Asymmetric Price Transmission in Food Supply Chains: Impulse Response Analysis by Local Projections Applied to U.S. Broiler and Pork Prices

• Published in: Agribusiness (New York, N.Y.) Vol. 29; no. 3; pp. 325 - 343
• Main Authors: Kuiper, W. Erno, Lansink, Alfons G.J.M. Oude
• Format: Journal Article
• Language: English
• Published: Hoboken Blackwell Publishing Ltd 01.06.2013; Wiley Periodicals Inc
• Subjects: Asymmetry; C320; Dynamical systems; Food supply; Foods; L110; market; Marketing; Meat products; Nonlinear dynamics; Nonlinearity; Pork; Prices; Projection; Q110; Studies; Supply chains; Wholesalers; United States > US
• ISSN: 0742-4477; 1520-6297
• DOI: 10.1002/agr.21338

ABSTRACT In this article, the author's set out Jordà's (2005) method of local projections by which nonlinear/ asymmetric impulse responses can be computed without the need to specify and estimate the underlying nonlinear/asymmetric dynamic system. The method is used to compute price‐reaction functions that show how the prices of the different stages in a food supply chain dynamically respond to each other and whether or not these responses reveal any asymmetric patterns. Empirical applications for the U.S. pork‐meat and broiler‐composite chains illustrate the convenience of the method and reveal that in the pork chain asymmetric price transmission enables retailers (wholesalers) to increase their marketing margin vis‐à‐vis the wholesalers (farmers), whereas in the broiler sector the retailers face both temporary decreases and increases in their marketing margin as a consequence of asymmetric wholesale‐retail price transmission.