The Apparent Failure of Retail Beef Prices to Respond to Supply Shocks: An Empirical Investigation

Several times in recent years concerns have been expressed regarding slow and/or inadequate price adjustments in the retail beef market. In particular, industry participants have speculated that retail prices may not respond promptly or completely to supply shocks at the producer level. This study provides a detailed investigation of the wholesale - retail price spread in the beef market using weekly data over a 14 year period. The objective is to determine whether there is a deviation of this margin from the costs of providing retailing services, and if an excess margin is found to determine whether the magnitude of the deviation is related to beef, or total meat, supplies. The results of this investigation indicate that margins have become more variable in recent years. However, it is not clear that margins have deviated from the costs of providing A comparison of an early period with a more recent period indicates that the beef retailing sector may have become even more competitive in recent years. No evidence is found to suggest that excessive wholesale - retail margins are associated with increased beef or total meat supplies. Future research will look at the other potential source of inadequate price adjustment in the beef marketing chain, the farm-wholesale margin.