The impact of food scares on price transmission along the food marketing chain

In this paper we show how regime-switching vector error correction models can be used to assess the effects of food scares on price transmission along the food marketing chain. Our empirical implementation focuses on the impacts of the BSE crisis on price relationships and patterns of transmission among farm and retail markets for bovine in Spain. Monthly prices are used over the 1996-2005 period. A BSE food scare index is developed in order to measure the scale of the food scare crisis. Results suggest that the crisis affects beef producers and retailers differently. While consumer prices are not found to adjust to the crisis, producer prices do, though only when the scale of the food scare reaches certain minimum levels.