The Passthrough of Agricultural Commodity Prices to Food Prices

Cortney Cowley, Jacob Dice, Amaze Lusompa, David Rodziewicz and Francisco Scott

No RWP 24-16, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: Food inflation has been excluded from core measures of inflation under the reasoning that it is a phenomenon of the supply side of the economy, driven by stochastic supply shocks to agricultural production that can affect the availability of farm products and increase food price volatility. However, the share of food costs related to agricultural production has fallen over the years as food value chains have become more complex and food prices tied more closely to value added downstream in the supply chain. We calculate the magnitude and extent of agricultural price passthroughs to food prices in the United States after 2000. We leverage the results of simple models of food pricing under imperfect competition along the supply chain to identify possible sources of bias in the passthrough calculations. We argue that we can identify U.S. agricultural price passthrough to U.S. food prices in a structural vector autoregressive setting using a weather instrument (i.e., drought) that shifts supply of farm production but is excluded from demand. Our results suggest that the passthrough from row crops to food at home inflation is small and imprecisely estimated. These results reinforce the perspective that agriculture commodity prices are not a principle driving factor behind consumer food prices in the United States.

Keywords: food inflation; passthrough rates; Agricultural prices (search for similar items in EconPapers)
JEL-codes: E31 Q10 (search for similar items in EconPapers)
Pages: 36
Date: 2024-12-20, Revised 2025-10-29
New Economics Papers: this item is included in nep-agr and nep-mon
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DOI: 10.18651/RWP2024-16

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