Analysis of farm to retail price transmission for selected agricultural commodities during Covid-19 pandemic in South Africa

Abstract

This study aims to analyse farm-to-retail price transmission for selected agricultural commodities (ginger, garlic, and lemon) during the COVID-19 pandemic in South Africa. To achieve this, the Mark-Up Pricing model was used to estimate farm-to-retail price transmission elasticities, addressing the first objective of the study. The Houck model was employed to determine whether there is symmetric or asymmetric farm-to-retail price transmission, fulfilling the second objective. The Error Correction Model (ECM) was applied to examine the long-run relationship between farm and retail prices, achieving the third objective. Monthly data from March 2020 to December 2022 were used, with farm price data sourced from the Joburg Market and retail price data from Statistics South Africa. The Mark-Up Pricing model revealed that farm price changes were largely passed on to retail prices, indicating limited market power by intermediaries. However, the Houck model highlighted asymmetry in this process, with retailers more responsive to rising farm prices than to decreases. The ECM results showed that the ginger market had the fastest adjustment to deviations, the garlic market adjusted moderately, and the lemon market was the slowest, indicating varying responsiveness to long-run equilibrium. Despite the asymmetry, the market eventually adjusted, with retail prices fully reflecting farm price changes. The ECM also confirmed more than complete pass-through in the long run for all commodities, supporting the asymmetry detected by the Houck model. Therefore, stricter regulations should be implemented to monitor and prevent anti-competitive practices in the supply chain to promote fair competition. Additionally, the South African government should continue monitoring food prices, expand reporting to the regional level, introduce measures to stabilise farm prices, and establish price forecasting mechanisms to reduce uncertainty and support long-term planning for farmers and retailers.