Dynamics of Price Adjustment in Qualitatively Differentiated Markets in the U.S.: The Case of Organic and Conventional Apples

Abstract

Production and consumption of conventional and organic apples in the U.S. have changed dramatically over the past two decades. Despite a drop in the conventional apple production, production of organic apples shows a double-digit growth. Demand for organic apples also continues to outpace growth in overall organic fruit sales. In this research, we investigate whether these changes have an impact on price adjustment dynamics between these two qualitatively differentiated products. We use a Markov-Switching Assymetric Vector Error Ccorrection model (MS-AVECM) and weekly U.S. national retail prices for the 2010-2015 period for three varieties of apples: Gala, Fuji, and Red Delicious. The MS-AVECM results indicate three Markov-Switching regimes can be defined for the three varieties during the study period. The results show there are different short-run price adjustment daynamics in each of these regimes and asymmetric price transmission behavior between organic and conventional apples. Result indicates that apple varity plays important role in the price relationship between organic and conventional apple. These findings have implications for farmers, wholesalers, retailers, policy makers, as well as consumers.

Price Transmission Differences between Conventional and Organic Products

“…This model not only allows estimating the short-run speed of price adjustments, but also preserves the long-run relationships among the variables (Saghaeian et al, 2007; Mahmoudi & Guerrero, 2016). To check the stationary of the price series and market integration between the two markets, Augmented Dickey-fuller test and Johnsen's cointegration test are used respectively (Nemati & Saghaian, 2018). After testing the stationary level of the variables, the cointegration between them will be investigated if they are integrated of order one (Mahmoudi, 2017).…”

“…Researchers argue that since organic and non-organic products are qualitatively differentiated, therefore different price dynamics can exist in each market (Würriehausen, et al, 2015). Nemati and Saghaian (2018) argue that organic market is a thin market which means there are few buyers or sellers in this market and therefore price discovery is a challenge in such a market. In addition, learning the price dynamic between organic and conventional markets has an importance for both policy makers and participant of the market.…”

Erzurum İli̇nde Tüketi̇len en Uygun Elma Çeşi̇di̇ni̇n Beli̇rlenmesi̇

“…Kriter ve seçenekler karşılaştırıldığında tüketicilerin %30,19'u Starking, %27,50'si Golden, %23,97'si Amasya ve %18,34'ü ise Granny Smith elmalarını tercih etmektedir. Nemati et al (2018), organik ve konvansiyonel olarak ele aldıkları elma çeşitlerinin fiyatlarındaki artış ve azalışlara karşı tüketicilerin asimetrik bir tepkileri olduğunu belirlemişlerdir. Ayrıca Uzundumlu vd.…”

Dynamic Price Discovery Process of Chinese Agricultural Futures Markets: An Empirical Study Based on the Rolling Window Approach

“…There is also an argument that a large impact could notably trigger structural breaks, which would break and then rebuild the long-term relationship between variables (Peri, Baldi, and Vandone, 2013). When being conscious of the potential structural breaks, many time-series models appropriate for nonstationary data have been developed, and some types of these models that are in wide use in this field are the TVECM (threshold vector error correction model; Piggott, 2001) and MS-AVECM (Markov-switching assymetric vector error correction model; Nemati and Saghaian, 2018). Such a threshold framework works well in generally solving nonlinear issues, but it could fail to detect cointegration in an extreme scenario where the cointegrating relationship appears only beyond the critical threshold.…”