Changing Consumer Food Prices: A User's Guide to ERS Analyses
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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- Elitzak, Howard, 1999. "Food Cost Review, 1950-97," Agricultural Economics Reports 34053, United States Department of Agriculture, Economic Research Service.
- 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.
- 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.
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