Determinants of Pricing in the EU Fresh Fruit and Vegetable Markets: The EU Entry Price System and Spatial and Vertical Price Transmission

Abstract

This PhD thesis comprises five papers on price determination in the EU fresh fruit and vegetable (FFV) market. In the paper The EU Import Regime for Oranges Much Ado about Nothing? we focus on the relevance of the EU import system for oranges, comprising the EU entry price system (EPS) and a system of trade preferences aiming to achieve two contrasting goals. Analogously to a minimum import price, the EPS is designed to protect EU growers against international competition by restricting imports below a product-specific entry price. In contrast, the orange trade preferences, granted to the EU orange growers main competitors, i.e. the orange producing Mediterranean (MED) countries ((Israel, Morocco, Tunisia, Turkey, Cyprus (pre EU accession in 2004), aim to induce EU imports of oranges by granting preferential market access. We find that the contribution of the EU import regime for oranges to the protection of EU orange growers is rather low. Also, orange trade preferences are utilized by the MED at a low degree and seem not to have triggered additional EU orange imports. The paper The EU Entry Price System for Fresh Fruits and Vegetables Paper Tiger or Powerful Market Barrier? is unique in comprehensively analyzing the effectiveness of the EPS regarding all 15 kinds of fruits and vegetables to which the EPS applies and countries of origin of the production. We develop two indicators measuring the effectiveness of the EPS based on a data set of 60,000 observations of synthetic EU import prices. A cluster analysis identifies four clusters which differ in the relevance of the EPS. We find that the importance of the EPS is heterogeneous across products and countries of origin for most kinds of FFV. It is highly relevant in 36% of the analyzed cases and redundant for the others. In general, the EPS is most relevant to the EU s direct neighbouring countries and of less importance for the countries more distant to the EU due to high transport costs and thus relatively high EU import prices. Results gained in the latter study motivate us for the paper Does the Entry Price System restrict Fresh Fruit and Vegetable Exports from China to the EU? . Although the EPS is on average less important for apples and pears, results suggest that it is highly relevant for EU imports of apples and pears from China. Our investigations suggest that due to China s highly efficient sea transport system, sea transport costs are low compared to other countries which are distant to the EU market, implying that Chinese FFV products are supplied to the EU at low prices. The paper Vertical Price Transmission in the International Fresh Fruit and Vegetable Supply Chain: Israeli Grapefruit Exports to the EU after Export Market Liberalization is unique in investigating vertical price transmission in the international FFV supply chain and aims to shed light on the issue of market power. This analysis is conducted within an error correction model approach in the context of Israeli grapefruit exports to the EU in the aftermath of the liberalization of the Israeli export sector in 1991. Our results indicate that two of the three dominating exporters have transmitted price changes from the French import price asymmetrically to the Israeli growers in the years directly after liberalization. Though, in the subsequent time period, all three exporters transmit prices symmetrically and the difference between the firm-specific grower prices has decreased. We attribute this change in the exporter s pricing behaviour to the market intervention by the Israeli government in 1994/95. Finally, the paper Threshold adjustment and/or threshold cointegration? An application to the German apple market is unique in suggesting a vector error correction approach to analyze spatial price transmission which allows not only the short-run adjustment towards the long-run equilibrium, but also the long-run equilibrium itself to be non-linear. The threshold effects are assumed to be triggered by a threshold variable with respect to a threshold value. This model approach is based on the Gonzalo and Pitarakis test on threshold cointegration. In an application to the German wholesale market for apples we find clear evidence on threshold cointegration. We identify 4 price transmission regimes with different equilibrium relationships as well as short-run adjustment towards this equilibrium and the share of German apples of all apples traded in the markets serving as the threshold variable.