Key findings

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The structure of the Canadian beef supply chain is changing with business consolidation occurring along the entire chain, especially at the processing and the retail levels. Concerns are often being raised about the consequences of these consolidations, especially asymmetric adjustments of prices and widening of their margins, as the processors and the retailers tend to be in a position to influence the market outcomes. Such concerns received widespread attention in Canada during the BSE crisis in 2003/04 as retail beef prices bounced back to the pre-BSE level following a transitory and small initial shock, although farm prices of beef cattle declined sharply and remained significantly below the pre-BSE level. The possibility of non-competitive behaviour of the retailers and the processors came to the forefront because of this asymmetric adjustment of prices.

The results indicate that retail prices adjust faster and at a relatively greater magnitude to rising compared to falling industrial prices of beef. Industrial beef prices also adjust faster and at a relatively greater magnitude in response to increases in farm prices of beef cattle in Ontario and in Quebec than to decreases in farm prices in these provinces. However, industrial prices do not exhibit any significant overall asymmetry in terms of magnitude of adjustment to increases and decreases in farm prices in the producing provinces.

A very small impact of BSE on retail prices is estimated, which has been negative for Alberta and Ontario, and positive for Quebec and British Columbia. The impact of BSE on industrial prices has also been small and positive. On the contrary, it is evident that BSE had a strong and sustained negative impact on farm prices in the beef cattle producing provinces.