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Asymmetric Price Transmission In The Israeli Citrus Export Sector In The Aftermath Of Liberalization

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  • Goetz, Linde
  • von Cramon-Taubadel, Stephan

Abstract

The Israeli citrus export sector was liberalized in 1991 with the aim to increase citrus growers’ income and to improve overall efficiency of the international citrus marketing channel. However, the former government export monopoly’s activities were mainly taken over by four large companies accounting for over 90% of total Israeli citrus market exports. In addition, citrus exporters maintained the monopoly’s consignment system, substantially limiting transparency on how the grower price is determined. This lead the government to intervene in the newly liberalized market by implementing a minimum price agreement in the 1994/95 season to protect citrus growers against exporters’ abuse of market power. In this paper we analyze whether market power was exerted by exporting companies over citrus growers in the form of asymmetric price transmission. Our study is unique in that it investigates vertical price transmission across international borders, i.e. in the context of Israeli grapefruit exports to France. We explicitly account for possible changes in exporters’ pricing behaviour in the post-liberalization period. We apply an error correction model (ECM) to disaggregated firm-level Israeli grower price and French import price data. An ECM is estimated individually for each of the major exporting companies within a seemingly unrelated regression (SUR) framework. We find asymmetric price transmission in the first years after liberalisation, but symmetry in the second half of the 1990s. Our results indicate that growers’ losses due to asymmetry amounted to as much as 2.5% of their total revenues. Our results suggest that liberalization improved the efficiency of the Israeli citrus international marketing channel, but that this took time and was probably accelerated by government intervention.

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Bibliographic Info

Paper provided by German Association of Agricultural Economists (GEWISOLA) in its series 47th Annual Conference, Weihenstephan, Germany, September 26-28, 2007 with number 7594.

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Date of creation: 2007
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Handle: RePEc:ags:gewi07:7594

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Keywords: Crop Production/Industries; International Relations/Trade;

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References

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  1. Jochen Meyer & Stephan Cramon-Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 581-611.
  2. Lois Schertz Willett & Michelle R. Hansmire & John C. Bernard, 1997. "Asymmetric price response behavior of Red Delicious apples," Agribusiness, John Wiley & Sons, Ltd., vol. 13(6), pages 649-658.
  3. Parrott, Scott D. & Eastwood, David B. & Brooker, John R., 2001. "Testing For Symmetry In Price Transmission: An Extension Of The Shiller Lag Structure With An Application To Fresh Tomatoes," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 19(1).
  4. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
  5. Stephan von Cramon-Taubadel & Jens-Peter Loy & Jochen Meyer, 2006. "The impact of cross-sectional data aggregation on the measurement of vertical price transmission: An experiment with German food prices," Agribusiness, John Wiley & Sons, Ltd., vol. 22(4), pages 505-522.
  6. von Cramon-Taubadel, Stephan, 1998. "Estimating Asymmetric Price Transmission with the Error Correction Representation: An application to the German Pork Market," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 25(1), pages 1-18.
  7. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  8. Girapunthong, Napaporn & VanSickle, John J. & Renwick, Alan W., 2003. "Price Asymmetry In The United States Fresh Tomato Market," Journal of Food Distribution Research, Food Distribution Research Society, vol. 34(03), November.
  9. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  10. Daniel H. Pick & Jeffrey Karrenbrock & Hoy F. Carman, 1990. "Price asymmetry and marketing margin behavior: An example for California-Arizona citrus," Agribusiness, John Wiley & Sons, Ltd., vol. 6(1), pages 75-84.
  11. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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Cited by:
  1. Goetz, Linde & von Cramon-Taubadel, Stephan, 2008. "Considering threshold effects in the long-run equilibrium in a vector error correction model: An application to the German apple market," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44247, European Association of Agricultural Economists.

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