The Retail‐Farm Price Ratio, the Farmer's Share, and Technical Change

Abstract

Technical change in the food marketing industry has been causally linked to the secular increase in the marketing margin, i.e., the margin between product prices at retail and prices of the related raw farm products. Technical change has also been adduced by Lianos to explain the decline in the relative share of farm workers. However, this work generally omits a formal neoclassical model of technical change that accounts for imperfect competition in input and product markets. This paper synthesizes previous work by Muth and by Gardner in developing a more complete specification of the effects of technical change. This specification allows for noninfinite product demand and factor supply elasticities. These theoretical results are then analyzed empirically to derive some specific quantitative implications of technical change for the food marketing industry. Lianos' empirical estimate of the degree of capital-biased technical change in agriculture is reinterpreted with these alternative neoclassical specifications.