What explains the widening gap between the retail and producer prices of food?

Abstract

The widening margin between the retail and producer prices of food has been documented in numerous empirical studies both in Europe and in the USA for many different food products. This paper explores the possible reasons for this phenomenon, with emphasis on the situation in Finland. Six conceivable explanations are recognized: 1) increased degree of processing, 2) better food hygiene, 3) differences in productivity growth across sectors, 4) agricultural policy reforms, 5) international trade, and 6) imperfect competition. In this paper each of the hypotheses is assessed in light of the available empirical evidence.