Energy Price Transmission and Retail Milk Prices

Xun Li and Rigoberto Lopez

No 205318, 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California from Agricultural and Applied Economics Association

Abstract: This paper estimates the pass-through between diesel fuel and retail milk prices at the product brand level, based on a random coefficient logit demand model along with a market channel marginal cost function in order to estimate energy price pass-through rates to the consumer. It takes into account the partial and net impact of energy prices through the multi-market effects on other inputs. It also exploits a natural experiment of energy hyperinflation and the great recession in 2008. Empirical results show that energy prices (e.g., diesel price) significantly impact the retail prices of milk products and are, therefore, an important determinant of food price inflation. Pass-through rates are estimated to be in the range from 0.15 to approximately 0.50 before March 2008 and from 0.09 to 0.19 after March 2009, with an average of 0.26. This indicates that a $1.00 per gallon increase in diesel prices would on average result in a 26¢ per gallon increase in the retail price of milk. Statistical test indicates pass-through rates before March 2008 are significantly higher than that after March 2008. Interestingly, private label brands have the lowest energy (diesel) pass-through rates, implying that compared to manufacturer brands, private label prices are more insulated from energy price shocks.

Keywords: Agribusiness; Agricultural and Food Policy; Demand and Price Analysis; Industrial Organization; Marketing; Research Methods/ Statistical Methods; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 22
Date: 2015
New Economics Papers: this item is included in nep-com and nep-ene
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Citations: View citations in EconPapers (11)

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Working Paper: Energy Price Transmission and Retail Milk Prices (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea15:205318

DOI: 10.22004/ag.econ.205318

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