Volatility spillovers in the Spanish food marketing chain . The case of Tomato

Since the food price crisis in 2007-2008, economic research has paid substantial attention to price volatility, given the significant impact it has on the economy. The objective of this thesis is to characterize the linkages that exist between the prices at different levels of the marketing chain. We focus both on vertical transmission of price level changes and volatility spillovers along the Spanish tomato chain. Selection of the Spanish tomato sector responds to its relevance, not only within the Spanish agriculture, but also within the European and global markets, given the leadership of Spain in world tomato markets. To achieve the aforementioned objective, weekly tomato prices at different levels of the marketing chain (producers, wholesalers and consumers) are used. A multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) model is fit to these data. The latter combines two sub models, the first is a vector error correction model (VECM), applied to evaluate conditional mean price behavior. The second sub-model is a GARCH-BEKK model that assesses conditional variancecovariance. Through the error correction model, results reveal the presence of a long-run equilibrium relationship between the three prices considered. In contrast to producer and wholesale prices, consumer prices adjust very slowly to deviations from this parity. This result is expected, given the market power usually exerted by retail chains. BEKKGARCH model results suggest highly volatile producer and wholesale markets, while retail prices fluctuate much less. Results also reveal that while producer and wholesale prices are rather sensitive to changes in past volatility and market shocks, retail price volatility is quite inelastic. This work contributes to the academic literature by first assessing price volatility links along food market chains, an issue that, with a few exceptions, has not been studied. Second, by studying the tomato marketing chain, which is in contrast with previous analyses on the topic that have mainly focused on meat markets.