Asymmetric Price Transmission in Food Supply Chains: Impulse Response Analysis by Local Projections Applied to U.S. Broiler and Pork Prices

In this article, the author's set out Jordà's (2005) method of local projections by which nonlinear/ asymmetric impulse responses can be computed without the need to specify and estimate the underlying nonlinear/asymmetric dynamic system. The method is used to compute price-reaction functions that show how the prices of the different stages in a food supply chain dynamically respond to each other and whether or not these responses reveal any asymmetric patterns. Empirical applications for the U.S. pork-meat and broiler-composite chains illustrate the convenience of the method and reveal that in the pork chain asymmetric price transmission enables retailers (wholesalers) to increase their marketing margin vis-à-vis the wholesalers (farmers), whereas in the broiler sector the retailers face both temporary decreases and increases in their marketing margin as a consequence of asymmetric wholesale-retail price transmission.