Price transmission between international and domestic prices in the Brazilian citrus sector

Abstract

The orange juice chain is a representative sector of the Brazilian agribusiness sector and its performance warrants analysis to identify strategies to enhance its competitiveness. Analysis of asymmetry in food value chain is important because it provides valuable information on market structure and performance. We use an asymmetric threshold error correction model to examine threshold, short- and long-run asymmetries on price transmission from international to domestic prices of oranges in Brazil. We use monthly data on international frozen concentrated orange juice prices and domestic prices of oranges in Brazil for the period from January 1996 to December 2020 in the analysis. We find evidence of threshold and asymmetries in short- and long-run price transmission and asymmetric adjustment towards a long-run relationship between international and domestic orange prices in Brazil. Decreases in international prices that lead to reductions in marketing margins are passed on quickly to domestic prices, but this is not the case for increases in international prices. We discuss implications for the Brazilian citrus industry.