Cost Pass-Through in the U.S. Coffee Industry

by Ephraim Leibtag, Alice Nakamura, Emi Nakamura, and Dawit Zerom

A rich data set of coffee prices and costs was used to determine to what extent changes in commodity costs affect manufacturer and retail prices. On average, a 10-cent increase in the cost of a pound of green coffee beans in a given quarter results in a 2-cent increase in manufacturer and retail prices in the current quarter. If a cost change persists for several quarters, it will be incorporated into manufacturer prices approximately cent-for-cent with the commodity-cost change. Given the substantial fixed costs and markups involved in coffee manufacturing, this translates into about a 3-percent change in retail prices for a 10-percent change in commodity prices. Coffee manufacturers do not appear to take advantage of manufacturing and production cost variation to raise retail prices; retail prices respond the same to both increases and decreases in costs of coffee beans.

Keywords: Coffee, retail prices, pass-through, manufacturer prices, price-cost relationship

In this publication...

• Entire Report
• Report summary
• Abstract, Contents, and Summary
• Introduction
• The Coffee Value Chain
• Data Description
• How Important Is the Coffee Bean in Determining Costs?
• Differences in Prices Across Markets
• Responding to Costs
• Asymmetric Cost Adjustment
• Pricing Strategy Patterns
• Conclusion
• References