The Magnitude and Timing of Retail Beef and Bread Price Response to Changes in Input Costs

In this study we develop a model for pass-through behavior for two retail food items with different levels of processing, beef and bread, using 36 years of monthly Bureau of Labor Statistics price indices data (1972-2008). Through the use of a two-stage error correction model that allows for the possibilities of asymmetric and threshold type response behavior, we analyze both the farm to wholesale and wholesale to retail price relationship considering underlying cointegrating relationships and allowing for the presence of structural breaks in these long term equations. Our results indicate that broad differences in price behavior exist not only between food categories but also across production level prices. While farm to wholesale relationships generally appear to be symmetric, retail prices are shown to have a somewhat more complicated response behavior, and for both food products the pass-through at this stage is weaker than that of the farm to wholesale response.