The farm-retail price spread in a competitive food industry

Consistency with market equilibrium places constraints on the pricing policies of food marketing firms in a competitive industry. This paper examines the implications of simultaneous equilibrium in three related markets: retail food, farm output, and marketing services. From equations representing the demand and supply sides of each market, elasticities are generated which show how the farm-retail price spread changes when retail food demand, farm product supply, or the supply function of marketing services shifts. Implications for the viability of simple markup pricing rules and the determinants of the farmer's share of the food dollar are discussed.