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The Impact Of Food Scares On Price Transmission In Inter-Related Markets

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  • Lloyd, Tim A.
  • Morgan, C. Wyn
  • McCorriston, Steve
  • Rayner, Anthony J.
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    Abstract

    This paper is concerned with the impact of the BSE crisis in the UK and focuses on the spread between retail and farm prices. From a theoretical perspective we show that if market power has an effect on the spread between retail and farm prices then this determines the specification of the co-integrating relationship. We also account for different aspects of the BSE crisis including the shift in the retail demand function as well as the shift in the farm supply function due to the mutually opposing effects of a worldwide export ban and the cull of infected and older beef cattle. The empirical results suggest that the impact of the BSE crisis on farm prices to be more than double that of retail prices, the main cause of the change in the retail-farm price spread being the shift in the consumer demand function. Our calculations suggest that the numbers removed via the cull offset the loss of exports, so that the net effect of the BSE crisis on prices is due to the depressed stated of demand. In addition, the results also suggest that we cannot reject the importance of market power in the UK food sector in influencing the retail-farm spread following the outbreak of BSE. This result corroborates the findings of the UK's competition authority, whose recent report found supermarkets undertaking certain practices that were judged to be against the public interest.

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    Bibliographic Info

    Paper provided by International Association of Agricultural Economists in its series 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa with number 25904.

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    Date of creation: 2003
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    Handle: RePEc:ags:iaae03:25904

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    Keywords: Demand and Price Analysis;

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    1. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
    2. Spencer Henson & Mario Mazzocchi, 2002. "Impact of Bovine Spongiform Encephalopathy on Agribusiness in the United Kingdom: Results of an Event Study of Equity Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 370-386.
    3. Alston, Julian M. & Sexton, Richard J. & Zhang, Mingxia, 1999. "Imperfect competition, functional forms, and the size and distribution of research benefits," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 21(2), October.
    4. Lloyd, Tim & McCorriston, S. & Morgan, C. W. & Rayner, A. J., 2001. "The impact of food scares on price adjustment in the UK beef market," Agricultural Economics, Blackwell, vol. 25(2-3), pages 347-357, September.
    5. Barry K. Goodwin & Matthew T. Holt, 1999. "Price Transmission and Asymmetric Adjustment in the U.S. Beef Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 630-637.
    6. Reed, Albert J. & Clark, J. Stephen, 2000. "Structural Change and Competition in Seven U.S. Food Markets," Technical Bulletins 33558, United States Department of Agriculture, Economic Research Service.
    7. Richard J. Sexton, 2000. "Industrialization and Consolidation in the U.S. Food Sector: Implications for Competition and Welfare," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(5), pages 1087-1104.
    8. John D. Jackson, 1997. "Effects of Health Information and Generic Advertising on U.S. Meat Demand," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 13-23.
    9. Scott McDonald & Deborah Roberts, 1998. "The Economy-Wide Effects of the BSE Crisis: A CGE Analysis," Journal of Agricultural Economics, Wiley Blackwell, vol. 49(3), pages 458-471.
    10. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    11. Douglas J. Miller & Marvin L. Hayenga, 2001. "Price Cycles and Asymmetric Price Transmission in the U.S. Pork Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 551-562.
    12. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January.
    13. Douglas Cooper, 2003. "Findings from the Competition Commission's Inquiry into Supermarkets," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(1), pages 127-143.
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