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ArticleCombining market structure and econometric methods for price transmission analysis
Food Security, August 2019, Volume 11, Issue 4, pp 941–951
2019Also available in:
No results found.Much attention has been devoted in the literature to the analysis of price transmission along food supply chains. Price transmission analysis has traditionally focused on applying econometric methods to assess price dynamics and interrelationships. However, the exclusive application of econometric methods without considering the market’s institutional context has limited potential to support evidence-based policy-making. In recent years, studies have thus attempted to combine the use of quantitative and qualitative methods to better understand the level of performance of food value chains. This study contributes to broadening these empirical toolkits by suggesting a structured analytical framework that benefits from the simultaneous application of econometric and market-structure methods in price transmission analysis. To illustrate the application of the framework, we analyze the milk market of Panama. -
Policy briefPrice transmission in food markets 2023This policy brief assesses whether domestic food markets in developing countries respond to changes in international prices and how fast. Price transmission – namely the extent to which changes in international food prices lead to changes in local food prices – is central to assessing the functioning of markets. The Law of One Price suggests that price transmission is complete, with the prices of a food product sold on competitive foreign and domestic markets differing only by transportation costs. Such a complete price pass-through is attained by trade. Changes in supply and demand in one country affect prices, which will in turn instigate trade with other countries. As trade restores the market equilibrium, prices in the domestic market tend to equalize with those in foreign markets except for transport costs - hence the term “Law of One Price”. Markets are important channels for economic integration, but they can also transmit shocks. In this respect, the policy brief shows that high import dependence and a liberalized trade regime are associated with faster price transmission. By contrast, countries experience a more incomplete pass-through of changes in international prices when trade costs are comparatively higher and trade policies are more restrictive. Finally, the analysis in this policy brief also suggest that when countries are import dependent and domestic markets are less integrated with international markets, consumers prices are generally much higher than world prices.
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