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.

Milk has become one of the most volatile agricultural commodities in the international market. High volatility of commodity prices and their implications for food security are clearly among the most important issues facing policy makers today. Thus, a deeper understanding of the magnitude, speed, and symmetry to which global milk prices are being transmitted to domestic prices at the farm gate level is a fundamental factor in the design of appropriate policy measures oriented to reduce not only the level of milk price volatility, but also poverty and food insecurity. The purpose of this article is therefore to assess the dynamics of the relationship between global and domestic milk prices. [Econ Lit Classifications: Q11, Q13, Q17].

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