Isaac Scientific Publishing

Journal of Advances in Economics and Finance

Price Transmission Differences between Conventional and Organic Products

Download PDF (496.4 KB) PP. 135 - 140 Pub. Date: November 1, 2018

DOI: 10.22606/jaef.2018.34004

Author(s)

  • Elham Darbandi*
    Department of Agricultural Economics, University of Kentucky, Lexington, KY 40506, United States
  • Sayed Saghaian
    Department of Agricultural Economics, University of Kentucky, Lexington, KY 40506, United States

Abstract

In a competitive market, a rise in output prices at the wholesale level is expected to be transferred to the consumers via retailers. We have an asymmetric price transmission when an increase in the producer price transfers faster and stronger to the consumers comparing to a reduction in the producer price. The research question here is how product heterogeneity and differentiation can affect the price transmission in the carrots markets. Carrots consumption in the U.S. has been increasing significantly over the past few decades. We investigate the price linkages of carrots at terminal and retail levels for two different qualities of this product, organic and conventional. According to the VECM model results, the speed of price adjustment in the conventional carrot market is 0.354 in absolute value, while for the organic carrot market it is 0.026. This result is an indication of asymmetric price transmission with respect to speed. It shows that the price adjustment in the organic carrot market is relatively slow, pointing to inefficiency in this market. These results have important policy implications, especially in case of price shocks, there could be differential welfare consequences for both consumers and producers.

Keywords

Asymmetric Price Transmission, Organic Products, Product Heterogeneity

References

[1] A, Banerjee, J. Dolado, J.W. Galbrailh, and D.F. Hendry. Cointegration, Error Correction and the Econometric Analysis of Time Series. Oxford University Press. Oxford. 1993

[2] B. K. Goodwin and M. T. Holt. "Price transmission and asymmetric adjustment in the US beef sector." American Journal of Agricultural Economics, pp. 630-637, 1999.

[3] E. Darbandi, “Price transmission analysis for Nicaragua rice market,” International Journal of Food and Agricultural Economics, Vol. 6, No. 1, pp. 85-94, 2018.

[4] F. M. Arshad and A.A. Hameed. “Price Transmission in Selected Malaysian Fruits Markets.” American Journal of Applied Sciences 11(3), pp: 347-355, 2014.

[5] Food and Agriculture Organization of the United Nations (FAO).2015. Online. Available at http://faostat3.fao.org/home/E. (Acceded March 5, 2015)

[6] G. Lucier and B.H. Lin. Factors Affecting Carrot Consumption in the United States. Washington, DC: U.S. Department of Agriculture/ Outlook Report from the Economic Research Service, Pub. No. VGS319-01.2007

[7] L. Naeve, carrots.2015. “Agricultural Marketing Resource Center (AGMRC).” Online. Available at http://www.agmrc.org/commodities-products/vegetables/carrots/ [Retrieved April 1, 2015].

[8] M. Tahamipour and M. Mahmoudi. “The Role of Agricultural Sector Productivity in Economic Growth: The Case of Iran's Economic Development Plan.” Research in Applied Economics 10.1, 2018.

[9] M. Mahmoudi, "Three Essays in Macroeconomics." PhD diss., 2017.

[10] M. Mahmoudi and F. Guerrero. "The transmission of the US stock market crash of 2008 to the European stock markets: an applied time series investigation." American Journal of Economics 6.4, pp. 216-225, 2016.

[11] M. Nemati and S. H. Saghaian. "Dynamics of Price Adjustment in Qualitatively Differentiated U.S. Markets: The Case of Organic and Non-organic Apples." Journal of Agribusiness 36.1, 2018.

[12] N. Girapunthong, J. J. VanSickle, and A. Renwick. "Price asymmetry in the United States fresh tomato market." Journal of Food Distribution Research, 34.3, pp. 51-59, 2003.

[13] N. Würriehausen, R. Ihle, and S. Lakner. "Price Relationships between Qualitatively Differentiated

[14] Agricultural Products: Organic and Conventional Wheat in Germany." Agricultural Economics 46 (2), pp. 195-209, 2015.

[15] P. Conforti, "Price transmission in selected agricultural markets," FAO Commodity and trade policy research working paper 7, 2004.

[16] P. Surathkal, C. Chung, and S. Han. "Asymmetric Adjustments in Vertical Price Transmission in the US Beef Sector: Testing for Differences among Product Cuts and Quality Grade." Selected paper, Agricultural and Applied Economics Association annual meeting, Minneapolis, MN, July. 2014.

[17] R. F. Engle and C.W. Granger. “Co-integration and Error Correction: Representation, Estimation and Testing.” Econometrica 55, pp. 251-276. 1987

[18] R. Tiffin and P. J. Dawson. "Structural breaks, cointegration and the farm-retail price spread for lamb." Applied economics 32, no. 10, pp. 1281-1286, 2000.

[19] S. H. Saghaian, L. A. Meyer, and A. D. Spaulding. "Beef safety shocks and dynamics of vertical price adjustment: The case of BSE discovery in the US beef sector." Agribusiness: An International Journal 23.3, pp. 333-348, 2007.

[20] U.S. Department of Agriculture – Agricultural Marketing Service. 2015. Internet Site: https://www.marketnews.usda.gov/mnp/fv-home. (Acceded March 1, 2015)

[21] U.S. Department of Agriculture –Natural Agricultural Statistics service. 2016. Vegetable 2015 Summary.