Download Price transmission in the pig meat sector main findings

Food chain functioning in the
pig meat sector
Ⓒ Olof S.
Pierluigi Londero – Simon Kofoed-Dam
DG for Agriculture and Rural Development
European Commission
Outline
• Context of the Commission work related to the
food supply chain
• Reminder of key challenges identified for the food
supply chain and policy initiatives
• Ongoing discussions related to the food chain,
and future processes
• Focus on results for pig meat sector
2
Institutional and economic context
•
CAP reforms, including big cuts of intervention prices, for many sectors
•
Strong turbulence on commodity markets since 2007
•
Market monitoring exercise of the food supply chain since 2008
– Communication May 2008: high prices
– Communication December 2008: policy directions on the food
supply chain (roadmap: competitiveness, competition and
consumer protection, regulation, monitoring and speculation)
– Communication October 2009: final report presenting concrete
initiatives along the line of the roadmap
•
HLG on agro-food competitiveness
– 30 recommendations
•
Food Supply Chain Forum
3
Key challenges identified for the food supply chain
1. Sub-optimal relationships between the stakeholders of the chain
– Diversity of markets and actors along the chain => necessity to monitor
potential anti-competitive practices; asymmetry in bargaining power can
lead to inefficiencies
2. Lack of transparency on price formation along the chain and
increased volatility of commodity products
– Increased delays and asymmetry in price transmission; low
comparability of retail prices
– Excessive speculation and volatility on commodity markets
3. Fragmentation of the Internal Market and low competitiveness of EU
agro-food sector compared to the rest of the world
– Big price differences across Member States
– Identification of barriers to market integration (territorial supply
constraints)
4
Changes in the distribution of value added
Distribution of value added in the EU-25 food supply chain (1995-2005)
476 bio €
522 bio €
537 bio €
Food retail
27%
28%
30%
Food
wholesale
11%
11%
Food
industry
31%
100%=
13%
31%
33%
Agriculture
31%
1995
29%
2000
24%
2005
5
Source:
EU KLEMS, EUROSTAT Structural Business Statistics
Price developments in the EU food chain
FOOD PRICE
CRISIS
PRODUCER
LAG
DÉJÀ VU?
RETAIL LAG
120
Agricultural
commodity prices
Food consumer prices
Food producer prices
115
110
105
Overall inflation
(HICP)
100
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
95
Source: European Commission – DG Economic and Financial Affairs, based on Eurostat data
6
Recent initiatives on food supply chain
• Commission: Communications and staff working documents (latest in
October 2009)
• Council: Presidency conclusions (March 2010)
• European Parliament: own-initiative report (MEP Bové) adopted
(September 2010)
• Economic and Social Committee: Narro/Kapuvari report (September
2010)
• High Level Group of the Competitiveness of the Food Supply Chain
• High Level Expert Group (HLG) on Dairy (June 2010)
• High Level Forum (launched on 16/11/2010)
7
Focus on the High Level Forum
• High Level Forum for a Better Functioning Food Supply Chain
– set up by the European Commission
– composed mainly of representatives of
• selected Member States,
• European companies dealing with food production, processing or distribution,
• professional associations and
• non-governmental organisations representing the citizens' expectations.
– The exercise is led by Commissioners in charge of
• Industry and entrepreneurship (Tajani)
• Agriculture and Rural development (Dacian Cioloş)
• Health and Consumer Protection (John Dalli) and
• Internal Market and Services (Michel Barnier)
– Work organised in 4 Platforms
8
Focus on the High Level Forum
• A three-tier structure:
– the High Level Forum which will report according to the Forum's
mandate;
– the Sherpa group mirroring the membership of the Forum, whose role is
to prepare the discussions, position papers and to recommend actions
and/or policy measures to the High Level Forum;
– the working groups or expert platforms, which will focus on flagship
issues requiring a specific expertise, and where the involvement of a
wide range of stakeholders - whether represented or not in the High
Level Forum - is encouraged, in order to impulse a bottom-up process.
9
Focus on the High Level Forum
• The 4 expert platforms:
1. Business to Business (B2B) contractual practices in the food
supply chain
2. Food price monitoring tool
3. Competitiveness in the agro-food industry
4. Agro-logistics
• Other initiatives and actions in favour of a better functioning of
the food supply chain in general will be followed directly by the
group of Sherpas. The Commission may create additional
platforms to respond to future needs.
10
Focus price transmission,
in particular for pig meat
11
Price transmission
Objectives: assessment of magnitude, speed and asymmetry
of price transmission to assess effectiveness – efficiency of the chain
Methodology: statistical/econometric analysis (causality, cointegration, asymmetry tests etc.) at aggregate level & for the dairy and
pork supply chain
Limitations of the analysis: data quality, diversity of situation across
products and countries, measurement (but no causation)
Imperfect price transmission does not necessarily mean market
malfunctioning (e.g. low share of agricultural commodity in total cost of
food products, marketing strategies – price levelling, perishable nature
of many food products, long-term contracts etc.)
12
Price transmission analysis at aggregated level
Objectives
- Look at price transmission between:
- agricultural sector and food industry
- food industry and retail sector
- Investigate whether price transmission pattern has changed after the
price surge in 2007
- Compare behaviour across Member States (EU-15 vs. EU-12)
13
EU15
Lags in consumer price decrease following agricultural
commodity price decrease; number of months
New Member States
EU27
20
15
10
5
0
-5
PT
SK
CZ
EE
IE
MT
BG
DE
DK
FR
FI
CY
ES
SI
IT
UK
AT
LV
RO
LT
EU
SE
BE
GR HU
PL
NL
14
Source:
EUROSTAT
LU
Pass-through of price increases and price decreases
along the food supply chain in the EU
Price increases
Price decreases
Pass-through from
agricultural commodity
prices to food producer
prices –
Up to 6-month lags
53%
4%
Pass-through from food
producer prices to food
consumer prices –
Up to 3-month lags*
3%
72%
1%
3%
68% 67%
55%
2000-2009
44%
71%
47%
2000-2006
2007-2009
15
Price transmission at aggregated level
Main findings
Low price transmission between agricultural sector and
food industry, but high price transmission between food
industry and retail sector
Major change after the price surge in 2007 (“rocket and
feather” pattern)
Major differences across Member States (~ EU-15 vs. EU12)
Price transmission is not “mechanical”, difficult to assess,
explain and foresee
16
Price transmission analysis – limits of aggregated data
Existing empirical studies have found large variability in the degree and
asymmetry of price transmission between product chains and countries.
However,
- most of these studies are based on price indices at aggregated level
(e.g. for the category “milk, cheese and eggs”) and not on absolute price
levels due to the lack of reliable data, in particular at consumer level.
- the structure of the food supply chain across Member States and
between product chains is very diverse and cannot be entirely reflected by
aggregated price indices
- this prevents from drawing conclusions on the functioning of the price
transmission mechanism in the food supply chain.
17
Price transmission analysis based on absolute prices
objectives and coverage
Product coverage: specific in-depth enquiry on the dairy and pig meat
sectors (particularly affected by the economic crisis and which raised
some concerns regarding the functioning of the chain).
Country coverage: Based on absolute prices, this investigation covers
eight countries for which data were available (France, United Kingdom,
Germany, Austria, Denmark, Czech Republic, Slovenia and Lithuania).
Main objective: study the presence of price transmission from the
producers to the consumers: measure its magnitude, speed and
potential asymmetry.
18
Price transmission analysis based on absolute prices
methodology
Data:
Producer prices: monthly farm-gate milk and pig meat prices
available in absolute levels
Retail prices: absolute prices were received for most dairy and pork
products from eight countries: France, United Kingdom, Germany,
Austria, Denmark, Czech Republic, Slovenia and Lithuania.
(all prices have been deflated and taken to the log)
Causality test:
verify the causality link between producer and consumer prices
through the Granger causality test.
Price transmission analysis:
simple and/or multiple regression analysis has been carried out
retail price = f ( producer prices ) for relevant lags
19
Price transmission in the pig meat sector
main findings
20
Developments of producer and consumer price indices
in the EU pig meat sector, 1997-2011 (Jan 1997=100)
190
180
Feed wheat, ex-wholesale
170
160
consumer price meats
150
140
130
120
110
100
90
80
70
slaughter pig, free-slaughterhouse
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
Jul-99
Jan-99
Jul-98
Jan-98
Jul-97
Jan-97
60
Source: EUROSTAT, DG AGRI
21
Price transmission in the pig meat sector: main findings
1) Casuality:
- 2009 Communication: Low or even null causality for around 40% of the
observed pork products
- updated analysis for SI, UK, FR: low level of causality in UK and SI, but strong
causality in selected products in FR
2) Price transmission:
- 2009 Communication: only approximately 10% exhibited a substantial price
transmission, 45% showed moderate price transmission while slightly more than
45% of the products indicated a low degree of price transmission between
producer and consumer prices.
- updated analysis for SI, UK, FR: selected products for FR had low price
transmission, higher level of price transmission in UK, while it was hard to detect
in SI (however some indication of low level of price transmission)
22
Frequency of substantial, moderate, low price transmission
results for the pig meat sector
60%
50%
40%
30%
20%
10%
0%
All selected EU27 countries
EU15 (FR, UK, DE, DK, AT)
substantial
moderate
EU12 (CZ, SI, LT)
low
23
Price transmission in the pig meat sector: main findings
3) Speed of price transmission:
- EU-27 average price response at consumer level takes place with a delay of
around one month.
- higher delay in price response in the EU-12 than in the EU-15.
- rapid transmission only concerns pork products whose price developments were
found closely linked to pig meat producer prices. Much slower speed (at least a 12
month-delay) when examining the whole spectrum of pork products.
- the statistical analysis indicates that some price transmission has taken place
after a given number of months, but does not provide information concerning its
completeness.
- very different speed across product chains and countries depending on the
competitive structure of the supply chain and the production/marketing strategies
put in place.
24
Price transmission in the pig meat sector: main findings
4) Price asymmetry and price transmission over time:
the statistical analysis does not enable to draw firm conclusions regarding the strengthening
of the price transmission pattern over the most recent months (as was observed for the dairy
sector and at aggregated agricultural level) as well as the existence of asymmetric behaviour.
Price change between April 2009 and May 2007 for pig meat at the farm gate and for selected pork products
at retail level (in national currency)
Germany France
Farm gate price
Retail prices
Cutlets
Tenderloin
Roasted pork
Shoulder, neck
Chopped pork
Minced pork
Pork loins
Pork belly
Bacon, back
Bacon, gammon
Ham
Sausage
2%
8%
4%
-8%
4%
United
Czech
Denmark Austria Slovenia
Lithuania
Kingdom
Republic
37%
6%
3%
3%
18%
19%
9%
-3%
41%
20%
18%
4%
10%
8%
39%
19%
-5%
7%
36%
13%
10%
5%
18%
7%
18%
8%
5%
37%
9%
25
Price transmission in the pig meat sector: main findings
Overall conclusion: rather low price transmission between the agricultural producer stage and
the consumer stage. Only a limited part of the changes in pork retail prices was generated by
price changes at the farm gate.
However it may be linked to several factors:
- price transmission may be stronger from the retail and/or processing stage to the producer
level (depending on the country, the net trade position and/or the relative strength of the
downstream sectors).
- steadily declining share of pig meat raw materials into retail price of pork products,
- potential inefficiencies in the market structure of the chain (linked to imbalances in bargaining
power and/or anti-competitive practices),
- specific adjustments constraints and costs (e.g. long-term contracts between economic actors),
- pricing/marketing strategies in the downstream sectors.
- the importance of producer organisations in the pig meat sector in some countries may mask
some developments in the analysis of price transmission along the pig supply chain (as
producers may receive dividends and/or price bonuses in addition to the observed price of pig
meat)
26
Summary of the main results of the statistical analysis of price transmission:
pig meat sector, United Kingdom
Correlation R 2
Pork sausage
1999-2006
Pork ham
0.0306
0.0073
0.0008
0.0272
Pork bacon, back
Pork bacon, gammon
0.386
2007-2011
0.227
0.287
0.505
0.538
0.872
Pork bacon, back
Pork loin
0.357
0.258
Pork ham
Pork shoulder boneless
0.128
0.374
Pork sausage
Pork bacon, gammon
0.354
0.23
Pork shoulder boneless
Pork loin
Price transmission coefficient
0.462
0.286
0.017
0.046
0.817
0.676
0.897
0.308
27
Thank you
28