The Effects of Agricultural Price Instability on Vertical Price Transmission: A Study of the Wheat Chain in Italy

Abstract

In this paper we analyse vertical price transmission in two typical Italian wheat chains, the pasta and bread chains, that were particularly affected by strong market fluctuations during the last years. After having split the chains into two sides, upstream (farm–wholesale) and downstream (wholesale–retail), we apply a cointegration methodology allowing for the presence of potentially unknown structural breaks. Then, for the different subperiods detected by the break dates, we investigate the evolving price transmission elasticities finding evidence of asymmetric price transmission. In the pasta chain, farmers seem to be price-takers, while in the bread chain price transmission is related to market structure and to the coexistence of small and large retailers.