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Changing Consumer Food Prices: A User's Guide to ERS Analyses

  • Reed, Albert J.
  • Hanson, Kenneth
  • Elitzak, Howard
  • Schluter, Gerald E.

USDA's Economic Research Service (ERS) uses different economic models to estimate the impact of higher input prices on consumer food prices. The present study compares three ERS models. In the first two models, neither consumers nor food producers respond to market prices. We refer to these two models as short-run models. In the third model, both consumers and food producers respond to changing prices, and we refer to this model as a long-run model. Given published parameter estimates, we simulate the impact of a higher energy price on consumer food prices, and our empirical findings are consistent with our understanding of market responses. In the short run, we find that the full effect of an increase in the price of energy is fully (or nearly fully) passed on to consumers, because neither food producers nor consumers can immediately respond to changing prices. In the long run, however, the price response of food producers and consumers serves to mitigate the increase in consumer food prices.

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File URL: http://purl.umn.edu/33574
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Paper provided by United States Department of Agriculture, Economic Research Service in its series Technical Bulletins with number 33574.

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Date of creation: 1997
Date of revision:
Handle: RePEc:ags:uerstb:33574
Contact details of provider: Postal: 1400 Independence Ave.,SW, Mail Stop 1800, Washington, DC 20250-1800
Phone: 202-694-5050
Fax: 202-694-5700
Web page: http://www.ers.usda.gov/
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  1. Panzar, John C & Willig, Robert D, 1978. "On the Comparative Statics of a Competitive Industry with Inframarginal Firms," American Economic Review, American Economic Association, vol. 68(3), pages 474-78, June.
  2. Elitzak, Howard, 1999. "Food Cost Review, 1950-97," Agricultural Economics Reports 34053, United States Department of Agriculture, Economic Research Service.
  3. Hanson, Kenneth & Robinson, Sherman & Schluter, Gerald E., 1993. "Sectoral Effects Of A World Oil Price Shock: Economywide Linkages To The Agricultural Sector," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), July.
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