Impact of COVID-19 Pandemic on Vertical Price Transmission in the U.S. Fresh Banana Market

Solomon Odiase and Sayed H. Saghaian
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Solomon Odiase: Department of Agricultural Economics, College of Agriculture, University of Kentucky, Lexington, KY 40506, USA
Sayed H. Saghaian: Department of Agricultural Economics, College of Agriculture, University of Kentucky, Lexington, KY 40506, USA

Sustainability, 2022, vol. 14, issue 10, 1-16

Abstract: The U.S. imports about two billion dollars of fresh bananas, accounting for over 99 percent of domestic banana consumption annually. The COVID-19 pandemic disrupted the fresh banana supply chain and caused unexpected price movements along the marketing channel. This research investigated the impact of the COVID-19 pandemic on price adjustments in the U.S. fresh banana market. A Vector Error Correction (VEC) model was employed to evaluate the speeds of price adjustments along the U.S. banana marketing channel at the import and retail levels, and historical decomposition graphs were used to investigate the magnitude of price adjustments caused by the COVID-19 shock. The results show that the deviation from the long-run equilibrium caused by the shock was corrected faster for the import prices than retail prices. Hence, the speeds of price adjustments were asymmetric in the period of the COVID-19 shock. Additionally, the magnitudes of price changes caused by the pandemic shock were different, leading to increased price margins. These results point to the inefficiency of the banana marketing channel with welfare, policy, and agribusiness implications.

Keywords: price transmission; U.S. banana market; Vector Error Correction model; structural breaks; historical decomposition graphs (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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