Price formation and transmission along the food commodity chain

Abstract

The article is focused on analysis of price transmission along the wheat commodity chain in the Czech Republic, with the distinction on wheat products with low value added (wheat flour), respectively high value added (wheat rolls). The degree of vertical price transmission is measured to identify potential market failures, because asymmetric price transmission can be the result of existence of market power within the food commodity chain. The data basis is made up from monthly prices on partial markets of the analyzed commodity chain published by Czech Statistical Office and Ministry of Agriculture of the Czech Republic. The monitored time period is from January 2000 till October 2009. The analysis is based on calculation of the price transmission elasticity coefficient (evaluation of price transmission along the chain) and the intensity of dependency of positive and negative inter-market price differences (evaluation whether positive or negative price changes are better transmitted among particular vertical markets). Time lag is tested as well. The assessment of price transmission along the wheat commodity chain confirmed the existence of market power especially on the retail stage and low impact of price changes of farm prices on final consumer food prices.