Transmission Elasticity Research Articles

Notes on farm‐retail price transmission and marketing margin behavior

AbstractPerfect farm‐retail price transmission sometimes is taken to mean an elasticity of price transmission (EPT) equal to 1. We show that this definition is inconsistent with Gardner's (1975) model. We also show that the absolute marketing margin (defined as the difference between the retail price and farm price) responds differently to shifts in retail demand, input supply, and technical change in the marketers’ production function than does the relative marketing margin (defined as the ratio of the retail price to the farm price). The empirical implications of these results are discussed in some detail.

Transaction costs and trade liberalization: An empirical perspective from the MERCOSUR agreement

Studies investigating the effect of trade liberalization policies on transaction costs in agricultural markets are scarce. The objective of our paper is to determine whether Brazil became more integrated with reduced transaction costs after the introduction of MERCOSUR with respect to its main agricultural trade partners, Argentina (a MERCOSUR member) and the United States (a non-MERCOSUR member).Using a threshold vector error correction model (TVECM), we estimate the transaction cost, price transmission elasticity and half-life adjustments for the most traded agricultural products between Brazil/Argentina and Brazil/United States from January 1980 to December 2012. Our findings suggest a strong MERCOSUR effect, with lower transaction costs and higher price transmission elasticity when compared to a non-agreement scenario. Moreover, the variations of both parameters are highly heterogeneous across products, depending mainly on their degree of differentiation. From a policy perspective, elements such as the sources of comparative and competitive advantages together with investment policies, specific market regulations and agricultural subsidies, among others, are mainly what influence the extent of transaction cost and market integration. Our results show that Brazil has made progress but still has considerable room for improvement in reducing barriers to agricultural products and, as a consequence, to achieving the full benefits of the MERCOSUR agreement.

The Character of Price Transmission Within Milk Commodity Chain in the Czech Republic

The article is focused on price transmission within milk commodity chain in the Czech Republic. The article distinct on milk products with low value added – cow milk/paper box milk and products with higher value added – cow milk/butter. Price transmission is measured by the coefficient of elasticity of the price transmission (EPT); price transfer is examined in demand as well as supply direction. Next part of the analysis measures price differences (by coefficient determination – R2) in supply direction. Last step in this analysis is the impact of time delay at the price transmission process (measured by R2). The price transmission is asymmetric in the supply direction on both parts of commodity chain (EPT = 0.29 and 0.62), in the demand direction is more symmetric (EPT = 0.31 and 1.02). The assumption of better transfer of positive price changes was confirmed. At the commodity chain of milk/dairy products the time delay is not so much important. With both tested commodity chains there was found higher power of downstream markets, proving demand driven behaviour of these commodity chains, and there was detected oligopsony market structure as well. The data represent monthly prices on both chosen vertical levels in the period of 1/2000–8/2013.

Elastisitas Transmisi Harga Daging Kerbau Rawa di Desa Sapala Kecamatan Paminggir Kabupaten Hulu Sungai Utara

This study evaluating the marketing aspect swamp buffalo meat is held in the Sapala village Paminggir District of Hulu Sungai Utara Regency. This village was chosen because there were many swamp buffalo traders and breeders. The research goal is to identify the elasticity of price transmission swamp buffalo in the study area. The elasticity of price transmission on buffalo meat marketing in the village Sapala Paminggir Hulu subdistrict North River is 3,089. Elasticity of price transmission represents less than one (Et < 1), meaning that a 1% change in the price at the consumerlevel will lead to a change in price by 0.281% at the producer level. This shows the price is relatively inelastic transmission. So the price changes at the consumer level will provide a little change in farmer prices it’s mean that marketing of buffalo swamp meat is not efficient.

Analisis Saluran Distribusi Daging Sapi di Dki Jakarta (Beef Distribution Analysis at DKI Jakarta)

Beef price in Jakarta has increasing trends caused by the long chain distribution. The big gap of beef price between producer and consumer showed the distribution chains are less efficient. The objectives of this research to study of distribution channels, marketing margin, the efficiency of marketing and price transmission elasticity of beef in Jakarta. The analytical methods used include margin distribution approach and Cobb Douglas function. Based on the observations, beef and beef cattle distribution channel in traditional markets are: small farmer / beef cattle importir, feedlot industry, regional wholesaler, butcher, slaughter house, grocer, and small retailer. Meanwhile on the modern market are: beef cattle importir/breeding farm and local cattle feedlotter, feedlot industry, slaughter company + beef supplier and modern market stores. Pattern one of live cattle distribution channel has higher marketing margins from small farmer to regional wholesaler and to the butcher with value of 69.73%. The highest marketing margin value of meat distribution is in pattern two from the slaughter company and beef supplier to modern market, then to consumer with value of 39%. Marketing efficiency value to the traditional market beef was 3.47%, meanwhile to the modern market stores was 16.11%. The price transmission elasticity in the six regions of the beef cattle supplier on the meat price at the retail level in Jakarta were 0.788 (Jawa Tengah), 0.923 (Jawa Timur), 0.943 (Jogjakarta), 0.751 (Lampung), 0.762 (NTB), and 0.767 (NTT).Keyword: beef cattles, beef distribution, marketing margin, markerting efficiency, price transmition elasticity

Analisis Efisiensi Pemasaran Usaha Purse Seine di Kota Ambon

The purpose of this research is to evaluate the efficiency of the marketing system regarding market structure, behavior and performance of the purse-seiner catch at Ambon city fish market.The data required for evaluation were collected from the owner of the purse seine and fish trader.The data then were analyzed by market integration and price transmission elasticity. In addition, analyses of the market structure and market behavior were utilized to describe the market performance that was significantly occurred in the fish market. Results show that (1) market integration occurred is imperfect integration or oligopsony; (2) market behavior is relatively varied, i.e., retailers tend to increase fish price if the market price is sharply increasing, but they are very slow in reducing the price if the fish price is decreasing; (3) for each market location, retailer is fewer than fish producer; no barriers for producer and retailer to entry and exit from the market; in general fresh fish marketed have high quality except for condition of the abundant catch where some fish are stored in the cool box for seiling at the next day.

Price Transmission Relationships along the Seafood Value Chain in Bangladesh: Aquaculture and Capture Fisheries

There is a general concern among policy makers that seafood prices may not be proportional along the value chains in Bangladesh. This article investigates causal and price transmission relationships between wholesale and retail prices for five fish species in Bangladesh that include: hilsa (Tenualosa ilisha), rohu (Labeo rohita), catla (Catla catla), pangas (Pangasius hypophthalmus), and tilapia (Oreochromis mossambicus/O. niloticus). Causal relationships between wholesale and retail prices were tested using the Granger causality test while asymmetries in price transmission were examined using the Houck and Ward approach as well as the error-correction approach. The results show that the direction of causality in prices was from retail to wholesale in many of the value chains analyzed, indicating influence of retail price on wholesale price in the Bangladesh fish sector. In general, the price transmission was found to be symmetric in the short-run while a mix of symmetric and asymmetric in the long-run. The results also show variation in price transmission behavior between aquaculture and capture fisheries products. The retailers of aquaculture products, compared to their fisheries counterparts, are less likely to be in a position to easily pass through falling prices to wholesalers and farmers. For aquaculture products, elasticities of price transmission from retailer to wholesaler were generally greater from increases in price than from decreases in price.

Agricultural Price Transmission Elasticity: Importance of Controlling for Unobservable Common Factors

A voluminous literature estimates price transmission from world markets to domestic markets ignoring unobserved common factors that affect all the domestic markets. This paper reconsiders the long-run and short-run transmission elasticity of world commodity price shocks to domestic markets using a ‘common factor framework’ that takes common factors that are correlated with regressors into consideration. In the estimation, we use annual price data for rice, wheat and maize for a panel of developed and developing countries observed over the period of 1960-2007. We compare results from a common factor framework to those that do not account for common factors. Our findings suggest ignorance of common factors is likely to result in upwardly biased elasticity estimates.

Transmission of World Prices to the Vietnamese Economy

International economic integration has been a central policy goal for the Vietnam government since the doi moi reform was initiated in 1986. We explore the Vietnamese increasing integration into the world market and bouts of high inflation. Five price transmission models using three levels of sectoral aggregation, examine the transmission of world price shocks to the Vietnamese domestic market and the impact of inflation on domestic prices from 1999 to 2008. Empirical results find wide sectoral variation, imperfect price transmission, non-neutral inflation pass-through, the dominant effect of inflation on domestic prices, and a low speed of adjustment to the Law of One Price. We conclude that policy analysts need disaggregated sector-level price transmission elasticities for accurate trade policy analysis and that careful attention must be paid to how inflation influences the economy. Moreover, while tariff reforms have typically been focused in many studies to come to grips with policy outcomes, the key to such

Biofuels and Vertical Price Transmission: The Case of the U.S. Corn, Ethanol, and Food Markets

This is the first paper to analyze the impact of biofuels on the price transmission along the food chain. Specifically, we analyze the U.S. corn sector and its vertical links to food and ethanol markets. The key result of this paper is that the presence of biofuels affects the price transmission elasticity only when the blender's tax credit is binding and the shock originates in the food market. Our another important result is that the response of corn and food prices to exogenous shocks in the corn or food markets is always lower in the presence of biofuels when the tax credit is binding. However, the results are mixed for the binding mandate. The sensitivity analyses indicate that our results are robust to different assumptions about the model parameters.

The effects of agricultural trade openness on food price transmission in Latin American countries

Trade of agricultural commodities has grown significantly in most Latin American countries (LAC) over the last two decades. However, after the international food price surges in 2006-08 and 2011-12 concerns about food access of the poor arose. Within a panel framework containing six LAC (Argentina, Brazil, Chile, Colombia, Mexico and Peru), we used a single equation error correction model to identify possible cointegrating relationships between the food consumer price index (CPI) and a set of trade related and domestic variables. The main focus of the study was to examine how different levels of trade openness impact international food price transmission to domestic markets. Our results confirm that deeper market integration increases global price transmission elasticities. In other words, more agricultural trade openness proves to elevate food CPIs during global price spikes. Thus, for poor consumers world price shocks can be deteriorating in the short-run and domestic food prices will slowly converge to a higher long-run equilibrium. Especially in increasingly integrated economies, effective policies to buffer food price shocks should be put in place, but must be carefully planned with the required budget readily available. We also found that exchange rate appreciations can buffer price shocks to a certain extent and that monetary policies seem to be an appropriate means for stabilizing food prices to safeguard food access of the poor population.

Spatial Product Market Integration between Two Small, Open Neighbouring Economies

ABSTRACTThis paper contributes with an in‐depth investigation of spatial wheat producer market integration between two neighboring countries, net exporting Hungary and net importing Slovenia. One of the key features of this spatial producer price transmission is the very important role Hungary plays in supplying wheat to Slovenia. Using monthly data from January 2000 to April 2011, spatial price transmission is analyzed from a number of perspectives, using a wealth of econometric techniques in order to shed light upon the degree of integration, adjustment asymmetries and the role of market share upon price transmission. Empirical results rejected the validity of the Law of One Price, identified Hungary as the price‐leading market, confirmed competitive symmetric price adjustment, and emphasized the role of Hungarian market share in total Slovenian imports with respect to wheat price transmission elasticity. The results imply that wheat producer prices in both of the analyzed countries tend to be internationally determined. Hungarian exports are unable to price discriminate in wheat trade between the two neighboring markets.

How Strong Do Global Commodity Prices Influence Domestic Food Prices in Developing Countries? A Global Price Transmission and Vulnerability Mapping Analysis

This paper analyzes the transmission from global commodity to domestic food prices for a large set of countries. First, a theoretical model is developed to explain price transmission for different trade regimes. Drawing from the competitive storage model under rational expectations, it is shown that domestic prices can respond instantaneously to global prices even if no trade takes place but future trade is expected. Using a global database on food prices, we construct national and international grain price indices. With an autoregressive distributed lag model, we empirically detect countries in which food prices are influenced by global commodity prices, including futures prices. Mapping transmission elasticities with the size of the population below the poverty line which spends typically a large share of its income on food, we are able to estimate the size of vulnerable population. Our empirical analysis reveals that 90 percent of the global poor (income below 1.25$/day) live in countries where domestic food prices respond to international prices - but the extent of transmission varies substantially. For 360 million poor people, international prices transmit to their country at rates of 30 percent or higher within three months.

Price Transmission in the Value Chain of Hard Clam in Vietnam

Using data collected from 2007-2010, this study identifies price linkages and then forecasts vertical price transmission elasticities between markets (farm, wholesale, retail and export) in the value chain of hard clam (Meratrix lyrata) in Vietnam. After doing necessary tests to make sure that all price data are stationary, Seemingly Unrelated Regression (SUR) and Error Correction Model (ECM) are employed to examine short-time and long-time effects of hard clam price in one market on the other market in its value chain. The seemingly unrelated regression results show that hard clam prices seem not depend on seasons. Farm price of hard clam is transmitted completely to wholesale price while the price in retail market causes negative effect on farm price in the short run. Wholesale price of hard clam is transmitted to both prices in farm and retail markets. The export price of hard clam is estimated not to be affected in the short run by prices in other markets except retail price in domestic markets. Error correction models confirm the independence of hard clam price on annual seasons. The transmission elasticities of prices between the markets are also identified based on model estimation.

Vertical price transmission analysis: the case of milk in the Slovak dairy sector

Testing for nature price transmission and calculating elasticities of price transmission are important areas of research for providing insights into market efficiency issues. Symmetric or asymmetric price transmission has been the subject of considerable attention in agricultural economics. The concept of the price transmission is an important area of the research particularly in relation to the assessment of impact on the welfare of the vertical entities. The main goal of the paper is an analysis of the price transmission and its exploitation in case of price elasticity estimation in dairy sector. Work investigates vertical price transmission of milk in the Slovak agri-food chain. The research is based on Vector Error Correction Model (VECM) of the selected commodities at producer, processor and consumer level and the estimation of the parameters specified in the model. Moreover the paper determines the coefficient of elasticity of price transmission (EPT).

Asymmetric price transmission in the Slovak liquid milk market

The divergence in liquid milk price trends has raised concern about the efficiency of the milk market price transmission in Slovakia. The paper provides empirical evidence on the price transmission among the producer, wholesale, and retail markets of liquid milk in Slovakia, using the monthly data from 1993 to 2010. The empirical analysis is based on the Granger causality and the Johansen cointegration tests and on the asymmetry tests (Houck approach and error correction model approach). The causality test results show that the changes in producer prices cause changes in the wholesale and retail prices; there is a feedback from the retail to producer prices. Moreover, the direction of causality between the wholesale and retail prices flows in both directions. The long-run elasticities of price transmission are, as expected, greater than the short-run elasticities. The cointegration results indicate that the wholesale and producer prices as well as the retail and producer prices are cointegrated, but there is no evidence of cointegration between the wholesale and retail prices. The results of an asymmetric error correction models suggest that the price transmission in the Slovakian liquid milk market is asymmetric both in the short- and long-runs.

Theoretical Restrictions on Farm‐Retail Price Transmission Elasticities: A Note

ABSTRACTZero restrictions implied by Gardner's () model are exploited to develop a simple test for perfect price transmission. Applying the test to the domestic marketing channels for U.S. beef and pork, we reject the hypothesis of competitive market clearing for pork, but not for beef. A retest using the four‐firm concentration ratio in U.S. meat packing as a proxy for market power affirms results from the simple test. [JEL Classification: Q11, Q13].

Black Sea and World Wheat Market Price Integration Analysis

In 2008–10, Russia and Ukraine together exported an average of 29 million tons of wheat per year, and have become important players in the international wheat market. This research summarizes the short‐ and long‐run wheat price dynamics between Ukraine and Russia, and other major wheat exporters—the United States, European Union (EU), and Canada—from 2004 to 2010. Tests of market price co‐integration (Johansen maximum likelihood test and residual‐based tests) as well as threshold error correction techniques were performed for this purpose. The results suggest that Russian wheat prices were co‐integrated with EU and U.S. wheat prices but not with Canadian wheat prices. Ukrainian wheat prices were found to be co‐integrated with French wheat prices only. The estimated long‐run wheat price transmission elasticities were estimated to be equal to 1.04 between Russian and French (a representative country of the EU) wheat prices, 1.16 between Russian and U.S. wheat prices, and 1.05 between Ukrainian and French wheat prices. We also found the short‐term relationships between the co‐integrated series to be statistically significant. Price adjustments in all co‐integrated prices were found to be symmetric.

Price formation and transmission along the food commodity chain

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.

Analisis Transmisi Harga Jagung sebagai Bahan Pakan Ternak Ayam Ras di Sumatera Barat

The reseacrh was conducted in West Pasaman West Sumatera. There was a phenomenon in the research area that poultry farmers had difficulty to get maize for layer feed and the tendency of price increase of maize after the operation of feed industry. The purpose of the reseacrh were to analyze the elasticity of price transmission between producers and consumers pricing. Method of the research was a quantitative description and statistic analyze to measure elasticity of price transmission between producers and consumers pricing. Data used in the research was secondary data. The result of research revealed that elasticity of price transmission was small (η = 0,26), indicated that the price change at farmer level was lower than consumers level therefore the market of maize in West Sumatera was not efficient.