In recent years the dairy sector in Panama has experienced mergers and consolidations that have led to increases in industry concentration, a decrease in the number of producers, and an increase in the scale of operations. Small dairy producers have expressed concerns about the competitiveness of the dairy supply chain, arguing that price changes are not being transmitted efficiently from wholesalers to producer at the farm gate level. In this context, this study examines the degree of vertical price transmission between wholesalers and small dairy producers to assess the efficiency level of the dairy market chain in Panama. The findings of this research provide original and important contributions to the policy dialogue uncovering two key issues: 1) a unidirectional transmission of milk prices from producers to wholesaler, and 2) that the transmission of milk prices is asymmetric depending on whether prices are increasing or decreasing. [EconLit Classifications: Q11, Q13, Q18]. C 2013 Wiley Periodicals, Inc.

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As a percentage of national gross domestic product (GDP), farming is typically small in middle‐income and wealthier countries. But national accounts include only on‐farm activities, giving both the public and policymakers an impression that the food sector is a minor actor in the economy. Much of past development literature, using household expenditures, considered that farming generated few positive externalities, with few backward and forward linkages to other sectors, inviting the conclusion that stimulating agriculture was a low priority to boost economic development, especially in Latin America. Using national accounts, this study employs a concept of an expanded value added to capture agricultures intersectoral linkages, yielding a more useful measure of sector size. In the case of Chile, the expanded primary sector's contribution is approximately double that of simple national accounts, with forward links far exceeding backward. A more refined division of labor and economic specialization, perhaps enhanced by trade openness, appears to explain in part agriculture's declining share in national GDP and the growth of sectoral linkages.

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