Cost Pass-Through in the U.S. Coffee Industry

28 Pages Posted: 17 Jan 2008

See all articles by Ephraim Leibtag

Ephraim Leibtag

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

Alice Orcutt Nakamura

University of Alberta - School of Business

Emi Nakamura

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Dawit Zerom

California State University, Fullerton

Date Written: March 2007

Abstract

A rich data set of coffee prices and costs was used to determine to what extent changes in commodity costs affect manufacturer and retail prices. On average, a 10-cent increase in the cost of a pound of green coffee beans in a given quarter results in a 2-cent increase in manufacturer and retail prices in that quarter. If a cost change persists for several quarters, it will be incorporated into manufacturer prices approximately cent-for-cent with the commodity-cost change. Given the substantial fixed costs and markups involved in coffee manufacturing, this translates into about a 3-percent change in retail prices for a 10-percent change in commodity prices. We do not find robust evidence that coffee prices respond more to increases than to decreases in costs.

Keywords: cost pass-through, retail prices, manufacturer prices,commodity costs, coffee

Suggested Citation

Leibtag, Ephraim and Nakamura, Alice Orcutt and Nakamura, Emi and Zerom, Dawit, Cost Pass-Through in the U.S. Coffee Industry (March 2007). USDA-ERS Economic Research Report No. 38, Available at SSRN: https://ssrn.com/abstract=1084512 or http://dx.doi.org/10.2139/ssrn.1084512

Ephraim Leibtag (Contact Author)

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States
202-694-5349 (Phone)

Alice Orcutt Nakamura

University of Alberta - School of Business ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada

Emi Nakamura

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dawit Zerom

California State University, Fullerton ( email )

800 N State College St
Fullerton, CA 92831
United States

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