Tangled up in prices going up and down: price determination in selected agri-food markets

Abstract

<p>The dissertation includes four papers altogether. Three papers examine mechanisms for price transmission between markets. Among them, one deals with price transmission along the supply chain, and the other two deal with price transmission across spatially distinct markets. The fourth paper measures the effects of demand shifts on the market price equilibrium. <p>Paper 1 investigates price transmission relationships in the salmon value chain between the export market of Norway and retail markets of France and Spain. We assume processing costs have a significant impact on a vertical price linkage along the supply chain. Specifically, asymmetric price transmission is investigated along the supply chain of two salmon products, a relatively unprocessed product (fresh salmon) and a more processed product (smoked salmon). The threshold cointegration and the asymmetric error correction models are estimated to examine the patterns of price adjustment. Results indicate a price transmission relationship in both markets along the fresh salmon supply chain but not along the smoked salmon chain in either market. Furthermore, for the fresh salmon supply chain, asymmetric adjustment is observed in both markets. Processing salmon into value-added consumer products involves additional inputs, including labor, capital, marketing, and packaging costs and time. The greater the share of these non-raw materials costs in the final consumer prices, the less the price influence of farmed fish on the final product price. Hence, we can argue that price transmission between the export and retail salmon markets decreases as more processing is involved. <p>The second paper explores market integration and spatial price transmission in the regional grain markets in Ethiopia. Since mid-2006, prices of basic food crops (such as wheat and maize) have persistently increased and have become a critical challenge in Ethiopia. <p>The literature indicates that food prices in any market may change as a result of several factors, including price shock diffusion from international markets (Baquedano & Liefert, 2014; Ceballos et al., 2017), changes in the exchange rate (Hazel et al., 1990; Dawe, 2008), changes in domestic demand and supply conditions (Brækkan et al., 2018), and in the market structure (Abdulai, 2000). In this paper, the objective was to investigate whether the Ethiopian grain market structure has contributed to price increases in the Ethiopian grain market. The study uses monthly wholesale prices of wheat, maize, and teff from major regional grain markets in Ethiopia. The Engle-Granger and threshold cointegration models were the main methods employed to investigate the extent, speed, and nature of price signal transmission between the central and major regional grain markets. The estimated results given by both models suggest the presence of long-run relationships between the central and major regional grain markets for each commodity. Moreover, the results obtained from the threshold cointegration model indicate the general absence of asymmetric price adjustment in each of the markets. This might imply the presence of efficient price transmission in the Ethiopian grain market. Hence, I argue that this study provides insufficient evidence to support the hypothesis that the price adjustment behavior of grain traders (or market structure) leads to sustained grain-price increases in Ethiopia. <p>The third paper investigate price transmission in EU pork markets. The pork market in the EU has undergone important changes in recent years, such as the growing concentration of power in both producing and consuming countries, which might impact the price transmission process between markets. This study therefore investigated price transmission between major EU spatial pork markets. Two different techniques, namely threshold autoregressive and local polynomial techniques, were applied to obtain reliable results. The results suggest that price transmission mechanisms vary significantly between different EU markets. However, the transmission speeds between the markets are overall small, indicating that price adjustments take a long time in each market. Furthermore, the estimated results provide some evidence of asymmetric adjustment within the EU pork markets. <p>The fourth paper takes a different approach by studying market price formation. Growing global demand for seafood has shifted the demand curves in the world seafood markets upward. In this paper, we use the demand index approach of Marsh (2003) to measure the growth in seafood demand of 107 countries between 1984 and 2013. The estimated results are then used to calculate aggregate demand growth by income level, regionally, and over time. Results indicate that demand growth varies considerably across countries, regions, income groups, and over time. Furthermore, while the literature show seafood production has more than doubled since the mid-1980s, our results indicate that global demand for seafood has exceeded the global seafood supply, which explains the increasing global seafood prices.