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Abstract
The Israeli citrus export sector was liberalized in 1991 with the aim to increase citrus growers'
income and to improve overall efficiency of the international citrus marketing channel. However,
the former government export monopoly's activities were mainly taken over by four large
companies accounting for over 90% of total Israeli citrus market exports. In addition, citrus
exporters maintained the monopoly's consignment system, substantially limiting transparency on
how the grower price is determined. This lead the government to intervene in the newly liberalized
market by implementing a minimum price agreement in the 1994/95 season to protect citrus
growers against exporters' abuse of market power.
In this paper we analyze whether market power was exerted by exporting companies over citrus
growers in the form of asymmetric price transmission. Our study is unique in that it investigates
vertical price transmission across international borders, i.e. in the context of Israeli grapefruit
exports to France. We explicitly account for possible changes in exporters' pricing behaviour in the
post-liberalization period.
We apply an error correction model (ECM) to disaggregated firm-level Israeli grower price and
French import price data. An ECM is estimated individually for each of the major exporting
companies within a seemingly unrelated regression (SUR) framework. We find asymmetric price
transmission in the first years after liberalisation, but symmetry in the second half of the 1990s. Our
results indicate that growers' losses due to asymmetry amounted to as much as 2.5% of their total
revenues. Our results suggest that liberalization improved the efficiency of the Israeli citrus
international marketing channel, but that this took time and was probably accelerated by
government intervention.