The Transmission of Trends in Retail Food and Farm Prices

Abstract

The food supply system consists of multiple stages of production, with prices at each stage coordinating the transformation of farm commodities to final consumer products. Food and agricultural policies often stem from public concern about the disparate movements of consumer food and farm prices. Widening spreads between retail food and farm prices and concentration in some industries raise concerns about market power (USDA). Early research describes retail-to-farm price spreads with a single markup rule (George and King). However, Gardner demonstrates that a single rule is misleading because price responses to shifts in consumer demand differ from responses to shifts in input supply. Furthermore, price spreads are central to tests of market power. Market power tests often derive from representative firms' profit functions and a model of consumer demand and reduce to tests on conjectural variations parameters in price spread equations. Such tests are sensitive to restrictions im-