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Dynamic and Asymmetric Adjustment in Beef and Pork Prices

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  • Hahn, William F.

Abstract

Beef and pork prices at farm, wholesale and retail are examined for evidence of a dynamic and asymmetric price transmission using an endogenous switching model. Dynamic adjustment means that it take time for prices to adjust to changes in the market. Price transmission is asymmetric if the speed or completeness of price adjustment depends on the direction that the price or a related price is moving. Some of the previous research on price transmission in agricultural markets attempts to use market power abuses as an explanation of price-transmission asymmetry. Other research shows that price transmission asymmetry can arise in competitive markets and that competitive and anti-competitive issues can make prices adjust faster upwards or downwards. By making stronger assumptions about the how live animal production relates to meat production and consumption and on the cost structure of packing and retailing, stronger statements about price transmission and potential market-power problems can be made. Incomplete or irreversible price transmission can be taken as evidence of market power issues given these stronger assumptions. However, these assumptions must be true or the tests will not be valid. Two potential sources of incomplete-irreversible effects were included in the endogenous switching models. The only statistically significant evidence of incomplete price transmission is in the wholesale-to-retail transmission in pork. The estimates imply that the 89½% of wholesale price changes get passed to the retail price. In beef, price transmission was complete and pricing dynamics are symmetric.

Suggested Citation

  • Hahn, William F., 2010. "Dynamic and Asymmetric Adjustment in Beef and Pork Prices," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61135, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea10:61135
    DOI: 10.22004/ag.econ.61135
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    References listed on IDEAS

    as
    1. Jochen Meyer & Stephan von Cramon‐Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 581-611, November.
    2. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    3. James P. Houck, 1977. "An Approach to Specifying and Estimating Nonreversible Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(3), pages 570-572.
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    Cited by:

    1. Kennedy Sean Kalundu & Ferdi Meyer, 2017. "The dynamics of price adjustment and relationships in the formal and informal beef markets in Namibia," Agrekon, Taylor & Francis Journals, vol. 56(1), pages 53-66, January.
    2. Kalundu, Kennedy Sean & Meyer, Ferdi, 2017. "The dynamics of price adjustment and relationships in the formal and informal beef markets in Namibia," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 56(01), March.
    3. Isaac Abunyuwah, 2020. "Modeling Market Integration and Asymmetric Price Transmission Dynamics of Yam Markets in Ghana," Journal of Economics and Behavioral Studies, AMH International, vol. 12(3), pages 23-31.

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