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

  • by Ephraim Leibtag, Alice Nakamura, Emi Nakamura and Dawit Zerom
  • 3/13/2007
  • ERR-38

Overview

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.

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