- Email: [email protected]
Asymmetric Price Transmission in the Livestock Industry of Thailand
Available online at www.sciencedirect.com
ScienceDirect APCBEE Procedia 8 (2014) 141 – 145
2013 4th International Conference on Agriculture and Animal Science (CAAS 2013) 2013 3rd International Conference on Asia Agriculture and Animal (ICAAA 2013)
Asymmetric Price Transmission in the Livestock Industry of Thailand Jorge Fidel Barahonaa, Bernardo Trejosb,*, Jai Wei Leea, Wanvilai Chulaphana and Chalermpon Jatupornc a
Department of Tropical Agriculture and International Cooperation, National Pingtung University of Science and Technology, 1 HsuehFu Road, Pingtung 91201, Taiwan, R.O.C. b Department of International Tourism and Hospitality, I-Shou University, 1 Syuecheng Road, Kaoshiung 84001, Taiwan, R.O.C. c Bureau of Agricultural Development Policy and Planning, Jutujak, Bangkok 10900, Thailand
Abstract This study aimed to investigate the farm-retail price transmission for the livestock industry in Thailand employing monthly data from 2002 to 2012. Using the Engle-Granger two step approach, the study confirmed that farmgate prices were cointegrated with retail prices in the poultry and swine industry. Consequently, an asymmetric error correction model (AECM) was used to test for asymmetric price transmission between farmgate and retail prices of chicken and pork. Results show that the pork industry, which is focused on supplying domestic consumption and has heavy export restrictions, is characterized by positive asymmetric price transmission whereas the poultry industry, which is highly export-oriented, is characterized by symmetric price transmission. This suggests that the export-oriented nature of the poultry market has linked Thailand’s domestic market with the international market. This has led to an increase in market competition, allowing for increases and decreases of farmgate prices to be equally transmitted to retail prices of chicken. © 2014 Authors. Published by Elsevier B.V. This and/or is an open access article underresponsibility the CC BY-NC-ND license © 2013The Published by Elsevier B.V. Selection peer review under of Asia-Pacific (http://creativecommons.org/licenses/by-nc-nd/3.0/). Chemical, Biological & Environmental Engineering Society
Selection and peer review under responsibility of Asia-Pacific Chemical, Biological & Environmental Engineering Society
Keywords: ASYMMETRIC PRICE TRANSMISSION, LIVESTOCK INDUSTRY, FARM AND RETAIL PRICES, THAILAND
* Corresponding author. Tel.: +886-7-6577711 ext. 8815; fax: +886-7-6577465. E-mail address: [email protected].
2212-6708 © 2014 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/). Selection and peer review under responsibility of Asia-Pacific Chemical, Biological & Environmental Engineering Society doi:10.1016/j.apcbee.2014.03.016
142
Jorge Fidel Barahona et al. / APCBEE Procedia 8 (2014) 141 – 145
1. Introduction Market concentration in the livestock industry has generally been associated with non-competitive behaviors that may result in inefficiencies [1]. Both farmers and consumers of agricultural products commonly assert that market concentration motivates middlemen to transmit increases of farmgate prices more fully and rapidly than price decreases [2]. Meyer and v. Cramon-Taubadel [3] found that high market concentration is among the major causes of asymmetric price transmission in agricultural market chains. Nonetheless, few studies have been conducted in the livestock industry of developing countries, where market structures have evolved into a highly integrated production system controlled by a small number of large firms [4]. In the case of Thailand, for example, the market structure of the livestock industry has undergone a drastic transformation in recent decades, from backyard farming to highly-advanced intensive farm production, leading to high market concentration in the pork and chicken industry. To address this gap in the literature, the aim of this paper is to study the symmetry of price transmission in the market chain of chicken and pork in Thailand. 2. Data Monthly nominal farmgate (PF) and retail prices (PR) from January 2002 to December 2012 (132 observations) for the Central region of Thailand were used. PF for chicken and pork are represented by the monthly average prices of live broiler and swine respectively. PR for chicken is represented by average nominal prices of half chicken with no inner organs or neck. In turn, PR for pork is represented by the average nominal prices of pork hip and shoulder. PF for pork and chicken were extracted from the Department of Internal Trade, Ministry of Commerce, Thailand. PR for pork were also obtained from the Department of Internal Trade, while PR for chicken were extracted from the Bureau of Trade and Economic Indices, Ministry of Commerce, Thailand. 3. Methods The time series properties of the data were examined prior to analyzing for asymmetric price transmission. The Augmented Dicky-Fuller test (ADF) and the Phillips-Peron (PP) test were used in order to detect whether the prices were stationary at level or first difference. In addition, the Engle-Granger two step method was used to test if PR and PF for chicken and pork were cointegrated. In order to test for asymmetric price transmission, an asymmetric error correction model (AECM) was used because direct estimation of Houck’s model [5] in presence of cointegrated variables may lead to spurious results [6]. The AECM is a modified version of Houck’s model that draws in cointegration techniques for improving the results [7]. If PR and PF are cointegrated, more specifically if PRt= γ0 + PFtγ1 + μt and the residual of the regression is stationary at level, then the AECM can be modeled in the following form (Equation 1):
'PRt
M
N
Z
i 0
i 0
i 1
D o ¦ E1i 'PFt i ¦ E1i 'PFt i ¦ Ei 'PRt i M ECTt 1 M ECTt 1 H t
(1)
Where ΔPRt and ΔPFt are the retail and farmgate price changes and ECT+t-1 and ECT-t-1 are the lagged positive and negative residuals of the regression between PRt and PFt. The Houck’s variable-splitting method consists of segmenting ΔPFt into positive (ΔPFt+) and negative (ΔPFt-) changes in the farmgate price [5]. Further details of how to construct the negative and positive phases can be found in Capps and Sherwell [8]. Equation 1 places PR as a function of PF. Granger’s causality test was performed to confirm the direction of
143
Jorge Fidel Barahona et al. / APCBEE Procedia 8 (2014) 141 – 145
the causal relationship between PF and PR. After estimating the model with ordinary least squares, the following null hypothesis was used to test for asymmetric price transmission (Equation 2): M
Ho1 : ¦ E1i i 0
N
¦E
1i
and Ho2 : M
M
(2)
i 0
The null hypothesis was tested using a joint F-test. Rejection of Ho1 and Ho2 implies that price increases in PF will transmit to PR in a different magnitude and speed than decreases in the PF price. According to Meyer and v. Cramon-Taubadel [3], there are two types of asymmetric price transmission. A positive asymmetric price transmission is found when PR reacts more fully to an increase in PF compared to a reduction in PF. Conversely, a negative asymmetric price transmission is found when PR reacts more fully to decreases than to increases in PF. 4. Results and Discussion Results in Table 1 indicate that all price series are non-stationary at level and stationary at first difference. In addition, results obtained from the Engle-Granger cointegration test (Table 2) indicate that farm-retail prices of both chicken and pork are cointegrated. Consequently, the use of an AECM is more appropriate than Houck’s model to test for asymmetric price transmission in the livestock industry of Thailand. Granger causality test results show that there is a unidirectional causal relationship running from farmgate prices to retail prices in both livestock industries, as can be seen in Table 2. This indicates that retail prices can be modeled as a function of farm prices in the AECM. Table 1. Unit root test results Variable
ADF (Level)
ADF (First difference)
PP (Level)
PP (First difference)
Farm price of chicken
-2.076
-11.744*
-2.693
-12.491*
Farm price of pork
-2.197
-9.003*
-2.189
-8.825*
Retail price of chicken
-0.903
-8.849*
-1.028
-8.202*
Retail price of pork
-1.800
-9.856*
-2.042
-9.660*
The asterisk denotes significance at 5% level. ADF and PP are acronyms used for Augmented Dickey Fuller and PhillipsPerron tests respectively. Table 2. Engle-Granger cointegration analysis and Granger causality test
Pˆ t
Market
ɀ0
γ1
R2
AIC
ADF test of
Chicken Retail-Farmgate
28.632*
0.993*
0.667
6.190
-2.256*
PF Æ PR
Pork Retail-Farmgate
13.874*
1.721*
0.940
5.876
-3.740*
PF Æ PR
Causality
The asterisk denotes significance at 5% level. Engle-Granger cointegration analysis is based on unit root test of the residuals ( uˆ ) obtained from the OLS regression (PRt= γ0 + PFtγ1 + μt). If the ADF test proves that ( uˆ ) is stationary at level, then the price series are said to be cointegrated.
The effects of changes in farmgate prices of chicken and pork on retail prices are reported in Table 3. Results show that changes in farmgate chicken prices were symmetrically transmitted to retailers. Similar results were found in the poultry industry of South Africa [9]. Bernard and Willet [10] found little evidence of asymmetric price transmission in the US broiler industry. In contrast, estimation of the AECM for pork shows
144
Jorge Fidel Barahona et al. / APCBEE Procedia 8 (2014) 141 – 145
that Ho1 can be rejected at the 5% level, suggesting that increases of pork prices at the farmgate were more fully transmitted to retailers. Similarly, asymmetric price transmission was also found for the pork industry in Germany [6]. Positive asymmetric price transmission is an indication of market power along the agro-food chain [3]; Since market power in the pork industry is higher than in the poultry industry, this may explain the difference in price transmission. Table 3. Results of the asymmetric error correction model (AECM) Coefficient
Chicken
Pork
α0
-0.283 (0.239)
-0.799 (0.051)
ΔPFt
+
0.330 (0.000)
1.598 (0.000)
ΔPF+t-1
0.118 (0.048)
0.088 (0.310)
1i
¦E
0.449 (0.000)
1.686 (0.000)
ΔPFt -
0.254 (0.000)
1.024 (0.000)
ΔPF t-1
0.093 (0.087)
-0.136 (0.290)
¦ E1i
0.347 (0.000)
0.888 (0.000)
ECT t-1
-0.039 (0.263)
-0.287 (0.001)
ECT-t-1
-0.147 (0.009)
-0.218 (0.011)
Null asymmetric Ho1
0.349
0.0003
Null asymmetric Ho2
0.156
0.614
-
+
-
Numbers inside parentheses are p- values. Coefficient scores for ΔPF-t-1 and ΔPF t-2 in chicken are 0.242 and -0.061. ΔPF-t-1 and ΔPF t-2 in the AECM for pork were excluded because they reduced the goodness of fit of the model. R2 for the AECM models for chicken and pork are 0.62 and 0.84 respectively, while the Aikake information criterion test results are 3.25 for chicken and 4.50 for pork. Values reported in Ho1 and Ho2 are p-values of the F-joint coefficient test. Rejection of the asymmetric hypothesis requires that p-values be less than 0.05.
Le Gouven [11] found that the type of price transmission in the pork industry of Vietnam varied depending on the region, which might stem from different types of market structure. Poultry production in Thailand consists of a highly-integrated system with companies that control every stage of the process [4]. In addition, chicken meat products are among the top ten agricultural products exported [12]. Moreover, exports of broiler meat increased at an average of 12.72% per year from 2009 to 2011 [12]. The export-oriented market structure of the poultry industry might have linked the domestic market with the international market, which has led to an increase in market competition. Consequentially, changes in the farmgate price were being fully transmitted to retailers in the domestic market. Although the pork industry in Thailand is composed of integrated commercial farms, export of pork meat and its products only accounts for 1% of the total national production [13]. Pork meat exports are constrained because of the low hygiene standards in slaughterhouses and the presence of foot and mouth disease (FMD) [13]. Therefore, the pork industry did not operate in an export-oriented market structure, which seems to explain the asymmetric price transmission between farmgate and retail level. 5. Conclusions Results show that the broiler sector is characterized by symmetric price transmission, while the swine sector is characterized by positive asymmetric price transmission. Both sectors have high market concentration, but the critical difference is that the Thai poultry industry is heavily export-oriented while the
Jorge Fidel Barahona et al. / APCBEE Procedia 8 (2014) 141 – 145
swine industry is dedicated to supplying domestic demand. Moreover, pork exports are limited because of the presence of FMD. This might explain why a more competitive behavior is practiced in the chicken industry than in the swine industry of Thailand. Becoming more export-oriented might increase the competitive environment of the pork industry and improve market efficiency. Shifting the focus from the sale of fresh meat to that of processed pork products may increase the access to international markets. Further research on spatial price transmission between the international and domestic market of poultry will provide additional insight into the relationship between the export-oriented market structure of the industry and the price transmission between farmgate and retail prices of chicken. References [1] Ward CE. A review of causes for and consequences of economic concentration in the U.S. meatpacking industry. Curr Agri Food Resour 2002;03:127–46. [2] Kinnucan HW, Forker OD. Asymmetry in farm-retail price transmission for major dairy products. Am J Agric Econ 1987;69(2):285–92. [3] Meyer J, v. Cramon-Taubadel S. Asymmetric price transmission: A survey. J Agr Econ 2004;55(3):581–611. [4] Costales A. A review of the Thailand poultry sector. Rome, Italy: FAO; 2004. [5] Houck PJ. An approach to specifying and estimating non-reversible functions. Am J Agric Econ 1977;59(3):570–2. [6] v. Cramon-Taubadel S. Estimating asymmetric price transmission with the error correction representation: An application to the German pork market. Eur Respir J 1998;25(1):1–18. [7] v. Cramon-Taubadel S, Loy JP. Price asymmetry in the international wheat market: Comment. Can J Agri Econ 1996;44(3):311– 7. [8] Capps Jr O, Sherwell P. Alternative approaches in detecting asymmetry in farm-retail price transmission of fluid milk. Agribusiness 2007;23(3):313–31. [9] Mkhabela T, Nyodo B. Farm and retail prices in the South African poultry industry: Do the twain meet? Int Food Agribus Man 2011;12(3):127–46. [10] Bernard JC, Willet LS. Asymmetric price relationships in the U.S. broiler industry. J Agr Appl Econ 1996;28(2):279–89. [11] Le Goulven K. Institutions and price transmission in the Vietnamese hog market. Int Food Agribus Man 2001;2(3/4):375–90. [12] Office of Agricultural Economics. Thailand foreign agricultural trade statistics 2011. Bangkok, Thailand: Centre for Agricultrual Information. Ministry of Agriculture; 2011. [13] National Economic and Social Development Board. Cluster mapping planning for small community enterprise. Bangkok, Thailand: Prime Minister’s Office; 2006. (In Thai)
145
ScienceDirect APCBEE Procedia 8 (2014) 141 – 145
2013 4th International Conference on Agriculture and Animal Science (CAAS 2013) 2013 3rd International Conference on Asia Agriculture and Animal (ICAAA 2013)
Asymmetric Price Transmission in the Livestock Industry of Thailand Jorge Fidel Barahonaa, Bernardo Trejosb,*, Jai Wei Leea, Wanvilai Chulaphana and Chalermpon Jatupornc a
Department of Tropical Agriculture and International Cooperation, National Pingtung University of Science and Technology, 1 HsuehFu Road, Pingtung 91201, Taiwan, R.O.C. b Department of International Tourism and Hospitality, I-Shou University, 1 Syuecheng Road, Kaoshiung 84001, Taiwan, R.O.C. c Bureau of Agricultural Development Policy and Planning, Jutujak, Bangkok 10900, Thailand
Abstract This study aimed to investigate the farm-retail price transmission for the livestock industry in Thailand employing monthly data from 2002 to 2012. Using the Engle-Granger two step approach, the study confirmed that farmgate prices were cointegrated with retail prices in the poultry and swine industry. Consequently, an asymmetric error correction model (AECM) was used to test for asymmetric price transmission between farmgate and retail prices of chicken and pork. Results show that the pork industry, which is focused on supplying domestic consumption and has heavy export restrictions, is characterized by positive asymmetric price transmission whereas the poultry industry, which is highly export-oriented, is characterized by symmetric price transmission. This suggests that the export-oriented nature of the poultry market has linked Thailand’s domestic market with the international market. This has led to an increase in market competition, allowing for increases and decreases of farmgate prices to be equally transmitted to retail prices of chicken. © 2014 Authors. Published by Elsevier B.V. This and/or is an open access article underresponsibility the CC BY-NC-ND license © 2013The Published by Elsevier B.V. Selection peer review under of Asia-Pacific (http://creativecommons.org/licenses/by-nc-nd/3.0/). Chemical, Biological & Environmental Engineering Society
Selection and peer review under responsibility of Asia-Pacific Chemical, Biological & Environmental Engineering Society
Keywords: ASYMMETRIC PRICE TRANSMISSION, LIVESTOCK INDUSTRY, FARM AND RETAIL PRICES, THAILAND
* Corresponding author. Tel.: +886-7-6577711 ext. 8815; fax: +886-7-6577465. E-mail address: [email protected].
2212-6708 © 2014 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/). Selection and peer review under responsibility of Asia-Pacific Chemical, Biological & Environmental Engineering Society doi:10.1016/j.apcbee.2014.03.016
142
Jorge Fidel Barahona et al. / APCBEE Procedia 8 (2014) 141 – 145
1. Introduction Market concentration in the livestock industry has generally been associated with non-competitive behaviors that may result in inefficiencies [1]. Both farmers and consumers of agricultural products commonly assert that market concentration motivates middlemen to transmit increases of farmgate prices more fully and rapidly than price decreases [2]. Meyer and v. Cramon-Taubadel [3] found that high market concentration is among the major causes of asymmetric price transmission in agricultural market chains. Nonetheless, few studies have been conducted in the livestock industry of developing countries, where market structures have evolved into a highly integrated production system controlled by a small number of large firms [4]. In the case of Thailand, for example, the market structure of the livestock industry has undergone a drastic transformation in recent decades, from backyard farming to highly-advanced intensive farm production, leading to high market concentration in the pork and chicken industry. To address this gap in the literature, the aim of this paper is to study the symmetry of price transmission in the market chain of chicken and pork in Thailand. 2. Data Monthly nominal farmgate (PF) and retail prices (PR) from January 2002 to December 2012 (132 observations) for the Central region of Thailand were used. PF for chicken and pork are represented by the monthly average prices of live broiler and swine respectively. PR for chicken is represented by average nominal prices of half chicken with no inner organs or neck. In turn, PR for pork is represented by the average nominal prices of pork hip and shoulder. PF for pork and chicken were extracted from the Department of Internal Trade, Ministry of Commerce, Thailand. PR for pork were also obtained from the Department of Internal Trade, while PR for chicken were extracted from the Bureau of Trade and Economic Indices, Ministry of Commerce, Thailand. 3. Methods The time series properties of the data were examined prior to analyzing for asymmetric price transmission. The Augmented Dicky-Fuller test (ADF) and the Phillips-Peron (PP) test were used in order to detect whether the prices were stationary at level or first difference. In addition, the Engle-Granger two step method was used to test if PR and PF for chicken and pork were cointegrated. In order to test for asymmetric price transmission, an asymmetric error correction model (AECM) was used because direct estimation of Houck’s model [5] in presence of cointegrated variables may lead to spurious results [6]. The AECM is a modified version of Houck’s model that draws in cointegration techniques for improving the results [7]. If PR and PF are cointegrated, more specifically if PRt= γ0 + PFtγ1 + μt and the residual of the regression is stationary at level, then the AECM can be modeled in the following form (Equation 1):
'PRt
M
N
Z
i 0
i 0
i 1
D o ¦ E1i 'PFt i ¦ E1i 'PFt i ¦ Ei 'PRt i M ECTt 1 M ECTt 1 H t
(1)
Where ΔPRt and ΔPFt are the retail and farmgate price changes and ECT+t-1 and ECT-t-1 are the lagged positive and negative residuals of the regression between PRt and PFt. The Houck’s variable-splitting method consists of segmenting ΔPFt into positive (ΔPFt+) and negative (ΔPFt-) changes in the farmgate price [5]. Further details of how to construct the negative and positive phases can be found in Capps and Sherwell [8]. Equation 1 places PR as a function of PF. Granger’s causality test was performed to confirm the direction of
143
Jorge Fidel Barahona et al. / APCBEE Procedia 8 (2014) 141 – 145
the causal relationship between PF and PR. After estimating the model with ordinary least squares, the following null hypothesis was used to test for asymmetric price transmission (Equation 2): M
Ho1 : ¦ E1i i 0
N
¦E
1i
and Ho2 : M
M
(2)
i 0
The null hypothesis was tested using a joint F-test. Rejection of Ho1 and Ho2 implies that price increases in PF will transmit to PR in a different magnitude and speed than decreases in the PF price. According to Meyer and v. Cramon-Taubadel [3], there are two types of asymmetric price transmission. A positive asymmetric price transmission is found when PR reacts more fully to an increase in PF compared to a reduction in PF. Conversely, a negative asymmetric price transmission is found when PR reacts more fully to decreases than to increases in PF. 4. Results and Discussion Results in Table 1 indicate that all price series are non-stationary at level and stationary at first difference. In addition, results obtained from the Engle-Granger cointegration test (Table 2) indicate that farm-retail prices of both chicken and pork are cointegrated. Consequently, the use of an AECM is more appropriate than Houck’s model to test for asymmetric price transmission in the livestock industry of Thailand. Granger causality test results show that there is a unidirectional causal relationship running from farmgate prices to retail prices in both livestock industries, as can be seen in Table 2. This indicates that retail prices can be modeled as a function of farm prices in the AECM. Table 1. Unit root test results Variable
ADF (Level)
ADF (First difference)
PP (Level)
PP (First difference)
Farm price of chicken
-2.076
-11.744*
-2.693
-12.491*
Farm price of pork
-2.197
-9.003*
-2.189
-8.825*
Retail price of chicken
-0.903
-8.849*
-1.028
-8.202*
Retail price of pork
-1.800
-9.856*
-2.042
-9.660*
The asterisk denotes significance at 5% level. ADF and PP are acronyms used for Augmented Dickey Fuller and PhillipsPerron tests respectively. Table 2. Engle-Granger cointegration analysis and Granger causality test
Pˆ t
Market
ɀ0
γ1
R2
AIC
ADF test of
Chicken Retail-Farmgate
28.632*
0.993*
0.667
6.190
-2.256*
PF Æ PR
Pork Retail-Farmgate
13.874*
1.721*
0.940
5.876
-3.740*
PF Æ PR
Causality
The asterisk denotes significance at 5% level. Engle-Granger cointegration analysis is based on unit root test of the residuals ( uˆ ) obtained from the OLS regression (PRt= γ0 + PFtγ1 + μt). If the ADF test proves that ( uˆ ) is stationary at level, then the price series are said to be cointegrated.
The effects of changes in farmgate prices of chicken and pork on retail prices are reported in Table 3. Results show that changes in farmgate chicken prices were symmetrically transmitted to retailers. Similar results were found in the poultry industry of South Africa [9]. Bernard and Willet [10] found little evidence of asymmetric price transmission in the US broiler industry. In contrast, estimation of the AECM for pork shows
144
Jorge Fidel Barahona et al. / APCBEE Procedia 8 (2014) 141 – 145
that Ho1 can be rejected at the 5% level, suggesting that increases of pork prices at the farmgate were more fully transmitted to retailers. Similarly, asymmetric price transmission was also found for the pork industry in Germany [6]. Positive asymmetric price transmission is an indication of market power along the agro-food chain [3]; Since market power in the pork industry is higher than in the poultry industry, this may explain the difference in price transmission. Table 3. Results of the asymmetric error correction model (AECM) Coefficient
Chicken
Pork
α0
-0.283 (0.239)
-0.799 (0.051)
ΔPFt
+
0.330 (0.000)
1.598 (0.000)
ΔPF+t-1
0.118 (0.048)
0.088 (0.310)
1i
¦E
0.449 (0.000)
1.686 (0.000)
ΔPFt -
0.254 (0.000)
1.024 (0.000)
ΔPF t-1
0.093 (0.087)
-0.136 (0.290)
¦ E1i
0.347 (0.000)
0.888 (0.000)
ECT t-1
-0.039 (0.263)
-0.287 (0.001)
ECT-t-1
-0.147 (0.009)
-0.218 (0.011)
Null asymmetric Ho1
0.349
0.0003
Null asymmetric Ho2
0.156
0.614
-
+
-
Numbers inside parentheses are p- values. Coefficient scores for ΔPF-t-1 and ΔPF t-2 in chicken are 0.242 and -0.061. ΔPF-t-1 and ΔPF t-2 in the AECM for pork were excluded because they reduced the goodness of fit of the model. R2 for the AECM models for chicken and pork are 0.62 and 0.84 respectively, while the Aikake information criterion test results are 3.25 for chicken and 4.50 for pork. Values reported in Ho1 and Ho2 are p-values of the F-joint coefficient test. Rejection of the asymmetric hypothesis requires that p-values be less than 0.05.
Le Gouven [11] found that the type of price transmission in the pork industry of Vietnam varied depending on the region, which might stem from different types of market structure. Poultry production in Thailand consists of a highly-integrated system with companies that control every stage of the process [4]. In addition, chicken meat products are among the top ten agricultural products exported [12]. Moreover, exports of broiler meat increased at an average of 12.72% per year from 2009 to 2011 [12]. The export-oriented market structure of the poultry industry might have linked the domestic market with the international market, which has led to an increase in market competition. Consequentially, changes in the farmgate price were being fully transmitted to retailers in the domestic market. Although the pork industry in Thailand is composed of integrated commercial farms, export of pork meat and its products only accounts for 1% of the total national production [13]. Pork meat exports are constrained because of the low hygiene standards in slaughterhouses and the presence of foot and mouth disease (FMD) [13]. Therefore, the pork industry did not operate in an export-oriented market structure, which seems to explain the asymmetric price transmission between farmgate and retail level. 5. Conclusions Results show that the broiler sector is characterized by symmetric price transmission, while the swine sector is characterized by positive asymmetric price transmission. Both sectors have high market concentration, but the critical difference is that the Thai poultry industry is heavily export-oriented while the
Jorge Fidel Barahona et al. / APCBEE Procedia 8 (2014) 141 – 145
swine industry is dedicated to supplying domestic demand. Moreover, pork exports are limited because of the presence of FMD. This might explain why a more competitive behavior is practiced in the chicken industry than in the swine industry of Thailand. Becoming more export-oriented might increase the competitive environment of the pork industry and improve market efficiency. Shifting the focus from the sale of fresh meat to that of processed pork products may increase the access to international markets. Further research on spatial price transmission between the international and domestic market of poultry will provide additional insight into the relationship between the export-oriented market structure of the industry and the price transmission between farmgate and retail prices of chicken. References [1] Ward CE. A review of causes for and consequences of economic concentration in the U.S. meatpacking industry. Curr Agri Food Resour 2002;03:127–46. [2] Kinnucan HW, Forker OD. Asymmetry in farm-retail price transmission for major dairy products. Am J Agric Econ 1987;69(2):285–92. [3] Meyer J, v. Cramon-Taubadel S. Asymmetric price transmission: A survey. J Agr Econ 2004;55(3):581–611. [4] Costales A. A review of the Thailand poultry sector. Rome, Italy: FAO; 2004. [5] Houck PJ. An approach to specifying and estimating non-reversible functions. Am J Agric Econ 1977;59(3):570–2. [6] v. Cramon-Taubadel S. Estimating asymmetric price transmission with the error correction representation: An application to the German pork market. Eur Respir J 1998;25(1):1–18. [7] v. Cramon-Taubadel S, Loy JP. Price asymmetry in the international wheat market: Comment. Can J Agri Econ 1996;44(3):311– 7. [8] Capps Jr O, Sherwell P. Alternative approaches in detecting asymmetry in farm-retail price transmission of fluid milk. Agribusiness 2007;23(3):313–31. [9] Mkhabela T, Nyodo B. Farm and retail prices in the South African poultry industry: Do the twain meet? Int Food Agribus Man 2011;12(3):127–46. [10] Bernard JC, Willet LS. Asymmetric price relationships in the U.S. broiler industry. J Agr Appl Econ 1996;28(2):279–89. [11] Le Goulven K. Institutions and price transmission in the Vietnamese hog market. Int Food Agribus Man 2001;2(3/4):375–90. [12] Office of Agricultural Economics. Thailand foreign agricultural trade statistics 2011. Bangkok, Thailand: Centre for Agricultrual Information. Ministry of Agriculture; 2011. [13] National Economic and Social Development Board. Cluster mapping planning for small community enterprise. Bangkok, Thailand: Prime Minister’s Office; 2006. (In Thai)
145