Demand for Farm Output in a Complete System of Demand Functions

Abstract

Demand interrelationships for farm outputs that are theoretically consistent with consumer demand and marketing group behavior provide important linkages between retail and farm prices. A conceptual model, based on reduced-form specifications for retail and farm prices, is formulated and applied empirically to a set of eight disaggregated food commodities. This approach circumvents the need for retail quantities, which are frequently unavailable for disaggregated food commodities. The results are consistent with theory and generally indicate significant substitution between farm and marketing inputs. Except for poultry, derived demand elasticities are at least 40% larger compared to those derived assuming fixed proportions.

Economic substitution for US wheat food use by class*

“…Following Wohlgenant (1989), Goodwin and Brester (1995) and Koo et al (2001), raw product is considered an input into food production. We specify an industry profit function for the flour milling industry and derive factor demand equations.…”

The long run, market power and retail pricing

“…It is, however, important to distinguish between the two types of long-run relationships -static equilibrium where the variables are assumed to be unchanging between periods, and stable equilibrium where all variables are changing at some constant rate. Most previous studies concerning long-run relationships between producer and retail prices are based on static equilibrium models of firm behaviour (e.g., Gardner 1975, Wohlgenant 1989, Griffith and Moore, 1991McCorriston and Rayner, 1998). These studies assume equality of supply and demand in the respective producer, retail and marketing-input markets.…”

A Review of Supply Chain Prices Analyses with Emphasis on Perishable Markets

“…Wohlgenant [14] revises the possible factors affecting marketing margins: an extensive literature has focused on the role of market power in order to provide theoretical [12,[17][18][19][20] and empirical evidences [21][22]; other factors that affect farm and retail prices spread are price risks [12,13], technical and structural changes [23,24], product quality and seasonality [25,26]. Wohlgenant' survey concludes that the approaches to model marketing margins are still inappropriate since they ignore significant economic aspects (namely the input substitutability between farm input and other inputs in producing retail products), and more research is needed either to understand the role of the mentioned factors on marketing margins as well as the role of actual trends in agricultural sector (e.g., increasing vertical integration and coordination, growing expenses in advertisements, introduction of new food safety regulations, etc.…”