Price transmission, international trade and asymmetric relationships in the Dutch agri-food chain

This paper analyses the response of producer, wholesale, retail, and international trade prices to shocks in prices in upstream or downstream stages in the Dutch onion and red pepper supply chains. The analysis allows for asymmetric adjustment among food prices when the wholesale or retail stages exert oligopoly power. The study provides a theoretical underpinning of the relationship between domestic and international prices. Asymmetries in price transmission are examined using the Houck as well as the error-correction approaches. The impulse response analyses show that red pepper prices return to their long-term equilibria relatively quickly, whereas onion prices settle at a new equilibrium after a price shock. Market power in the wholesale sector affects the responses of onion prices but has little or no effect on the responses of red pepper prices. Market power in the retail sector does not affect the onion prices or the red pepper prices. Analysis of weekly price data over the period from 2005 to 2008 suggests asymmetric adjustment in producer-wholesale and international-producer prices in the Dutch onion supply chain. The results also show asymmetric transmission between producer and retail prices for red pepper.