Asymmetric Price Transmission in Agricultural Markets: A Case of Chickpea’s in South India

Abstract

Asymmetric price transmission in agricultural markets occurs when price changes at one level of the supply chain, such as at the farm (producer) level, are not fully or uniformly passed on to another level, such as retail prices. This can lead to situations where price increases are transmitted more quickly or fully than price decreases, often disadvantaging consumers or producers. Such asymmetry can be influenced by factors like market power, transaction costs, and supply chain inefficiencies. Understanding these dynamics is essential for designing effective policies that promote fair and efficient market operations. In this paper we empirically assess the vertical price transmission mechanism between producer and consumer prices of chickpeas in Karnataka for the period from January 2016 to January 2019 using monthly wholesale and retail price data. Threshold co-integration models are employed to analyze whether the retail and wholesale markets are co-integrated or not and to check the asymmetric adjustment towards a long-run equilibrium relationship. Both the threshold autoregressive (TAR) and momentum-threshold autoregressive (M-TAR) models reveal that the retail and wholesale prices of Bengal gram are integrated. M-TAR model provided the clear evidence of asymmetric price transmission in the major Bengal gram Markets in south India. This implies that retail prices (downstream prices) respond differently to wholesale (upstream prices) based on whether the upstream prices (wholesale prices) are increasing or decreasing price transmission with special reference to Bengal Gram. The presence of asymmetry in price transmission along the Bengal gram markets in India. This has important implications for policy-making, as it suggests a need for measures to enhance price transmission efficiency, protect consumers from disproportionately high retail prices, and ensure fair pricing practices across the supply chain. Addressing these asymmetries could help stabilize market dynamics and improve outcomes for both producers and consumers in the Bengal gram market.