Export price elasticities in the agriculture and food industry: to what extent can higher costs be passed on in export markets?

Original title: Landbrugs- og fødevaresektorens eksportelasticiteter - i hvilken grad kan øgede omkostninger overvæltes i eksportpriser?

To assess the impact of higher costs in Danish agriculture and food production, it is vital to understand who bears the financial burden. In this study, commissioned by The Danish Agriculture and Food Council, we delve into how the industry reacts to a scenario where cost increases can potentially be addressed by adjusting prices.

Our findings reveal that the majority of companies in this sector predominantly export bulk or commodity-type products. These products establish the pricing norm across the entire export market, impacting even differentiated, higher-priced products. Consequently, we determine that most companies in the industry have a limited potential to raise prices in export markets. These findings carry significant implications for economic models aimed at understanding agriculture and food production.

We recommend that bulk products are described as “commodities” instead of “differentiated products”. Given the potential competition Danish bulk products face from other countries, economic models should reflect a low cost pass-through due to heightened price sensitivity, even if the amount being imported is currently low. We recommend employing an export elasticity of at least 15 to accurately depict the Danish agriculture and food industry.