Dynamics of Price Transmission in the Presence of a Major Food Safety Shock: Impact of H5N1 Avian Influenza on the Turkish Poultry Sector

Article excerpt

This article addresses the dynamic impact of the 2005 H5N1 avian influenza outbreak on the Turkish poultry sector. Contemporary time-series analyses with historical decomposition graphs are used to address differences in monthly price adjustments between market levels along the Turkish poultry supply channel. The empirical results show that price adjustments are asymmetric with respect to both speed and magnitude along the marketing channel. Results also reveal a differential impact of the exogenous shock on producers and retailers. The findings have critical efficiency and equity implications for the supply-chain participants.

Key Words: avian influenza, chicken, food safety shock, price transmission dynamics, supply chain, Turkey

JEL Classifications: Q11, Q13

In recent years, many highly publicized food safety scares have been reported worldwide. As a result, several interrelated issues, such as the impact of these events on human health, consumer safety concerns, the willingness of consumers to pay for food safety, and the impact of food safety shocks and subsequent consumer reaction on price adjustments across vertically linked markets, have received significant attention in the literature on food safety.

Widely discussed examples of recent cases of foodborne illnesses include contaminated meat products, infection by bacteria such as Salmonella and Escherichia coli, and contraction of Creutzfeld-Jakob disease after consuming beef infected with bovine spongiform encephalopathy (BSE). The consequences of such food safety scares include decreases in both the price and rate of consumption of meat products due to decrease in demand, recalls of meat products, culling of animals, and losses of export markets as a result of import bans. Where such incidents negatively affect consumer perception and confidence, the damage can extend to farm production systems and food supply chains and, in aggregate, to the whole food industry (Miles and Frewer; Verbeke).

Losses due to safety incidents are significant. In the United States alone, productivity losses from such incidents are estimated to be worth $7 billion to $23 billion per year (Smith and Riethmuller). In the U.K., in 1996, it was estimated that with the BSE scare both producer and retail beef prices declined, beef consumption decreased by 40%, and losses of US$1.7 billion were realized (Lloyd et al.; Sanjuán and Dawson); in 2001, foot and mouth disease was responsible for the destruction of 6 million animals, at a cost of 5 billion euros to the public and 8 billion euros to the private sector (De Jonge et al.).

Another recent food scare, the outbreak of highly pathogenic avian influenza (HPAI), started in the Hong Kong Special Administrative Region in China in 1997, causing 18 reported cases of infection and resulting in six fatalities. In Hong Kong, cases of human infection ceased after the rapid destruction of the entire chicken population, but in February of 2003, two further human cases were confirmed in a family in Hong Kong. This was not a localized incident. From Southeast Asia the virus quickly spread to Central Asia, Europe, and Africa. During the 3 years after the incident, around 300 million poultry died or were destroyed; of the 1 70 people contracting the disease, 92 died, and economic losses in Asia alone were estimated at around US$10 billion (FAO; World Bank).

Avian influenza (AI) also struck Turkey, which bridges Asia and Europe and is on the migratory routes of many wild bird species (Yalçin). The first Turkish outbreak of the HPAI, H5N1 AI in humans, was observed in mid-October 2005 in northwestern Turkey, followed by a second outbreak toward the end of December 2005. On January 5, 2006, two human fatalities were reported. The World Health Organization (WHO) reported a total of 21 human cases of AI in Turkey and four deaths, in 2006 (World Bank).

Regarding research on AI, several studies have looked at the impacts of an outbreak on various sectors of the U. …