The impact of food scares on price adjustment in the UK beef market

Abstract

AbstractThis paper considers the impact of‘food scares, predominately concerns relating to BSE, on UK beef prices at retail, wholesale and producer levels over the 1990s. Acknowledging the co‐movement that exists between prices in the meat marketing chain, we use a co‐integrating framework, the results of which show the importance of publicity regarding the safety of food in the transmission of beef prices in the UK. The‘food publicity’ index that we use has a marked negative impact on the prices at all levels, a result that is consistent with the effect of an inward shift in the demand function. Moreover, the extent of price decline varies between the marketing stages entailing that the price spreads rise in response to an increase in the (negative) publicity about food safety. While not a formal test of market power, these observations are consistent with recent theoretical results demonstrating that market power exacerbates price changes in the upstream sectors for a given change in the retail demand function. The implication of these varying price changes is that the food safety concerns also cause the marketing margins between the stages to widen. The UK's Competition Commission has recently investigated the abuse of market power in the food sector, inspired largely by this specific issue.