Price Transmission in the Beef Value Chain – The Case of Bloemfontein, South Africa

Abstract

The large difference between the producer price of a beef carcass and the retail prices of individual beef cuts raised concerns among producers. Producers believe that they were carrying all the risk and that retailers fixed their prices, irrespective of the market price at that stage. This study examines the price transmission mechanisms in the Bloemfontein beef market using the producer price and retail prices at four retail outlets collected over a period of 3 years. It further estimates the causality links between the producer and retail prices. The traditional (Engle-Granger) and standardized (Enders & Siklos) Augmented Dickey- Fuller procedures were used to test for co-integration and asymmetry in price transmission. Four competing models, namely, Engle-Granger, Threshold Autoregressive , Momentum Threshold Autoregressive, and Momentum Consistent TAR models were applied. The following results were found: asymmetric price transmission between producer and retail prices, the results on the flow of market information indicated that a flow of market information did exist in the markets of three of the four retailers. The price transmission relationship of two of the retailers are beneficial to the consumers, as the marketing margin declined over time, while the relationship of the other two retailers are detrimental to consumers.