Final Report Summary - TRANSFOP (Transparency of Food Pricing)
Executive Summary:
Against the background of world commodity price shocks in 2007-2008 and subsequent price rises in 2011, the Transparency of Food Prices (TRANSFOP) project (2011-2013) brought together researchers from 13 partner institutions in 10 EU Member States to analyse the transparency of food pricing with a multidisciplinary approach. The main objectives of TRANSFOP were:
1) To address the key aspects of the food supply chain that determine the transmission of price changes from farm to consumer levels, emphasising the role of competition in the intermediate and retails stages of the food supply chain, and the regulatory environment in which firms compete;
2) To address how the variation in the structure of the food supply chain across EU Member States contributes to food price adjustment in different countries; and
3) To generate an Action Plan for improving food supply chain performance based on the results of the research.
The TRANSFOP programme expanded research on the food supply chain throughout the EU in a number of important directions, focussing on comprehensive coverage of price transmission processes across EU Member States, employing new and previously unexplored data sources to understand food price dynamics in the food chain and to assess the pressures underpinning the changing structure of the food supply chain throughout the EU, and developing theoretical insights to assess price dynamics in the context of market frictions. Several of the key research packages focussed on the role of competition in the retail sector, and using high-frequency data, resulted in insights on price transmission and food price dynamics that had received little attention in research to date. The research was also concerned with producing a cross-EU experience, so strands of the research also focussed on a comparative experience of price transmission and causes of food price inflation across several EU Member States. Moreover, throughout the programme, there was close interaction with stakeholders and users of research to ensure that the research was being focused in a way that would have a meaningful impact on policy developments throughout the EU. The outcomes of this research were summarised in 6 synthesis reports on food pricing and competition issues, and lead to a 4 point Action Plan with the aim of identifying priority issues which would help promote price transparency in the food sector throughout the EU. These priority areas related to:
1) Maintaining and strengthening the current commitment to monitor prices particularly enhancing the current progress on collecting data at different levels of the food chain;
2) Enhance monitoring of the structure and the functioning of the food supply chain particularly with regard to competition and regulation issues;
3) Exploring the potential of scanner data as a means to address price dynamics and the role of retail chains in the food supply chain;
4) Continuing to improve the functioning of the food supply chain through monitoring and regulation with regard to mergers and acquisitions and unfair practices between parties.
Project Context and Objectives:
The background to this research project relates to the commodity price surge of 2007 and 2008 and the subsequent price rises in 2011. The significant increases in the world prices of many food and energy commodities ignited considerable concern among policy makers and stakeholder groups concerning the impact of high world market prices on domestic food price inflation. However, one of the interesting observations of recent commodity price behaviour was the different impact in domestic food prices experienced across many countries; this variation was also found across the EU despite the common nature of the commodity price shocks and commonality of policies that apply across EU Member States. Specifically, while the average food price change for the EU as a whole for the period from mid-2007 to late 2008 was around 5-6%, in many EU states the change in domestic consumer prices for food was 4 to 5 times the EU average. In addition, the change in domestic consumer prices for food typically, but not always, was less than the change in domestic producer prices. The EU average for producer price changes over the same period was 1.5 times greater than the EU average for domestic consumer price changes for food. In some cases, the opposite was observed. For example, in Hungary, against the background where consumer prices rose by more than producer prices, the change in domestic consumer prices was almost three times the EU average (for consumer price changes) while the change in producer prices was only twice the EU average (for producer price changes).
Though the initial motivation for the project related to the 2007-2008 experience, these issues have persisted in recent years. First, world commodity prices rose again in 2011 having fallen back from the levels of the 2008 spike; indeed, the rise in world prices in 2011 exceeded the earlier rises. Second, the variation in food price inflation rates across the EU has persisted. With commodity price volatility expected to persist in future years, understanding how world price shocks are reflected in domestic food price inflation and why food price inflation varies across the EU, continues to be a source of concern for stakeholders and policymakers.
The obvious concern that arises from these disparate experiences is the impact on households, particularly in countries where expenditure on food accounts for a relatively high share of total consumer expenditure. Even in countries where food expenditure accounts for a relatively small share of the household expenditure, there are still important distributional issues as the impact on the poorer sections of society can be considerable even though the national average suggests a smaller impact. At the macroeconomic level, there are concerns with how food price inflation impacts on macroeconomic policy. In general, food price inflation has been often ignored by monetary authorities due to its volatility and transitory nature; but the key issue here is that if food price inflation becomes persistent, then food price inflation will also be an issue in setting anti-inflationary policy. Finally, there is the issue that if food price inflation is an important and on-going issue, what are the appropriate policies to mitigate the effects of this (at the border, at the sector level and throughout the food chain, e.g. with respect to competition policy).
These issues were reflected in concerns at the EU level and directed at the “functioning of the food supply chain”. Specifically, the Commission began monitoring the situation in 2007, and published an interim report on Food Prices in Europe in 2008. In 2009 the Commission Communication "A Better Functioning Food Supply Chain in Europe" concluded that "structural weaknesses" coupled with "pervasive inequalities in the bargaining power between contracting parties" in the food supply chain were contributing to slow and sometimes asymmetric price transmission that "delay necessary adjustments", "prolong market inefficiencies" and "can exacerbate price volatility in agricultural commodity markets" (COM (2009) 591, p. 4). Based on this diagnosis, the Commission identified three cross-cutting policy priorities:
1) "Promote sustainable and market-based relationships between stakeholders in the food supply chain;
2) Increase transparency along the chain to encourage competition and improve its resilience to price volatility; and
3) Foster the integration and competitiveness of the European food supply chain across Member States" (COM (2009) 591, p. 5).
The first of these priorities addresses the possible detrimental impact of unfair trading practices that can arise due to imbalances in the bargaining power of participants in the food supply chain, as well as issues arising from the ability of some participants to exercise market power and distort competition. The second priority addresses the need to improve the quantity and quality of available price and market information along the entire food supply chain and in particular with a view to the issue of ensuring that derivative markets contribute to price discovery and risk management at the agricultural commodity end of the chain. Finally, the third priority is aimed at removing remaining barriers that undermine the functioning of the Internal Market and thus reduce resilience to shocks in the food supply chain.
Against this background, the Transparency of Food Prices (TRANSFOP) project brought together researchers from 13 partner institutions in 10 EU Member States from 2011 to 2013 to analyse the transparency of food pricing with a multidisciplinary approach. The main objectives of TRANSFOP were:
1) To address the key aspects of the food chain that determine the transmission of price changes from farm to consumer levels, emphasising the role of competition in the intermediate and retails stages of the food chain, and the regulatory environment in which firms compete;
2) To address how the variation in the structure of the food chain across EU Member States contributes to food price adjustment in different countries; and
3) To generate an Action Plan for improving food supply chain performance based on the results of the research.
The over-arching objective of this project was therefore to develop a greater understanding of pricing issues in food supply chains throughout the EU with the aim of promoting greater transparency about how price signals are transmitted throughout the food chain, what factors determine food pricing and why these factors may cause the experience of food pricing throughout the European Union to be as varied as experienced by recent events.
The specific objectives were as follows:
• To analyse the principal determinants of food price transmission, from world commodity markets to the domestic market and within the domestic market as price signals are transmitted through the food chain
• To identify the specific characteristics of the food chain that influence price transmission
• To address how do the characteristics of the food chain vary across EU Member States that resulted in the disparate experience across the EU
• To investigate the changing nature of the food chain across the EU may give rise to a more common experience of the transmission of food prices across the EU
• To highlight the aspects of the functioning of the food chain give rise to concern when addressing these food price changes
• To identify pressures are likely to arise in improving or diminishing the functioning of the food sector across the EU.
The project brought together a Consortium with considerable research experience in addressing the theoretical and empirical aspects of price transmission and the structure and operation of the food industry and food supply chains in the EU. The scientific component of this research tackles the issue of food pricing transparency in a variety of novel ways using new data, developing and applying recent econometric methodology and investigating developments in the functioning of the food chain from new perspectives, both from an economics perspective and from approaches associated with supply chain management.
A direct objective from the research community end was to expand the research frontier of food pricing issues and the operation of food supply chains in Europe and use the research expertise to form the basis for interaction between stakeholder groups, the scientific community and policy-makers at both the national and EU levels in addressing these issues. In the context of the latter, the objective was to engage stakeholders and policy-makers throughout the duration of the project. This was important for two reasons. First, as noted above, the issues arising from high food prices in the EU and in world commodity markets were on-going. This was also reflected in concurrent activities involving the EU Commission (including and the Expert Platform on the European Food Price Monitoring Tool). Second, concerns over the functioning of the food supply chain and concerns about the nature and intensity of competition in the food sector continued to pervade the policy scene over the duration of the project (and will be expected to be an issue in future years). Taken together, although the TRANSFOP Consortium brought together some of the best research expertise on food prices and the food sector available in the EU, it was the direct intent from the outset of the TRANSFOP project that engagement would be a key feature and that the results could be appropriately interpreted by the research-user communities. Furthermore, based on the results and insights generated throughout the duration of the project and the experience garnered in using state-of-the-art techniques and new sources of data, the final aim of the TRANSFOP Consortium would be to develop an Action Plan based on the research which may form an input into how prices are monitored and interpreted at the national and EU levels in the future.
Project Results:
We outline the main results of the project by relating the discussion to each of the Work Packages.
Experience of Food Price Adjustment across EU Member States (Work Package 2)
The specific objectives of this work package were:
(1) To document the experience of food price inflation across EU Member States
(2) To link the different experiences of food price inflation with characteristics of the food chain across EU Member States
(3) To provide summary indicators of the functioning of the food supply chain across the EU and the pressures for change.
The deliverables produced in this work package were:
Deliverable 2.1: Experience of Food Price Inflation across the EU
Deliverable 2.2: Characteristics of the Food Supply Chain
Deliverable 2.3: Experience of Food Price Adjustment and the Functioning of the Food Supply Chain
Commentary
Work Package 2 acted as an umbrella for the other substantial work packages in that it sought to provide a clear overview of the experience of food inflation across EU Member States which formed the basis for the research questions underpinning the entire TRANSFOP project. The main objective was to provide a comprehensive perspective of the experience of food price inflation across the EU and provide background material on the characteristics of the food supply chain across EU Member States. In this context. the work package would not only set the scene for the rest of the research programme, it also provided some insight into what factors might affect a differing experience across countries.
The activities in this package was broken into three parts to reflect these different objectives and the findings are given below. The analysis was based on desk-top research that drew in data and other sources of information from a very wide range of sources at both national and supra-national levels. While there was great value in simply mapping much of the experience through straightforward statistical presentation and analysis, there was also more sophisticated econometric analysis undertaken in a number of areas exploring the complex inter-relationships between prices across markets and time. Much use was made of time series econometric models that not only allow for explanation of what has transpired already but also facilitate analysis of what can happen when systems are shocked – mimicking what happened in 2007 and 2011 – so that outcomes for different scenarios can be explored. It is these approaches that were utilised in writing the various deliverables, reports and presentations that have been completed during the project.
In setting the scene for much of the wider TRANSFOP activity, Deliverable 2.1 “Experience of Food Price Inflation across the EU” highlighted the contrasting experience of food price inflation across EU Member States and how food inflation varied in its development in relation to overall inflation and non-food price inflation. Drawing on evidence gathered from a range of sources, a major focus was on the relationships that exist between world raw food prices, domestic agricultural producer price changes and retail food price inflation with a relatively simple prior hypothesis that the changes in raw food prices simply translate directly into a proportionate change in domestic retail food price inflation. These data show that this does not happen and many countries display varying food price responses to changes in global raw food prices. This discussion was also reported in TRANSFOP Working Paper No. 5 which addressed in more detail the issues relating to food and non-food inflation and summarized recent research assessing why food inflation may or may not matter from a macroeconomic perspective. More pertinently, the paper addressed the key question of why food inflation matters and the policy implications that arise from its effects.
Modelling domestic food price inflation has been a largely unexplored issue perhaps because of the complex interactions between explanatory variables. This issue was taken up TRANSFOP Working Paper No. 1. Retail food price inflation in the UK reached a peak of round 14 per cent in 2008 and has been more volatile than non-food price inflation. Using a 6 variable vector autoregressive model, the paper showed that there are a range of factors that determine retail food prices. Even though world commodity prices play a dominant role, the exchange rate, manufacturing labour costs and oil prices also matter. The key aspect here is the inter-play between food and energy markets, especially the rise of bio-fuels as encouraged by policy measures in many western economies especially the US. The other major finding was that as while recognizing that world prices are often low but have periodic spikes, a key issue in understanding the effect of commodity price shocks on domestic food inflation relates to on the duration of the commodity price shock. Given the expectation that world commodity prices are likely to be higher and more volatile in the future, understanding the dynamics of commodity price (and other) shocks on domestic retail prices is an important issue for macroeconomic policy more generally and for food and agricultural policy more specifically.
One of the major challenges facing the project team as a whole was to assess how the nature of food supply chains in each Member State affected food price inflation. Mapping all aspects of all food chains was beyond the scope of this work package but, nonetheless, this second deliverable report (“Characteristics of the Food Supply Chain”) provided an overview of the EU Member States’ food chains. A striking initial feature is that there are substantial differences in terms of structure and behaviour in food chains across countries.
While farming forms a very small part of each chain, it is the first link and beyond the farm gate the food sector represents a diverse and inter-related set of industries including processing, manufacturing, wholesaling and retailing, which together both bring food to the consumer. While changes in consumption patterns play an important role in driving developments within the food sector, there is also a need for the food supply chain to respond to advances in new technology. The combination of these forces has led to the emergence of supermarkets at the expense of traditional retailers, with commensurate increases in retailer concentration and the strengthening of the retailer as a brand in own right. Alongside this, the rise of private labels has characterized many Member States’ food chains and in some cases account for the majority of consumer expenditure.
Despite emphasizing the differences, commonalities were also identified such as high industry concentration in both food processing and food retailing. Unsurprisingly, where concentration is high, regulatory authorities have often shown an interest in such markets and the simple metric relating to the number of anti-trust investigations undertaken in EU Member States (and elsewhere) shows how the nature of competition in the food chain has been and continues to be a major concern to regulators and policy makers alike.
While common themes are visible, it is the heterogeneity of the food chain across Europe that is most striking. What is apparent is that there would not appear to be a single European food chain but instead there are many national food chains that function to serve local markets and needs. That is not to say that these markets are isolated from one another; far from it as increasing convergence in structures and, to some extent, behaviour can be observed and inferred from the data presented here but the differences in the structure of the food chain across the EU may help to explain some of the differences in food pricing experiences in EU Member States.
Given that the earlier deliverables showed that food inflation varied greatly across the EU and that the food chains in each MS were highly individual too, the third report (“Experience of Food Price Adjustment and the Functioning of the Food Supply Chain”) sought a new angle on the discussion to isolate some of the key factors that might explain why these uncommon responses arise given they experience a common shock in how world food prices evolve. Simply put, the focus is on transmission between world commodity and food retail prices, oil prices, exchange rates and other macroeconomic factors as drivers of domestic food price inflation but that each might vary in its scale of impact. Eschewing a simple one-good one-country case study approach, the research conducted for this paper aimed to model food inflation for a common product across 11 Member States of the EU. Utilising a structural VAR approach, the paper was able to determine the extent of the inflationary mechanisms and that in turn, allowed for a variance decomposition approach based on these models in order to gauge the role of various factors to the food inflationary process in each of these cases. The commodity in question was bread given that it was a product found in all the countries in the sample and could be related relatively easily to the raw food commodity on global markets, namely wheat.
The key results of this research highlighted that substantial differences arise with respect to the mechanisms that drive food inflation across EU Member States. This is reflected in differences in the elasticities between world and retail food prices, exchange rate elasticities and so on. In terms of decomposing the inflationary experience across the 11 Member States, the major generic result was that-other than for the UK-most of the inflationary experience arose due to adjustments within the food supply chain. For the UK, the most important factor was world wheat prices, although this was also a major secondary element in nearly every other country too. Less important are the wider range of factors such as oil prices, exchange rates and unemployment. In themselves, the results are not an explanation of why food inflation varies. Some insight into this however was gained when considering the correlation of inflation rates with a range of other measures that affect the functioning of the specific food chain. These included constraints on competition, regulations that apply in the food sector across EU Member States as well as exposure to the Euro area which appears to cushion the exposure that arises due to effects on world commodity markets.
Summary of Key Insights
• Despite a commonality in the source of shocks to global raw food commodity prices and the existence of a common market across the EU, there is no common effect on the food inflation rates amongst Member States of the EU
• Newer Member States tended to have more volatile rates of food inflation in comparison to older Member States but other than this, there were no other groupings that could be identified. For example, Euro Zone countries did not have a common food inflation experience despite a common currency.
• The heterogeneity in experience can be traced to the differences in the food chains in each of the Member States and the environment in which they function. There is no such thing as an "EU food chain"; instead each MS has its own unique characteristics and it is these that can possibly account for the uncommon response to a common shock
• Factors that vary across MS include the structure of the various stages of the food chain (processing, distribution and retailing), the degree of self-sufficiency in agricultural production, barriers to entry at each stage of the chain especially retailing and the extent of competition authority regulation. Confounding factors such as regulatory effects, exposure to the Euro Zone and other factors affecting the food chain in each MS need greater exploration if their impact on food price inflation is to be fully understood. This will need, however, more significant data collection.
What are the implications for understanding price transparency?
• A modelling approach can be common but the results will need highly specific analysis reflecting the individual circumstances in each MS.
• There is a need for a nuanced approach to understanding and informing the policy implications. The shocks to the food sector can be common, but reflecting their underlying differences, the inflationary mechanisms can differ in terms of their impact on food prices and consumers. More in-depth assessment of the functioning of the food supply chain and more detailed data (see also Work Package 4 on scanner data) would provide more detailed insights on how common shocks are transmitted through the supply chain.
• More detailed analysis of inflationary mechanisms is also required. Data availability means that data for the intermediate stages in the food supply chain for all EU Member States is missing. This is an important linkage in the price transmission process where the impact of market structure in a vertically-related set-up means that much of the price adjustment to commodity shocks may be taking place at the intermediate stages. Although food inflation highlights the final effect on consumers, more transparency on prices throughout the supply chain would give more detailed insights on why food inflation may differ throughout the EU and hence the differences in the functioning of the supply chain across Member States. This would allow a more direct assessment of actions that may focus on different stages in the food sector.
Research Papers (TRANSFOP Working Papers/Papers Under Review/Papers in Preparation for Submission/Published)
Davidson, J., A. Halunga, T.A. Lloyd, S. McCorriston and C.W. Morgan “Explaining UK Food Price Inflation” TRANSFOP Working Paper No. 1. November 2011
Lloyd, T.A. S. McCorriston, C.W. Morgan and E. Zvogu “The Experience of Food Price Inflation across the EU” TRANSFOP Working Paper No. 5, May 2012
Lloyd, T. S. McCorriston, W. Morgan and E. Zgovu (2013) “European Retail Food Price Inflation” Choices, Pages 37-44Article first published online: 7 AUG 2013 | DOI: 10.1111/1746-692X.12030
Davidson, J., A. Halunga, T.A. Lloyd, S. McCorriston and C.W. Morgan “Commodity Price Shocks and Food Inflation in the UK”. January 2014
Price Transmission-New Insights (Work Package 3)
The over-arching objective of this work package was to assess how prices for different agricultural commodities are transmitted along the food marketing chain. This was undertaken by focussing on common commodity sectors across EU Member States, applying common econometric techniques and analysing the results to provide a unified assessment of price transmission dynamics across the EU.
This over-arching objective was therefore achieved by several means:
(i) Selection of the products and countries for which price transmission processes will be studied.
(ii) Preliminary analysis of the time-series properties of the prices series to be studied
(iii) Specification and estimation of the econometric model characterizing price transmission
The deliverables produced in this work package were:
Deliverable 3.1: “Report on the Methodological Framework to be Applied”
Deliverable 3.2: “Price Transmission across EU Commodity Sectors (covering meat and fish, bread and cereals, oils and fats, fruit and vegetables, and diary sector)”
Deliverable 3.3: “Overview of Price Transmission in EU Member States and Comparative Characteristics of Food Supply Chains”
Commentary
The primary objective of this work package was to assess how prices for different agricultural commodities are transmitted along the food marketing chain. Given the differences across different countries and commodities, the assessment was done individually for different food product categories and several EU Member States. The accomplishment of this objective was done in two main stages. First, a selection of commodities and countries was carried out on the basis of their economic and social relevance. The range of products and countries considered was limited by data availability. Monthly data were collected over the period from January 2000 to December 2011, and were obtained from different national statistical sources. Specifically, we analysed price transmission within the beef, eggs, poultry, pork, milk, butter, cheese, bread and flour industries in 10 EU member states (Austria, Belgium, France, Germany, Hungary, Italy, Slovakia, Slovenia, Spain and UK).
Second, econometric models were estimated. The time-series econometrics literature has proposed a wide array of models to characterize price behaviour, that differ in terms of sophistication and can range from simple linear VECM to very refined nonlinear approaches. Convergence issues arise in the estimation process as model complexity increases. Since our priority was to compare across markets that are very different, we choose to select rather simple methodological approaches that can be fit to most data. A linear Vector Error Correction Model (VECM) is fit to each market to derive the speed with which prices adjust to deviations from the long-run equilibrium relationship. The linear VECM specification was chosen after making sure that asymmetries in our price data are not relevant. Differences in the speed of adjustment across different agricultural commodities and EU member states were then assessed through the use of Tobit models. Below we present brief information on the working papers and reports produced from this work package.
An early output from the researchers of this work package was to produce a working paper entitled “Recent Developments in the Econometric Analysis of Price Transmission”. [TRANSFOP Working Paper No. 2].In this work, the researchers highlighted some of the more recent developments in the econometric analysis of price transmission and extensions to the now standard vector error correction models. Particular attention was given to threshold adjustment and smooth transition vector error correction models. We highlighted the circumstances where such techniques would be applicable in analysing price transmission and we covered both parametric and non-parametric methods associated with functional forms associated with the adjustment process. This background work formed the basis for addressing price transmission across EU commodity sectors.
Specifically, a number of reports were produced assessing price transmission in the eggs, meat, wheat/bread/flour, apple and milk/cheese/butter sectors. The general results can by summarised as follows: (i) producer prices are much more volatile than consumer prices; (ii) consumer prices are sticky and respond slowly to shocks; and (iii) there is no overwhelming evidence of asymmetric price adjustment.
The final report presented an overview of findings and endeavoured to address what factors may contribute to the differences in the price transmission experience across the EU. A Tobit framework was applied and the key variables related to market structure and country exposure to shocks. The results suggest that an increase in production and export specialisation ratios may reduce the speed of producer price adjustments. Conversely, national retail prices adjust more quickly when market outlets for agricultural producers increases. Findings also suggest that the share of a country's national production within the EU leads to quicker adjustment at the producer level. Vertically-integrated chains lead to faster price adjustment and, perhaps not surprisingly, highly perishable products have more responsive prices than products with longer shelf lives.The main shortcoming of the analysis, however, was the restricted range of variables explaining price behaviour differences that was considered. The range of explanatory variables is limited by data availability. In this regard, increased availability of homogeneous information across EU countries should allow refining research results and would contribute to shed more light on the reasons that are behind different price adjustment mechanisms.
Summary of Key Insights
• Overall evidence of price adjustment to deviations from the equilibrium is greater at the farm end of the food chain than the retail end. That is, when an unexpected shock happens in the market, farmers tend to adapt faster than retailers to come back to the previous situation
• There is evidence of a wide range of price transmission estimates. Price transmission elasticities in the beef market vary between 1.68 in the UK and 0.19 in Slovakia. Elasticities in the pork market range from 1.44 in Germany and 0.70 in Hungary. Price elasticities in the wheat-bread marketing chain vary between 2.98 in Germany and 0.45 in Slovenia. Elasticities in the liquid milk market go from 1.05 in Germany to 0.18 in France. Milk prices are transmitted to butter prices with an elasticity that goes from 0.640 in Germany to 0.113 in Hungary.
• There is no overall evidence of asymmetric price adjustment
• The speed and level of price adjustment to deviations from equilibrium originated by an unexpected shock in the market is greater in long supply chain and also varies across EU Member States
Implications of this Research on Price Transparency
• Lack of homogeneous data makes it impossible to rigorously compare across Member States and agricultural product markets. Improved data availability would increase transparency.
• Data that should be collected is not limited to prices. Homogeneous data (unified methodology) on market structures across major agricultural products and member states would be very useful in understanding price differences.
• Agricultural commodity price instability has a greater impact on farmers than on consumers, who benefit from more stable prices. Instability specially affects producers of perishable products. Availability of risk coping mechanisms is thus especially useful at the farm level of the food chain.
• Flexible market structures (such as vertical integration) seem to facilitate price adjustments towards the equilibrium. Promotion of flexible market structures will ensure demand and supply to meet at a quicker path. It is, however, important to note that while prices may adjust faster under such arrangements, this does not say anything about the distributional effects and the ultimate incidence of price shocks.
Research Papers (TRANSFOP Working Papers/Papers Under Review/Papers in Preparation for Submission/Published)
Holst, C. and S. von Cramon-Taubadel (2013) “Preistransmission entlang deutscher Wertschöpfungsketten für Nahrungsmittel“ (Price Transmission along German Food Chains)“ Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues (Proceedings of the Annual German Agricultural Economics Conference) ISBN: 978 – 3 – 7843 – 5313 – 5 VOLUME: 48: p. 215-226
Hassouneh, I.,S. von Cramon-Taubadel, T. Serra and J. M. Gil “Recent Developments in the Econometric Analysis of Price Transmission”. TRANSFOP Working Paper No. 2. January 2012
Rajcaniova, M. and J. Pokrivcak, (2013) “Asymmetry in Price Transmission Mechanism: The Case of Slovak Potato Market”. Review of Agricultural and Applied Economics. Vol 16, No. 2.
Pokrivcak, J. and M. Rajcaniova (2014) “Price Transmission Along the Food Chain in Slovakia”. Post-Communist Economies. Forthcoming,
Price Dynamics at the Retail Level (Work Package 4)
The overall objective of Work Package 4 (WP4) was to produce an in-depth analysis of the retailers’ strategies and to assess how these strategies influence price adjustment across several EU Member States. More specifically, WP4 had several detailed objectives:
(1) To analyse empirically the price strategies of retailers, with special reference to promotions, discounting and private labels;
(2) To model manufacturer-retailer relationships in order to understand the motivation for the retailers’ pricing strategies analysed in WP4as well as the price transmission mechanisms analysed in WP3;
(3) To develop several case studies covering different countries and products, in order to allow a comparison of the results across member states and across sectors.
The deliverables produced in this work package were:
Deliverable 4.1: “Vertical Relationships between Manufacturers and Retailers”
Deliverable 4.2: “Sales and Retail Price Dynamics: Evidence from UK Food Retailing”
Deliverable 4.3:“The Impact of Retailers’ and Manufacturers’ Brand Policies on Food Prices”
Commentary
In deliverable 4.1 (“Vertical Relationships between Manufacturers and Retailers”), the main focus was on the vertical relationships between manufacturers and retailers. This issue is particularly relevant in the food industry as, in a large number of cases, a small number of large suppliers of processed food are facing a small number of large retailers. In the food industry, the market share of the top four manufacturers is frequently greater than 50%. For instance, in Europe, the concentration ratio for the top four ice cream manufacturers was over 58% and was 64% for soft drink (SD) manufacturers in 2001.1 Moreover, the top five retailers now account for over 50% of the grocery market in many EU countries. Food supply chains are therefore frequently composed of a chain of oligopolies. In such a configuration (chain of oligopolies), price transmission is affected by strategic pricing by firms, and depends, among other elements, on the form of contracts between suppliers and retailers.
As detailed in WP3, price transmission in the food sector is often incomplete and, in such a context, a better understanding of the determinants of transmission of prices along the chain will aid in anticipating the impact of changes in the prices of agricultural products on food retail prices. Even for apparently homogenous goods such as drinking milk or butter, there are significant price differences at the retail level between national brands and private labels or between different retail outlets such as supermarkets, consumer markets or discounters.
In Deliverable 4.1 the issue of price transmission and vertical relationships between manufacturers and retailers in the food chain was addressed by developing two different strategies. The first one was based on the New Empirical Industrial Organization (NEIO) literature. The idea was to model vertical relationships between manufacturers and retailers along the vertical channel and to estimate structural econometric models of price transmission without observing wholesale prices. The second was based on time series analysis. The aim here was to provide statistical relationships between observed wholesale prices and consumer prices. Using the results of this statistical analysis on a large number of products, it was possible to analyze some of the determinants of cost pass through.
In Deliverable 4.1 four independent contributions were gathered. The first three studies were based on structural estimates of models derived from the NEIO whereas the fourth was based on time series analysis. The four studies related to:
1) The soft drink market in France. The issue was to determine which type of contract links soft drink manufacturers and retailers, and to estimate how a change in the price of sugar might be transmitted to consumer prices.
2) The coffee industry in France. The issue was to estimate how a change in the price of coffee beans might be transmitted to consumer prices, and to determine if positive or negative cost shocks are identically transmitted to consumer prices.
3) The dairy industry in France. The analysis was similar to the one developed for the soft drink industry but was applied to the fresh dairy products industry, and to the drinking milk industry. In that case, cost shocks relate to changes in milk prices.
4) The dairy industry in Germany. The issue was to determine how changes in wholesale prices of dairy products (butter, liquid milk) were transmitted to consumer prices. The analysis was performed for a large number of brands.
The case studies also involved methodological and empirical issues that were addressed. These are detailed below:
1) On the methodological side, the report proposed several improvements in the modeling of vertical relationships between manufacturers and retailers. First the authors extended previously used methods to the case where private labels are used by retailers as a strategic tool in the negotiation with upstream manufacturers. Second, they have extended the analysis to deal with asymmetric price response (coffee case).
2) On the empirical side, issues relating to the nature of manufacturer-retailer contracts were addressed. Specifically, the type of contracts linking manufacturers and retailers is (often) a two-part tariff contract with resale price maintenance. Such a contract is the association of a standard two-part tariff contract, which consists of a wholesale price and a fixed fee, with resale price maintenance (RPM). Such contracts maximize the total profit of the entire chain in the absence of PLs. It is important to note that the fixed fees are used to share the profit between retailers and manufacturers.
3) As a general result, the authors found that the pass-through rate of private labels is about one whatever the market. This means that retailers transmit 100% of the cost shocks to consumer prices. On the contrary, for national brands, the pass through rate is lower or greater than one depending on the market. In the soft drink and drinking milk industries, the pass-through is larger than 1 whereas it is lower than one in the fresh dairy products market. A pass-through larger than 1 means that retailers transmit to consumers more than the cost variation.
4) The impact on consumer prices of a change in the cost of the agricultural raw material (sugar in the case of soft drink, milk in the case of fresh dairy products and drinking milk) depends on the relative importance of the agricultural input in the production costs, on the pass through rate and on the margins of the industry.
5) Private labels are marketed at lower margins and deviations from the long-run cost-price equilibrium are reduced much faster than for national brands. Though the dynamic cost-price adjustment shows significant asymmetries, the economic impact is offset by strong symmetric contemporaneous reactions and large inner regimes of almost zero response. Interestingly, the authors found significant asymmetries that might be used to expand margins, but strong brands with high margins show less economically significant asymmetric cost-price adjustments. The results imply that firms with strong market power do not use asymmetric price responses to expand their margin. Thus, the starting hypothesis that stronger brands or companies with more market power use asymmetric cost-price adjustments to generate higher margins has to be reconsidered. Strong brands enforce significant markups (margins) without excessively using asymmetric cost-price adjustments; their cost-price response is sluggish but mostly symmetric.
In deliverable 4.2 (“Sales and Retail Price Dynamics: Evidence from UK Food Retailing”), the role of sales as a feature of price dynamics using scanner data was assessed. In general, the role of sales matters from two broad perspectives: first, set against a background that is often characterised by ‘sticky’ prices, sales play a potentially important role both in respect of temporary price variation and retail price inflation more generally; second, from an industrial organisation perspective, the issue arises with respect to understanding price setting and the extent to which firms compete via temporary reductions in price. As a consequence, the role of sales in explaining retail price movements has received some attention in the recent macroeconomic and industrial organisation literature, often with specific reference to retail food prices. The study analysed an extensive, high frequency panel of supermarket prices consisting of over 230,000 weekly price observations on around 500 products in 15 categories of food stocked by the UK’s seven largest retail chains. In all, 1,700 weekly time series were available at the barcode-specific level including branded and own-label products. The data allows the frequency, magnitude and duration of sales to be analysed in greater detail than has hitherto been possible with UK data.
The main results can be summarised as follows:
• Sales are a key feature of aggregate price variation with around 40 per cent of price variation being accounted for by sales once price differences for each Unique Product Code (UPC) level across the major retailers are accounted for;
• There is considerable heterogeneity in the use of sales across retailers;
• Much of the price variation that is observed in the UK food retailing sector is accounted for by price differences between retailers;
• Only a small proportion of price variation that is observed in UK food retailing is common across the major retailers, suggesting that cost shocks originating at the manufacturing level is not one of the main sources of price variation in the UK;
• Private label products also exhibit considerable sales behaviour though this is less important than sales for branded goods;
• There is some evidence of coordination in the timing of sales across retailers insofar as the probability of a sale at the UPC level at a given retailer increases if the product is also on sale at another retailer.
Deliverable 4.3 (“The Impact of Retailers’ and Manufacturers’ Brand Policies on Food Prices”) contained the results of three original pieces of research in which the impact of both manufacturers’ and retailers’ brand policies on food prices were analysed. The original feature of all the three studies is that they used econometric models estimated on high frequency brand level scanner data. In the first paper, the authors implemented a three-way panel data model to test the effect of retailers’ marketing strategies on food price inflation. Using high frequency scanner data for different dairy products in Italy they computed a weekly drift-free price index, specific for product category, chain and type of store. Exploiting the panel data structure to control for unobservable marketing strategies by chain, type of store and time, they tested whether unobservables are statistically significant in influencing the food inflation rate on each of the products covered by the analysis.
In the second paper, the authors explored the controversial issue of the relationship between price promotions and brand loyalty. Their analysis uses a unique combination of data sets for the German ready-to-eat breakfast cereal market, where promotions can be clearly identified. To identify the level and size of brand loyalty, the authors employed a household panel data set which describes the actual consumption behaviour of 14,000 German households during the period 2000-2001. This data set is merged with retail panel data for 108 German retailers for the same period from which information on retailers’ price promotion strategies can be obtained. In analyzing the influence of brand loyalty on a brand’s price promotional strategy, the authors extended previous studies by computing different measures of brand loyalty as well as controlling for manufacturer and retail chain specific effects.
In the third paper, the authors, using panel data for four hundred points of sale in Italy, investigated the very controversial issue of the impact of PL shares on national brand (NB) prices. They implement the analysis at the segment level for two major dairy products, refrigerated milk and yogurt. They estimated a reduced form model which controls for the heterogeneity of point of sales and time using a two way ECM estimator.
The main results concerning the impact of retailers’ and manufacturers’ brand policies can be summarized as follows:
• The first paper shows that, in general, chain and type-of-store specific unobservables have a significant role in controlling the rise of prices. Moreover, they identify the role of some observable marketing strategies on controlling or on facilitating price inflation rates. Results show that while higher PL shares help on limiting an upward inflation rate, reversely a higher PL line extension tends to accelerate it. Sales, as expected, alleviate the burden of a general increase in prices. However, PL sales have an effect on reducing the price inflation rate which is proportionally smaller than the overall average, indicating that proportionally sales on PL contribute less intensively to reduce a generalized upward price trend. Finally, assortment strategies have a mixed effect that depends on the product analysed;
• The second paper provides strong evidence for a negative impact of the degree brand loyalty on the magnitude (depth) and frequency (breadth) of price promotions. This result is robust across different specifications and empirical measurements of brand loyalty and promotional sales. Stronger brands are promoted less often at lower discounts compared to weaker brands. In addition, the size of the loyal segment positively influences the frequency and depth of price promotions. The negative relationship between brand loyalty and the depth and frequency of price promotions is dominating the observations between corporate brands: suppliers often charge the reservation price for strong brands and promote weak brands in competition for non-loyal consumer segments. In a dynamic perspective, this result would imply that stronger brands need to look for alternative promotional strategies to attract new customers and to keep their loyal consumer segment from switching to their competitors.
• The third paper shows an unambiguously positive impact of PL shares on NB prices consistent among all segments where PL have been introduced from several years. Consistently with the theoretical findings provided by the literature, this result implies that retailers may use PL to discriminate prices among different groups of consumers.
Summary of Key Insights
• Cost pass-through is different for PLs and NBs, and for some NBs it can be larger than 100% (i.e. retailers pass to consumers more than the cost variation); nonetheless, stronger brands do not seem to use asymmetric cost-price adjustments to generate higher margins;
• Sales are more relevant for NBs than for PLs and are a key element of aggregate price variation; there is considerable heterogeneity in sales behavior, but also some evidence of coordination across retailers;
• Brand loyalty by consumers tends to reduce the magnitude and the frequency of price promotions, especially for the strongest brands;
• The contribution of PLs to aggregate price variation is controversial, since an increase in their share help to reduce the food inflation rate, but a PL line extension tends to accelerate it. Moreover, NB prices tend to increase as a response to an increase in PL shares, since retailers may use PL to discriminate prices among different groups of consumers.
Implications for Research on Price Transparency
The use of high-frequency scanner data gives important insights into the price transmission process that would not be apparent from standard statistical sources. Not only is the data rich in coverage in being able to identify specific product prices at a weekly basis, it also gives importance insights into how retailers set and adjust prices. Importantly, these retailer strategies differ across several dimensions including retail chain, type of outlet as well as between branded and private label products. Aside from the specific research results outlined, further research using scanner data should provide more detailed insights and one of the main actions in the “Action Plan” is that the Commission should consider the investment in scanner data as a way to monitor developments in the retail food sector. Despite the many challenges involved in handling and analysing such extensive data, the investment may provide important pay-offs.
Research Papers (TRANSFOP Working Papers/Papers Under Review/Papers in Preparation for Submission/Published)
Bonnet C., and V. Réquillart (2013),” Impact of Cost Shocks on Consumer Prices in Vertically Related Markets: The Case of the French Soft Drink Market”, American Journal of Agricultural Economics, 95: 1088-1108. doi: 10.1093/ajae/aat055
Sckokai, P., C. Soregaroli and D. Moro (2013) “Estimating market power by retailers in a dynamic framework: the Italian PDO cheese market” Journal of Agricultural Economics, 64/1, doi: 10.1111/j.1477-9552.2012.00374.x (Also as TRANSFOP Working Paper No. 3, February 2012)
Bonnet, C. and V. Réquillart “Sugar Policy Reform, Tax Policy and Price Transmission in the Soft Drink Industry”. TRANSFOP Working Paper No.4 January 2012
Holm, T., J-P. Loy and C. Steinhagen “Cost Pass Through in Differentiated Product Markets: A Disaggregated Study for Milk and Butter” TRANSFOP Working Paper No. 6, June 2012
Moro, D., P. Sckokai and M. Veneziani “Multi-stage Market Power in the Italian Fresh Meat Industry” TRANSFOP Working Paper No. 7, July 2012
Lloyd, T.A. S. McCorriston, C.W.Morgan E. Poen and E. Zgovu “Retailer Heterogeneity and Price Dynamics: Scanner Data Evidence from UK Food Retailing” TRANSFOP Working Paper No. 8, July 2012
Castellari E, D. Moro, S. Platoni and P. Sckokai P. “Measuring the Impact of Retailers’ Strategies on Food Price Inflation using Scanner Data” TRANSFOP Working Paper No. 9, July 2013
Bonnet, C. and S. B. Villas-Boas “An Analysis of Asymmetric Consumer Price Responses and Asymmetric Cost-Pass Through in the French Coffee Market” TRANSFOP Working Paper No. 10, September 2013
The Food Supply Chain: Competition and Regulation and the Role of SMEs (Work Package 5)
The overall objective of this work package was to contribute to increasing transparency on the linkage between competition and regulation in the food chain and prices for food across different stages of the food chain. This includes transparency on the distributed realization of value adding food attributes (social, environmental, economic) across the food chain stages and their relation with the distribution of costs and price distribution.
Specific objectives:
(1) To develop future scenarios of regulatory environments regarding different value adding food attributes as determined by public or private regulations.
(2) To analyse the costs and benefits of the value-adding attributes across the stages of the food chain and to develop value-based price margin distribution management model for food chains.
(3) To analyse the effects of best practice in grouping of SMEs in food chains as a prerequisite for the feasibility of a transparent pricing mechanism taking into account the value adding food attributes across food chains.
(4) To integrate findings from various WP's dealing with microeconomic and food chain management aspects
The deliverables produced in this work package were:
Deliverable 5.1: “Future Scenarios of Regulatory Environments and Opportunities for Improving on Value Added Food Attributes in Food Chains”
Deliverable 5.2: “Transparency on the Distribution of Value Creation from Selected Food Attributes in Relation to Cost Contributions and Margins at Food Chain Levels for Selected Food Chain Cases”
Deliverable 5.3: “Feasibility of Transparent Food Pricing Distribution Mechanisms with SMEs”
Deliverable 5.4: “Transparency of Price Transmission from the Food Chain Management Perspective”
Commentary
The report on “Future Scenarios of Regulatory Environments and Opportunities for Improving on Value Added Food Attributes in Food Chains” (Deliverable 5.1)” analysed where along the food chain (‘hot spots’) the realization of the food attributes requires activities that may increase costs. Costs may be due to changes in processes, procurement or organization and evolve from the consideration of value adding food attributes with environmental (e.g. carbon footprint or energy), social (e.g. food safety) or economic (e.g. food quality or waste) concern. Based on a broad overview of the literature regarding the sector’s relationships with indicators that are commonly linked to discussions on sustainability, the report underlined the need for a reduction in complexity which is captured in so-called scenarios. The report links up with scenario discussions of the SCAR group and restricts its focus on a limited number of indicators referred to as value added characteristics and including reduction in greenhouse gas (GHG) emissions, reduction in energy use, reduction in water use, and reduction in the production of waste. All of them may be linked to all individual stages of the chain. They are complemented by indicators animal welfare, fair trade, and GMO free, indicators that characterize chains or individual stages but are of little relevance for individualized stage analysis. The analysis allows to identifying the impact in different product lines differentiated according to the stages of the supply chain and with a main focus on meat, dairy, cereals and fruits/vegetables. As a general conclusion, it can be observed that agriculture is usually a focus stage regarding deficiencies in value adding characteristics.
The report on “Transparency on the distribution of value creation from selected food attributes in relation to cost contributions and margins at food chain levels for selected food chain cases” (Deliverable 5.2) built on case studies aimed at analyzing the costs and benefits of improvements in value-adding attributes across the stages of the food chain. If it is in society’s interest to improve on value added characteristics and to initiate appropriate actions by stakeholders in the chain, questions arise with respect to: (a) to what extent the present total return of the food value chain would still cover the total costs or to what extent a potential increase in total costs could be matched by an increase in sales value; and (b) to what extent the present distribution of a chain’s profit margin would match the impact on costs at individual stages of the food value chain?
Based on survey evidence, it was unanimously agreed by industry and consumer groups that the mainstream consumer groups would not be prepared to pay a premium if alternative products are on the market. A niche market comparable to organic products might evolve. Within the chain, the most saving potentials are in industry despite the fact that agriculture has a major impact on some of the characteristics, i.e. “hot spots” of improvement opportunities are different from impacts. Examples (especially from organic production) show that a disruption in the distribution of costs by improving in value added characteristics might eventually be levelled out by market forces. However, a major change in food production would need to build on motivation by members in the chain which, given the results from the study, would require enforcement activities by society or the integration of improvements in sustainability with characteristics with individual value to consumers such as “regional”, “health” etc. The report dealt with these issues with a focus on a reduction in GHG emissions (linked to climate change), water use (linked to the protection of the environment and the scarcity in natural resources), energy use (linked to scarcity in fossil energy and climate change), and waste (linked to the need for an increase in food production and the reduction in resource use).
In Deliverable 5.3 (“Feasibility of transparent food pricing distribution mechanisms with SMEs”) looked at networking (“best practices”) as a means for overcoming fairness deficiencies at the expense of SMEs in the distribution of added market values. The report analysed some best practice cases of collaborative groupings (networks) of SMEs in food chains. The networks are all based on horizontal networks at the farm level which include some links with retail. The major differences between the networks are due to differences in the vertical arrangements. Some of the networks were initiated by the farming community while others were initiated by retail. The engagement of retail differs. Most recent developments include two networks were retail or the production side take up initiative. Altogether, the analysis demonstrated that appropriately organized network arrangements contribute to SME support in terms of market access, internal efficiency and management gains and, where network products receive higher market prices, a fair share of the value added.
Collaborative grouping of SMEs is a prerequisite for their eligibility as negotiation beneficiaries on an equal basis in food chains, which in turn is necessary to achieve a fair and transparent distribution of price effects of different food attributes at the consumers’ end across the stages of the food chain according to their contribution to the value added. All networks in the study are market oriented, but not all address consumers as the final customer in the chain. Networks with strong vertical relationships and communication with consumers tend to reap more in market benefits in terms of higher prices than others. Networks with a broad and open farm base tend to take farm achievements as a prerequisite for market access, not for market gains. In network cases where added values in prices could be reached, most of added values where channeled back to farms where most costs for sustainability improvements occur. These were also networks with close vertical relationships where the retail sector was interested in keeping its farming base motivated. In general, network benefits could not only be linked to participation in value added at sales prices but also to improvements in efficiency, organization and management that were due to dedicated process organization advice but also to interaction and learning among network members. These developments could contribute to a reduction in costs. Network organizations in horizontal and vertical cooperation could provide guarantees for food safety, food quality and sustainability and deliver information that supported respective claims. The information advantage is not yet appreciated by markets in terms of added value at the point of sale. However, there seems to be an expectation that the ability to proving the validity of sustainability claims through the provision of trustworthy information from within the network might increasingly become an added value that could differentiate network products from others.
The report “Transparency of price transmission from the food chain management perspective” (Deliverable. 5.4) built on a number of studies that were conducted within the project in various work packages. Despite the fact that the studies have been developed independent of each other and were not meant to be coordinated they together provided a more comprehensive view of different aspects that have an influence on price formation than any individual study could do. The report links them together as best as possible and integrated them into a comprehensive framework.
Summary of Key Insights
From a management point of view the studies suggest placing emphasis in management on the following food chain management initiatives that might help to support the introduction of products with higher ‘sustainability value’ (linked with higher costs) into markets:
• Support of horizontal (improves efficiency) and vertical (supports balancing) networking
• Promotion of sales (keeps prices affordable)
• Introduction of private labels (moves consumer interest towards premium products that might better match evolving requirements regarding sustainability considerations)
• Reduction in assortment (reduces costs)
• Give specific attention to products with slow adjustments in re-balancing costs with returns along the chain to support movements towards a new balance
• Combine sustainability characteristics with characteristics of individual value to consumers such as “health”, “regional” etc.
All studies dealt with a scenario where external events, developments and requirements put pressures on a food supply chain that have a potential effect on prices at any of the stages. Such pressures may be due to increasing requirements of consumers or the society regarding sustainability concerns such as animal welfare, global warming, energy and others.
Research Papers (TRANSFOP Working Papers/Papers Under Review/Papers in Preparation for Submission/Published)
Schiefer, G., J. Deiters and R. Reiche (2013). “Transparency in Food Networks – where to go”. International Journal on Food System Dynamics 4(3)
Price Transmission in Food Supply Chains with Imperfect Factor Markets and Contract Enforcement Problems: Theoretical Framework and Empirical Implications (Work Package 6)
The overall objective of WP was to analyze the implications of imperfect factor markets and contract enforcement problems on price transmission in food supply chains. In order to analyze this, the WP analyzed the impact of market imperfections on how surplus is created, how it is distributed between the different partners in the supply chain, and how competition affects it. This Work Package provided a better understanding of the effect of imperfect markets on price transmission based on both a theoretical model and empirical evidence relating case studies in various EU member states, including the new member states.
Work Package 6 had the following sub-objectives:
(i) Development of a theoretical framework that analyzes how the price transmission in food supply chains changes, when factor markets are incomplete and contract enforcement is imperfect.
(ii) Empirical analysis of price transmission and vertical integration in the supply chain based on case studies from different EU member states.
The deliverables produced in this work package were:
Deliverable 6.1: Report on theoretical framework on how price transmission occurs in the presence of imperfect markets and institutional constraints
Deliverable 6.2: Report on conceptual framework for the empirical analysis of price transmission in the presence of imperfect markets and institutional constraints
Deliverable 6.3: Report on empirical evidence on how price transmission occurs in the presence of imperfect markets and institutional constraints based on case studies in old and new member states
Commentary
Most models in the literature on price transmission assume that factor markets work well and ignore vertical coordination, search and monitoring costs and contract enforcement problems. However these factors are important in reality. Therefore, in Deliverable 6.1 (“Report on theoretical framework on how price transmission occurs in the presence of imperfect markets and institutional constraints”) researchers developed a theoretical model to analyze how market imperfections and the industrial organization of the food chain affect the distribution of rents in the food supply chain and price transmission. Specifically, we focussed on cases where buyer investments are necessary because of search costs, training costs, monitoring costs and the provision of external inputs in the contract.
In the baseline (reference) scenario without any of these costs, price transmission is determined by the bargaining power distribution between buyer and supplier. As the price is determined through a bargaining process, an exogenous price shock will be transmitted to the producer partially: the price transmission equals the share of the surplus that the producer gets. This is unsurprising since a change in the consumer price changes the surplus and this (new) surplus is distributed in the same way as the existing surplus.
The process of bargaining for price determination partially isolates the farmer from the market. The lower his bargaining power, the stronger he is shielded from price shocks. In the extreme case that the bargaining power of the producer is zero, there will be no price transmission at all to the supplier-level. Every change in the surplus (either an increase or a decrease) is absorbed by the buyer. With search and/or monitoring costs, the producer price will be different from the baseline scenario since the search and monitoring costs are reducing the total surplus – and thus the shares that both partners receive. However, price transmission will be identical as in the baseline scenario. Price transmission is completely determined by the bargaining power of both agents.
This is not the case with training costs and with contracts which provide external inputs. These investments by the buyer increase the outside options of the supplier and require the buyer to increase the producer price – effectively paying him an efficiency premium. Interestingly, over the price range where this efficiency premium condition is binding, price transmission will be zero. As buyers will pay the farmer the producer price that is needed to prevent him from holding up the contract, but nothing more (or less). Hence when consumer prices increase or decrease, the price that producers receive will not change. This result holds as long as the consumer price stays within a certain range. If consumer prices fall too much then the contract may be unsustainable – as there will be insufficient surplus to cover the efficiency premia – and the contract (and production) may not be feasible anymore. On the opposite end, if consumer prices increase sufficiently such that the share that farmers receive as part of the surplus does not require an additional efficiency premium for them to honour the contracts, price transmission will be as in the baseline scenario (and in the search and monitoring costs cases): it will equal their bargaining power.
Based on the theoretical framework presented in Deliverable 6.1 we developed a strategy for data collection in three new member states (NMS) (Hungary, Slovakia and Slovenia). This was reported in Deliverable 6.2 (“Report on conceptual framework for the empirical analysis of price transmission in the presence of imperfect markets and institutional constraints”). In total, we designed four surveys/questionnaires: one to collect information on the regulatory framework, and three surveys for dairy products at different levels of the supply chain, i.e. at the farm-level, at the processor-level, and at the retailer-level. The surveys with companies and experts included questions on (i) regulations (where the data collection focused on the regulations (entry regulations, price controls, operational restrictions, and competition policy) affecting concentration and rising retail power; and (ii) business practices and supply chain organization. Here we distinguished between horizontal interactions (between actors at the same level of the supply chain) and vertical interactions (between actors at different levels of the supply chain, in particularly vertical coordination and interlinked contracts).
Deliverable 6.3 (“Report on empirical evidence on how price transmission occurs in the presence of imperfect markets and institutional constraints based on case studies in old and new member states”) consisted of two reports. The first report summarized the results from the cases studies in three NMS (Hungary, Slovakia and Slovenia). It discussed the key institutional factors affecting price transmission and market power in the presence of imperfect market. The results indicate that with respect to the regulatory environment, there are relatively little restrictions in the form of price controls, operational restrictions and entry barriers for the retail sector. However, there are significant restrictions for the acquisition of agricultural land by foreigners in the agricultural sector. With respect to horizontal interactions, there exist some producer organizations in the agricultural sector in all three countries. However, they represent a relative low market share compared to most of the old member states and, depending on the country and sector, several of them face problems such as free rider issues, problems with capitalization and lack of professionalism. With respect to vertical interactions, we find that vertical coordination and the use of contracts has largely increased over time. Further, case study evidence from the dairy sector, shows that farm assistance programs (such as the provision of inputs) are still important in the three countries, although their importance decreased since EU accession and the implementation of EU subsidies. Finally, with respect to prices and price transmission, the survey evidence shows that farmers are, in general, relatively well informed on the price on the local market, but not on the world market price. Access to information on prices has improved significantly through the increased use of the internet as an information source.
The second report is an empirical analysis of the functioning of the EU food supply chain in terms of competition and institutional constraints. A method proposed by Roeger (1995) is used to estimate price-cost margins, relaxing the assumptions of perfect competition. Firm-level data for ten EU member states are used for the period 2000-2009. The obtained results show that in general food retailers appear to have higher market power compared with food processors, agricultural producers and wholesalers. Differences in the food market structure and mark-up pricing can be explained by institutional and regulatory frameworks. In particular, competition within the different elements of the supply chain is strong and the quality of the institutional environment significantly influences mark-ups.
Summary of Key Insights
The theoretical analysis yields some non-intuitive and complex results. Price transmission depends on the nature of the costs that exist in the supply chain. Some of these costs (such as search and monitoring costs) affect the producer price, but do not affect the transmission of changes in consumer prices. Other costs, such as training costs and the provision of inputs, do affect both the producer price level and the price transmission, but in a discontinuous way. Over a certain price range there may be no price transmission, however, it is important to realize that this does not necessarily imply that the farmer is worse off. First, the lack of price transmission may also occur when prices fall. Second, farm incomes may be higher than under cases where there is (full) price transmission. The implications for empirical studies are non-trivial.
The quality of regulatory and institutional environment is found to affect market power and consolidation in the food supply chain. In general, food retailers appear to have higher market power compared with food processors, agricultural producers and wholesalers. Therefore, appropriate policies should be developed ensuring that retailers do not exchange price information, while tackling anti-competitive behaviour of individual dominant actors involved in the food supply chain. For example, regulations concerning planning and zoning restrictions, shop opening hours and retail pricing policy might affect the increasing power of retailers.
Agricultural producers in the three case-study countries (and most other NMS) are found to be less organized in producer organizations compared to farmers in most old member states in the EU. The reasons for this low level of horizontal cooperation are twofold. First, in several NMS, such as Slovakia and the Czech Republic, the organizational structure of the agricultural sector is different from the old member states (more large cooperate farms instead of small family farms). Second, it is often argued that the low levels of trust, which are deeply rooted in society in some NMS, are at the origin of the low level of horizontal cooperation. Therefore, it is unclear whether policies to enhance the use of producer organizations, which have been in place in several countries, are effective to promote the use of these horizontal organizations.
Implications of this Research on Price Transparency
More detailed data on price formation at the different stages in the food supply chain is needed to empirically analyze price transmission under imperfect competition and institutional constraints in detail. This requires a sector-specific thorough analysis of the functioning of the food supply chain in the different member states: Case study evidence in the dairy sector has shown that there are important differences in the structure and functioning of the supply chain between the three case study countries (e.g. while in Slovenia producer organizations play an important role as an intermediary in the supply chain, they are less important in Slovakia). In order to analyze the interactions in the food supply chain and gather the relevant information at different stages in the supply chain it is necessary to first gather information on the structure of the supply chain, which can be very different depending on the sector and the country.
This also requires detailed price data at the different stages in the food supply chain: It is important to gather detailed price data at the different stages in the food supply chain, which controls different factors that could affect the price, such as for example differences in quality, the use of farm assistance programs, etc. However, in order to collect this information detailed knowledge on the functioning of the supply chain (e.g. use of interlinked contracts) is required.
Research Papers (TRANSFOP Working Papers/Papers Under Review/Papers in Preparation for Submission/Published)
Swinnen, J. and A. Vandenplas “Price Transmission and Market Power in Modern Agricultural Value Chains” TRANSFOP Working Paper No. 12, January 2013
Consolidation in the EU Food Industry and Its Implications for Price Transmission (Work Package 7)
The over-arching objective of this work package therefore is to provide a detailed overview of this process and to draw out the implications that may arise for price transmission. In more detail, the specific objectives of this work package are:
(1) To detail the extent of food industry consolidation in the EU between 1990-2010 covering both domestic and cross-border merger and acquisitions. In this overview, all EU countries were covered and the nature of these mergers and acquisitions (horizontal and vertical) was also addressed.
(2) To identify the determinants of mergers and acquisitions in the EU food sector.
(3) To assess, at a firm-specific level, the detail of mergers and acquisitions and address which type of firms in the EU food sector are most likely to be acquirer firms and which firms most likely to be target firms with a view to addressing in detail how food industry consolidation is likely to change the structure of EU food markets and the functioning of the food supply chain across several EU countries. Emphasis on nature of the merger (horizontal or vertical) was also addressed.
The deliverables produced in this work package were:
Deliverable 7.1: “Consolidation in the EU Food Sector“
Deliverable 7.2: “Determinants of Consolidation in the Food Sector”
Deliverable 7.3: “Firm Level Characteristics of Consolidation in the EU Food Sector”
Deliverable 7.4: “Food Industry Consolidation in the EU and the Implications for Transparent Food Pricing”
Commentary
Given the lack of attention on this issue to date, there were several challenges and innovations involved in addressing these objectives. First, we had to identify every merger and acquisition (domestic and cross-border) involving firms engaged in the food industry for all EU Member States over the 1990-2010 period. Second, we had to trace the firm-specific characteristics of the firms involved in these acquisitions. This involved tracing firms from one data set to another. Third, we had to develop and execute a procedure for classifying each merger and acquisition event into a “horizontal” or “vertical” acquisition. Since these alternative forms of merger and acquisitions have different implications for the overall functioning of the food supply chain, it was necessary to execute this process to provide clear insights on how the specific forms of consolidation in the food supply chain in the EU over time.There were three deliverables associated with this work package which we summarise below. This is followed by drawing out the implications of the analysis of the consolidation process for price transmission.
The principal aim of Deliverable 7.1 (“Consolidation in the EU Food Sector“) was to report on mergers and acquisitions across EU Member States and which will form the basis for more focussed attention in the later deliverables. The main findings reported in Deliverable 7.1 were as follows:
• In separating mergers and acquisitions in food retailing from food manufacturing, the largest number of acquisitions occur in the food manufacturing stage of the food supply chain
• Merger and acquisition activity is concentrated in a relatively small number of EU Member States, most notably the UK, France, Germany, Spain and the Netherlands
• Mergers and acquisitions can be divided into two forms: domestic acquisitions and cross-border acquisitions. Most mergers and acquisitions are domestic; in relation to cross-border deals, most cross-border acquisitions involve deals between EU Member States
• Looking over the 1990-2010 time period, mergers and acquisitions are highly-variable and exhibit ‘wave-like’ behaviour. This is true not just of mergers and acquisitions in the EU food sector but mergers and acquisitions more generally, over all sectors and across all countries.
Deliverable 7.2 (“Determinants of Consolidation in the Food Sector”) focussed on the macroeconomic and regulatory factors that may influence merger and acquisition activity. Although mergers can be driven by firm/industry-specific factors (i.e. to expand it may be desirable to acquire or merge with another company rather than invest or there may be synergies by bringing two firms together), there are also a broader range of factors that lie outside the specific (i.e. food) sector which may determine the attractiveness of a merger or, even if a merger/acquisition is desirable, may influence the timing of it. For example, high levels of economic growth (which may be reflected in strong sales growth) may be an important driver of mergers and acquisitions. In terms of regulatory issues, the application of anti-trust law to mergers and acquisitions and the likelihood of anti-trust investigation if the proposed merger or acquisition passes a certain threshold of market share, may also determine the nature of acquisitions in a given sector (i.e. if two large firms merge such that their combined market share may impact on the extent of competition in the industry, the merger/acquisition may need approval from the relevant anti-trust authorities).
But industry-specific factors are not the only potential determinants of mergers and acquisitions. Recent research has pointed to the role of financial markets in determining acquisition activity particularly where stock market booms can lead to over-valuation that results in potentially ‘too many’ acquisitions. Exchange rates may play a similar role in determining cross-border acquisitions. Other regulatory factors may play a role too; for example, barriers to competition, institutional quality (for example, shareholder rights) and so on may also have a bearing on how active the market for corporate control will be.
In Deliverable 7.2 we focussed on these issues. In particular, we focussed on whether there was a potential relationship with sectoral measures of productivity dispersion (as measured by Tobin’s q) and market-to-book values. With respect to the latter, we explored the means via which to measure financial market mis-pricing as it applied to firms in the food sector in each of the main EU Member States (the UK, France, Germany, Spain and the Netherlands). We also estimated an econometric model to address the determinants of mergers and acquisitions where we focused specifically on cross-border acquisitions involving food sector firms in order to exploit cross-country heterogeneity in the data. It should be noted that with the focus on cross-border acquisitions, they also exhibit the ‘wave-like’ behaviour associated with domestic acquisitions, so the cross-country data may give insights to the same factors that drive the ‘wave-like’ activity we have observed in domestic acquisitions.
There has been one further observation that was made in this deliverable. That is, with reference to cross-border acquisitions in the food sector, there are a large number of firms from outside the food industry that are targeting firms in the food industry. This is an issue which is also addressed in the next deliverable.
Deliverable 7.3 (“Firm Level Characteristics of Consolidation in the EU Food Sector”) constituted the most challenging but most innovative activity in this work package. There were two main tasks to addressing the issues associated with this work package both of which were original and data intensive in determining the form that mergers and acquisitions in the food industry tend to take and detailing the firm-specific characteristics of the firms involved in mergers and acquisitions. As above, even though the relevant data was collected for all EU Member States where this data exists, for reporting purposes, we focused on the 5 main EU Member States which have the most mergers and acquisitions and also focused on food manufacturing acquisitions. One further activity was added to the data collection process: we also obtained data for food sector mergers and acquisitions involving US firms as acquirers and targets as well as firm-specific information on acquirers and targets in the US. The reason for this is that (a) the US has the largest and most active market for corporate control, (b) most research on the food industry more generally has focused on the US and (c) taking these two factors together, we allow us to use the US experience as a benchmark country against which we can compare the merger and acquisition experience with that of the main EU Member States.
In more detail, we classified mergers and acquisitions into “horizontal” and “vertical” acquisitions. Horizontal acquisitions involve acquisitions of firms in the same industry; vertical acquisitions involve acquisitions between firms which are vertically-related. The key issue in detailing these measures is detailing the extent of vertical-relatedness between highly dis-aggregated industrial activities. These two main forms of mergers and acquisitions have different implications for the functioning of the food supply chain with vertical acquisitions being more likely associated with improving access to inputs and improved vertical coordination and horizontal acquisitions being more likely associated with efficiency effects or increasing the presence in a given (highly disaggregated) industry. While both may bring about the improved functioning in the food supply chain, they also have the potential to give rise to possible anti-competitive effects. It is therefore important to address how the time profile of mergers and acquisitions in the food sector relate to these two different forms of acquisitions.
We also tracked the firm-specific characteristics of firms involved in mergers and acquisitions. This involved identifying the firm in one data set and tracking its presence in another from which we could derive size and performance characteristics of firms involved as either acquiring firms or target firms. We also explored how acquiring firms differ from those firms that have not been involved in acquisitions over the sample period. For this latter task, this involved obtaining data from an additional data source and tracking the measures of size and performance in a data set detailing the financial characteristics of merging and non-merging firms. This process was also carried out for the US food industry as the benchmark.
In the context of this focus on consolidation in the food sector, we also addressed why mergers and acquisitions may matter for understanding price transmission. It is useful to refer first of all to the theory of price transmission as applied in food markets as a starting point. TRANSFOP Working Paper No. 11 on “Competition in the Food Sector” (November, 2013) contained an overview of the theory of price transmission. Although the literature does not address mergers and acquisitions specifically, it is easy to see with reference to this theoretical framework, how mergers and acquisitions may influence the price transmission process. However, the likely outcome is uncertain since-depending on the motive for the acquisition or the nature of the acquisition (horizontal or vertical)-the influences can be offsetting. Below we identify which aspects of mergers and acquisitions drive the price transmission effect and which were addressed directly in Deliverable 7.4 (“Food Industry Consolidation in the EU and the Implications for Transparent Food Pricing”):
(i) To the extent that horizontal mergers and acquisitions reduce the total number of firms or increase the market shares of the most dominant firms, price transmission may fall. This arises since, as well-known from the theory of price transmission, more concentrated markets will likely reduce price transmission;
(ii) Horizontal mergers and acquisitions may result in efficiency benefits through economies of scale. The relevant theory highlights that increasing returns to scale can increase the price transmission effect and may-under certain circumstances-offset the market power effect;
(iii) Vertical acquisitions may also matter in determining the price transmission effect. As the TRANSFOP Working Paper No. 11 shows, in the context of vertically-related markets where there may be market power at each successive stage, the problem of double-marginalisation may arise. The existence of double marginalisation exacerbates the influence of market power and hence may further reduce price transmission. A vertical merger in this case-even in abstract terms if it leads to a single firm dominating the supply chain as a whole-will diminish the double marginalisation effect and, in turn, have a positive effect on price transmission;
(iv) Vertical mergers may also improve vertical coordination throughout the supply chain. To the extent that vertically-related supply chain give rise to contract incompleteness and ‘hold-up’ issues, price transmission may be reduced. Vertical mergers may be one way of circumventing these issues in the supply chain and, to the extent that a vertical merger diminishes these supply chain failure problems, price transmission may increase.
Summary of Key Insights
A number of conclusions came out of this analysis:
• Differences in corporate governance across the EU may give rise to a more active market for mergers and acquisitions in some EU countries compared with others;
• The role of Tobin’s q in determining domestic mergers and acquisitions does not seem to be closely correlated with trends in food industry domestic mergers and acquisitions across the main EU countries;
• There appears to be a stronger association with financial market valuation (specifically using sector level market-to-book ratios) but these valuation measures may encompass two effects, wealth (which captures ‘true’ value of the firm or firms in a sector aggregate) and mis-pricing (which assesses the extent to which financial market valuations give rise to departures from the underlying wealth effect) with the finance literature highlighting the role of mis-pricing issues;
• There is some empirical support that, controlling for other factors, mis-pricing in financial markets may drive cross-border acquisitions in the food sector.
• Both horizontal and vertical M&As are important in the EU food sector though horizontal M&A deals dominate vertical deals for most countries. The pattern of both horizontal and M&A deals are volatile over time;
• The overall profile of M&A deals points to the role of size: large firms are active in M&A deals with the data on firm performance (i.e. better firms acquiring weaker firms) tends to be less strong. Moreover, these firm level characteristics tend to be more pronounced in characterising M&A activity in the US (where both size and performance matters) compared with the EU Member States which we report on.
• A significant part of M&A activity in the food sector involves acquirers from outside the food sector acquiring food industry targets. This activity is important and has been increasing even when industry-specific (horizontal and vertical) M&A deals have been declining.
Implications for Research on Price Transparency
Aside from the potential price transmission effects associated with mergers and acquisitions, there are some broader implications that arise from the research report in Deliverables 7.1-7.3. The first point to note is that, in the context of the overall functioning of the food supply chain, the structure of the food industry (at all stages) is not static. TRANSFOP Working Paper No 11 highlighted these issues with reference to concentration ratios and growing market shares of the leading retailing and food manufacturing firms across a wide range of countries including the EU. Part of this process of change arises through industry consolidation through mergers and acquisitions (domestic as well as cross-border) and, with appropriate safeguards particularly through anti-trust policy, mergers and acquisitions can improve the functioning of the food supply chain. In this respect, improving corporate governance and other institutions that foster a more dynamic market for corporate control would be desirable.
Second, as noted in the deliverables, mergers and acquisitions in the food industry are driven by a wide range of factors: regulatory as well as macroeconomic factors matter and close attention should be paid to the role of financial markets that appear to drive (or at least be correlated with) the ‘wave-like’ behaviour of mergers and acquisitions that are observed. One issue that arises from this is that if mergers and acquisitions in the food sector are driven by financial factors and, more specifically, mis-pricing of firm values does this necessarily improve the functioning of the supply chain?
Finally, we have observed that mergers and acquisitions involving the food sector have involved food firms as targets for firms outside of the food sector. This applies to both domestic and cross-border mergers and acquisitions. This may bring benefits to the supply chain if it involves better management and marketing skills; yet it is an issue that has not been widely recognised nor understood. To the extent that financial market mis-pricing is coupled with diversification into the food sector, the consequences of this type of merger and acquisition should be addressed.
Research Papers (TRANSFOP Working Papers/Papers Under Review/Papers in Preparation for Submission/Published)
McCorriston, S. “Competition in the Food Sector” TRANSFOP Working Paper No. 11, November 2013.
The research results from the work packages detailed above were discussed and summarised at the Final Conference in December 2013 in Brussels and formed the basis for an “Action Plan” which is summarised in the Dissemination Section below.
Potential Impact:
Aside from the specific aims of each research activity undertaken by the research teams in the TRANSFOP Consortium, the TRANSFOP project had two over-arching ambitions. The first was to expand the research frontier relating to understanding price dynamics in the EU and how aspects of the functioning of the food supply chains throughout the EU would impact on prices. The second ambition was to produce policy-relevant research and to ensure that the research that was being produced under the auspices of the TRANSFOP Consortium was communicated and disseminated to stakeholders and policy-makers. To achieve this second ambition, the original outline of the TRANSFOP Work Programme allocated a separate Work Package to dissemination activities. In addition, to ensure timely communication as the research was progressing, we actively engaged with our stakeholder members as the research was developing. This process was further enhanced with engagement with the Expert Platform on Food Price Monitoring where progress in the TRANSFOP programme was regularly reported. Finally, we aimed to extend the reach of TRANSFOP dissemination by reporting TRANSFOP research to OECD Member States as well as drawing the implications of TRANSFOP research to the broader public through media engagement. The implications of the research were also highlighted in an "Action Plan".
In this Section, we summarise the range of TRANSFOP dissemination activities. Moreover, given the gestation period over which research results are produced and finalised, some further dissemination results will be presented beyond the end of the funding period. These will also be reported here, as well as publication plans for TRANSFOP research in the coming months. Finally, it should also be noted that TRANSFOP research is feeding into the ULYSSES FP7 project on price volatility. Given the potential synergies between the two projects, we regard this as an important means via which the implications of TRANSFOP research can directly impact on the framing of current research issues on the importance of food price developments in the context of the EU. These activities are also detailed below.
We report on these activities below highlighting: (i) the objectives of the Work Package on dissemination; (ii) media engagement; (iii) presentations to stakeholder and policy groups; (iv) academic conference presentations; (v) academic publications including TRANSFOP working papers; (vi) future publication plans; (vii) forthcoming presentations.
Dissemination Objectives
Dissemination ambitions and activities were formalised in Work Package 8 of the TRANSFOP research programme. The objectives of this Work Package were twofold:
(i) To synthesise and communicate the research results with the scientific and stakeholder communities.
(ii) To generate an Action Plan for improving food supply chain performance based on the results of the research. This Work Package will draw out the implications of the analysis undertaken in the other Work Packages for informing EU policy decisions. Special attention will be given to communication with and policy implications for food chain actors and consumers, and to providing a comparative European perspective on food chain performance.
In the initial months of the project, a website was established (www.transfop.eu) which formed the main mechanism via which TRANSFOP activities and on-going research was communicated. A ‘TRANSFOP’ community was established which involved researchers, policymakers, stakeholders and others who had asked to be kept updated on TRANSFOP developments. All TRANSFOP working papers were posted, information on conference presentations as well as a regular ‘blog’ commenting on food pricing issues was also maintained. Furthermore, one of the tasks of this Work Package was to establish a TRANSFOP Newsletter which would be circulated to all in the TRANSFOP ‘community’. This newsletter was produced every six months.
As noted above, one of the main objectives of the TRANSFOP project was to produce policy-relevant research and bring the main insights of the TRANSFOP research together in the form of an Action Plan. This was delivered in February, 2014. The main structure and proposals of this Action Plan was discussed at the Final TRANSFOP conference in Brussels in December 2013 in the form of an ‘Emerging’ Action Plan, the main reason for this being to engage directly with the stakeholder groups and elicit their reaction to the TRANSFOP research outcomes and wider issues affecting the functioning of the food supply chain in the EU as well as the European Commission. This ‘emerging’ Action Plan was also distributed across various DGs before the Action Plan was finalised and delivered in February 2014. Although this came later than planned, it was the view of the TRANSFOP coordinator in consultation with the Project Officer that the Action Plan would benefit from this process of interaction with stakeholders and the Commission.
Media Engagement
BBC and UK National and regional press (S. McCorriston and Wyn Morgan, UK)
Presentations to Stakeholder and Policy Groups
Stakeholder Meeting, EU Commission, Brussels, Belgium, 24th June 2011. An Overview of TRANSFOP. (Steve McCorriston (UK), Stephan von Cramon-Taubadel (Germany))
OECD Food Chain Network Meeting, Paris, France. 13th September, 2011. Price Formation, Transmission and Transparency in the Food Chain: Overview of Critical Issues (Steve McCorriston, UK)
Eurostat-DG Enterprise Workshop on Developing the Food Prices Monitoring Tool, Brussels, Belgium. 7th October, 2011. Overview of TRANSFOP. (Steve McCorriston, UK)
Stakeholder Meeting, FoodDrinkEurope, Avenue des Arts 43, 1040 Brussels, Belgium, 28th March, 2012. Agenda: The Food Inflation Experience throughout the EU: Progress on Empirical Assessment of the Main Factors (Wyn Morgan, UK); The Analysis of Price Transmission in Key Commodity Sectors: Progress and Challenges (Chema Gil, Spain); New Insights on Food Prices from Supermarket Scanner Data (Tim Lloyd, UK); Regulation in the Food Supply Chain and Insights from Related EU Projects (Gerhard Schiefer, Germany); Next Steps in TRANSFOP (Steve McCorriston, UK).
FAO Meeting on Food Prices, San Jose, Costa Rica, June 2012. An Introduction to TRANSFOP. Stephan von Cramon-Taubadel (Germany)
Expert Platform on the European Food Prices Monitoring Tool, EU Commission, Brussels September, 2012. Update on TRANSFOP. (Steve McCorriston, UK).
Stakeholder Meeting, FoodDrinkEurope, Avenue des Nerviens 9-31, 1040 Brussels, Belgium. 19th March, 2013. Agenda: Why Does Food Inflation Vary Throughout the EU? (Wyn Morgan, UK); Why Does Price Transmission Vary Across Commodity Sectors and EU Countries? (Chema Gil, Spain); What Dimensions of Supermarket Scanner Data Matter for Understanding the EU Food Industry? (Tim Lloyd, UK); Pricing Issues in the EU Dairy Sector: Emerging Evidence (Paolo Sckokai, Italy); Future Issues (Steve McCorriston, UK).
Expert Platform on the European Food Prices Monitoring Tool Meeting, EU Commission, Brussels, Belgium 18th October, 2013. Update on TRANSFOP. (Steve McCorriston, UK).
OECD Food Chain Network Meeting, Paris, France, 30th-31st October, 2013. Globalisation and Competition in Agri-food Markets (Jo Swinnen, Belgium); Price Formation and Price Transmission in the EU (Steve McCorriston, UK)
OECD Competition Roundtable, Paris, 31st October, 2013. Competition in the Food Sector: Keynote Paper (Steve McCorriston, UK); Issues in Global Value Chains (Jo Swinnen, Belgium).
Austrian Ministry for Economic Affairs. Geschwindigkeit der vertikalen Preistransmission entlang verschiedener Wertschöpfungsketten für Nahrungsmittel – ein Vergleich zwischen Österreich und Deutschland, C. Holst, 10th January, 2014.
Academic Conference Presentations
(The list does not include presentations by TRANSFOP researchers at TRANSFOP project conferences)
(i) European Association of Agricultural Economists, Tri-Annual Meeting, Zurich, Switzerland, 28th August, 3rd September, 2011. Organised Session on “Transparency of Food Prices”. Presenters: Steve McCorriston (UK), Wyn Morgan, (UK), Chema Gil (Spain), Paolo Sckokai (Italy), J.P. Loy (Germany).
(ii) “Explaining UK Food Price Inflation”. Tim Lloyd and Wyn Morgan, (UK) Agricultural Economics Society (Warwick, April 2012)
(iii) “Multi-stage Market Power in the Italian Fresh Meat Industry” (Selected paper) Castellari, E., D.Moro S. Platoni, and P. Sckokai, AAEA Meeting, Seattle, USA. 12th-14th August 2012
(iv) “Estimating Market Power in a Dynamic Framework: the Case of the Italian PDO Cheese Market” (Visual contributed paper) Castellari, E., D.Moro S. Platoni, and P. Sckokai. IAAE Meeting, Foz do Iguacu (Brazil), 18-24 August 2012
(v) “Measuring the Impact of Retailer Strategies on Food Price Inflation Using Scanner Data” (Selected paper) Castellari, E., D.Moro S. Platoni, and P. Sckokai AAEA Meeting, Washington DC, 4th-6th August 2012
(vi) “Measuring the Impact of Retailer Strategies on Food Price Inflation Using Scanner Data” (Selected paper) Castellari, E., D.Moro S. Platoni, and P. Sckokai Annual Meeting of the Italian Association of Agricultural & Applied Economics (AIEAA) 6-7 June 2013
(vii) “Preistransmission entlang deutscher Wertschöpfungsketten für Nahrungsmittel”, C. Holst and S. von Cramon-Taubadel, German Agricultural Economics Conference (GEWISOLA), 278th September, 2012. Hohenheim, Germany.
(viii) “Der europäische Schlachtschweinemarkt nach der EU-Osterweiterung – eine horizontale Preistransmissionsanalyse”, C. Holst, 21st September, 2012 Austrian Agricultural Economics Conference (ÖGA), Vienna Austria
(ix) “Market Integration and Spatial Price Transmission on EU Pork Markets after Eastern Enlargement”, C. Holst and S. von Cramon-Taubadel, 29th May, 2013, Leuven, Belgium
(x) “Räumliche Preistransmission auf Agrarmärkten in Europa am Beispiel Schlachtschweinemarkt nach der EU-Osterweiterung”, C. Holst, 9th January, 2014, Vienna, Austria
(xi) “Impact of Cost Shocks on Consumer Prices in Vertically Related Markets: The Case of the French Soft Drink Market”, C. Bonnet and V. Réquillart. INRA-ALISS Seminar, Paris, 23 January, 2011
(xii) “Impact of Cost Shocks on Consumer Prices in Vertically Related Markets: The Case of the French Soft Drink Market”, C. Bonnet and V. Réquillart, Colloque INRA-SFER, Paris, 7-8 December, 2011, Paris, France
(xiii) “Impact of Cost Shocks on Consumer Prices in Vertically Related Markets: The Case of the French Soft Drink Market”, C. Bonnet and V. Réquillart. 85th Annual Conference of the Agricultural Economic Society, 18-20 April, 2011
(xiv) “Impact of Cost Shocks on Consumer Prices in Vertically Related Markets: The Case of the French Soft Drink Market”, C. Bonnet and V. Réquillart, EAAE Congress, Change and Uncertainty: Challenges for Agriculture, Food and Natural Resources, 30 August-2 September 2011, Zurich, Switzerland
(xv) “Impact of Cost Shocks on Consumer Prices in Vertically Related Markets: The Case of the French Soft Drink Market”, C. Bonnet and V. Réquillart, Research seminar at the Dusseldorf Institute for Competition economics, 25 April, 2012 , Dusseldorf, Germany.
(xvi) “An Analysis of Asymmetric Consumer Price Responses and Asymmetric Cost Pass-Through in the French Coffee Market”, C. Bonnet and S. B. Villas-Boas, Colloque INRA-SFER, Toulouse, 13-14 December, 2012
(xvii) “Price Promotion and Brand Loyalty: Empirical Evidence for the German Ready-to-Eat Cereal Market”, Empen, J., J.-P. Loy und C.R. Weiss INRA-IDEI Seminar, 16th-17th. May 2011, Toulouse
(xviii) “Price Promotion and Brand Loyalty: Empirical Evidence for the German Ready-to-Eat Cereal Market”, Empen, J., J.-P. Loy und C.R. Weiss European Association of Agricultural Economists, Tri-Annual Meeting, Zurich, Switzerland, 28th August, 3rd September, 2011.
(xix) “Depth and Breadth of Sales by Multi-Product (Food) Retailers”. J-P. Loy, and C. Weiss European Association of Agricultural Economists, Tri-Annual Meeting, Zurich, Switzerland, 28th August, 3rd September, 2011.
(xx) “Cost Pass Through in Differentiated Product Markets: A Disaggregated Study for Milk and Butter”. J.-P. Loy, T. Holm, C. Steinhagen and T. Glauben AAEA Meeting, Seattle, USA. 12th-14th August 2012
(xxi) “Preference Heterogeneity, Consumer Loyalty and Variety-Seeking Behavior: The Case of Breakfast Cereal Consumption” D. Bekesi, J-P. Loy, and C. Weiss. Conference on The Food Industry as a Sector of the National Economy (December 6, 2012, Warsaw, Poland)
(xxii) “State Dependence and Preference Heterogeneity: The Hand of the Past on Breakfast Cereal Consumption”, D. Bekesi, J-P. Loy, and C. Weiss. 87th Annual Conference of the Agricultural Economics Society, 8th-10th April, 2013, University of Warwick, United Kingdom.
(xxiii) “State Dependence and Preference Heterogeneity: The Hand of the Past on Breakfast Cereal Consumption”, D. Bekesi, J-P. Loy, and C. Weiss. 5th European Association of Agricultural Economists (EAAE) PhD Symposium, 29th-31st May, 2013, Leuven, Belgium.
(xxiv) “State Dependence and Preference Heterogeneity: The Hand of the Past on Breakfast Cereal Consumption”, D. Bekesi, J-P. Loy, and C. Weiss. Annual Conference of the Hungarian Society of Agricultural Economics (MAKE) 3rd May, 2013, Budapest, Hungary.
(xxv) “What causes asymmetric price transmission in agro-food sector? Meta-analysis perspective” Z. Bakucs. J. Falkowski and I. Fertő. 86th Annual Conference of the Agricultural Economics Society, 16th-18th April, 2012, University of Warwick, United Kingdom.
(xxvi) “What causes asymmetric price transmission in agro-food sector? Meta-analysis perspective” Z. Bakucs. J. Falkowski and I. Fertő. Transition in agriculture – Agricultural Economics is Transition IX., Institute of Economics, Centre for Economic and Regional Studies, 10-11 December 2013
(xxvii) The TRANSFOP Coordinator organised a special session on TRANSFOP research at the American Agricultural Economics Association in Washington DC (USA) on 4th-6th August 2012. The title of this special session was ‘Food Inflation and Retail Price Dynamics: Evidence from the EU’. Specific presentations in this session were: (a) What are the factors that drive food price inflation and why should it vary across EU countries? (Steve McCorriston); (b) What factors determine the price transmission experience across EU member states and across commodity sectors? (Chema Gil); (c) What aspects of market failure can impact on the price transmission effect? (Jo Swinnen); (d) What insights come from the use of scanner data in understanding retail price dynamics? (Paolo Sckokai); (e) What are the emerging policy insights that arise from this research programme? (Stephan von Cramon-Taubadel). Professor Barry Goodwin (University of North Carolina, USA) gave comments on the TRANSFOP research from a US perspective.
Academic Publications including TRANSFOP Working Papers
Papers Published
Bonnet C., and V. Réquillart (2013),” Impact of Cost Shocks on Consumer Prices in Vertically Related Markets: The Case of the French Soft Drink Market”, American Journal of Agricultural Economics, 95: 1088-1108. doi: 10.1093/ajae/aat055
Lloyd, T. S. McCorriston, W. Morgan and E. Zgovu (2013) “European Retail Food Price Inflation” Choices, Pages 37-44Article first published online: 7 AUG 2013 | DOI: 10.1111/1746-692X.12030
Sckokai, P., C. Soregaroli and D. Moro (2013) “Estimating market power by retailers in a dynamic framework: the Italian PDO cheese market” Journal of Agricultural Economics, 64/1, doi: 10.1111/j.1477-9552.2012.00374.x
Holst, C. and S. von Cramon-Taubadel (2013) “Preistransmission entlang deutscher Wertschöpfungsketten für Nahrungsmittel“ (Price Transmission along German Food Chains)“ Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues (Proceedings of the Annual German Agricultural Economics Conference) ISBN: 978 – 3 – 7843 – 5313 – 5 VOLUME: 48: p. 215-226
Schiefer, G., J. Deiters and R. Reiche (2013). “Transparency in Food Networks – where to go”. International Journal on Food System Dynamics 4(3)
Rajcaniova, M. and J. Pokrivcak, (2013) “Asymmetry in Price Transmission Mechanism: The Case of Slovak Potato Market”. Review of Agricultural and Applied Economics. Vol 16, No. 2.
Pokrivcak, J. and M. Rajcaniova (2014) “Price Transmission Along the Food Chain in Slovakia”. Post-Communist Economies. Forthcoming.
Papers under Review/To Be Submitted
Lloyd, T.A. S.McCorriston C.W.Morgan E. Poen and E. Zgovu (2013) “Retailer Heterogeneity and Price Dynamics: Scanner Data Evidence from UK Food Retailing”
Bonnet C. and S. B. Villas-Boas, (2013) “An Analysis of Asymmetric Consumer Price Responses and Asymmetric Cost Pass-Through in the French Coffee Market”
Davidson, J., A. Halunga, T.A. Lloyd, S. McCorriston and C.W. Morgan (2014) “Commodity Price Shocks and Food Inflation in the UK”.
Lloyd, T.A. S. McCorriston, C.W. Morgan and E. Zvogu (2014) “Food Inflation across the EU”, 2014
Castellari, E., D.Moro S. Platoni, and P. Sckokai (2014): “Measuring the Impact of Retailer Strategies on Food Price Inflation Using Scanner Data”
Castellari, E., D.Moro S. Platoni, and P. Sckokai (2014): “Investigating the impact of Private Labels on National Brand prices in the Italian dairy market”
Holst, C. and S. von Cramon-Taubadel (2013) “Trade, Market Integration and Spatial Price Transmission on EU Pork Markets following Eastern Enlargement”
Swinnen, J. and A. Vandenplas (2014) “Price Transmission and Market Power in Modern Agricultural Value Chains”
J.-P. Loy, T. Holm, C. Steinhagen and T. Glauben (2014) “Cost Pass Through in Differentiated Product Markets: A Disaggregated Study for Milk and Butter”
Empen, J., J.-P. Loy und C.R. Weiss (2014) “Price Promotion and Brand Loyalty: Empirical Evidence for the German Ready-to-Eat Cereal Market”
Drabik, D., P. Ciaian, J.Pokrivcak and D. Kancs (2014) “Biofuels and Vertical Price Transmission: The Case of the U.S. Corn – Ethanol – Food markets”
Bakucs. Z., J. Falkowski and Fertő I. (2013), “What causes asymmetric price transmission in agro-food sector? Meta-analysis perspective”, Research Centre for Economic and Regional Studies Discussion Papers. MT-DP-2013/3. ISBN 978-615-5243-46-2, ISSN 1785 277X
TRANSFOP Working Papers
Davidson, J., A. Halunga, T.A. Lloyd, S. McCorriston and C.W. Morgan “Explaining UK Food Price Inflation” TRANSFOP Working Paper No. 1. November 2011
Hassouneh, I.,S. von Cramon-Taubadel, T. Serra and J. M. Gil “Recent Developments in the Econometric Analysis of Price Transmission”. TRANSFOP Working Paper No. 2. January 2012
Sckokai, P. C. Soregaroli and D. Moro “Estimating Market Power in a Dynamic Framework: The Case of the Italian PDO Cheese Market” TRANSFOP Working Paper No. 3, February, 2012
Bonnet, C. and V. Réquillart “Sugar Policy Reform, Tax Policy and Price Transmission in the Soft Drink Industry”. TRANSFOP Working Paper No.4 January 2012
Lloyd, T.A. S. McCorriston, C.W. Morgan and E. Zvogu “The Experience of Food Price Inflation across the EU” TRANSFOP Working Paper No. 5, May 2012
Holm, T., J-P. Loy and C. Steinhagen “Cost Pass Through in Differentiated Product Markets: A Disaggregated Study for Milk and Butter” TRANSFOP Working Paper No. 6, June 2012
Moro, D., P. Sckokai and M. Veneziani “Multi-stage Market Power in the Italian Fresh Meat Industry” TRANSFOP Working Paper No. 7, July 2012
Lloyd, T.A. S.McCorriston C.W.Morgan E. Poen and E. Zgovu “Retailer Heterogeneity and Price Dynamics: Scanner Data Evidence from UK Food Retailing” TRANSFOP Working Paper No. 8, July 2012
Castellari E., D. Moro, S. Platoni and P. Sckokai P. “Measuring the impact of retailers’ strategies on food price inflation using scanner data” TRANSFOP Working Paper No. 9, July 2013
Bonnet, C. and S. B. Villas-Boas “An Analysis of Asymmetric Consumer Price Responses and Asymmetric Cost-Pass Through in the French Coffee Market” TRANSFOP Working Paper No. 10, September 2013
McCorriston, S. “Competition in the Food Sector” TRANSFOP Working Paper No. 11, November 2013.
Swinnen, J. and A. Vandenplas “Price Transmission and Market Power in Modern Agricultural Value Chains” TRANSFOP Working Paper No. 12, January 2014
Future Publication Plans
Aside from the papers under submission (or about to be submitted to academic journals), we have also approached Oxford University Press with a proposal to publish an edited book on TRANSFOP research. The book will be edited by the TRANSFOP Coordinator, Steve McCorriston. This proposal is currently being reviewed at OUP but we will approach an alternative publisher if OUP are not interested in the subject area. The book proposal is structured around the following chapters: (i) Introduction: Food Inflation and Food Pricing Issues across the EU (Steve McCorriston, UK); Food Inflation in the EU: Contrasting Experience and Recent Insights (Tim Lloyd, Steve McCorriston and Wyn Morgan, UK); (iii) Why Do Food Prices Adjust Differently across EU countries and Agri-Food Sectors? (Chema Gil, Teresa Serra, Islam Hassouneh (Spain), Carsten Holst and Stephan von Cramon-Taubadel (Germany)); (iv) The Use of Scanner Data for Measuring Food Inflation (Elena Castellari, Daniele Moro, Silvia Platoni and Paolo Sckokai, Italy); (v) Vertical Relationships between Manufacturers and Retailers: A Synthesis (Celine Bonnet and Vincent Requillart, France); (vi) Price Transmission in “Modern” Agricultural Markets (Jo Swinnen and Anneleen Vandenplas, Belgium); (vii) Spatial and Temporal Pricing in the German Beer Market (Jens-Peter Loy (Germany), Christoph Weiss (Austria), Janine Empen and Thomas Glauben (Germany)); (viii) A Supply Chain Perspective on Price Formation in Agri-Food Chains (Gerhard Schiefer, Germany).
Forthcoming Presentations
“Investigating the Impact of Private Labels on National Brand Prices in the Italian Dairy Market” (submitted as selected paper) Castellari, E., D.Moro S. Platoni, and P. Sckokai, EAAE Congress Slovenia, 26-29 August 2014
“Trade Liberalization and Food Retail Structure: The Italian Case” E. Castellari, EAAE Congress Slovenia, 26-29 August 2014
“Investigating the Impact of Private Labels on National Brand Prices in the Italian Dairy Market (submitted as selected paper), E. Castellari, D.Moro S. Platoni, and P. Sckokai Annual Meeting of the Italian Association of Agricultural & Applied Economics (AIEAA), 25-27 June 2014
“Trade Liberalization and Food Retail Structure: The Italian Case” (submitted as selected paper) E. Castellari, Annual Meeting of the Italian Association of Agricultural & Applied Economics (AIEAA), 25-27 June 2014
“Modeling Price Transmission and Volatility Spillover in the Slovenian Wheat Market', Hassouneh, I., T. Serra,S. Bojnec and J. Gil, EAAE Congress Slovenia, 26-29 August 2014
“Cost Pass Through in Differentiated Product Markets: A Disaggregated Study for Milk and Butter”, J.-P. Loy, T. Holm, C. Steinhagen and T. Glauben AES/SFER Conference, Paris, 10th-11th April, 2014
“Transparency in Food Networks – where to go” G. Schiefer, J. Deiters and R. Reiche, EAAE Congress Slovenia, 26-29 August 2014
“Transparency in Food Networks – where to go” G. Schiefer, J. Deiters and R. Reiche International Food and Agribusiness Management Association, South Africa, 2014
“Transparency in Food Networks – where to go” G. Schiefer, J. Deiters and R. Reiche, World Conference on IT in Agriculture, Food and the Environment, Costa Rica, 2014
“Transparency in Food Networks – where to go” G. Schiefer, J. Deiters and R. Reiche. Asian and Oceanic Federation for IT in Agriculture, Food and the Environment, Perth, Australia, 2014.
"Interaction with ULYSSES (“Understanding and Coping with Food Markets Volatility towards More Stable World and EU Food Systems”, FP7 Project)
There are potentially important synergies between TRANSFOP and the ULYSSES projects and close collaboration has developed between the two project coordinators. Steve McCorriston (TRANSFOP Coordinator) is on the External Advisory Board of ULYSSES. Aside from the general advice and specific input on research issues, Steve McCorriston has also been invited to present a paper on “Price Transmission” at the International Seminar on Volatile Prices organised by ULYSSES (in collaboration with the World Bank) in Madrid, Spain, 27th-28th March, 2014.
Furthermore, at the forthcoming European Association of Agricultural Economists Meeting in Slovenia (August/September, 2014), TRANSFOP and ULYSSES will be proposing a joint session, either in the form of a pre-conference workshop or as an organised session within the timetable of the conference. This is aimed at a more general outreach on how to analyse price dynamics using the experience of TRANSFOP and ULYSSES researchers to inform the general academic community. The proposed sessions are: Assessing Price Transmission throughout the EU-Methods and Results (TRANSFOP); What Factors Drive EU Food Inflation? Lessons from Structural Time Series (TRANSFOP); The Use of Scanner Data to Address Price Dynamics (TRANSFOP); Price Volatility and Volatility Transmission (ULYSSES); Agricultural Price Volatility and Links to Financial and Energy Markets (ULYSSES).
List of Websites:
www.transfop.eu
Contact Details: Professor Steve McCorriston (Coordinator), University of Exeter. Tel:++44-1392-263848. Email: s.mccorriston@ex.ac.uk
