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Analysis of Price Shock Transmission: case of the Wheat-Bread Market Value Chain in Ethiopia


This study assesses the degree of vertical price transmission along the wheat-bread value chain in Ethiopia. This is pursued by applying a vector error correction model (VECM) and an impulse response analysis using monthly price data for the period 2000 –2015. The analysis considers different market levels starting from international wheat market at the top stream to domestic bread market at the downstream of the value chain. The empirical findings indicate that significant cointegration exists across prices of the different stages along the value chain. In particular, there is a strong price shock transmission for the price pair international–local wholesale wheat prices. This suggests that international wheat price shocks could have significant consequences for the Ethiopian economy, given that the country is not only a net importer of wheat but it also imports a sizable amount vis-à-vis the domestic production. It turns out that although price shocks are transmitted along the value chain to a different extent, the speed of adjustment is quite slow. For instance, less than 6% of the disequilibrium in bread prices is eliminated in one month, indicating that it takes longer that one year for bread price to virtually restore to the long-run equilibrium after a shock.  Last but not least, the results also reveal that causal relationships exist between prices at different market stages. To this end, the impulse response analysis shows different responses to shocks, with some shocks producing weak and temporary adjustments while others producing stronger and persistent adjustments

Corporate Author: 
Ethiopian Economics Association (EEA)
Ethiopian Economics Association (EEA)
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Secondary Descriptor: 

value chain 

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Cataloge Date: 
Broad Subject heading: 
Call Number: 
330.0963 PRO 2017
Serial Key Title: 
Proceedings of the Fourteenth International Conference on the Ethiopian Economy
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Publication date: 
2017-06-01 00:00:00
Conference Place: 
Addis Ababa, EEA Multi-purpose Building Conference Hall
Place of publication: 
Addis Ababa, Ethiopia
Type of material: 
Current frequency: 
Thematic area: 
Macroeconomics, Trade and Industry Related Topics
Conference date: 
July 21 – 23, 2016