Does Market Structure Influence Price Transmission in the Agro‐food Sector? A Meta‐analysis Perspective

There exists a large literature on price transmission in agro‐food sectors. However, a great majority of empirical studies focus on the existence of asymmetry and, by and large, do not investigate the reason for its presence or absence. This is in sharp contrast to the theoretical literature that provides a number of explanations of why we should expect (a)symmetry. In response, this paper investigates the reasons for asymmetric price transmission in the agro‐food chain, using meta‐analysis of existing studies. Our focus is on the organizational and institutional characteristics of the agro‐food supply chain. Our findings suggest that asymmetric price transmission in farm–retail relationships is more likely to occur in sectors/countries with more fragmented farm structure, higher governmental support and more restrictive regulations on price controls in the retail sector. On the other hand, more restrictive regulations on entry barriers in the retail sector and the relative importance of the sector tend to promote symmetric farm–retail price transmission. The latter is also more likely in the presence of a strong processing industry.     

Asymmetric price transmission in the Spanish lamb sector

This article investigates the non-linear adjustment betweenfarm and retail prices in the lamb sector in Spain, using athree-regime Threshold Autoregressive Model. The results indicatethat, in the long run, price transmission is perfect and anysupply or demand shocks are fully transmitted along the marketingchain. In the short run, price adjustments between the farmand the retail levels are asymmetric and reveal a demand-pulltransmission mechanism. On the other hand, retailers benefitfrom any shock, whether positive or negative, that affects supplyor demand conditions.     

The role of retail market power and state regulations in the heterogeneity of farm‐retail price transmission of private label and branded products

Given the leading role of private label brands in the fluid milk market, it is of special interest to focus on possible differences in farm‐retail price transmission between private label and branded milk as well as the causes of heterogeneity. This article examines the heterogeneous effects of private label and branded products on price transmission in the fluid milk market using a panel threshold asymmetric error correction model. Results indicate that upward retail‐price adjustment is faster than the downward price adjustment for both private label and branded milk. The speed of adjustment of private label products is significantly faster than branded products in three different price regimes. We further investigate the reasons of heterogeneity in farm‐retail price transmission of private label milk. We find that both retailer market power and state pricing regulations contribute to the heterogeneity in asymmetric price transmission. Higher retailer market power causes retail prices of private label milk to rise faster and to fall slower. The existence of a state pricing regulation slows down the adjustment speed of retail prices of private labels back to the long‐run equilibrium, regardless of whether the retail price is low or high.     

我国鸡蛋价格波动传导的影响因素分析——基于非对称的研究视角

[目的]文章采用鸡蛋价格的周度批发和零售数据,从成本、替代品两个维度探讨鸡蛋价格波动的影响因素和非对称传导特征。[方法]通过滚动回归的方式探讨非对称传导特征的动态变化,并进一步探讨了鸡蛋批零价格之间的相互影响和非对称传导特点。[结果]成本、替代品价格变动对与鸡蛋批零价格具有正向影响和非对称特征,但在静态的线性回归模型中并不明显。鸡蛋批发价格受成本价格变动的影响更大,而零售价格受替代品价格变动的影响更大。在动态的滚动回归模型下,成本、替代品价格对鸡蛋价格波动具有十分明显的时变非对称特征,但这种非对称传导特征并不一致。鸡蛋批发价格早期对零售价格具有正向的非对称传导,但近年来趋向于对称传导。鸡蛋零售价格对批发价格总体具有负向的非对称传导特征,零售价格下降对批发价格的影响更大。[结论]需要建立蛋鸡产业成本—价格监测预警系统,充分发挥产业技术平台、行业协会、学会等研究机构在生产决策中的指导作用。不断完善鸡蛋供应链建设,增强调控与监管政策的灵活性与创新性。     

PRICE TRANSMISSION IN THE UNITED KINGDOM YELLOW FATS MARKET IN THE PRESENCE OF IMPERFECT COMPETITION

The yellow fats sector comprises butter, margarine and a number of newer dairy-and low-fat spreads. In analysing the transmission of policy prices (e.g. the intervention price of butter) in this sector, which is characterised by concentrated processors and retailers, it is unrealistic to assume that marketing margins are competitively determined. The empirical estimates in this paper suggest that, since the mid-1980s, processors and retailers of margarine take into account the price of butter when setting margarine prices, which they can only do if they possess market power. This implies that the benefits of CAP reform (in the form of lower butter prices) may be seriously underestimated if the resulting fall in margarine prices is ignored; the increase in butter consumption would be overestimated.     

Threshold Effects and Asymmetric Price Adjustments in U.S. Dairy Markets

Recent volatility in food prices and the growing disparity between prices at various stages of the marketing channel has generated much interest among agricultural producers, consumers, and policy makers. This study examines the effect of nonlinear threshold dynamics on asymmetric price transmission for three U.S. dairy products (butter, cheese, and fluid milk) using threshold error correction models. The empirical result suggests that price transmission of changes between producer and retail stages of the marketing chain is asymmetric for butter and fluid milk, but not for cheese prices. Also, this paper's findings indicate that conclusions about price asymmetries depend on the model specification assumptions made about symmetry and threshold effects. Thus, previous studies that assumed symmetric behavior and ignored threshold effects may be misleading. La récente volatilité des prix des produits alimentaires et la disparité croissante entre les prix observés aux divers échelons du réseau de distribution ont suscité l'attention des producteurs agricoles, des consommateurs et des décideurs. La présente étude examine l'effet d'une dynamique non linéaire avec seuil sur la transmission asymétrique des prix dans le cas de trois produits laitiers aux États‐Unis (le beurre, le fromage et le lait de consommation), à l'aide de modèles à correction d'erreur avec seuil. Les résultats empiriques montrent que la transmission des variations de prix entre les producteurs agricoles et les détaillants est asymétrique dans le cas du beurre et du lait de consommation, mais ne l'est pas dans le cas du fromage. D'après les résultats de la présente étude, les conclusions concernant l'asymétrie des prix dépendent des hypothèses posées sur la symétrie et les effets de seuil. Par conséquent, les études antérieures dans lesquelles on a supposé un comportement symétrique et ignoré les effets de seuil pourraient induire en erreur.     

The role of temperature for seasonal market integration: a case study of poultry in Iran*

Understanding market integration has greatly benefited from analysing and comparing variations in price transmissions. An important source of variation in agricultural markets is seasonal changes in production, consumption and transaction costs. A key factor driving seasonality in agricultural price is temperature, as supply and demand changes are triggered by seasonal temperature differences. In this paper, we study the seasonal variations in vertical price transmission focusing on the asymmetric price adjustment to analyse changes in the market interactions between the stages of the value chain. Our data reveal significant transitory effects of temperature on the price transmission process. Results of a panel threshold model suggest that the farm–wholesale price adjustments to deviations from the market equilibrium are more symmetric at higher temperatures. However, we do not find an effect of temperature on the wholesale–retail price relationship. Our findings can be rationalised with wholesalers making use of their market power to extend their margins in the upstream chain. Wholesaler market power is lower during warm periods, and price adjustment is more symmetric. Concerning the Iranian poultry value chain, our findings imply that temperature-related differences in market interactions should be considered in formulating policy interventions.     

The Canadian Beef and Pork Sectors: New Found Relevance of Live Market Information

The structure of price transmission both vertically (between links in the market channel) and horizontally (between market areas) for beef and pork in Canada is examined. The analysis of vertical price transmission indicates that farmgate prices lead retail prices. The hypothesized relationship between retail and farmgate prices is that the farmgate demand curve is shifted by wholesaler anticipation of the retail price changes. Such a situation would place greater importance on the live markets since prices determined in these markets would eventually be reflected in the retail market. The results have further implications for the determination of price margins and related policy issues.     

Vertical price transmission in timber and lumber markets

Timber and lumber markets are linked and integrated through prices at several stages along timber supply chain. In this study, the degree of vertical integration and the presence of asymmetric price transmission are investigated for sawtimber and lumber products in the southern and western United States. The data utilized are quarterly stumpage price, delivered timber price, and lumber price of softwood between 1977 and 2011. Linear and threshold cointegration models are used for long-term price analyses, and symmetric and asymmetric error correction models are used for short-term price analyses. The integration in the early stage (i.e., stumpage/delivered timber price pair) is found to be stronger than that in the latter stage (i.e., delivered/lumber price pair). The South shows slightly stronger market cointegration than the West. Asymmetric price transmission is found along the timber supply chain. In the long term, prices are more responsive when the price margin is increased than decreased.     

Rivalry in Price and Variety among Supermarket Retailers

Recent theoretical models of retail competition suggest that product heterogeneity is critical to retail price and variety strategies. This article provides empirical evidence on supermarket retailers' price and variety strategies using a nested constant elasticity of substitution (NCES) modeling framework. The model is estimated using chain-level scanner data for four major grocery chains in a large, urban West Coast market. The results show that retailers compete for market share using both price and variety. While they all tend to follow moderately cooperative pricing strategies, the extent to which they follow cooperative strategies in variety is less homogeneous.     

Total Response Measures in Systems of Nonlinear Equations: An Application to a Model of the U.S. Dairy Sector

This paper develops total elasticity and flexibility results for general nonlinear, dynamic systems of equations. Unlike procedures for obtaining total response measures in linear systems, analytical procedures are difficult to obtain for nonlinear models; comparable results, however, may be obtained by using numerical simulations. The potential for obtaining total elasticity measures in nonlinear dynamic models is illustrated with an annual model of the U.S. dairy sector. Results show substantial evidence of asymmetric price and quantity adjustments, as well as limit cycles. Such complexities could not be uncovered by using linear models or a partial-equilibrium framework.     

Retail Price Fixity as a Facilitating Mechanism

Previous theoretical explanations for retail price fixity show that fixed retail prices can be consistent with either competitive or imperfectly competitive behavior. We develop a conceptual model of retail pricing wherein fixed price points are facilitating mechanisms for tacit collusion. A non-cooperative equilibrium in fixed retail prices is supported through credible threats to revert to Nash pricing if cheating is suspected. We test the implications of this model using a two-stage, ordered probit approach in weekly supermarket pricing data. The results show that price fixity does support collusive equilibria among retailers, but other factors may also explain retail price behavior.     

Supermarket Promotions and Food Prices: A Note

Using a sample comprising nearly 250,000 weekly prices from the largest seven UK supermarket chains, this note investigates two pricing practices that have attracted public interest: the tendency for promotions to ‘disguise’ rises in non‐sale prices and the inflation of prices prior to sales which ‘exaggerate’ the discount. Analysing price dynamics before and after periods of promotional discounting results show post‐sale prices are typically lower than pre‐sale prices, contrary to the disguise hypothesis. We do, however, find evidence of exaggeration of the discount, which may potentially explain why prices fall after discounts, although the evidence is not sufficiently widespread for this to be the sole cause. Results parallel the competition authority's view of supermarket promotions and point to the useful contribution that retail price microdata might play in keeping prices in check in countries where highly concentrated retail sectors raise similar concerns.     

The Effects of Extrinsic Cues on Olive Oil Price in Brazil

Over the past two decades, world olive oil consumption registered an impressive growth. Although olive oil consumption remains concentrated in the main producer countries surrounding the Mediterranean Sea (“traditional” markets), it is also growing rapidly in many other countries all over the world, where olive oil is still largely perceived as a novelty food (“nontraditional” markets). This study focuses on the Brazilian market of olive oil, which is one of the most important nontraditional markets in terms of both its dimension and growth rates. A hedonic price model has been used to evaluate whether, and to what extent, extrinsic cues impact on the retail price of olive oil. Data were collected via direct observation of several e-shops where Brazilian consumers could purchase olive oil. Results show that the retail price of olive oil is highly influenced by extrinsic cues such as branding, labeling, and packaging.     

Processing Technology,Market Power and Price Transmission

This paper focuses on the extent to which price changes occurring at the farm-level are transmitted to the retail sector. A price transmission elasticity is derived which is shown to depend on the degree of market power in the food industry and the nature of the food industry's processing technology. The offsetting role of the processing technology and market power in determining the extent of price transmission are highlighted. A case-study reports values for the price transmission elasticity for the US beef and pork sectors.     

DEMAND ASYMMETRY AND MONEY ILLUSION WITH AN EXAMPLE-MILK

This paper examines the question of an asymmetric response by consumers to equivalent real price movements depending on whether the source of the real price movement is a change in the money price of the product itself or a change in the general price level. This asymmetry is discussed as a special but pervasive case of asymmetry due to limited information in an inflationary environment. A method is developed to capture possible asymmetric responses of this type by consumers with which it is possible to measure the degree of money illusion they exhibit. This method is then applied to the demand for milk using Australian data to show evidence of a considerable degree of money illusion.     

A Hedonic Analysis of Nutrition and Health Claims on Fruit Beverage Products

This paper investigates the effects on prices of nutrition and health claims for foodstuffs, in addition to other attributes, using fruit beverages as a case study. The model estimation is based on revealed purchasing behaviour for fruit beverages in the north‐east of Italy. Applying an hedonic price model, the price of a product is explained as a function of product attributes. The model estimate identifies the implicit retail‐market‐level price of specific attributes such as nutrition and health claims, ceteris paribus. Nutrition and health claims significantly affect retail prices. Our findings suggest that retail price response to nutrition and health claims differs in relation to other product attributes, showing a strong reduction of price variation among flavours when such benefits are claimed on the label.     

El Niño southern oscillation and its effects on world vegetable oil prices: assessing asymmetries using smooth transition models

In this research, we examine the effects of El Niño southern oscillation (ENSO) on market dynamics of major vegetable oil prices. We adopt a smooth transition vector error correction modelling framework to analyse the impacts of ENSO events on the vegetable oil prices and, more interestingly, to investigate the asymmetric nature of the ENSO dynamics and price responses to ENSO shocks. The results confirm self‐exciting type nonlinearities in the ENSO dynamics, and presence of the so‐called transactions cost band in the system of vegetable oil prices. These nonlinearities yield the history‐specific asymmetries in the vegetable oil price dynamics, wherein effects of ENSO shocks on the ENSO dynamics and the vegetable oil prices vary considerably between different ENSO regimes. In general, positive deviations, El Niño events, result in the vegetable oil price increase, while negative deviations, La Niña events, result in decrease in the prices. We illustrate these effects using generalised impulse‐response functions and the derived asymmetry measures.     

IRREVERSIBLE SUPPLY FUNCTIONS REVISITED

This paper presents a successful application of an irreversible supply model to the UK egg sector. The model has been developed to overcome the problems that the conventional approaches to irreversible supply modelling face when used with a partial adjustment framework. The results indicate that the supply response to price changes under excess capacity is less than a third of that under non-excess capacity, but that the long-run response is symmetric, as required by the underlying theory. Furthermore, the long-run elasticity from a conventional, symmetric, partial-adjustment model is some 40% larger than that of the asymmetric model, implying that the importance of the asymmetric specification extends beyond an interest in the short-run adjustment path.     

Notes on farm‐retail price transmission and marketing margin behavior

Perfect farm‐retail price transmission sometimes is taken to mean an elasticity of price transmission (EPT) equal to 1. We show that this definition is inconsistent with Gardner's (1975) model. We also show that the absolute marketing margin (defined as the difference between the retail price and farm price) responds differently to shifts in retail demand, input supply, and technical change in the marketers’ production function than does the relative marketing margin (defined as the ratio of the retail price to the farm price). The empirical implications of these results are discussed in some detail.