Demand for Farm Output in a Complete System of Demand Functions

Demand interrelationships for farm outputs that are theoretically consistent with consumer demand and marketing group behavior provide important linkages between retail and farm prices. A conceptual model, based on reduced-form specifications for retail and farm prices, is formulated and applied empirically to a set of eight disaggregated food commodities. This approach circumvents the need for retail quantities, which are frequently unavailable for disaggregated food commodities. The results are consistent with theory and generally indicate significant substitution between farm and marketing inputs. Except for poultry, derived demand elasticities are at least 40% larger compared to those derived assuming fixed proportions.