Food scares, market power and price transmission: the UK BSE crisis

This paper is concerned with the impact of food scares, principallythe BSE crisis in the UK, and focuses on price transmissionin vertically related markets. We show that if market powerhas an effect on the farm–retail margin, this determinesthe specification of the cointegrating relationship and thusprovides a test of market power. The results for the UK beefchain suggest that we cannot reject the importance of marketpower. The impact of the BSE crisis on farm prices is foundto be more than double that on retail prices, thus corroboratingpublic concerns regarding a differential impact of food scareson retailers and producers.     

Bovine spongiform encephalopathy in Japan: consumers' food safety perceptions and willingness to pay for tested beef*

The discovery of bovine spongiform encephalopathy (BSE), commonly known as ‘mad cow disease’, in Japan caused anxiety about consuming beef and beef products. As a result, there was a sudden fall in sales of beef that hurt the Japanese beef industry as well as major beef exporters to Japan. We analyse factors that affect Japanese consumers' willingness to pay (WTP) price premiums for BSE‐tested beef and estimate the mean WTP for BSE‐tested beef using data obtained from a consumer survey in Japan. A single‐bounded dichotomous choice contingent valuation model is used to recover the premium amount. We find that attitudes to food safety, reduction in beef consumption following the BSE outbreak, and being female all have a statistically significant positive effect on the WTP for BSE‐tested beef. Interestingly, demographic variables such as age and income do not affect the WTP, possibly indicating that the BSE scare similarly affected multiple segments of the population. In our sample, consumers are willing to pay a premium on average of greater than 50 per cent for BSE‐tested beef.     

Food scares, advertising, and the demand for meat cuts in Great Britain

Retail demand systems for 19 different cuts of meat for beef, lamb, pork, bacon and poultry in Great Britain are estimated from monthly time series of consumer expenditure from 1989-2000 using a two stage budget allocation process and an LA/AIDS specification. The unconditional expenditure, own and cross price elasticities are derived for the individual meat cuts. The impact of adverse publicity from meat scares, especially BSE, and of positive publicity through consumer promotion and advertising are incorporated into the modelling. Meat scares produced a reallocation of consumer spending from red to white meats during the 1990s. The impact of species-based advertising was shown to have complex spillover effects both within and between meat species, and the response of consumer demand to advertising was considerably less than to adverse publicity.     

Time-varying Armington elasticity and country-of-origin bias: from the dynamic perspective of the Japanese demand for beef imports

Elasticities of substitution, often called Armington elasticities, reflect incomplete substitutability because of perceived product characteristics. This study divides the determinants of the Japanese demand for beef imports into two factors: (i) substitution elasticity and (ii) country-of-origin bias, and demonstrate how these measurements are associated with trade policy and food scare events. The Japanese beef industry serves as a case study to evaluate the multifold impact of import liberalisation and a series of bovine spongiform encephalopathy (BSE) outbreaks. A time-varying parameter model is used to shed light on the dynamic effects of the import liberalisation and BSE outbreaks on the measurements. The estimation results reveal that the estimated substitutability and country-of-origin bias are very sensitive to the BSE cases, but not to the process of trade liberalisation. The results also confirm that as a result of the BSE outbreaks, the major factor of the Japanese demand for beef imports has changed from relative prices to the country-of-origin effect, thereby emphasising the importance of a traceability system and promotional activities, which would help in the formation of the country-of-origin effect.     

Food Scares and Trust: A European Study

The complex interactions between the determinants of food purchase under risk are explored using the SPARTA model, based on the theory of planned behaviour, and estimated through a combination of multivariate statistical techniques. The application investigates chicken consumption choices in two scenarios: (a) a ‘standard’ purchasing situation; and (b) following a hypothetical Salmonella scare. The data are from a nationally representative survey of 2,725 respondents from five European countries: France, Germany, Italy, the Netherlands and the United Kingdom. Results show that the effects and interactions of behavioural determinants vary significantly within Europe. Only in the case of a food scare do risk perceptions and trust come into play. The policy priority should be on building and maintaining trust in food and health authorities and research institutions, while food chain actors could mitigate the consequences of a food scare through public trust. No relationship is found between socio‐demographic variables and consumer trust in food safety information.     

Cross country maize market linkages in Africa: integration and price transmission across local and global markets

In order to study short‐run price shock propagation, we model twenty seven Sub‐Saharan Africa (SSA) domestic maize markets within a Global Vector Autoregression framework. The main purpose is to fully embed multilateral trade flows as a way to better structure local price transmission dynamics and interdependencies, and get a more comprehensive picture of food price shocks propagation. We found significant between‐country market contagion and prompt regional price shock propagation when trade connection exists. Yet, the integration of SSA domestic maize markets within the continent and with global markets remains generally weak. Furthermore, under regular market conditions, most local price series appear to be more responsive to regional neighbors than to global shocks.     

No News Is Good News: Stochastic Parameters versus Media Coverage Indices in Demand Models after Food Scares

We develop a stochastic parameter approach to model the time-varying impacts of food scares on consumption, as an alternative to the inclusion of news coverage indices in the demand function. We empirically test the methodology on data from four food scares, the 1982 heptachlor milk contamination in Oahu, Hawaii and the bovine spongiform encephalopathy and two Escherichia coli scares on U.S. meat demand over the period 1993–9. Results show that the inclusion of time-varying parameters in demand models enables the capturing of the impact of food safety information and provides better short-term forecasts.     

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.     

Agricultural price transmission elasticity: importance of controlling for unobserved common factors

A voluminous amount of the literature estimates price transmission from world markets to domestic markets ignoring unobserved factors that commonly affect domestic markets. This article reevaluates the long‐run and short‐run transmission elasticity of world food price shocks to domestic markets using a “common factor framework” that takes unobserved common factors that are correlated with regressors into consideration. In the estimation, annual price data for rice, wheat, and maize for a panel of developed and developing countries that are observed over the period of 1960–2007 are used. The results from a common factor framework to those that do not account for common factors are then compared. Our findings suggest that ignorance of common factors is likely to result in upwardly biased elasticity estimates.     

Decomposing Preference Shifts for Meat and Fish in the Netherlands

The changing preferences of Dutch consumers for meat and fish are investigated using a switching almost ideal demand system. Structural change in demand between January 1994 and May 1998 is decomposed into underlying trends, temporarily irreversible preference shifts triggered by the BSE crisis of March 1996, and a “panic” reaction against beef in the month of the crisis itself. Preference shifts due to the BSE scare reduced expenditure shares for beef, minced meat and meat products by 2.5, 3.3 and 7.9 percentage points respectively. There were offsetting gains in the shares of pork, prepared meat and fish. Taking underlying trends also into account, changing preferences over the whole period reduced beefs share by 4.9 percentage points and increased those of poultry, prepared meat and fish by 4.1, 4.9 and 5.2 percentage points respectively.     

Drivers of food price in China: A heterogeneous panel SVAR approach

In this paper, we examine the effects of shocks in agricultural output, production material price and production price on China's food price using panel data of 26 provinces for the period 2004 Q1–2015 Q4. Employing a heterogeneous panel structural vector autoregressive (SVAR) model, we identify the causal flows between the endogenous variables via directed acyclic graphs method. The empirical results from impulse response functions and variance decompositions suggest sizeable cross‐province variations. The main driving force of food price is the price inertia shock, rather than the agricultural output or the vertical chain of price transmission shocks. The findings support the view that price expectation is the key shifter of food price. Moreover, the shocks in the vertical chain of price transmission are only weakly linked to food price. Our findings are robust to an alternative panel SVAR model identified via Cholesky decomposition.     

Price transmission,asymmetric adjustment and threshold effects in the cotton supply chain: a case study for Vidarbha,India

This study examines price transmission asymmetries in Vidarbha's (India) cotton supply chain from 2002 to 2012. The analysis takes account of thresholds in price adjustments toward their long‐run equilibrium. The first stage considers the price dynamics between international and Indian domestic cotton prices. The second stage considers price transmission from domestic to farm gate cotton prices in Vidarbha. Results from the first stage indicate that Indian and international cotton markets are well‐integrated. In contrast, the second stage reveals significant threshold‐type nonlinearities as well as asymmetries in price transmission between domestic and farm gate prices. The short‐run dynamics suggest that the pass‐through from domestic to farm gate prices is larger when domestic prices decrease than when they increase. Moreover, back of the envelope calculations suggest that the loss in revenue for a typical farmer from a decrease in domestic price is larger than the gains from an increase in domestic price of the same magnitude. The implication is that traders benefit from price fluctuations at the expense of farmers. Evidence from fieldwork in Vidarbha suggest that asymmetries revealed in this analysis may be linked to trader's market power and inadequate market information among farmers.     

Price volatility in Niger millet markets

Price volatility of food staples is one of the most complex factors affecting food security. Recent food price crises have raised academic interest in improved volatility assessment. The widely held assumption in econometric volatility models that long‐run volatility is constant, has been recently questioned and partly blamed for these crises. A multiplicative MGARCH model recently proposed by Bauwens et al. is used in this article to model price volatility transmission along the Niger millet marketing chain. Results suggest important volatility links between consumer and producer prices, as well as noteworthy differences between short and long‐run price dynamics.     

World Commodity Prices and Domestic Retail Food Price Inflation: Some Insights from the UK

We focus on two aspects of the links between world commodity prices and retail food price inflation: first, the effects of exchange rates and other input costs, and second; the effects of the duration of shocks on world commodity markets, not just the magnitude of price spikes (the latter often commanding most attention). The UK offers a natural and rather unexplored setting for the analysis. Applying time series methods to a sample of 259 monthly observations over the 1990(9)–2012(3) period we find substantial and significant long‐term partial elasticities for domestic food price inflation with respect to world food commodity prices, the exchange rate and oil prices (the latter indirectly via a relationship with world food commodity prices). Domestic demand pressures and food chain costs are found to be less substantial and significant over our data period. Interactions between the main driving variables in the system tend to moderate rather than exacerbate these partial effects. Furthermore, the persistence of shocks to these variables markedly affects their effects on domestic food prices.     

Imperfect Price Transmission: Is Market Power Really to Blame?

Several studies in the literature have argued that price transmission in vertically‐related markets is imperfect, i.e. that farm input price changes are not fully passed‐through to the final product price. Market power, notably oligopoly, is presumed to be the principal source of imperfect price transmission. To date, the impact of oligopsony (buyer) power on the degree of price transmission has not been evaluated using a formal theoretical model. Moreover, neither has the combination of oligopoly and oligopsony despite the fact that its influence has been formally acknowledged in both the UK and some European food markets. This paper makes a contribution to the literature by developing a model of price transmission where both oligopoly and oligopsony power co‐exist and where industry technology is assumed to be characterised by variable input proportions. It shows that taking the degree of price transmission in a perfectly competitive market as a benchmark, oligopoly and oligopsony power do not necessarily lead to imperfect price transmission, although they can. Indeed, they may counteract each other's impact on the degree of price transmission. The key to these outcomes is to be found in the functional forms for retail demand and farm supply.     

食品安全丑闻报道与产销价格传导——基于中国猪肉市场的经验研究

本文利用主流媒体对猪肉质量安全事件的新闻报道构造食品安全丑闻报道指数,首次从媒体报道视角分析食品安全丑闻对中国猪肉供应链产销价格传导的影响。平滑转换误差修正模型检验结果表明:(1)食品安全丑闻报道是决定产销价格传导关系的门槛变量,当食品安全丑闻报道指数处于门槛值以内时,产销价格传导表现为线性关系,超出门槛值以后,则表现为非线性关系,但更多时候表现为非线性关系;(2)食品安全丑闻报道对产销价格具有非对称冲击效应,生猪价格比猪肉价格对冲击的反应程度更大、持续时间更长。这种非对称冲击效应不仅会打破产销价格波动的固有规律,也会加剧供应链上福利分配不均衡,处于弱势地位的养殖户更容易遭受福利损失。进一步采用向量自回归模型进行脉冲响应分析,结果仍然支持上述结论。     

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.     

国际粮食形势及我国粮食生产潜在危机与对策

近几年世界谷物需求不断扩大,谷物库存不断减少,国际谷物价格快速上涨,粮食价格危机在全球快速蔓延。粮食出口国纷纷出台控制粮食出口政策,粮食进口国纷纷到国际市场抢购粮食。一些经济较贫困的国家因无力在国际市场抢购粮食,或无力通过财政补贴抑制国内粮食价格的快速上涨,而诱发社会动荡。尽管我国因有较充足的粮食库存,受国际粮食危机的冲击不大,但我国粮食安全仍存在潜在危机,还需采取强化耕地资源保护、水利设施和依靠科技等措施,确保我国粮食生产稳定发展和基本自给。     

Market Power in the Philippine Retail and Processed Food Industry

Various models have been employed to analyze market power in the food industry but none has explored combining these models to reinforce their strengths and minimize their weaknesses. This article illustrates an application of these models in a multistage framework using the case of the Philippine retail and processed food industry. Price transmission is examined in the first stage of analysis using cointegration and price asymmetry models. Conjectural variation and bargaining models are employed in the second and third stages of analysis. Results indicate that market power exists in industries where price transmission is asymmetric.