Asymmetry in farm to retail price transmission: evidence from Canada and the United States
Date
2006
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Publisher
University of Delaware
Abstract
The production of meat is an important income source for farmers in Canada and the U.S. From 2000 to 2004, total livestock account for almost 50% of both Canadian and American farmer income. Canada is the second largest pork exporter and it is the seventh top pork importer. The main trading partners of Canada in pork are the U.S., Japan and Mexico. United States has the largest fed-cattle industry in the world, and is the world's largest producer of beef. It is also the second largest exporter of poultry meat. Both United States and Canada play very important roles in the global meat market. ☐ Because studies on price relationships could provide insights into marketing efficiency and welfare distribution between consumers and producers, the competitiveness of stages from the farm production sector to the retail sector have received considerable attention from economists. A lot of past studies found common asymmetric price transmission exist among food market without anticipation of the standard economic theory. Though there is not yet a general theoretical explanation for asymmetric price transmission, most studies point to characteristics associated with imperfect competition as reasons for the phenomenon. So the existence of asymmetric price transmission could be an indicator to policy maker in terms of addressing public policy issues. ☐ This thesis uses monthly data over the period 1981-2006 to test asymmetric price transmission from farm prices to retail prices for three commodities: beef, pork and chicken in both the Canadian and U.S. meat markets. A comparative analysis of results from the Wolffram-Houck model and a modified error correction model for testing the symmetry of price transmission were examined. The empirical results suggest that the farm to retail price transmission process is characterized by negative asymmetry in the Canadian pork and U.S. broiler sectors, and positive asymmetry in the Canadian beef sector while it is characterized by symmetry in Canadian chicken, U.S. beef and pork sectors. ☐ Keywords: price transmission, asymmetry, error correction representation