Impact of the positive list system (PLS) on the banana market in Korea

Abstract

This paper investigates the impact of new food safety regulations, a positive list system (PLS), on the vertical supply chain for bananas in Korea using monthly price data from January 2012 to February 2018. To analyze the impact of the PLS on imported, wholesale, and retail banana prices in Korea, this paper utilizes directed acyclic graphs, granger causality tests, and historical decomposition methods. We find that imported banana prices are caused by retail or wholesale banana prices in terms of predicted or contemporaneous causation. These findings suggest that banana wholesalers and retailers have market power over banana importers in terms of price leadership. The results of the historical decomposition show that the PLS shock has a positive effect (a non-tariff effect) on wholesale and retail banana prices. The size of the price shock is larger at the wholesale level compared to retail level, which implies the relatively a larger market power of wholesalers on retailer. Therefore, policymakers in Korea can use the PLS as a tool to protect domestic food market as well as a means of control on possible overuse of market power.