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Agricultural & Applied Economics Association

Pricing Linkages in the Supply Chain: The Case for Structural Adjustments in the BeefIndustryAuthor(s): Ronald W. Ward and Thomas StevensSource: American Journal of Agricultural Economics, Vol. 82, No. 5, Proceedings Issue (Dec.,2000), pp. 1112-1122Published by: Blackwell Publishing on behalf of the Agricultural & Applied EconomicsAssociationStable URL: http://www.jstor.org/stable/1244238

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PRICING LINKAGES IN THE SUPPLY CHAIN:

THE CASE FOR STRUCTURAL ADJUSTMENTS IN

THE BEEF INDUSTRY

RONALD W. WARD AND THOMAS STEVENS

Fundamental to almost every agriculture sec-tor is a distribution system or supply chainused to move products beyond the farm gateto the final point of consumption. In manycases the identity of the initial product isalmost lost as the product is transformed

along the distribution chain. Yet for many ofthe major agricultural products, such as beefor dairy,the identity remains reasonably clear

throughout the distribution system. Pointsof exchange differ and transformation takes

place, yet the initial product in some trans-formed state is still the major componentthat is being priced. While the process canbecome extremely complex, in general the

system entails changes in the transformation

process often associated with product innova-tion, new communication and exchange sys-tems, and

changesin who is

makingthe

decisions. Obviously the latter is related tothe underlying control along the distribution

system and structural change. Embedded inmuch of the change is the use of new elec-tronic transaction and information flows.

All agricultural sectors have experiencedsome degree of change in the vertical coordi-nation of their activities. Citrus, for example,has a long history of using participation con-tracts to coordinate producers and first han-dlers. Poultry is probably the most apparent

exampleof

majorstructural

change,where

vertical integration has become the primarystructure for both production and trans-formation. More recently, there has been

increasing interest and concern expressedregarding the coordination changes taking

Ron Ward is professor and Tom Stevens is research associate inthe Food and Resource Economics Department, University ofFlorida.

Part of the research was funded by the National Cattle-men's Beef Promotion Board and the National Cattlemen'sAssociation. Florida Agricultural Experiment Station Jr. SeriesNo. R-07615.

This paper was presented in a principal paper session at theAAEA annual meeting (Tampa, FL, August 2000). Papers inthese sessions are not subjected to the Journal's standard refer-

eeing process.

place within the U.S. beef and pork sectors.Some argue that vertical coordination is theanswer to many of the pricing and qualitycontrol problems (Martinez). On the otherhand, producers express concern when facedwith a few large first handlers that may haveexcess market

powerand the

abilityto exer-

cise market power over pricing (MacDonald,et al.; Mathews, et al.). It is important to

recognize that having and exercising mar-ket power are fundamentally different, as isclear from the literature on contestable mar-kets (Shughart). Wohlgenant and Haidacherset forth a theoretical framework for deal-

ing with the linkages across the distribu-tion chain.They fundamentally measure pricelinkages at different exchange points usinga series of reduced form equations that are

demand driven for the most part and incor-porate market power in the reduced form.

In most of these recent studies the issue iswhether changes in the coordination arrange-ments translate into the exercise of market

power that in some way impacts producersvia the price linkages. Obviously, each agri-cultural sector has unique aspects requiringseparate consideration. Hence, in this dis-cussion we limit the focus to beef since itis one of the largest agricultural sectors inthe United States and one that is in vari-

ous stages of structural changes, particularlywith contracting and concentration. Our pur-pose is to address the question of whether wesee evidence that vertical coordination has

impacted the price linkages up and down the

supply chain for beef. Changes in the pricelinkages should be one of the most appar-ent indicators of adjustments along the sup-ply chain.

Price Linkages in the Beef Sector

One must always struggle with how to mea-sure pricing performance at the major point

Amer. J. Agr. Econ. 82 (Number 5, 2000): 1112-1122Copyright 2000 American Agricultural Economics Association



Price Linkages 1113

of exchange within the vertical distribution

system. In some cases it is nearly impos-sible either because of thin markets at an

exchange point or because of the fact that

the price information is simply not public.For the beef sector there is reasonably goodprice data for the major points where own-

ership changes with the points defined asfollows: slaughter cattle prices; boxed beef

prices; wholesale beef prices; and retail beef

prices. Drawing on the price spread literatureand a somewhat simplistic approach to the

problem, one can simply measure the rela-

tionships across the vertical market system(Ward) with the expectation of several differ-ences in the linkages:

* The linkage up the vertical major systemcan weaken as the product is transformed.

* There can be delays in the linkage given thetransformation time and pricing policies.

* Structural change should be manifestedin the underlying parameters linking the

exchange points.* Market power may be revealed with asym-

metric pricing behavior relating to risingversus falling prices.

* The direction of causality can change.

What are the major supply chain changesthat could influence the linkages acrossthe beef sector? Packer concentration has

increased, as have the facilities for han-

dling larger carcass sizes (MacDonald et al.).There has been an increase in the numberof cattle sold on contract. This concept isoften referred to as captive supplies. The

packing industry has moved from produc-ing carcass cuts to producing primarily boxed

supplies. There has been more direct selling

between large packers and the major foodchains, and the concentration or share ofthe retail markets held by the major retailchains has increased. Retail chain concen-tration increased where in 1987 13% of the

major U.S. cities reported the top four foodchains had 80% of the regional market. By1998 this increased to 33% (Cotterill). Med-ina and Ward show the limited outlet mobil-

ity with most meat purchases not willing tomove away from the large supermarkets.

Such changes obviously occur over time

and the resulting impact on the pricing sys-tem may be gradual and the timing notso apparent. Hence, rather than trying to

incorporate structural variables directly intothe price linkage equations, an alternative

approach is to test for parameter change

over time to see if the data reveal changesthat can be associated with the supply chain.This approach is the focus of the followingsection. Before moving to the varying param-

eters method, the simplistic linkage modeland implications are presented.Define the price at the exchange points

"i" and "j," where i < j implies movingthrough the vertical chain from producers to

consumers, as Pit= Oto+ EkmO XkPi(t-k) + E-jt

Some lag in the price linkage is implied withk > O.Furthermore, if the pricing behavioris expected to differ in rising versus fallingprices, each Xk value depends on the direc-tion of the price change. Following Ward and

Houck, it is easy to show that the asymmetry

model can be respecified asm<t /

(1) Pt=ao E (jk Pi-k-

P} + k ))k=O

T

t=lPi(t-k-l) IDt))+ Eij

where D = 1 if Pi(t-k) < Pi(t-k-1) and zerootherwise. In equation (1), Xk and X' repre-sent the standard way for measuring asym-metric parameters as set forth by Ward and

k- Xk can be used to test for the existence of

asymmetry. Assuming that the price linkagehas its largest effect immediately (i.e., Xo >Xl > X2> .. ), then the model can be easilyrespecified using a simple form of polynomiallag models. A preliminary test of the linkagessuggests that a linear form works quite well,where Xk = 80+61k and X" - Xk = o + 8'k.This yields the following model, using three

lags for estimation purposes,

(2) Pit = ot + 8(PRik))

Pk=0t-

+ 81 Ek{PRi(tk=l

+ eFi(,_O~3k=O

k)})

-k)

+(1 k{PFi(t_k) ?+ej

\k=l 1

letting

PRi(t_k)=

Pi(t-k)- Pio

and

Pi(t-k)=

E{Pit-k)-

Pi(tk-1)}Dt.

Ward and Stevens



1114 Number 5, 2000

Equation (2) then provides the price linkagerelationship to test for asymmetry and laggedresponses.

Given the primary focus is to measure the

impact of structural changes in the supplychannel over time on the performance of

price linkages, one must also allow for the

possibility of the linkage parameters chang-ing over the appropriate period. That is, dowe see any evidence of changes in the 8's in

equation (2)? Before turning to the empiri-cal evidence, it is important to lay out the

possibilities:

* If all 8's are zero, there simply is no linkagebetween the points of exchange.

* If the 6's are zero, there is no lag structureof the price transmission.

* If either 8" is different from zero, thenthere is evidence of asymmetric pricingbehavior.

* If any of the 8's change over time, there isevidence of some type of adjustment relat-

ing to the structure or underlying charac-teristics of the transformation process.

* If the relative patterns in the 8 values differwhen comparing (i, j) pairs in the vertical

supplychain, then

impactsfrom structure

change, market power, contracting, elec-tronic exchange, and/or product innova-tions may be revealed.

Given that there are possible lagged priceresponses, then one must also calculate theshort- and long-run price linkages. For exam-

ple, the short run rising from equation (2) is

60 and the long run is 4(80 + 61) since the lagstructure is represented with the linear lagmodel.

Statistical Approach to the Linkage

Two problems associated with estimatingequation (2) are (i) how to deal with poten-tial problems with the residuals and (ii) howto model changes in the parameters. Giventhe use of monthly data, serial correlation isa real possibility, but this can usually be cor-rected with a first-order residual model. Fur-

thermore, it is straightforward to test for thestationarity of the residuals. Second, are anychanges in the parameters permanent or sim-

ply stochastic? If changes in the supply chan-nel are profound, then one would expect the

resulting impact, if it exists, to be permanent.

Within the family of varying parameter esti-mation procedures, the Cooley-Prescott mod-els provide the most direct way for testing for

parameter change while also accounting for

the permanent versus transitory componentsin the parameters (Cooley and Prescott).While the Cooley-Prescott and more generalKalman filtering models have wide applica-tion in economics, it is worth restating theessence of these estimation techniques as

they apply to equation (2). Considering 6(for illustration purposes, the Cooley-Prescottmodel defines the permanent and transitorycomponents as 60, = 6t + [0, and 6 =

P?(t-) + vot and one can measure the two

components (Fomby,Hill, and Johnson;Ward

and Myers). For the supply chain analysis, thepermanent component is the most important.Our interest is with the applications, so thedetails of the method are not presented.

An Overview of the Supply Chain for Beef

Figure 1 provides an overview of the sup-ply chain for beef within the U.S. system.Seedstocks, cow-calf, and stockers represent

inputs into the production of cattle ready tobe placed in feedlots. Feedlots may purchaseweaned calves from the cow-calf segment orcattle from the stocker segment and may fin-ish them to at weight ranging from 900 to1400 pounds. These animals are then mar-keted to packers. While a number of pricesare relevant at this point, monthly live slaugh-ter steer prices are probably the most repre-sentative of the market value of beef backto producers. Packers slaughter the finishedcattle and fabricate the beef carcasses intoboxes of subprimal cuts such as top rounds,tenderloin, or sirloins known as boxed beef.The boxed beef is then generally marketed to

purveyors-processors or retailers who furthertransform the beef into products and sizes

appropriate for consumers (NCBA). Boxed

beef prices are considered the best signalof the beef value at the packer level. The

processor-purveyor will further process theboxes of subprimal cuts into smaller cuts

ready for consumption. Most often hotels,

restaurants, and institutional buyers do nothave the facilities to process the boxed beef

and, hence, rely on purveyors. Furthermore,

many grocery chains, which in the past pur-chased boxed beef directly from packers,are now buying processed cuts and beef

Amer. J. Agr. Econ.



Price Linkages 1115

SeedstockCow/CalfStockerFeedlot

I *. . . . .

I

Price Signal:I|*. i SlaughterSteer Pnces

1 ...............

Packers

I _-------------.

4. Price Signal:

I~~~'| PrBoxedeef Price* $I mmmmmm...?. .......

Processors/Purveyors

_.........---- .-

I

Price Signal:

I ~*r Rholesale Beef Price$ m...........m....

RetailersandFoodserviceOperators

I ^.....-.........^ m PriceSignal:

* RetailBeefPnrice

FinalConsumers I

Figure 1. Overview of the supply chain forthe U.S. beef industry

items from purveyors for direct sale. Obvi-

ously, this linkage depends on the retail storeor chain's facilities for further fabrication

(NCBA). Average wholesale beef prices areused as the best price signal at the purveyorlevel. Finally, retail chains and other retailoutlets

representthe end

pointof the

supplychain and average retail beef prices are the

appropriate price signal.While space does not permit detailing

every dimension to the structural changeswithin this system, there are several impor-tant changes that have raised public concernand interest. Packer concentration is proba-bly the most apparent change. Between 1980and 1997 the percent of steers and heifers

slaughtered through the top four-firm pack-ers rose from 36 to 80%. Similarly, the per-

centages for boxed fed beef ranged from 53to 83% through the top four-firm packers(MacDonald, et al.). An increasing number ofthe animals were slaughtered through plantswith annual capacity of 500,000 head or more.While other statistics could be shown, what

is apparent is the major change in packerconcentration in the last two decades. Con-

tracting with producers in what is oftenreferred to as captive supplies has increased.

Closer to the consumer, retail chain sharesof the food market have shown dramaticincreases since the early 1980s. Throughoutthe supply chain the electronic exchanges andtransmission of information has, at least par-tially, adapted to new communication tech-

nologies.The impact of structural changes has many

dimensions and may be profound in selectedcases. Yet for the total industry, what is theeffect on pricing behavior? Price is generallythe index used to judge the markets since it

reflects in one signal the composite effectsof many things, including structural change,e-commerce, and innovation. Hence, the dis-cussion in the previous sections on price link-

ages is a logical way to assess the impact of

changes within the supply chains set forth in

figure 1. While one can probably find uniqueimpacts when looking at specific cases, whatis important is the overall conclusion for thetotal industry in terms of price transmission

signals, hence providing the motivation forthe models set forth in

equations (1) and (2).

Price Linkage Estimates

Equation (2) was estimated linking the four

price series identified in figure 1. Each modelwas first estimated testing for autocorrela-tion in the residuals yielding the p val-ues reported in table 1. Each model wasthen corrected using the appropriate p valuesand then

reestimated, givingthe

parametersreported in table 1 along with the relevantstatistics. These are the estimates prior to

applying the Cooley-Prescott procedures. Foreach price linkage starting with the retail-

wholesale, both 80 and 68 are statistically sig-nificant, thus showing a strong price linkageat each point in the supply chain for beef.

Furthermore, 68 establishes that there is some

delay in the transmission of the price infor-mation at each exchange point. By the third

lag period, any delayed price transmission

information is nearly zero for each exchangepoint. That is, the price information that isreflected at the next point in the supply chainoccurs within a quarter. Note that this con-clusion was not imposed in the lag struc-ture when estimating the models. Between

Wardand Stevens



1116 Number 5, 2000

50 to 60% of the price transmission for ris-

ing prices is seen immediately within thesame month and 33% within the next month.

Linkages between the retail and wholesale

take a little longer, with the third period lagbeing 18% at this level and around 9% forthe two lower levels (i.e., wholesale-boxedbeef and boxed beef-slaughter steers.) The 6"show the existence of asymmetry when statis-

tically significant. For these overall estimateswithout considering the varying parameters,one concludes that there is statistically sig-nificant asymmetric pricing behavior betweenthe retail-wholesale levels but not for the lev-els further from consumers. Other statisticsare reported in table 1, including the Dickey-

Fuller test for each set of estimates and theDurbin-Watson.'While the results in table 1 reveal how

the industry price transmission behaves, it ismore important for understanding the supplychain to consider the stability of these esti-mates over time. Given the range of struc-tural changes taking place particularly at the

packer level, do we see a change in the pric-ing behavior up and down the supply chain?Each relationship in table 1 was reestimated

using the Cooley-Prescott model allowing for

all parameters to change over time.

Cooley-Prescott Price Linkage Estimates

Starting with the bottom (retail) of figure 1and working through the supply chain backto producers, several interesting aspects ofthe price linkages are revealed that wouldotherwise not be seen with the traditionalestimates. Figure 2 shows the estimated long-run rising and long-run falling price param-eters for the retail-wholesale price equation,

with the long-run defined as the currentparameter plus two lags. Clearly, the linkagebetween the retail and wholesale has declinedover the period since the early 1970s withboth rising and falling wholesale prices hav-

ing less impact on the average retail pricefor beef. Furthermore, there is strong evi-dence that rising wholesale beef prices are

passed through to the retail with retail priceincreasing at a greater rate than seen for

'Causality issues are often raised when dealing with price

linkages and supply chain responses. While theory suggeststhe flow as adopted with equation (1), a Granger causalitytest was applied to each market level. Write to Ward forthese results ([email protected]). Without much question,the implied causality from the producer to handlers and then tothe retail sector is confirmed. That is the wholesale-retail andsteer-- boxed.

falling wholesale prices (see the shaded areain figure 2). While there is noise in the adjust-ment, for the most part the change is perma-nent in nature.While many factors contribute

to this pattern, one cannot ignore the con-centration that has taken place among retailfood chains where these chains have gainedincreasing market power.

Figure 3 shows the corresponding link-

ages between the wholesale (purveyors-processors) and packers. Again, like theretail-wholesale, there is asymmetry betweenthe responses to rising versus falling packer(boxed beef) prices. What is most interesting,however, is the lack of change in the parame-ters beyond the initial period early in the his-

tory of boxed beef operations. If there havebeen shifts in market power at either or boththe packer and processor-purveyor levels, ithas not translated into any apparent changein the price linkage between these levels.

Figure 4 shows the price relationshipbetween packers and producers as capturedby the boxed beef and slaughter steer prices.There is relatively little difference in the ris-

ing and falling parameters and very little

change in the parameters over the two ormore decades included in the analysis. What

is most striking is the lack of change. Whilethe increase in packer concentration is welldocumented and some level of contractingexists, there appears to be almost no effect onthe pricing structure linking cattle prices andboxed beef prices over the study period. Thelittle asymmetry that is present is extremelysmall in comparison with that seen at theretail level.

The consolidation at the packer level hasnot translated into weakening of the pricelinkage between producers and packers, the

first point of exchange in figure 1. Changescan be seen throughout the supply chain,but these results clearly point to the majorimpacts in terms of pricing occurring nearerthe retail levels and little adjustment nearerthe producers. That is, there are no appar-ent anticompetitive impacts on pricing nearthe producer levels to the extent that one

accepts pricing behavior as a useful signal(Vives). These conclusions are completelyconsistent with those recently set forth byReed and Clark and are particularly robust

since the packer concentration is not a newphenomenon and has had time to be reflectedin the pricing structure. Other changes, suchas increase in contracting or captive sup-plies may not have had sufficient time to bereflected in the pricing structure.

Amer. J. Agr. Econ.



Price Linkages 1117

Table 1. First order Autoregressive Model of the Price

Linkages (See equation (2))ARI

parameters

(to

(t-values)

o((t-values)

a1(t-values)

(t-values)

a~,

(t-values)

R-squaredDurbin-WatsonF (zero slopes)Rh

Dickey-FullerPeriod

Retail-Wholesale

7.74350

(24.4377)

0.390258

(14.1120)

-0.120677

(-6.6434)

-0.133702

(-2.5149)0.064206

(1.8195)

0.6954552.12059

167.2730.95021

-18.355661974:5-1999:2

Wholesale-Boxed Beef

59.4915

(135.3360)

1.07866

(20.7972)

-0.454554

(-13.1158)

0.042386

(0.4336)-0.028296

(-0.4349)

0.9565331.86913

1634.960.49893

-16.052521974:5-1999-2

Boxed Beef-

Slaughter Steers

29.1691

(9.9613)

0.959623

(6.4603)

-0.414712

(10.6588)

-0.120243

(-1.080)0.080959

(1.0927)

0.8980411.89816

645.1790.63976

-16.324781974:5-1999:2

Estimated Coffficient

Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct19741197511976|1977119781197911980119811198211983119841198511986119871198819891199011991992119931199411995119961199711998

Figure 2. Long-run rising and falling price responses between the retail and wholesale beef

exchange point in the supply chains

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Wardand Stevens



1118 Number 5, 2000

2.50

2.00 -

1.50 -

1.00 -

0.50 -

A Axn

Estimated Cofficient

Wholesale- Boxed Beef Prices

Cooley Prescott with Diagonal (Smoothed)

-Long Run OLong Run

Rising Falling.. ............ .... .. .............

u .uu I0f1611n|1 1iffi llff ll fll] llf( lfilfln j|lllllllal|r iif(i(r[i i(iiiiinih lr|ii(ili i ii]i iiIfiiiiiii{1 iiIfi iiff liiifiiJlif if ijT{llfii]^ii lii1iiii 1ifl

ll

Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct

1974119751197611977 978119791198019811198211983198411985119861198719881989819901199111992119931199411995119961199711998

Figure 3. Long-run rising and falling price responses between the wholesale and boxed beef

exchange point in the supply chains

EstimatedCofficient

V.U V .........I

-1 ...

......

"lll i llll

.......

..ill.lll i .ii.

ll iili,lfll -l } -iiiii

'"l',' l ifiih[ii ii.l .i j )....j"_i'l(

iIi I II


19741197511976 9771197811979119801198111982 19831984 19851198611987 1988 1989 199011991 19921199319941199511996 199711998

Figure 4. Long-run rising and falling price responses between the boxed beef and slaughtersteer exchange point in the supply chains

2.00

1.50

1.00

0.50

A in

Amer. J. Agr. Econ.

. . . . . . . . .....

-

..........111111,

..l l . ~~ 11 'I 1 ~



Price Linkages 1119

Index of Asymmetric Pricing

Since the unit scale (e.g., dollars per live

weight and dollars per pound of boxed beef)differs across the price series, it is a lit-

tle difficult to see the relative changes inthe previous figures. This is particularly truewhen comparing the degree of asymmetry.Toaccommodate comparisons across the supplychain, each asymmetry measure was indexedto the arbitrary period 1985:1. This is about

midpoint in the data set and extends beyondthe initial periods to avoid the larger vari-ations associated with the starting periodin the varying parameters estimation tech-

niques. First, for each market level in the

supply chain the difference between the long-run rising and long-run falling estimates arecalculated and then divided by the value for1985:1. Hence, the asymmetry for each mar-ket level is pivoting around this arbitraryperiod, facilitating an easy comparison of the

changes over time. As presented in figure 5,the index levels of asymmetry show near

stability for both the wholesale-boxed beef

prices and boxed-steer prices after some earlyadjustments. In contrast, the retail-wholesalevalue clearly shows an increasing tendency

for greater asymmetric pricing behavior nearthe consumer end in the supply chain. Again,this reinforces the conclusion that most of the

pricing behavior change is at the retail levelin the supply chain. A positive slope in the

parameter points to an increasing tendencyfor rising prices to be passed through to thenext level faster than falling prices. A nega-tive trend would point to the opposite. Againthe general slope for the retail-wholesale is

positive while the general slopes for the oth-ers are near zero.

Lag Structure

Finally, have structural shifts, contracting,electronic exchange, and innovations led to

changes in the speed that price informationis transmitted through the supply chain? One

simple way to address this is to show theratio of the short-run response to the long-run response. This ratio shows the percentageof the price response that is passed through

in the same month relative to the full impactof the price change (i.e., the long-run effect).This percentage can differ both across the

supply chain and between the rising versus

falling measures. In figures 6 and 7 the short-run rising and falling values are divided by

the long-run estimates for the three market

price levels. Relative rising prices are com-

pared in figure 6, where the left axis showsthe percentage of the price transmission that

occurs within the same month. For the boxedbeef-live steer linkage, about 60% of the

slaughter steer price change is reflected inthe boxed beef value within the same month.Of more importance is the fact that this per-centage is very stable across the estimation

period. Again, given any consolidation at the

packer level, there is no indication that suchstructural change over time has influencedthe speed of transmitting the price signalsat this point in the supply chain. For thewholesale-retail

levels,a smaller

percentageof the price transmission occurs in that samemonth for rising wholesale prices, yet there issome evidence that the speed of transmittingrising wholesale prices has increased even

though the change is small. For the boxedbeef-wholesale levels, a large percentage istransmitted immediately and after the adjust-ment periods in the early 1970s there is littleevidence of much additional change. Figure 6

again points to the major changes occurringnearer the consumer end of the supply chain.

Figure 7 shows the comparable responsesfor falling prices across the months. Again the

stability of the boxed-steer price linkage isevident with about 50% of the falling pricesbeing reflected within the same month. Thereis a very slight increase in this percentage, butfor the most part one has to conclude thatthe percentages are stable beyond the early1970s. Again, packer concentration does not

appear to have influenced the speed of trans-

mitting falling prices at this exchange point.

Of particular interest is the slow responsebetween the boxed beef-wholesale levels for

falling prices. Less than 30% of the fallingprices are seen within the same month. Whilethere is a slight upward trend in this percent-age, it has leveled out through most of the1980s and 1990s. Finally, the instability at theretail level is again seen with the short-runvalues ranging between 30 to 60%. It does

appear that during the 1990s some stabilityhas occurred with between 40 to 50% of the

falling price response occurring within thesame month. To emphasize, these measuresare the percentage of the transmitted pricesoccurring immediately while recognizing thatthe full amount of price change differs acrossthe supply chain.

Ward nd Stevens



1120 Number 5, 2000

Estimated Coifficient


197411975 1976 1977117811 979119 980119811982} 19 841198S 198619 8 71l9881198)119901199111992|11993119941199511996|199711998

Figure 5. Index of asymmetry in beef prices across the supply chain

Estimated Cofficient1.40

1.20 -

1.00 -

0.80 -

0.60 -

0.40 -

0.20 -

0.00

Supply Chain Beef Prices

(Short-Run)/(Long-Run)-- Short Run Rising %- Short Run Rising %0 - Short Run Rising ?%

Retail-Wholesale Wholesale-Boxed Boxed-Steer


1974|1l91 97197761i 978|1979 11980s98111|92s 1983|19841185|986 l87 8891l990| l991 992|9 93|19941 lO e99)1 97|98

Figure 6. Lagged price responses to rising prices across the supply chain for beef

2.50

2.00

1.50

1.00

0.50

0.00

""

-- _I _.~ --

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Amer. J. Agr. Econ.



Price Linkages 1121

1.00

0.80 -

0.60 -

0.40 -

0.20

0.00

Estimated Cofficient

Supply Chain Beef Prices

(Short-Run)/(Long-Run)-,, Short Run Falling % -- Short Run Falling 0 - Short Run Falling 0

Retail-Whlolesale Wholesale-Boxed Boxed-Steer

^.:^^̂ i,^^ .-.I ?j

r~~~~~~;4~~\~~~~~~.~~~~~xSi^'S'.^N

Oct Oct Oct OctOct Oct Octt t Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct

1974 975 1976197711978 1979198011981 198211983 1984 1985l1986119t87 988l198911990 19911 1993110399401995996 199 1998

Figure 7. Lagged price responses to falling prices across the supply chain for beef

Conclusions References

What can we conclude from these results?First and foremost, one has to accept that

price linkage is a reasonable way to addressthe issue of market performance within the

supply chain and then to accept the argumentthat market power and associated activitiesinfluence the price transmission (Wohlgenantand Haidacher). Given that premise, it isclear that the structural changes at the packerlevel have had little aggregate effect on the

price linkages between producers (slaughter

steer prices) and the first handler (boxed beefprices). Concerns expressed about packerconcentration do not appear to be supportedby the price linkage evidence. One must rec-

ognize, however, that we are looking only atthe price linkage dimension and at the aggre-gate market levels. Second, most of the majorpricing differences in the supply chain are

occurring near the retail markets betweenretail outlets and the purveyors. It is at this

point that less price response is seen and the

greatest changein the

price linkageis mea-

sured. All of the underlying activities with

contracting, electronic trading and communi-

cation, etc. do not appear to have impactedthe price transmission as we move closer tothe producer end of the supply chain.

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1 Illllllljll 1i 11 1 111 II ItllTltll IiTI1111111111I ll Il I ITlllllj IIi IITTjIII[llIIIIIIIIIfIIIII

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Ward and Stevens

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Amer.J. Agr.Econ.

Mathews, K., W. Han, K. Nelson, L. Duewer,and R. Gustafson. U.S. Beef Industry: Cat-tle Cycles, Price Spreads, and Packer Con-

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1122 Number5, 2000

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