Agricultural & Applied Economics Association

Pricing Linkages in the Supply Chain: The Case for Structural Adjustments in the Beef Industry Author(s): Ronald W. Ward and Thomas Stevens Source: American Journal of Agricultural Economics, Vol. 82, No. 5, Proceedings Issue (Dec., 2000), pp. 1112-1122 Published by: Blackwell Publishing on behalf of the Agricultural & Applied Economics Association Stable URL: http://www.jstor.org/stable/1244238 Accessed: 17/07/2009 00:39
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PRICING LINKAGES IN THE SUPPLY CHAIN: THE CASE FOR STRUCTURAL ADJUSTMENTS IN
THE BEEF INDUSTRY
RONALD W. WARD AND THOMAS STEVENS

Fundamental to almost every agriculture sector is a distribution system or supply chain used to move products beyond the farm gate to the final point of consumption. In many cases the identity of the initial product is almost lost as the product is transformed along the distribution chain. Yet for many of the major agricultural products, such as beef or dairy, the identity remains reasonably clear throughout the distribution system. Points of exchange differ and transformation takes place, yet the initial product in some transformed state is still the major component that is being priced. While the process can become extremely complex, in general the system entails changes in the transformation process often associated with product innovation, new communication and exchange systems, and changes in who is making the decisions. Obviously the latter is related to the underlying control along the distribution system and structural change. Embedded in much of the change is the use of new electronic transaction and information flows. All agricultural sectors have experienced some degree of change in the vertical coordination of their activities. Citrus, for example, has a long history of using participation contracts to coordinate producers and first handlers. Poultry is probably the most apparent example of major structural change, where vertical integration has become the primary structure for both production and transformation. More recently, there has been increasing interest and concern expressed regarding the coordination changes taking
Ron Ward is professor and Tom Stevens is research associate in the Food and Resource Economics Department, University of Florida. Part of the research was funded by the National Cattlemen's Beef Promotion Board and the National Cattlemen's Association. Florida Agricultural Experiment Station Jr. Series No. R-07615. This paper was presented in a principal paper session at the AAEA annual meeting (Tampa, FL, August 2000). Papers in these sessions are not subjected to the Journal's standard refereeing process.

place within the U.S. beef and pork sectors. Some argue that vertical coordination is the answer to many of the pricing and quality control problems (Martinez). On the other hand, producers express concern when faced with a few large first handlers that may have excess market power and the ability to exercise market power over pricing (MacDonald, et al.; Mathews, et al.). It is important to recognize that having and exercising market power are fundamentally different, as is clear from the literature on contestable markets (Shughart). Wohlgenant and Haidacher set forth a theoretical framework for dealing with the linkages across the distribution chain. They fundamentally measure price linkages at different exchange points using a series of reduced form equations that are demand driven for the most part and incorporate market power in the reduced form. In most of these recent studies the issue is whether changes in the coordination arrangements translate into the exercise of market power that in some way impacts producers via the price linkages. Obviously, each agricultural sector has unique aspects requiring separate consideration. Hence, in this discussion we limit the focus to beef since it is one of the largest agricultural sectors in the United States and one that is in various stages of structural changes, particularly with contracting and concentration. Our purpose is to address the question of whether we see evidence that vertical coordination has impacted the price linkages up and down the supply chain for beef. Changes in the price linkages should be one of the most apparent indicators of adjustments along the supply chain. Price Linkages in the Beef Sector One must always struggle with how to measure pricing performance at the major point

Amer. J. Agr. Econ. 82 (Number 5, 2000): 1112-1122 Copyright 2000 American Agricultural Economics Association

Ward and Stevens

Price Linkages

1113

of exchange within the vertical distribution over time to see if the data reveal changes system. In some cases it is nearly impos- that can be associated with the supply chain. sible either because of thin markets at an This approach is the focus of the following exchange point or because of the fact that section. Before moving to the varying paramthe price information is simply not public. eters method, the simplistic linkage model For the beef sector there is reasonably good and implications are presented. Define the price at the exchange points price data for the major points where ownership changes with the points defined as "i" and "j," where i < j implies moving follows: slaughter cattle prices; boxed beef through the vertical chain from producers to prices; wholesale beef prices; and retail beef consumers, as Pit = Oto+ EkmO XkPi(t-k) + E-jt prices. Drawing on the price spread literature Some lag in the price linkage is implied with and a somewhat simplistic approach to the k > O. Furthermore, if the pricing behavior problem, one can simply measure the rela- is expected to differ in rising versus falling tionships across the vertical market system prices, each Xk value depends on the direc(Ward) with the expectation of several differ- tion of the price change. Following Ward and ences in the linkages: Houck, it is easy to show that the asymmetry model can be respecified as * The linkage up the vertical major system m<t / can weaken as the product is transformed. k -) ) Pt=ao O E (jk Pi-k (1) P} + * There can be delays in the linkage given the k=O transformation time and pricing policies. T * Structural change should be manifested Pi(t-k-l) IDt))+ Eij t=l in the underlying parameters linking the exchange points. where D = 1 if Pi(t-k) < Pi(t-k-1) and zero * Market power may be revealed with asym- otherwise. In equation (1), Xk and X' repremetric pricing behavior relating to rising sent the standard way for measuring asymversus falling prices. metric parameters as set forth by Ward and * The direction of causality can change. k- Xk can be used to test for the existence of What are the major supply chain changes asymmetry. Assuming that the price linkage that could influence the linkages across has its largest effect immediately (i.e., Xo > the beef sector? Packer concentration has Xl > X2 > .. ), then the model can be easily increased, as have the facilities for han- respecified using a simple form of polynomial dling larger carcass sizes (MacDonald et al.). lag models. A preliminary test of the linkages There has been an increase in the number suggests that a linear form works quite well, of cattle sold on contract. This concept is where Xk = 80 + 61k and X" - Xk = o + 8'k. often referred to as captive supplies. The This yields the following model, using three packing industry has moved from produc- lags for estimation purposes, ing carcass cuts to producing primarily boxed supplies. There has been more direct selling (2) Pit = ot + 8(PRik)) between large packers and the major food Pk=0tchains, and the concentration or share of the retail markets held by the major retail + 81 Ek{PRi(t k)}) chains has increased. Retail chain concenk=l tration increased where in 1987 13% of the major U.S. cities reported the top four food + -k) eFi(,_O~3 chains had 80% of the regional market. By k=O 1998 this increased to 33% (Cotterill). Medina and Ward show the limited outlet mobil+ ?+ ej k{PFi(t_k) (1 ity with most meat purchases not willing to \k=l 1 move away from the large supermarkets. Such changes obviously occur over time letting and the resulting impact on the pricing sys- Pio = tem may be gradual and the timing not PRi(t_k) Pi(t-k) so apparent. Hence, rather than trying to and incorporate structural variables directly into the price linkage equations, an alternative = E{Pit-k) Pi(t-k) Pi(tk-1)}Dt. approach is to test for parameter change

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Equation (2) then provides the price linkage relationship to test for asymmetry and lagged responses. Given the primary focus is to measure the impact of structural changes in the supply channel over time on the performance of price linkages, one must also allow for the possibility of the linkage parameters changing over the appropriate period. That is, do we see any evidence of changes in the 8's in equation (2)? Before turning to the empirical evidence, it is important to lay out the possibilities: * If all 8's are zero, there simply is no linkage between the points of exchange. * If the 6's are zero, there is no lag structure of the price transmission. * If either 8" is different from zero, then there is evidence of asymmetric pricing behavior. * If any of the 8's change over time, there is evidence of some type of adjustment relating to the structure or underlying characteristics of the transformation process. * If the relative patterns in the 8 values differ when comparing (i, j) pairs in the vertical supply chain, then impacts from structure change, market power, contracting, electronic exchange, and/or product innovations may be revealed. Given that there are possible lagged price responses, then one must also calculate the short- and long-run price linkages. For example, the short run rising from equation (2) is 60 and the long run is 4(80 + 61) since the lag structure is represented with the linear lag model.

Within the family of varying parameter estimation procedures, the Cooley-Prescott models provide the most direct way for testing for parameter change while also accounting for the permanent versus transitory components in the parameters (Cooley and Prescott). While the Cooley-Prescott and more general Kalman filtering models have wide application in economics, it is worth restating the essence of these estimation techniques as they apply to equation (2). Considering 6( for illustration purposes, the Cooley-Prescott model defines the permanent and transitory components as 60, = 6t + [0, and 6 = components (Fomby, Hill, and Johnson; Ward and Myers). For the supply chain analysis, the permanent component is the most important. Our interest is with the applications, so the details of the method are not presented.
P ?(t-) + vot and one can measure the two

An Overview of the Supply Chain for Beef Figure 1 provides an overview of the supply chain for beef within the U.S. system. Seedstocks, cow-calf, and stockers represent inputs into the production of cattle ready to be placed in feedlots. Feedlots may purchase weaned calves from the cow-calf segment or cattle from the stocker segment and may finish them to at weight ranging from 900 to 1400 pounds. These animals are then marketed to packers. While a number of prices are relevant at this point, monthly live slaughter steer prices are probably the most representative of the market value of beef back to producers. Packers slaughter the finished cattle and fabricate the beef carcasses into boxes of subprimal cuts such as top rounds, tenderloin, or sirloins known as boxed beef. The boxed beef is then generally marketed to purveyors-processors or retailers who further transform the beef into products and sizes appropriate for consumers (NCBA). Boxed beef prices are considered the best signal of the beef value at the packer level. The processor-purveyor will further process the boxes of subprimal cuts into smaller cuts ready for consumption. Most often hotels, restaurants, and institutional buyers do not have the facilities to process the boxed beef and, hence, rely on purveyors. Furthermore, many grocery chains, which in the past purchased boxed beef directly from packers, are now buying processed cuts and beef

Statistical Approach to the Linkage Two problems associated with estimating equation (2) are (i) how to deal with potential problems with the residuals and (ii) how to model changes in the parameters. Given the use of monthly data, serial correlation is a real possibility, but this can usually be corrected with a first-order residual model. Furthermore, it is straightforward to test for the stationarity of the residuals. Second, are any changes in the parameters permanent or simply stochastic? If changes in the supply channel are profound, then one would expect the resulting impact, if it exists, to be permanent.

Ward and Stevens Seedstock Cow/Calf Stocker Feedlot

I
I|*.

Price Linkages

1115

. . . . I Price Signal: Steer Pnces i Slaughter 1 ............... *

Packers
I

_ $-------------.

4.

I~~~'|
*

Price Signal: Beef PrBoxed Price

$I mmmmmm...?. .......

Processors/Purveyors
_.........---I .-

~*r

Price Signal: Wholesale Beef Price R $ m...........m....

Retailersand FoodserviceOperators I ^.....-.........

m * PriceSignal: Retail BeefPnrice

Final Consumers

is apparent is the major change in packer concentration in the last two decades. Contracting with producers in what is often referred to as captive supplies has increased. Closer to the consumer, retail chain shares of the food market have shown dramatic increases since the early 1980s. Throughout the supply chain the electronic exchanges and transmission of information has, at least partially, adapted to new communication technologies. The impact of structural changes has many dimensions and may be profound in selected cases. Yet for the total industry, what is the effect on pricing behavior? Price is generally the index used to judge the markets since it reflects in one signal the composite effects of many things, including structural change, e-commerce, and innovation. Hence, the discussion in the previous sections on price linkages is a logical way to assess the impact of changes within the supply chains set forth in figure 1. While one can probably find unique impacts when looking at specific cases, what is important is the overall conclusion for the total industry in terms of price transmission signals, hence providing the motivation for the models set forth in equations (1) and (2).

Figure 1. Overview of the supply chain for the U.S. beef industry items from purveyors for direct sale. Obviously, this linkage depends on the retail store or chain's facilities for further fabrication (NCBA). Average wholesale beef prices are used as the best price signal at the purveyor level. Finally, retail chains and other retail outlets represent the end point of the supply chain and average retail beef prices are the appropriate price signal. While space does not permit detailing every dimension to the structural changes within this system, there are several important changes that have raised public concern and interest. Packer concentration is probably the most apparent change. Between 1980 and 1997 the percent of steers and heifers slaughtered through the top four-firm packers rose from 36 to 80%. Similarly, the percentages for boxed fed beef ranged from 53 to 83% through the top four-firm packers (MacDonald, et al.). An increasing number of the animals were slaughtered through plants with annual capacity of 500,000 head or more. While other statistics could be shown, what

Price Linkage Estimates Equation (2) was estimated linking the four price series identified in figure 1. Each model was first estimated testing for autocorrelation in the residuals yielding the p values reported in table 1. Each model was then corrected using the appropriate p values and then reestimated, giving the parameters reported in table 1 along with the relevant statistics. These are the estimates prior to applying the Cooley-Prescott procedures. For each price linkage starting with the retailwholesale, both 80 and 68 are statistically significant, thus showing a strong price linkage at each point in the supply chain for beef. Furthermore, 68 establishes that there is some delay in the transmission of the price information at each exchange point. By the third lag period, any delayed price transmission information is nearly zero for each exchange point. That is, the price information that is reflected at the next point in the supply chain occurs within a quarter. Note that this conclusion was not imposed in the lag structure when estimating the models. Between

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Amer. J. Agr. Econ.

50 to 60% of the price transmission for ris- falling wholesale prices (see the shaded area ing prices is seen immediately within the in figure 2). While there is noise in the adjustsame month and 33% within the next month. ment, for the most part the change is permaLinkages between the retail and wholesale nent in nature. While many factors contribute take a little longer, with the third period lag to this pattern, one cannot ignore the conbeing 18% at this level and around 9% for centration that has taken place among retail the two lower levels (i.e., wholesale-boxed food chains where these chains have gained beef and boxed beef-slaughter steers.) The 6" increasing market power. show the existence of asymmetry when statisFigure 3 shows the corresponding linktically significant. For these overall estimates ages between the wholesale (purveyorswithout considering the varying parameters, processors) and packers. Again, like the one concludes that there is statistically sig- retail-wholesale, there is asymmetry between nificant asymmetric pricing behavior between the responses to rising versus falling packer the retail-wholesale levels but not for the lev- (boxed beef) prices. What is most interesting, els further from consumers. Other statistics however, is the lack of change in the parameare reported in table 1, including the Dickey- ters beyond the initial period early in the hisFuller test for each set of estimates and the tory of boxed beef operations. If there have been shifts in market power at either or both Durbin-Watson.' While the results in table 1 reveal how the packer and processor-purveyor levels, it the industry price transmission behaves, it is has not translated into any apparent change more important for understanding the supply in the price linkage between these levels. chain to consider the stability of these estiFigure 4 shows the price relationship mates over time. Given the range of struc- between packers and producers as captured tural changes taking place particularly at the by the boxed beef and slaughter steer prices. packer level, do we see a change in the pric- There is relatively little difference in the rising behavior up and down the supply chain? ing and falling parameters and very little Each relationship in table 1 was reestimated change in the parameters over the two or using the Cooley-Prescott model allowing for more decades included in the analysis. What is most striking is the lack of change. While all parameters to change over time. the increase in packer concentration is well documented and some level of contracting Price Linkage Estimates Cooley-Prescott exists, there appears to be almost no effect on Starting with the bottom (retail) of figure 1 the pricing structure linking cattle prices and and working through the supply chain back boxed beef prices over the study period. The to producers, several interesting aspects of little asymmetry that is present is extremely the price linkages are revealed that would small in comparison with that seen at the otherwise not be seen with the traditional retail level. estimates. Figure 2 shows the estimated longThe consolidation at the packer level has run rising and long-run falling price param- not translated into weakening of the price eters for the retail-wholesale price equation, linkage between producers and packers, the with the long-run defined as the current first point of exchange in figure 1. Changes parameter plus two lags. Clearly, the linkage can be seen throughout the supply chain, between the retail and wholesale has declined but these results clearly point to the major over the period since the early 1970s with impacts in terms of pricing occurring nearer both rising and falling wholesale prices hav- the retail levels and little adjustment nearer ing less impact on the average retail price the producers. That is, there are no apparfor beef. Furthermore, there is strong evi- ent anticompetitive impacts on pricing near dence that rising wholesale beef prices are the producer levels to the extent that one passed through to the retail with retail price accepts pricing behavior as a useful signal increasing at a greater rate than seen for (Vives). These conclusions are completely consistent with those recently set forth by Reed and Clark and are particularly robust ' Causality issues are often raised when dealing with price since the packer concentration is not a new linkages and supply chain responses. While theory suggests phenomenon and has had time to be reflected the flow as adopted with equation (1), a Granger causality in the pricing structure. Other changes, such test was applied to each market level. Write to Ward for these results (ward@fred.ifas.ufl.edu). Without much question, as increase in contracting or captive supthe implied causality from the producer to handlers and then to plies may not have had sufficient time to be the retail sector is confirmed. That is the wholesale-retail and steer-- boxed. reflected in the pricing structure.

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Table 1. First order Autoregressive Model of the Price Linkages (See equation (2))
ARI parameters
(to

RetailWholesale 7.74350 (24.4377) 0.390258 (14.1120) -0.120677 (-6.6434) -0.133702 (-2.5149) 0.064206 (1.8195) 0.695455 2.12059 167.273 0.95021 -18.35566 1974:5-1999:2

WholesaleBoxed Beef 59.4915 (135.3360) 1.07866 (20.7972) -0.454554 (-13.1158) 0.042386 (0.4336) -0.028296 (-0.4349) 0.956533 1.86913 1634.96 0.49893 -16.05252 1974:5-1999-2

Boxed BeefSlaughter Steers 29.1691 (9.9613) 0.959623 (6.4603) -0.414712 (10.6588) -0.120243 (-1.080) 0.080959 (1.0927) 0.898041 1.89816 645.179 0.63976 -16.32478 1974:5-1999:2

(t-values)
o(

(t-values)
a1

(t-values)
(t-values) a~,

(t-values) R-squared Durbin-Watson F (zero slopes) Rh Dickey-Fuller Period

Estimated Coffficient 1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct 1992119931199411995119961199711998 19741197511976|1977119781197911980119811198211983119841198511986119871198819891199011991

Figure 2. Long-run rising and falling price responses between the retail and wholesale beef exchange point in the supply chains

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Amer. J. Agr. Econ.

2.50

Estimated Cofficient

2.00 -

1.50 -

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Wholesale- Boxed Beef Prices Cooley Prescott with Diagonal (Smoothed) -Long Run OLong Run Falling Rising
.. .... ....... ......... .............

1.00 -

0.50 -

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Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct 1974119751197611977 1978119791198019811198211983198411985119861198719881989819901199111992119931199411995119961199711998

Figure 3. Long-run rising and falling price responses between the wholesale and boxed beef exchange point in the supply chains

2.00

Estimated Cofficient

1.50

1.00

0.50

A in V
V.U

...... ....... ......... -1 . .. i i "lll I llll ..ill.lll

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Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct 19741197511976 19771197811979119801198111982 19831984 19851198611987 19881989 199011991 199211993 19941199511996 199711998

Figure 4. Long-run rising and falling price responses between the boxed beef and slaughter steer exchange point in the supply chains

Ward and Stevens

Price Linkages

1119

the long-run estimates for the three market levels. Relative rising prices are comSince the unit scale (e.g., dollars per live price in pared figure 6, where the left axis shows weight and dollars per pound of boxed beef) the percentage of the price transmission that differs across the price series, it is a litoccurs within the same month. For the boxed tle difficult to see the relative changes in beef-live steer linkage, about 60% of the the previous figures. This is particularly true when comparing the degree of asymmetry.To slaughter steer price change is reflected in accommodate comparisons across the supply the boxed beef value within the same month. Of more importance is the fact that this perchain, each asymmetry measure was indexed to the arbitrary period 1985:1. This is about centage is very stable across the estimation consolidation at the midpoint in the data set and extends beyond period. Again, given any packer level, there is no indication that such the initial periods to avoid the larger variations associated with the starting period structural change over time has influenced in the varying parameters estimation tech- the speed of transmitting the price signals niques. First, for each market level in the at this point in the supply chain. For the supply chain the difference between the long- wholesale-retail levels, a smaller percentage run rising and long-run falling estimates are of the price transmission occurs in that same calculated and then divided by the value for month for rising wholesale prices, yet there is 1985:1. Hence, the asymmetry for each mar- some evidence that the speed of transmitting ket level is pivoting around this arbitrary rising wholesale prices has increased even period, facilitating an easy comparison of the though the change is small. For the boxed changes over time. As presented in figure 5, beef-wholesale levels, a large percentage is the index levels of asymmetry show near transmitted immediately and after the adjuststability for both the wholesale-boxed beef ment periods in the early 1970s there is little prices and boxed-steer prices after some early evidence of much additional change. Figure 6 adjustments. In contrast, the retail-wholesale again points to the major changes occurring value clearly shows an increasing tendency nearer the consumer end of the supply chain. for greater asymmetric pricing behavior near Figure 7 shows the comparable responses the consumer end in the supply chain. Again, for falling prices across the months. Again the this reinforces the conclusion that most of the stability of the boxed-steer price linkage is pricing behavior change is at the retail level evident with about 50% of the falling prices in the supply chain. A positive slope in the being reflected within the same month. There parameter points to an increasing tendency is a very slight increase in this percentage, but for rising prices to be passed through to the for the most part one has to conclude that next level faster than falling prices. A nega- the percentages are stable beyond the early tive trend would point to the opposite. Again 1970s. Again, packer concentration does not the general slope for the retail-wholesale is appear to have influenced the speed of transpositive while the general slopes for the oth- mitting falling prices at this exchange point. ers are near zero. Of particular interest is the slow response between the boxed beef-wholesale levels for Lag Structure falling prices. Less than 30% of the falling prices are seen within the same month. While Finally, have structural shifts, contracting, electronic exchange, and innovations led to there is a slight upward trend in this percentit has leveled out through most of the changes in the speed that price information age, 1980s and 1990s. Finally, the instability at the is transmitted through the supply chain? One simple way to address this is to show the retail level is again seen with the short-run ratio of the short-run response to the long- values ranging between 30 to 60%. It does run response. This ratio shows the percentage appear that during the 1990s some stability of the price response that is passed through has occurred with between 40 to 50% of the in the same month relative to the full impact falling price response occurring within the of the price change (i.e., the long-run effect). same month. To emphasize, these measures This percentage can differ both across the are the percentage of the transmitted prices supply chain and between the rising versus occurring immediately while recognizing that falling measures. In figures 6 and 7 the short- the full amount of price change differs across run rising and falling values are divided by the supply chain.

Index of Asymmetric Pricing

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Estimated Coifficient 2.50

2.00

1.50

1.00

0.50

0.00 Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct 197411975 1976 1 841198S 1 71l9881198)11 l9901199111992|119931 119941199511996|199711998 1 l97711 97811 979119 980119811982} 19 98619 8

Figure 5. Index of asymmetry in beef prices across the supply chain

Estimated Cofficient 1.40

Supply Chain Beef Prices 1.20 -- Short Run Rising % o(Short-Run)/(Long-Run) Short Run Rising %0 Short Run Rising ?%

Retail-Wholesale
1.00 -

Wholesale-Boxed

Boxed-Steer

0.80

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--

0.60

0.40

0.20 -

0.00

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Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct 'i 9 1 8| 198 e l991 1992| 93|19941 lO 199)1 97| 1974|1l91 97197761 978|1979 11980s 9891l990| 1983|19841185|986 l 198111|92s 987

Figure 6. Lagged price responses to rising prices across the supply chain for beef

Ward and Stevens

Estimated Cofficient 1.00

Price Linkages

1121

Supply Chain Beef Prices (Short-Run)/(Long-Run) -,, ShortRun Falling % -- Short Run Falling 0 - Short Run Falling 0 Boxed-Steer Wholesale-Boxed Retail-Whlolesale 0.80 -

0.60 -

lid.,
0.40 -

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Figure 7. Lagged price responses to falling prices across the supply chain for beef Conclusions What can we conclude from these results? First and foremost, one has to accept that price linkage is a reasonable way to address the issue of market performance within the supply chain and then to accept the argument that market power and associated activities influence the price transmission (Wohlgenant and Haidacher). Given that premise, it is clear that the structural changes at the packer level have had little aggregate effect on the price linkages between producers (slaughter steer prices) and the first handler (boxed beef prices). Concerns expressed about packer concentration do not appear to be supported by the price linkage evidence. One must recognize, however, that we are looking only at the price linkage dimension and at the aggregate market levels. Second, most of the major pricing differences in the supply chain are occurring near the retail markets between retail outlets and the purveyors. It is at this point that less price response is seen and the greatest change in the price linkage is measured. All of the underlying activities with contracting, electronic trading and communication, etc. do not appear to have impacted the price transmission as we move closer to the producer end of the supply chain. References
Cooley, TE, and E. Prescott. "Varying Parameter Regression: A Theory and Some Applications." Ann. Econ. and Soc. Measures 2(1973):463-74.

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