TRACING THE EFFECTS OF AGRICULTURAL COMMODITY PRICES ON FOOD PROCESSING COSTS

Catherine Morrison Paul and James MacDonald

No 11987, Working Papers from University of California, Davis, Department of Agricultural and Resource Economics

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.

Keywords: Demand and Price Analysis; Industrial Organization (search for similar items in EconPapers)
Pages: 42
Date: 2000
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Tracing the Effects of Agricultural Commodity Prices on Food Processing Costs (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucdavw:11987

DOI: 10.22004/ag.econ.11987

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