The transmission process of supply and demand shocks in Czech meat commodity chain

Abstract

Based on the results of price transmission analysis, the paper aims to explain the asymmetry of price transmission in Czech meat commodity chain, in the supply as well as in the demand direction. The transmission asymmetry in supply direction, i.e. e. from farmer to consumer (especially in case of price growth); can imply the existence of market power exercised by individual links of the chain, especially by processors or retailers. The transmission asymmetry in demand direction, i.e. from the final consumer to farmer, is treated as well, although the possible reasons behind the asymmetry are definitely not the same. Demand shock (rapid decline in consumer demand), which is often followed by price fall at the consumer level, can be caused by food safety hazards. They play very important role in the meat commodity chain, where higher risks of threatening the food safety standards are presupposed, especially in connection with the frequent distribution of animal diseases (such as the mad cow disease (BSE), the avian flu, the foot-and-mouth-disease), which is the main reason for demand-oriented price transmission analysis. Price transmission analysis is carried out in three steps. First, the extent of the transmitted price changes is measured by the coefficient of elasticity of price transmission (EPT), the results are presented in the form of matrix, which represents supply as well as demand direction. Second, the analysis of price differences is carried out in both directions. Positive as well as negative price changes are treated separately. As the last step, the impact of time delay on the price transmission process is assessed in both directions. The data used represent monthly prices (resp. their differences) in the period of 1997–2005 with the distinction on poultry, pork and beef branch of the chain.