When food prices drop on the consumer market, retailers immediately ask processors and farmers for a lower price. But if prices decrease as a result of increasing supply, supermarkets do not translate the lower price to the consumers. This is the way retailers use price volatility to increase their margins, concludes PhD candidate Tsion Taye Assefa.
Tsion, a business economist from Ethiopia, studied the transmission and management of price volatility in the food supply chain. She specifically examined the transmission of price volatility in the German supply chain of pork meat. She also interviewed stakeholders in the German pork supply chain. Her research revealed that retailers use their market power to negotiate lower meat prices from the slaughterhouses and farmers, but that they do not fully translate lower pork prices to the consumers. As a result, their margins grow. The more volatile a food supply chain is, the more money retailers can cream off, she concludes.
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