PA Comparative Study of Farm-Retail Price Spread in Asia Thesis Proposal Oct 17 2017 Name: PHAM Thi Phuong Loan Advisor: Prof. Seung Chul CHOI Department: Livestock Business and Marketing Economics

Elasticity of price transmission INTRODUCTION Price difference between farm and retail levels (constituted mostly by marketing costs and profits) Farm price spread High and increasing price spreads in agricultural products lead to controversy: producers blame low farm prices while consumers blame high retail prices % change in one price for each 1% increase in the other price Difference between prices at different stages of the supply chain Elasticity of price transmission PRICE Marketing margins Are marketing margins too large? Why are margins different among products? How have margins changed over time? How quickly are farm prices transmitted to the retail level and vice versa? (Wohlgenant, 2001) Measurement: Ratio of percentage changes between two time periods

INTRODUCTION Country: Vietnam and South Korea Commodity: Rice and Pork RESEARCH QUESTIONS OBJECTIVES Compare farm price spread among commodities between the two countries; Determine the model of farm-retail price spread; Calculate the elasticities of price transmission for each commodity in each country. What are the farm price spread differences among commodities? What are the elasticities of price transmission for each commodity?

LITERATURE REVIEWS Present basic framework for analyzing marketing margins (The relative model) Gardner, 1975 Sources of variation in the retail-farm price spread: shifts in the retail food demand, in the farm product supply, in the supply of marketing services Wohlegenant & Mullen, 1987 Compare two models of farm-retail price spread The markup model: implies that retail and wholesale prices follow farm prices; Brorsen et al., 1985 Price risks affect the price spread How price uncertainty affects the price spread in the marketing channels of agricultural commodities Beef, maize, wheat, dairy products, eco-labeled products, eggs Empirical findings Wohlegenant & Mullen, 1987; Faminow & Laubscher, 1991; Brorsen et al., 1985; Kinnucan & Forker, 1987; Carambas, 2005; Kinnucan & Nelson, 1993

Empirical Specifications (Wohlegenant & Mullen, 1987) RESEARCH DESIGN Empirical Specifications (Wohlegenant & Mullen, 1987) (1) (2) (3) t: time (month 2009.01-2016.12) M: farm-retail price spread (retail price - farm price) Pr: retail price IC: index of cost (Producer Price Index) Qt: quantity of commodity produced ε: unobserved error a , b, c: parameters to be estimated

RESEARCH DESIGN Data sources Data analysis VIETNAM SOUTH KOREA General Statistics Office Of Vietnam Agro Processing and Market Development Authority – Ministry of Agriculture and Rural Development Korean Statistical Information Service National Agricultural Cooperative Federation Statistical Summary (min, max, mean, standard deviation) 01 Data analysis Linear regression estimation (Ordinary Least Squares) 02 Calculate the elasticities of price transmission for each commodity in each country 03

EXPECTED RESULTS Statistical Summary No Variables Obs Min Max Mean Sd 1 Farm price 2 Retail price 3 Farm-retail price spread 4 Index of cost 5 Quantity of commodity produced

Linear regression estimation EXPECTED RESULTS Linear regression estimation Model 1 Model 2 Model 3 Pr IC Pr*Qt Qt R2 F DW Obs ∗∗∗,∗∗,∗ Significance at 0.01 level, 0.05 level, and 0.10 level

Elasticities of price transmission for each commodity, for example EXPECTED RESULTS Elasticities of price transmission for each commodity, for example

REFERENCES Brorsen, B. W., Jean-Paul, C., Grant, W.R, and Schnake, L. D. (1985). Marketing Margins and Price Uncertainty: The Case of the U.S. Wheat Market. American Journal of Agricultural Economics, 67: 521–528. Carambas, M. C. DM. (2005). Analysis of Marketing Margins in Eco-Labeled Products, XIth Congress of the EAAE 'The Future of Rural Europe in the Global Agri-Food System', Copenhagen, Denmark, August 24-27, 2005. Faminow, M.D. and & Laubscher, J.M (1991). Empirical testing of alternative price spread models in the South African maize market, Journal of Agricultural Economics, 6: 49-66 Gardner, B.L. (1975). The Farm-Retail Price Spread in a Competitive Food Industry, Journal of Agricultural Economics, 57: 399–409 Kinnucan, H.W. and Forker, O.D. (1987). Asymmetry in Farm-Retail Price Transmission for Major Dairy Products, American Journal of Agricultural Economics, 69: 285-292. Kinnucan, H.W. and Nelson, R.G. (1993). Vertical Control and the Farm-Retail Price Spread for EGGS, Applied Economic Perspectives and Policy, 15: 473–482. Wohlgenant, M. and Mullen, J. (1987). Modeling the Farm-Retail Price Spread for Beef, Western Journal of Agricultural Economics, 12: 119-125.

Thank You!

Price spreads for beef and pork, 2000-2015, monthly in the US Sebastien Pouliot and Lee Schulz (2016), Measuring Price Spreads in Red Meat, Agricultural Policy Review, Winter 2016