TRACING THE EFFECTS OF AGRICULTURAL COMMODITY PRICES ON FOOD PROCESSING COSTS

Although food processing sector production is inherently linked to the availability and prices of agricultural materials (MA), this link appears to be weakening due to adaptations in input costs, technology, and food consumption patterns. This study assesses the roles of these changes on food processorsÂ’ costs and output prices, with a focus on the demand for primary agricultural commodities. Our analysis of the 4-digit U.S. food processing industries for 1972-1992 is based on a cost-function framework, augmented by a profit maximization specification of output pricing, and a virtual price representation for agricultural materials and capital. We find that falling virtual prices of MA and input substitution have provided a stimulus for MA demand. However, scale effects have been MA-saving relative to intermediate food products, and disembodied technical change has strongly contributed to declining primary agricultural materials demand relative to most other inputs.


Issue Date:
2000
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/11987
Total Pages:
42
Series Statement:
Working Paper No. 00-032




 Record created 2017-04-01, last modified 2017-08-23

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