Food scare crises and developing countries: The impact of avian influenza on vertical price transmission in the Egyptian poultry sector

Abstract

A bivariate smooth transition vector error correction model is applied to monthly poultry price data to analyze the effects that avian influenza has had on price transmission along the Egyptian poultry marketing chain. In order to reflect consumer awareness of the crisis, an avian influenza food scare information index is developed and used within the model as a transition variable. Our results suggest that price adjustments to deviations from the market equilibrium parity depend on the magnitude of the avian influenza crisis. Further these adjustments are found to have very different implications for market equilibrium: during the crisis retailers use their market power to increase marketing margins. In contrast, wholesaler margins are found to decline. Results also suggest that food safety information indices contribute to understanding the economic effects of food scare crises in developing countries.