Horizontal Price Premium Transmission in Agri-Food Chains: The Case of MSA Cattle Premiums in Australia

Abstract

<p>Variations in agricultural prices and premiums within countries have attracted attention on price transmission due to its effects on competitiveness of agri-food chains. Prices of agricultural products and price premiums for high quality products, including quality guaranteed cattle graded using Meat Standards Australia (MSA), are expected to be affected by horizontal price transmission between different states in Australia. An analysis of cattle price and price premium transmission between New South Wales (NSW) and Queensland (QLD) states, using weekly observations for the period July 2011 to August 2014, identified contemporaneous impacts among cattle prices and MSA premiums between both states. Structural vector autoregressive (SVAR) with unrestricted signs allows data speaks about the effects of shocks in prices in one state on prices in both states over the time. Impulse responses detected that positive shocks in NSW cattle prices and MSA premiums are associated with positive changes on NSW and QLD prices and premiums, while positive shocks in QLD cattle prices and MSA premiums are associated with positive variations on QLD prices and premiums, and negative changes on NSW prices and premiums. The latest result can be explained by cattle movements within the country, affecting cattle supply and prices in both states.</p>