Measuring Asymmetric Price and Volatility Spillover in the South African Broiler Market

Abstract

This study investigated asymmetric price and volatility spillover in the broiler value chain. The data used for the study includes farm and retail broiler monthly prices dated from January 2000 to August 2008. The threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) models were used to investigate asymmetry in farm-retail market prices, whereas the exponential generalised autoregressive conditional heteroskedasticity (EGARCH) model was used to measure price volatility and the volatility spillover effect between retail and farm prices. Price asymmetry was found between farm and retail prices with retail prices responding more rapidly (with a lag) to negative than positive changes in farm price. The results indicate that within one month, the retail prices adjust so as to eliminate approximate 2.8 % of a unit-negative change in the deviation from the equilibrium relationship caused by changes in producer prices. This implies that the retailers must increase their marketing margin by 2.8% in order to response completely to a unit-negative change in farm prices. The results from the volatility model show that the magnitude of volatility in the retail and farm prices for the periods 2000M1 to 2008M8 is 1.8% and 2.8%, respectively, with significant asymmetric volatility spillover from the farm to retail level of the value chain. This implies that the response to positive shock at any production and marketing stage differs from the response to a negative shock.