CAP reform and price transmission in the pasta chain.

Abstract

The issue of price transmission along the food chain has attracted considerable interest in the EU because of the welfare and policy implications that could potentially be generated. Price transmission along the food chain is characterized by the speed, the magnitude and the nature of price changes along different segments of the supply chain. Moreover, during the last several years, wheat-pasta chains have been affected by CAP reforms in the durum wheat sector that have progressively reduced government intervention in the market. Specifically, the 2003 reform represented a deep change in the tools applied in the CAP, with a turn from coupled income support to a single decoupled aid where farmers’ incomes are directly supported and are no longer linked to levels or types of production. For the present study, we are particularly interested in examining whether and how CAP reform has altered price transmission in the Italian wheat-pasta chain, from farmer to retailer, including the wholesale stage. We employ Kinnucan and Forker model which has provided a convenient instrument for analyzing the impact of policy intervention and adapted its structure to the characteristics and the composition of the pasta supply chain by introducing an intermediate level (wholesale price), represented by semolina producers. Price data are available monthly from January 2000 to April 2011 for Italy. The results suggest that pricing behavior has changed after CAP Reform introduction.