Does Organic Supply Growth Lead to Reduced Price Premiums? The Case of Salmonids in Denmark

Isaac Ankamah-Yeboah, Max Nielsen and Rasmus Nielsen

Marine Resource Economics, 2019, vol. 34, issue 2, 105 - 121

Abstract: In this article we analyze whether markets for organic and conventional salmonids are integrated and to what extent the price premium is reduced when organic supply grows. Increased organic supply reduces prices if organic and conventional markets are independent, while price premiums remain unchanged with perfect interdependency, since conventional supply is large. With imperfect interdependency, price premium flexibility evolves. Cointegration is identified at the farm-level trout and retail-level salmon markets, while the Law of One Price (LOP) only holds in the trout market when tested without trend. Relative inverse demand indicates price premiums could decline by approximately one-quarter when the organic market share doubles. The results show organic and conventional salmonid prices are tied together and that price premiums might be reduced when organic supply increases. Price premiums might prevail when investing in organic salmonid farming, but not at the current level in the long run.

Date: 2019
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