BFAP

Vertical price transmission and its inflationary implications in South African food chains

Various studies interrogate the issue of food inflation from a commodity level vantage point but fail to relate how commodity prices manifest in retail prices, and ultimately, how it impacts food inflation. This study uses vertical price transmission analysis, with time series econometric techniques, to determine how underlying commodity prices manifest in final retail prices and the associated reasons for it. Implications for food inflation are also reflected on. Two value chains, namely wheat-to-bread and maize-to-maize meal are considered due to their importance as staples in low(er) income consumer diets in South Africa. Results indicate full price transmission in the wheat-to-bread chain but incomplete price transmission in the maize-to-maize meal chain. In addition, prices in the wheat-to-bread chain are determined at producer and consumer level and bi-directional transmission takes place, whereas maize prices are determined at retail level and transmitted through the chain, to commodity level. Symmetry in price adjustment was not rejected in both chains. Implications of the findings for staple food inflation is that it does not seem that the price determination and price transmission processes in these chains are contributing factors to the inflationary pressures that these chains have experienced over the past decade. Symmetric price transmission in both chains seems to suggest no opportunistic behaviour on the part of firms to exploit situations where commodity prices decrease.


Download here to read the article. 

Share:

Facebook
Twitter
LinkedIn

Related Posts

Agricultural Trade Brief 2023 Q3

BFAP’s Agricultural Trade Brief interprets and contextualises the latest quarterly international trade data and provides insights on the major factors driving agricultural trade. Click here to read more.

Food inflation brief – December 2023

This brief provides an overview of food inflation dynamics, its associated causes, and the cost of basic healthy eating for December 2023. Download here to read the report.

Agricultural Employment Brief 2023 Q3

BFAP’s Agricultural Employment Brief interprets and contextualises the latest quarterly labour force survey from StatsSA and provides insights on the major factors driving agricultural employment. Click here to read more.

Scroll to Top