Price Formation_ Transmission and Transparency in the Food Chain Overview of Critical Issues.ppt

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Price Formation_ Transmission and Transparency in the Food Chain Overview of Critical Issues.ppt Powered By Docstoc
					Price Formation, Transmission and
 Transparency in the Food Chain:
    Overview of Critical Issues
        Professor Steve McCorriston
            University of Exeter

     OECD Food Chain Network Meeting
          13th September, 2011
         Transparency of Food Pricing
                 TRANSFOP
• 3 year FP7 project (2011-2013) funded by the EU
  involving 13 partner institutions from 10 EU countries
• Engagement with stakeholders and policymakers

• Overall objective of TRANSFOP:
  “to develop a greater understanding of pricing issues in
   food supply chains throughout the EU regarding the
   mechanisms of price signal transmission and the
   determinants of food pricing”.
• Covers many of the areas outlined in the FCN plans
• www.transfop.eu
    Structure of the Presentation

• Challenges in addressing retail price behaviour
  (reference to UK data)
• Price transmission: on-going challenges
• New directions in understanding retail prices
• Consolidation in the food sector
• Leave aside more “standard” though important
  issues
         Mention these in passing

• Price formation at different stages, in different
  chains and across countries
• Price transmission through the vertical chain at
  different stages
• Characterising differences in food supply chains
• Food price monitoring
             Something we will come back to



Domestic
ag. inputs


                Processing            Retailing   Consumers
                  Sector               Sector


   World
  Markets
Food Price Inflation (CPI) of Selected OECD Countries 1960-2009
Annual Inflation for All Goods, Food and Non-food CPI 1989(1)-2010(1) (%)
Price transmission and retail price dynamics
                Various aspects of price transmission



HPT

      Domestic
      ag. inputs


                       Processing              Retailing   Consumers
                         Sector                 Sector


       World
      Markets


                                                                VPT
                               Price Transmission
          Price Transmission Issues
• A lot of work on price transmission lacks a theoretical
  basis
• What factors give rise to the different experience of price
  transmission?
• Competition and Regulation
…how does the structural characteristics of the food chain
  impact on price transmission?
…competition at each stage and the nature of contracts
  between stages
• It is not a question of just characterising market structure
  but understanding how competition within and between
  between stages affects outcomes
             Competition and Regulation throughout Food Chain

Domestic
ag. inputs


               Processing              Retailing           Consumers
                 Sector                 Sector


   World
  Markets




                       Price Transmission
       Price Transmission Issues

• Competition and regulation
• The nature of responses: asymmetry and
  non-linearity
• Other factors: labour costs, exchange
  rates, etc...these are seldom accounted for
• Duration of commodity shocks-important if
  the aim is to explain food price inflation
Impact of a One-period 10% Shock to different factors
         on Annualised UK Food Price Inflation.
The Predicted Percentage Effect on UK Food CPI of a
10% Shock to World Food Commodity Prices by Duration of the Shock
Price transmission and retail price dynamics
                        A Different View of Retail Price Dynamics
    Breakfast Cereal: Weetabix Original 24s
                                                    Yoghurt: Muller Light Pot Cheery Single 200g




Sliced Bread: Kingsmill Medium Sliced White 800g             Jam: Streamline Strawberry 400g Jar
           Some new questions

• What is the nature of price adjustment using
  high-frequency, dis-aggregated and firm-
  specific data (this is a growing area in the
  macroeconomics area where they are
  addressing the issue of inflation dynamics)?
• Sales and promotions
• Behaviour of the underlying “Reference Price”?
• Common factors or idiosynchratic behaviour?
             Market structure of not necessarily static

               Competition and Regulation throughout Food Chain
               .......and how the structure of the food chain changes

Domestic
ag. inputs


                    Processing               Retailing                  Consumers
                      Sector                  Sector


    World
   Markets




                            Price Transmission
M&As in the Global Food Sector
      (number of deals)
            Questions to address

• What is the nature and characteristics of the
  consolidation and change in the food sector?
• What does the restructuring process look like?
• What factors drive it? Macro-factors, or
  sectoral/firm-specific aspects?
• Is it efficiency enhancing? Horizontal and vertical
  issues.
                     Summary
• Combination of “standard” analysis and new directions
  will help us better understand the functioning of food
  supply chains
• How shocks are transmitted throughout the food supply
  chain-a more complete picture needed
• What aspects of competition and regulation (and the
  cross-country differences) impact on the functioning of
  food supply chains and the different experience of food
  price inflation?
• What is the process of change and restructuring in the
  food sector, by country and globally.
• www.transfop.eu

				
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