Volume 9, Issue 1

What are the effects of a per-unit tax on the sales of a good? The answer in standard economics textbooks is a reduction in quantity and an increase in price. However, the homogeneous-product assumption in such treatments is not always correct because the taxed product is frequently sold under numerous differentiated brands. In general, quantity and price adjustments to a per-unit tax increase may vary differentially by brand, which implies that tax incidence requires a more thorough analysis than the standard one. In this paper, we test a popular theoretical prediction that the effects of a per-unit tax on sales may be different for low-quality brands than for high-quality brands. We exploit two exogenous variations on per-unit charges (excise taxes and shipping costs) in the beer industry to study if quality is an important determinant of equilibrium quantity, prices and advertising expenditures. We find that, when faced with higher per-unit charges, the equilibrium price and quantity of a brand are usually positively associated with its quality level; similarly, higher per-unit charges appear to provide firms with an incentive to shift advertising effort towards brands of higher quality. We discuss implications for public policy and firm profitability.

The world's first non-genetically modified (non-GM) soybean futures market opened in May 2000 but no studies have tested whether this market transmits price information efficiently. This study investigates the market efficiency of the non-GM and conventional soybean futures markets and their information flow between the futures and spot prices. The Johansen cointegration test is used for this purpose. The results suggest that both the non-GM and conventional soybean futures markets are efficient, but the non-GM soybean futures market is relatively inefficient compared to the conventional soybean futures market. In both soybean futures markets long-run information flow was found from the spot market to the futures market and existence of such causality supports that these futures markets function efficiently.

Theory predicts that unit taxes increase the quality consumed in a market, since unit taxes reduce the relative price of high quality goods. Ad valorem taxes, on the other hand, have no effect on relative prices, and should not affect product quality. The hypothesis is tested empirically in the US wine market. I find that the market share of high quality wine is significantly increased by unit taxes, and that there is no significant effect of ad valorem taxes, in accordance with the hypothesis and previous empirical studies.

This paper develops a model of heterogeneous consumer preferences and imperfectly competitive suppliers to analyze the market and welfare effects of purity standards for non-GM food products. Analytical results show that purity standards affect the equilibrium prices and quantities of both the GM and non-GM products as well as the welfare of the groups involved. A change in purity standards is shown to create winners and losers among the consumers and the suppliers of the GM and non-GM products. Our analysis provides insights on labeling policies and the position of interest groups in countries with different adoption of, and attitudes towards genetically modified products.

The increasing use of production contracts in the hog sector has reduced the number of spot market transactions and raised concerns about price manipulation by packers. These concerns have helped spur legislative efforts to restrict packer ownership of livestock and to regulate livestock contracts. Using panel data from the 2002 and 2007 Census of Agriculture, this study looks for evidence that production contracts are associated with market manipulation by examining whether the local prevalence of production contracts affects the price of finished hogs received by independent producers. The empirical approach examines whether changes in the prevalence of contracting at the county level are correlated with changes in the spot market price received by individual farmers. By comparing differences over time, this approach controls for unobservable time-invariant individual and county characteristics—such as product quality and location—that might be correlated with price and contracting prevalence. Results are sufficiently precise to rule out an economically significant negative relationship between contracting prevalence and the spot price as statistically unlikely.

Recognizing that consumers often evaluate the quality of food based on its origin, many countries have introduced country-of-origin labeling (COOL) programs. In this paper, we analyze bilateral trade data of bovine meat cuts to examine whether the implementation of COOL has altered trade flows of these products. We found that the impact of COOL varied widely among the countries examined over the study period. While the market shares of Australia, Canada, France, and Netherlands have expanded as a result of the implementation of COOL, those of Germany and Ireland have contracted.

The controversy over the granting of patenting rights to three new strains of Basmati rice by the U.S. Patent and Trademark Office is used as a case study to analyze the impact of incomplete protection of intellectual property. Results suggest that the introduction of a competing product that may infringe on India’s geographical indicator has lowered the product differentiation of Indian Basmati rice in key export markets.

Geographical Indications (GIs) are considered as upmarket products because they are based on tradition and convey information about their geographical origin. Otherwise, the limitation of the geographical areas devoted to GIs and the exclusivity they benefit on the product lead to suspicions of monopoly power. Quality and market power should however reflect a stronger attachment, making consumers less price sensitive than for standard goods. This research aims to compare theses conjectures to empirical measures concerning the French cheese market. Price elasticities are computed from a demand model on 21 products, 11 Protected Designation of Origin (PDO) products and 10 non PDOs. The results are counterintuitive, PDOs being as price elastic as or more price elastic than standard products. This finding thus challenges the widespread idea that PDOs systematically correspond to high quality. It also has important implications in terms of competition policy, showing that PDO cheeses suppliers cannot decide on price increases without suffering large reductions in demand.

Coffee can be distributed via the conventional supply chain or via the alternative fair trade supply chain. The implications of this choice on the distribution of the value added among the actors of the chain are relevant. Fair trade coffee rewards relatively more the producers located in the developing countries. A survey applying stated preference data collection methods to Italian households has demonstrated that they are willing to pay a premium price for the certified fair trade coffee of about 2.2 euros for a 250 gram coffee packet. This premium price, however, can vary significantly according to age, gender, income, and purchasing habits of the consumers. The methodology used implemented state-of-the-art survey design techniques and advanced models specifications to capture preference heterogeneity.

It is widely acknowledged that pressure groups play influential roles with regard to decision making on the agricultural and food use of genetically-modified organisms (GMO) in developing countries, especially in Sub-Saharan Africa (SSA). However, there has been relatively minimal examination of when these lobbying efforts actually influence GMO policies, and how such influence changes when other exogenous constraints associated with GMO improve. Using the model of competition between pressure groups developed by Becker (1983), this paper shows that if anti-GMO lobbying appears to be working, it is likely because conditions in SSA are unfavorable to the introduction of GMO. This result is validated by a discussion of existing capacity constraints for the development, regulation, and dissemination of GMO in SSA countries, and of how these constraints may make conditions less favorable despite the reported potential benefits of GMO. The findings of this paper confirm the importance of relaxing capacity and institutional constraints, and suggest that these constraints should be addressed before considering a possible lack of political will for promising GMO in SSA countries. Political influence may not have as much of an impact on the slow adoption of GMO by SSA countries as insufficient scientific and institutional capacity.

This article investigates the non-linear adjustment and price volatility between consumer and producer prices in the Greek broiler sector, using a threshold error correction autoregressive model and two multivariate GARCH models, i.e. DVEC(1,1) and BEKK(1,1). The results reject the null hypothesis of linear cointegration in favor of a three-regime threshold cointegration model. A cointegrating relationship is expected either when the relative markup is squeezed more than 30.89%, i.e. the price system is found in the lower regime, or if it increases more than 39.10%, i.e. the system is found in the upper regime. In the first case, the consumer price has to increase, while in the latter case, the producer price has to increase. Both price changes tend to bring the price system into the middle regime where the average relative markup is about 35.90%. The volatility results obtained from the estimation of the two multivariate GARCH models indicate that producer and consumer broiler prices present a significant level of persistence and that producer price volatility shows higher persistence than consumer price volatility. The results also indicate that consumer price volatility is higher in the first regime than in the middle regime, while producer price volatility is higher in the third regime than in the middle regime. Finally, the results suggest that the broiler price system is moving from the first to the middle regime via an increase in both the consumer price level and the consumer price volatility, while the price system is moving from the third to the middle regime via an increase in both the producer price level and the producer price volatility.

Congress passed into law the Livestock Mandatory Reporting Act in 1999 and a mandatory pricing reporting system for livestock and meat began in 2001. The implementation was problematic. It is also difficult to find any research prior to the legislation that demonstrated inadequacies in the voluntary price reporting system that had been in existence since the Agricultural Marketing Act of 1946. Thus, there is little evidence upon which to evaluate the new system. Available research suggests mandatory price reporting increased transparency and information at the national level and across cash and non-cash market choices, reduced price information in regional markets, and increased spatial and vertical market integration. Research shows diverse opinions on the success of the new system. Research also shows the potential for retail meat scanner data to significantly improve the accuracy of reported retail meat prices. Related research suggests clear benefits of the new system will be hard to measure. A primary conclusion from the literature is that benefits were unforeseen and unintended consequences were large. And that continued cost/benefit oriented research of the policy and legislation would be useful.