Asymmetric Price Transmission in the Indonesian Food Market

Abstract

A large number of goods and companies operating on different markets and selling varied agricultural and food products are present in the food supply chains. As well, the food supply chain associates producer and consumer through price mechanism. One question of specific is whether price rises and declines in the food supply chain at one stage have asymmetrical impacts. Thus, this study was designed to examine asymmetric price transmission in Indonesian food market between the producer and consumer using Engle-Granger two step approach. The study confirmed that producer prices were co-integrated with consumer prices in the food market. As a consequence, an asymmetric error correction model (AECM) was used to test for asymmetric price transmission between price levels in Indonesian food market. The outcome shows a higher response to producer rises than declines in both long-and-short term customer pricing. Hence, the findings show that the prices in the Indonesian food supply chain are favourable asymmetrical. Finally, the results of the present study indicate that the food prices pass-through varies greatly across product category and across country, and the pass-through to producer prices is greater than that in consumer prices. Therefore, understanding the asymmetric transmission is critical to help design better domestic price stabilization policies, and minimize jeopardize the price shocks for both of consumer and producer.