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Energy Price Transmission and Retail Milk Prices

Xun Li () and Rigoberto Lopez ()
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Xun Li: University of Connecticut

No 38, Working Papers from University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy

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.

Keywords: food; milk; energy; pricing; pass-through (search for similar items in EconPapers)
Pages: 23 pages
Date: 2015-07
New Economics Papers: this item is included in nep-com, nep-ene and nep-mkt
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