Impact of the livestock mandatory reporting act on the vertical price transmission within the beef supply chain

Abstract

This study examines the characteristics of price transmission along the vertical linkage in the beef industry before and after the implementation of the Mandatory Price Reporting Act (MPR) using econometric procedures such as the Gregory-Hansen structural break test, threshold autoregressive model, threshold error correction model, and nonlinear impulse response functions. Results show the improved speed of price adjustment after the MPR in the supply chain of the beef industry, whereas a limited evidence of the increased price asymmetry is detected. The increased asymmetry is observed mostly through the long-run regime switching coefficients of threshold autoregressive and error correction models. The price asymmetry mostly disappears in both pre-and post-MPR periods when only short-and long-run price adjustment coefficients are considered. The results also suggest the existence of the threshold cointegration in the vertical price relationship of the beef industry, which supports the use of the nonlinear threshold model in this study.[JEL codes: C22, Q11] INTRODUCTIONFarm, wholesale, and retail prices in the U.S. beef industry may not be discovered simultaneously; rather, there may be a lead-lag relationship among these prices. The lead-lag relationship could be caused by physical constraints in transporting livestock and slaughtered products, and retailers' and packers' exertion of market power in controlling prices.The vertical price relationship could also be influenced by the availability and access to the market information. As uncertainty about market supply and demand increases, individual transactions of market players tend to further deviate from actual current market clearing conditions. Typically, market information encompasses all information needed by buyers and sellers to arrive at their decision, and buyers and sellers need timely access to relevant information. Price is one such crucial market information.The collection and dissemination of price information could be affected by the recent structural changes in the U.S. beef industry. As the beef industry has been increasingly concentrated, there has been an apprehension 562

Transmisión vertical y espacial de precios en el mercado mexicano e internacional de ganado vacuno

“…These results enabled to use the cointegration technique to calculate the relationship between international and domestic Mexican beef prices and between a processor and farm beef prices. These results concur with previous studies concerning the non-stationarity of beef prices (21,22,23) .…”

“…The ADF test on the error term shows a test statistic of -2.57 vs a 5 % critical value of -2.87, which indicates a failure to reject the null of non-stationarity. Different authors (21,22,23) reported similar results for beef prices. For the vertical model (equation 6), it was found an R 2 of 0.68, a t-statistic of 27.47, and an F statistic of 742.4.…”

Are there price asymmetries in the U.S. beef market?

“…Fousekis, Katrakilidis and Trachanas (2016) applied a nonlinear autoregressive distributed lag model to monthly U.S. beef price data and found evidence of price asymmetry from farm to wholesale and from wholesale to retail markets. Chung, Rushin and Sarathkal (2017) contrasted price transmissions before and after the implementation of the Livestock Mandatory Reporting Act and found limited evidence of increasing asymmetric price responses in the post-Act period. The four aforementioned studies have advanced the vertical price transmission literature by applying more complex methods.…”

“…Frey and Manera (2007) and Meyer and von Cramon-Taubadel (2004) provide comprehensive surveys of the empirical literature on agricultural commodity price asymmetry, classifying and comparing heterogeneous studies in terms of econometric models employed, type of asymmetries tested and findings. More recent studies dealing with asymmetric price transmission in the U.S. beef supply chain are Boetel and Liu (2010), Emmanouilides and Fousekis (2015), Fousekis, Katrakilidis and Trachanas (2016), and Chung, Rushin and Sarathkal (2017). Boetel and Liu (2010) examined wholesale and retail price relationships in the beef and pork markets by accounting for possible structural breaks in the data.…”