Retail to farm linkage for a complete demand system of food commodities

Abstract

A new conceptual model is needed to estimate the impact of demand, supply, and marketing margins on retail food prices and farm prices.This model should be theoretically consistent with group behavior.The present study critiques past approaches to modeling farm-to-retail price spread behavior, to emphasize the need for a larger framework for the analysis of retail-to-farm linkages.This enlarged model consists of reduced-form retail and farm price equations derived from the behavior relationships which characterize aggregate output supply and input demand responses of the marketing sector.The model is then applied empirically to a set of eight food commodities.The results are^ generally consistent with theory, which indicates compatibility with competitive behavior and an aggregate constant-returns-to-scale technology of food processing.The results also show, in general, the, need to allow for variable factor proportions between farm and marketing inputs.Farm-level derived demand elasticities (except for poultry) are more than 40 percent larger than those obtained by assuming fixed proportions.