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Price transmission analysis of pasteurized liquid milk in South Africa: the granger causality approach

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  • Ramoshaba, Tshegofatso
  • Hlongwane, Johanes Jan
  • Belete, Abanet

Abstract

Price transmission studies have become increasingly important in Sub-Saharan Africa over the past decades because of its nature of providing clear and insightful information into these markets. In this study, the price transmission mechanism is described with an agricultural product within the dairy industry, namely pasteurized liquid milk. The aim of this study was to investigate and analyze the nature of the price transmission mechanism for pasteurized liquid milk in South Africa. The study used secondary time series data that covered a sample size of 17 years (2000–2016) for pasteurized liquid milk. The Granger causality test and the Vector Error Correction Model were used for data analysis. The Granger causality tests suggest that a bidirectional causal relationship exists between processor and farmgate prices, and also between retail and processor prices. On the other hand, retail prices were found to have a unidirectional causality effect on farmgate prices. The VECM results showed asymmetric price transmission, implying that retailers and processors react quicker to a price increase than to a price decrease. A price monitoring policy is suggested to be put in place in order to protect the consumers from unfair prices passed on by the retailers.

Suggested Citation

  • Ramoshaba, Tshegofatso & Hlongwane, Johanes Jan & Belete, Abanet, 2019. "Price transmission analysis of pasteurized liquid milk in South Africa: the granger causality approach," Journal of Agribusiness and Rural Development, University of Life Sciences, Poznan, Poland, vol. 54(4), April.
    • Handle: RePEc:ags:pojard:356063
    DOI: 10.22004/ag.econ.356063
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    References listed on IDEAS

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    1. Kharin, Sergei, 2015. "Vertical price transmission along the diary supply chain in Russia," Studies in Agricultural Economics, Research Institute for Agricultural Economics, vol. 117(2), pages 1-6, August.
    2. Pavel Vavra & Barry K. Goodwin, 2005. "Analysis of Price Transmission Along the Food Chain," OECD Food, Agriculture and Fisheries Papers 3, OECD Publishing.
    3. Michela Cutts & Johann Kirsten, 2006. "Asymmetric Price Transmission And Market Concentration: An Investigation Into Four South African Agro‐Food Industries," South African Journal of Economics, Economic Society of South Africa, vol. 74(2), pages 323-333, June.
    Full references (including those not matched with items on IDEAS)

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