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Welfare implications of intertemporal marketing margin manipulation

Thomas Kopp (Department for Agricultural Economics and Rural Development, University of Goettingen, Göttingen, Germany)
Bernhard Brümmer (Department for Agricultural Economics and Rural Development, University of Goettingen, Göttingen, Germany) (Centre of Biodiversity and Sustainable Land Use, University of Goettingen, Göttingen, Germany)
Zulkifli Alamsyah (Fakultas Pertanian, Universitas Jambi, Jambo, Indonesia)
Raja Sharah Fatricia (Fakultas Ekonomi, Universitas Jambi, Jambo, Indonesia)

British Food Journal

ISSN: 0007-070X

Article publication date: 7 August 2017

Abstract

Purpose

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 (APT) is observed. The paper aims to discuss these issues.

Design/methodology/approach

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 find evidence for APT. 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 different scenarios.

Findings

The results suggest that factories do indeed transmit prices asymmetrically, which has substantial welfare implications: around USD3 million 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.

Originality/value

This study combines the approaches of non-parametric and parametric estimation techniques of estimating APT processes with a welfare perspective to quantify the distributional consequences of this intertemporal marketing margin manipulation. Especially the calculation of different scenarios of alternative price transmissions is a novelty. The data set of prices on such a disaggregated level and high frequency as required by this approach is also unique.

Keywords

Acknowledgements

Thomas Kopp thanks Deutsche Forschungsgemeinschaft (DFG) for generous support through project KO 5269/1-1.

Citation

Kopp, T., Brümmer, B., Alamsyah, Z. and Fatricia, R.S. (2017), "Welfare implications of intertemporal marketing margin manipulation", British Food Journal, Vol. 119 No. 8, pp. 1656-1671. https://doi.org/10.1108/BFJ-11-2016-0572

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited