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Retail-Farm Price Margins And Consumer Product Diversity

Author

Listed:
  • Reed, Albert J.
  • Elitzak, Howard
  • Wohlgenant, Michael K.

Abstract

This bulletin provides an alternative approach for computing retail-farm price margins. Current published estimates of retail-farm price margins are calculated assuming that food markets are comprised of identical firms producing, in fixed-factor proportions, a homogeneous set of final food products. The approach presented here relaxes these assumptions by relying on an expenditure-based measure, justified by the Generalized Composite Commodity Theorem, that reflects consumer demand for the many different elementary food products associated with a modern food market. This measure allows a direct link between consumer demand for diverse elementary products and food quality and marketing services where increases in retail-farm price margins, for example, can be traced to increases in consumer purchases of high-value products. Retail-farm price margins based on the alternative approach are estimated here for seven major U.S. food markets for each year from 1980-97. Although the alternative retail-farm price margins and the currently published estimates show similar trends, they also show significant differences, particularly in more recent years, that can be traced to shifts in increased consumer demand for marketing services.

Suggested Citation

  • Reed, Albert J. & Elitzak, Howard & Wohlgenant, Michael K., 2002. "Retail-Farm Price Margins And Consumer Product Diversity," Technical Bulletins 33573, United States Department of Agriculture, Economic Research Service.
  • Handle: RePEc:ags:uerstb:33573
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    File URL: http://purl.umn.edu/33573
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    References listed on IDEAS

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    1. Huang, Kuo S., 2000. "Forecasting Consumer Price Indexes for Food: A Demand Model Approach," Technical Bulletins 33564, United States Department of Agriculture, Economic Research Service.
    2. Wohlgenant, Michael K, 1999. "Product Heterogeneity and the Relationship between Retail and Farm Prices," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 26(2), pages 219-227, June.
    3. Elitzak, Howard, 1999. "Food Cost Review, 1950-97," Agricultural Economics Reports 34053, United States Department of Agriculture, Economic Research Service.
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    Cited by:

    1. Beghin, John C. & Jensen, Helen H., 2008. "Farm policies and added sugars in US diets," Food Policy, Elsevier, vol. 33(6), pages 480-488, December.
    2. Reed, Albert J. & Levedahl, J. William & Clark, J. Stephen, 2003. "Commercial Disappearance and Composite Demand for Food with an Application to U.S. Meats," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(01), April.
    3. Lambert, David K. & Miljkovic, Dragan, 2010. "The sources of variability in U.S. food prices," Journal of Policy Modeling, Elsevier, vol. 32(2), pages 210-222, March.
    4. Carambas, Maria Cristina D.M., 2005. "Analysis of Marketing Margins in Eco-Labeled Products," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24600, European Association of Agricultural Economists.
    5. Song, Baohui & Marchant, Mary A. & Xu, Shuang, 2004. "Who Dominates The U.S. Soybean Industry: Producers, Consumers, Or Agribusineses?," 2004 Annual meeting, August 1-4, Denver, CO 20117, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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