 238(C), pages 284-302.
    8. Stefan Hirsch & Giulia Tiboldo & Rigoberto A. Lopez, 2018. "A tale of two Italian cities: brand-level milk demand and price competition," Applied Economics, Taylor & Francis Journals, vol. 50(49), pages 5239-5252, October.
    9. Barteková, Eva & Kemp, René, 2016. "National strategies for securing a stable supply of rare earths in different world regions," Resources Policy, Elsevier, vol. 49(C), pages 153-164.
    10. Shin, Kong Joo & Managi, Shunsuke, 2017. "Liberalization of a retail electricity market: Consumer satisfaction and household switching behavior in Japan," Energy Policy, Elsevier, vol. 110(C), pages 675-685.
    11. Webber, Phil & Gouldson, Andy & Kerr, Niall, 2015. "The impacts of household retrofit and domestic energy efficiency schemes: A large scale, ex post evaluation," Energy Policy, Elsevier, vol. 84(C), pages 35-43.

    More about this item

    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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