The Effects of Changing Input Costs on Food Prices

Abstract The relationships between changes in food sector input costs and retail food prices are examined. Results indicate that increases in factor prices pass quickly to consumers, within two quarters for most foods. In addition, rising farm‐level prices and substantial increases in nonfarm resource prices appear to explain why food prices rose more rapidly than nonfood prices in the 1970s. The analysis is based on a twenty‐equation econometric model of the food‐price determination process, specified following Popkin's “stage of processing” approach. Causality and validation test statistics for the model are presented.