Tracing the Effects of Agricultural Commodity Prices on Food Processing Costs

UC Davis Working Paper No. 00-032

42 Pages Posted: 11 Aug 2001

See all articles by Catherine J. Morrison Paul

Catherine J. Morrison Paul

University of California, Davis - Department of Agricultural and Resource Economics; National Bureau of Economic Research (NBER); University of Hartford - Barney School of Business

James McDonald

Brigham Young University

Date Written: November 2000

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: Food processing, costs, agricultural prices, technical change, spillovers.

JEL Classification: D4, L1, Q0

Suggested Citation

Morrison Paul, Catherine J. and McDonald, James B., Tracing the Effects of Agricultural Commodity Prices on Food Processing Costs (November 2000). UC Davis Working Paper No. 00-032, Available at SSRN: https://ssrn.com/abstract=278772 or http://dx.doi.org/10.2139/ssrn.278772

Catherine J. Morrison Paul (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

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Davis, CA 95616
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National Bureau of Economic Research (NBER)

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University of Hartford - Barney School of Business

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James B. McDonald

Brigham Young University ( email )

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United States
801-378-3463 (Phone)

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