Food scare crises and price volatility: The case of the BSE in Spain

Recent incidents of contaminated food products coupled with the widespread diffusion of news by mass media and the growing social concerns about food safety, have resulted in significant food market crises. One of the most highly publicized recent food scares involved Bovine Spongiform Encephalopathy (BSE). In our analysis, we evaluate the impacts from a BSE outbreak on the price volatility transmission along the Spanish food marketing chain by using a smooth transition conditional correlation (STCC) GARCH model. Our work is the first to assess price volatility responses to food scares. Results suggest that two distinct regimes involving different price volatility behavior can be distinguished, one characterized by turbulent markets and another where markets are calming down.