Abstract
This paper examines price transmission mechanism between farm and retail levels in vertical chain of potatoes. Time series analysis starting with cointegration approach is used to study price linkages between producer and consumer prices in potato market in Slovakia. We test for an existence of structural break in time series data (Gregory - Hansen test) in the observed period and allow for an existence of non-linear relationship between prices at various levels of vertical chain by using threshold autoregressive models. We found an evidence of structural break and existence of asymmetry in price transmission along the potato supply chain.
Highlights
Price transmission from producer to consumer prices is a key characteristic of the supply chain and has received a lot of attention in the literature
Vertical price transmission may be imperfect if price changes at one level are not fully transmitted to another level; if there is a time lag between price adjustments at different levels or if there is an asymmetry in reaction between positive and negative price shocks (Bunte 2006)
Cointegration results Non-stationary time series can lead to statistically significant results due to purely spurious correlation
Summary
Price transmission from producer to consumer prices is a key characteristic of the supply chain and has received a lot of attention in the literature. There was a significant effort devoted in the empirical literature to quantify of magnitude, speed, and nature of price transmission from producer to consumer prices. Vertical price transmission may be imperfect if price changes at one level are not fully transmitted to another level; if there is a time lag between price adjustments at different levels or if there is an asymmetry in reaction between positive and negative price shocks (Bunte 2006). In the food supply chain, asymmetric adjustment to price shocks can be observed due to the existence of adjustment costs, menu costs and information asymmetries (Ball and Mankiw 1994), inventory behaviour of retailers (Balke et al 1998; Reagan and Weitzman 1982), the nature of government intervention in agricultural commodity markets (Gardner 1975; Kinnucan and Forker 1987), asymmetric information among the firms (Bailey and Brorsen 1989), the market power (Zachariasse and Bunte 2003; Wann and Sexton 1992; Gohin and Guyomard 2000; von Cramon-Taubadel 1998 and others), the interaction between market power and economy of scale (McCorriston et al 2001; Lloyd et al 2006), intertemporal optimizing behavior of firms (Azzam 1999), the form or retail demand and farm input supply (Weldegebriel 2004), the share of commodity costs in the cost of final product (Bettendorf and Verboven 2000) and other reasons
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