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Abstract
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 processors’ 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.