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Dynamics of Price Adjustment in Qualitatively Differentiated Markets in the U.S.: The Case of Organic and Conventional Apples

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  • Nemati, Mehdi
  • Saghaian, Sayed H.

Abstract

Production and consumption of conventional and organic apples in the U.S. have changed dramatically over the past two decades. Despite a drop in the conventional apple production, production of organic apples shows a double-digit growth. Demand for organic apples also continues to outpace growth in overall organic fruit sales. In this research, we investigate whether these changes have an impact on price adjustment dynamics between these two qualitatively differentiated products. We use a Markov-Switching Assymetric Vector Error Ccorrection model (MS-AVECM) and weekly U.S. national retail prices for the 2010-2015 period for three varieties of apples: Gala, Fuji, and Red Delicious. The MS-AVECM results indicate three Markov-Switching regimes can be defined for the three varieties during the study period. The results show there are different short-run price adjustment daynamics in each of these regimes and asymmetric price transmission behavior between organic and conventional apples. Result indicates that apple varity plays important role in the price relationship between organic and conventional apple. These findings have implications for farmers, wholesalers, retailers, policy makers, as well as consumers.

Suggested Citation

  • Nemati, Mehdi & Saghaian, Sayed H., 2016. "Dynamics of Price Adjustment in Qualitatively Differentiated Markets in the U.S.: The Case of Organic and Conventional Apples," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 229950, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea16:229950
    DOI: 10.22004/ag.econ.229950
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    References listed on IDEAS

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    1. Singerman, Ariel & Hart, Chad E. & Lence, Sergio H., 2010. "Demand for Crop Insurance by Organic Corn and Soybean Farmers in Three Major Producing States," Staff General Research Papers Archive 31528, Iowa State University, Department of Economics.
    2. Bernhard Brümmer & Stephan von Cramon-Taubadel & Sergiy Zorya, 2009. "The impact of market and policy instability on price transmission between wheat and flour in Ukraine," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 36(2), pages 203-230, June.
    3. Johansen, Søren, 1995. "A Stastistical Analysis of Cointegration for I(2) Variables," Econometric Theory, Cambridge University Press, vol. 11(1), pages 25-59, February.
    4. Nadine Würriehausen & Rico Ihle & Sebastian Lakner, 2015. "Price relationships between qualitatively differentiated agricultural products: organic and conventional wheat in Germany," Agricultural Economics, International Association of Agricultural Economists, vol. 46(2), pages 195-209, March.
    5. Goldfeld, Stephen M. & Quandt, Richard E., 1973. "A Markov model for switching regressions," Journal of Econometrics, Elsevier, vol. 1(1), pages 3-15, March.
    6. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    7. Dimitri, Carolyn & Oberholtzer, Lydia, 2009. "Marketing U.S. Organic Foods: Recent Trends From Farms to Consumers," Economic Information Bulletin 58615, United States Department of Agriculture, Economic Research Service.
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    Cited by:

    1. Drugova, Tatiana & Pozo, Veronica & Curtis, Kynda, 2018. "Forecasting Organic Wheat Prices: Do Conventional Prices Play a Role?," Journal of Food Distribution Research, Food Distribution Research Society, vol. 49(1), March.
    2. Zare, Samane & Sayed, Saghaian, 2018. "Recession and Income Effect on the Private Label Products Demand: A Case Study of Fluid Milk," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266695, Southern Agricultural Economics Association.
    3. Nemati, Mehdi, 2017. "Relationship among Energy, Bioenergy and Agricultural Commodity Prices: Re-Considering Structural Changes," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 5(3), July.
    4. Kim, GwanSeon & Zheng, Yuqing, 2017. "U.S. Non-alcoholic Beverage Demand: Evidence from AIDS Model with Dynamic Effect," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 35(1), April.
    5. Nabieyan, Sedigheh & Safaei, Shiva & Mehrabi, Hosein, 2021. "Dynamics of Pistachio Prices Adjustment in Global Market and Export Market of Iran," 2021 Conference, August 17-31, 2021, Virtual 315848, International Association of Agricultural Economists.

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    Keywords

    Agribusiness; Demand and Price Analysis;

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