Price transmission in the agri-food value chain - when changes in one price cause another price downstream to change - is an important issue for farmers, markets and the economy as an efficient market price setting is crucial for all market players. However, there are numerous examples of price transmission in the agriculture value chain not working optimally, and there are several different forms of incompleteness and imperfection. There are a number of possible causes, but it is difficult to document on the basis of empirical data.
The aim of this article is therefore to document the presence of imperfect price transmission, to determine some of the underlying causes and driving forces behind the phenomenon as well as highlight farmers’ interests, role and opportunities in connection with ensuring more effective price transmission.
On the basis of an example of a grain-bread value chain, it is apparent that the price increases downstream occur relatively quickly and are significant, while the price decreases become smaller and significantly slower as one moves forward in the value chain. Both lags and asymmetric price transmission are present. The example also shows that bread prices increase far more than can be explained by the increase in the price of grain. Bread prices have, therefore, overreacted to the increase in the grain price.
Farmers can move downstream in the value chain via their cooperatives and in this way contribute to the creation of improved price transmission, while at the same time, gain access to segments with higher margins and greater market power.