Asymmetric Price Transmission in the Livestock Industry of Thailand

Abstract

This study aimed to investigate the farm-retail price transmission for the livestock industry in Thailand employing monthly data from 2002 to 2012. Using the Engle-Granger two step approach, the study confirmed that farmgate prices were cointegrated with retail prices in the poultry and swine industry. Consequently, an asymmetric error correction model (AECM) was used to test for asymmetric price transmission between farmgate and retail prices of chicken and pork. Results show that the pork industry, which is focused on supplying domestic consumption and has heavy export restrictions, is characterized by positive asymmetric price transmission whereas the poultry industry, which is highly export-oriented, is characterized by symmetric price transmission. This suggests that the export-oriented nature of the poultry market has linked Thailand's domestic market with the international market. This has led to an increase in market competition, allowing for increases and decreases of farmgate prices to be equally transmitted to retail prices of chicken.