Working Paper Revision

The Passthrough of Agricultural Commodity Prices to Food Prices

Abstract: Food inflation has been excluded from core measures of inflation under the reasoning that it is a phenomenon of the supply side of the economy, driven by stochastic supply shocks to agricultural production that can affect the availability of farm products and increase food price volatility. However, the share of food costs related to agricultural production has fallen over the years as food value chains have become more complex and food prices tied more closely to value added downstream in the supply chain. We calculate the magnitude and extent of agricultural price passthroughs to food prices in the United States after 2000. We leverage the results of simple models of food pricing under imperfect competition along the supply chain to identify possible sources of bias in the passthrough calculations. We argue that we can identify U.S. agricultural price passthrough to U.S. food prices in a structural vector autoregressive setting using a weather instrument (i.e., drought) that shifts supply of farm production but is excluded from demand. Our results suggest that the passthrough from row crops to food at home inflation is small and imprecisely estimated. These results reinforce the perspective that agriculture commodity prices are not a principle driving factor behind consumer food prices in the United States.

JEL Classification: E31; Q10;

https://doi.org/10.18651/RWP2024-16

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2025-10-29

Number: RWP 24-16

Related Works

• Working Paper Revision (2025-10-29) : You are here.
• Working Paper Original (2024-12-20) : The Passthrough of Agricultural Commodity Prices to Food Prices