Market Performance of Potato Auctions in Bhutan

Market performance with respect to a main horticultural export commodity in Bhutan is the subject of this paper. Imperfections in (market) infrastructure and market structure and conduct may prevent an optimal price for farmers. Market performance is assessed by testing the law of one price for this commodity. This is done by testing three series of auction price data on both long-run and short-run price integration. It is concluded that auction prices were interrelated both in the long and short run with one of the three auctions as the price-leading market. Policy implications are suggested.Auctions, Bhutan, Law of one price, Market performance, Potato marketing, Marketing, C22, L1, M31, O1, Q13,

Vertical Price Leadership on Local Maize Markets in Benin

This paper considers vertical price relationships between wholesalers and retailers on five local maize markets in Benin. We show that if the common factor and the long-run disequilibrium error are not explicitly taken into account in testing the channel model, one can easily be wrong about how restrictions on the error-correction structure must be interpreted in terms of economic power in the channel. The empirical results show interesting differences between markets and reveal that retailers play a more prominent role in the price formation process than generally assumed in the literature. Retailers in the two major towns do not allow wholesalers to behave as vertical price leaders, but in the two larger rural centers, wholesalers involved in arbitrage among urban markets are able to influence price formation.Vertical price leadership, Marketing channels, Cointegration, Common Factor, Benin, Demand and Price Analysis, C32, D40, L10, O18, Q13,

TIME SERIES ANALYSIS OF A PRINCIPAL-AGENT MODEL TO ASSESS RISK SHIFTING AND BARGAINING POWER IN COMMODITY MARKETING CHANNELS

We apply the classic agency model to investigate risk shifting in an agricultural marketing channel, using time series analysis. We show that if the principal is risk-neutral and the agent is risk-averse instead of risk-neutral, then a linear contract can still be optimal if the fixed payment is negative. Empirical results for the Dutch potato marketing channel indicate that while fixed payments to farmers (agents) have decreased over time, even to negative levels, the incentive intensity has approximately doubled, and the risk premium the farmers ask for has remained considerable. These results imply that risk has shifted from wholesalers, processors, and retailers to farmers; we argue that this shift could be the consequence of chain reversal, i.e., the transformation of the traditional supply chain into a demand-oriented chain.Marketing, Risk and Uncertainty,

Promoting Floriculture Using VAT Regulation

In twelve EU countries, the lower VAT-tariff is applied to flowers and plants in order to promote the production and employment in floriculture. This paper assesses whether the VAT-regulation for flowers and plants achieves the goals set – promoting consumer demand and production and employment in the ornamental supply chain - (effectiveness) and at what cost (efficiency). The empirical results show that the VAT-regulation for floriculture is effective, but not very efficient.Flowers and plants, Economic policy evaluation, Value Added Tax (VAT), Marketing,

Risk Management Using Futures Contracts: The Impact of Spot Market Contracts and Production Horizons on the Optimal Hedge Ratio

We specify a principal-agent marketing channel involving producers, wholesalers, retailers and a futures market. Our hedge ratio for producers appears to be much lower than the common price-risk minimising ones as we account for producers vertical contracts and, by using annual data, their production horizon. The Dutch ware potato marketing channel and its futures market in Amsterdam show that possibly through decreases in producers and wholesalers risk aversions, their optimal dynamic hedge ratios decreased from 38% and 12%, respectively, in 1982 to 18% and 10%, respectively, in 2003. These results comply with the decreased futures volume traded in Amsterdam over the years.Principal-Agent Model, Risk Management, Futures and Spot Market Contracts, Production Horizons, Food Marketing Channels, Marketing, Risk and Uncertainty,

Complex Choices: Producers Risk Management Strategies

Producers have a wide variety of risk management instruments available. How do producers make a choice of risk management instruments? Using the recently developed choice bracketing framework, we examine what risk management strategies producers use and identify the factors that drive their risk management decisions. Our results identify that producers use a wide variety of combinations of risk management instruments and that they bracket their choices into sets of alternative risk management instruments. Using multinomial logit models to estimate the choice process provides information about the factors that influence producers' decision making. The results show that broad bracketing producers use different risk management instruments than narrow bracketers. Policy makers and financial institutions can improve the performance of their programs and products when they are able to identify the bracketing level of segments of producers.Risk and Uncertainty,

Vertical price leadership: A cointegration analysis

Here we detail a method to test whether or not retailers allow suppliers to set the wholesale price not only on the basis of the costs faced by the suppliers but also on the basis of consumer demand. Using standard theory, long-run price relationships between the stages in the channel are derived. Next, these static price relationships are imposed on a dynamic model to be tested for cointegration and long-run noncausality, embedding the hypotheses on vertical price leadership. To derive the testable implications of these hypotheses, we show that the common stochastic trend and long-run equilibrium error must explicitly be assigned to variables in the channel model. The model is particularly relevant for industries characterized by a low degree of product differentiation. An empirical application to two Dutch marketing channels for food products gives comprehensible results. [EconLit citations: C32, L12, Q11] © 2002 Wiley Periodicals, Inc.

Market Performance of Potato Auctions in Bhutan

Market performance with respect to a main horticultural export commodity in Bhutan is the subject of this paper. Imperfections in (market) infrastructure and market structure and conduct may prevent an optimal price for farmers. Market performance is assessed by testing the law of one price for this commodity. This is done by testing three series of auction price data on both long-run and short-run price integration. It is concluded that auction prices were interrelated both in the long and short run with one of the three auctions as the price-leading market. Policy implications are suggested