Impact of the positive list system (PLS) on the banana market in Korea

Abstract

This paper investigates the impact of new food safety regulations, a positive list system (PLS), on the vertical supply chain for bananas in Korea using monthly price data from January 2012 to February 2018. To analyze the impact of the PLS on imported, wholesale, and retail banana prices in Korea, this paper utilizes directed acyclic graphs, granger causality tests, and historical decomposition methods. We find that imported banana prices are caused by retail or wholesale banana prices in terms of predicted or contemporaneous causation. These findings suggest that banana wholesalers and retailers have market power over banana importers in terms of price leadership. The results of the historical decomposition show that the PLS shock has a positive effect (a non-tariff effect) on wholesale and retail banana prices. The size of the price shock is larger at the wholesale level compared to retail level, which implies the relatively a larger market power of wholesalers on retailer. Therefore, policymakers in Korea can use the PLS as a tool to protect domestic food market as well as a means of control on possible overuse of market power.

Keywords:

• Directed acyclic graph
• food safety regulation
• historical decomposition
• market power
• positive list system

JEL Codes:

• Q11
• Q17
• Q18

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The PLS, as defined in Korea, prohibits the use of pesticides that are not registered in the Korea MRL standards. Please see http://www.nongsaro.go.kr/portal/ps/psz/psza/contentMain.ps?menuId=PS04219

2 We considered a cross-commodity comparison but found there are data access limitations. The Korea Agricultural Marketing Information Service (aTKAMIS) offers prices of tropical fruits such as the banana, pineapple, kiwi, and mango. Among these commodities, the prices of bananas allow us to include more time periods than would be possible for other tropical fruits, for which only the time period since June 2015 is covered; therefore, it is difficult to analyze the PLS by conducting a cross-commodity comparison. Thus, we only consider bananas.

3 For the historical decomposition forecasting, we use the data period from January 2012 to December 2016. On the other hand, this paper utilizes the data period between January 2012 to February 2018 for the analysis of DAG, VAR, and Granger causality test.