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An Empirical Comparison of Price Transmission between Conventional and Organic Products: The Case of Fresh Carrots

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  • Darbandi, Elham
  • Saghaian, Sayed H.

Abstract

In a competitive market, a rise in output prices at the wholesale level is expected to be passed through to consumers via retailers, Asymmetric price transmission exists when an increase in the producer price moves faster and more completely to consumers than do a reduction in the producer price. The research question is how product heterogeneity and differentiation can affect the price transmission in the carrots markets. Carrots are primarily consumed fresh and are the 7th most consumed fresh vegetable in the U.S. and carrot consumption has been increasing over the past few decades. we investigate price linkage of carrots at terminal and retail levels for two different quality of this product, organic and conventional. According to the VECM model results, the speed of price adjustment in the conventional carrot market is 0.354 in absolute value, while for the organic carrot market is 0.026. This result is an indication of asymmetric price transmission with respect to speed, and shows price adjustment in the organic carrot market is relatively slow pointing to inefficiency in this market. These results have important policy implications, and in case of price shocks, could have differential welfare consequences for consumers and producers

Suggested Citation

  • Darbandi, Elham & Saghaian, Sayed H., 2016. "An Empirical Comparison of Price Transmission between Conventional and Organic Products: The Case of Fresh Carrots," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230124, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea16:230124
    DOI: 10.22004/ag.econ.230124
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    References listed on IDEAS

    as
    1. Sayed H. Saghaian, 2007. "Beef safety shocks and dynamics of vertical price adjustment: The case of BSE discovery in the U.S. beef sector," Agribusiness, John Wiley & Sons, Ltd., vol. 23(3), pages 333-348.
    2. Surathkal, Prasanna & Chung, Chanjin & Han, Sungill, 2014. "Asymmetric Adjustments in Vertical Price Transmission in the US Beef Sector: Testing for Differences among Product Cuts and Quality Grade," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170196, Agricultural and Applied Economics Association.
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    Agribusiness; Agricultural and Food Policy;

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