Analysis of price transmission in the beef value chain using a calculated retail carcass price

Abstract

ABSTRACTThe large difference between the producer price of a beef carcass and the retail prices of individual beef cuts has raised concerns among producers. These concerns are caused by the possibility of asymmetry in the market. This study examines the price transmission mechanisms in the beef market by comparing the weekly producer carcass price with a weekly calculated retail carcass price, instead of average retail prices, over a period of three years. It further estimates the causality links between the producer and retail prices. The traditional and standardised augmented Dickey–Fuller procedures were used to test for co-integration and asymmetry in price transmission. Four competing models, namely the Engle–Granger, threshold autoregressive (TAR), momentum threshold autoregressive (M-TAR) and momentum consistent TAR models, were applied. The results indicated that there is positive asymmetric price transmission between producer and retail price as retailers in the market respond quicker to shocks that squeeze their margin than those that stretch them. Market information was found to be flowing from the producer to the retailer.