Econometric Study of Asymmetry in Price Transmission from Wholesale to Retail Trade of Sugar

Efficiency and equity of price transmission of agricultural and food products remained an item of major concern to producers, consumers and food industry. Changes in farm and wholesale prices are either not fully, or they are more than fully transmitted to consumer prices. The more common asymmetry is the one dealing with the issue whether retailers pass on price increases, while decreases in price are not completely transferred to the consumers. In present study Asymmetric price transmission is tested for major wholesale and retail markets of Sugar in the country. The asymmetry in transmission has been examined by applying Error Correction Model (ECM). The study indicated that the retail traders are more active and are not following the price signals coming from wholesale traders even in short run. The fall in wholesale price is partially transmitted whereas the rises in wholesale prices were more than fully transmitted to the consumers. In both the situations the retail traders are earning a huge profit from the sugar trade. The perusal of extent of asymmetry in price transmission from whole sale to retail trade differs widely among the markets spread all over the country. The range of asymmetry varies from maximum 68percent in Hyderabad market to 19 percent in Delhi market. The varying level of asymmetry practically is an indication of market efficiency prevalent in different markets of the same commodity. The study finally concludes that there existed a persistent asymmetry in price transmission in sugar trade from wholesale to retail trade.