Measuring Price Transmission in the International Fresh Fruit and Vegetable Supply Chain: The Case of Israeli Grapefruit Exports to the EU

We study vertical price transmission between Israel and the EU in the imperfectly competitive Israeli citrus export sector, which emerged after the former parastatal marketing board was liberalised in 1991. We find evidence of positive asymmetry in price transmission, implying that Israeli exporters’ profits increase at the expense of grapefruit growers, and we argue that this is evidence that Israeli citrus exporters exert market power vis-à-vis Israeli citrus growers. This study is unique in investigating vertical price transmission in the international supply chain for fresh fruits and vegetables (FFV). International FFV trade is especially susceptible to the abuse of market power since transparency regarding the determination of the grower price is often very low. In our model approach we explicitly account for possible changes in exporters’ pricing behaviour in the post-liberalization period. The analysis finds that exporters transmitted changes in EU import prices to Israeli growers asymmetrically in the volatile phase directly after liberalization, but symmetrically in the calm phase thereafter. Furthermore, results suggest that the measured asymmetry in price transmission is economically significant. Overall, our study demonstrates that liberalization improved the efficiency of Israel’s international citrus marketing channel, although this took time and was probably accelerated by government market intervention.

Kachel, Yael
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 Record created 2017-04-01, last modified 2019-08-26

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