Updated price transmission relationships in the wheat-flour-bread value chain in Chile
This study is part of a series of working papers that assess relevant agrifood value chains in Chile using time series analysis and cointegration methods.
The objective of the paper is to analyze the behavior of the price of wholesale wheat flour, in order to understand its relationship with the related market for its main input: wheat triticum aestivum; and the recent changes observed in the link between the prices of both products.
Production and sale of wheat flour is part of the wheat-flour-bread supply value chain; where flour is an input for the bakery industry and wheat is the main input from which flour for baking is extracted. According to what is analyzed in this paper, and from a historical perspective, there has always been a close relationship between the price of wheat flour and the price of its main input, basically because wheat has represented over three quarters of the flour production cost and both products face markets open to foreign trade.
However, in the last five years the figures of the price indices issued by the Statistical Agency (INE) for both products have shown dissimilar behaviour. Specifically, it has been observed: (i) a change in the behavior of the price of wheat flour with respect to its relationship and usual trend with the price of wheat, and (ii) a stabilization of the price of wheat flour that is evidenced by slight variations in recent years.
Under this scenario, the motivation is understand the factors that could be shaping changes in the operation of this chain, evidenced in their price relationships. For this purpose, first we present a review of the historical series of the wheat flour and wheat price indices, from INE, which support the aforementioned appreciations. Next, we assess the industry based on the public information available, to continue with the representation and analysis of price transmission relationships of the wheat-flour-bread chain. Finally, we conclude with an analysis of the possible factors that could be influencing a change in the functioning of the markets of this relevant industry in Chile.
Full citation: Farías P., Claudio; Espinoza H., Álvaro; and Fernández B., Gastón. (2019). Santiago, Chile: Bureau of Agricultural Studies and Policy (ODEPA), Market Analysis Department.