Welfare implications of intertemporal marketing margin manipulation

Kopp, Thomas and Brümmer, Bernhard and ALAMSYAH, ZULKIFLI and Fatricia, Raja Sharah (2017) Welfare implications of intertemporal marketing margin manipulation. British Food Journal, 119 (8). pp. 1656-1671. ISSN ISSN: 0007-070X

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In Indonesia rubber is the most valuable export crop produced by small scale agriculture and plays a key role for inclusive economic development. This potential is likely to be not fully exploited. The observed concentration in the crumb rubber processing industry raises concerns about the distribution of export earnings along the value chain. Asymmetric price transmission is observed. This study investigates the price transmission between international prices and the factories' purchasing prices on a daily basis. An Auto-Regressive Asymmetric Error Correction Model is estimated to �nd evidence for asymmetric price transmission. In a subsequent step the rents that are redistributed from factories to farmers are calculated. The study then provides estimations of the size of this redistribution under di�erent scenarios. The results suggest that factories do indeed transmit prices asymmetrically, which has substantial welfare implications: around three million U.S. Dollars are annually redistributed from farmers to factories. If the price transmission was only half as asymmetric as it is observed, the majority of this redistribution was re-diverted. This study combines the approaches of non-parametric and parametric estimation techniques of estimating asymmetric price transmission processes with a welfare perspective to quantify the distributional consequences of this intertemporal marketing margin manipulation. Especially the calculation of di�erent scenarios of alternative price transmissions is a novelty. The dataset of prices on such a disaggregated level and high frequency as required by this approach is also unique. Indonesian rubber factories capture rents by transmitting positive price shocks slower to their suppliers than negative ones. This leads to a loss of income for small scale rubber farmers. Keywords: Asymmetric Price Transmission; Error Correction Model; Intertemporal Marketing Margin Manipulation; Rubber; Indonesia.

Type: Article
Subjects: S Agriculture > S Agriculture (General)
Depositing User: Alamsyah
Date Deposited: 19 Mar 2021 08:09
Last Modified: 19 Mar 2021 08:09
URI: https://repository.unja.ac.id/id/eprint/18232

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