Transaction Cost Thresholds in International Rice Markets

Recent episodes of high and volatile prices for grains such as rice have raised concerns about their implications for hunger and poverty. We model price relationships between international rice prices and 221 domestic prices in 47 developing countries that import rice. We use a threshold vector error correction model that accounts for transaction costs of trade in spatial price transmission, and an improved regularised Bayesian threshold estimator for threshold models. Our results show that threshold values are higher after 2008 than before, which suggests that transaction costs in international rice trade have increased in recent years. Threshold values are highest for Latin American countries followed by African and Asian countries, and higher for retail than for wholesale prices. Since 2008, price transmission is slower in countries that responded to high and volatile prices with domestic market‐based interventions such as price controls and faster in countries that responded by lowering tariffs and by implementing production support measures.     

The role of retail market power and state regulations in the heterogeneity of farm‐retail price transmission of private label and branded products

Given the leading role of private label brands in the fluid milk market, it is of special interest to focus on possible differences in farm‐retail price transmission between private label and branded milk as well as the causes of heterogeneity. This article examines the heterogeneous effects of private label and branded products on price transmission in the fluid milk market using a panel threshold asymmetric error correction model. Results indicate that upward retail‐price adjustment is faster than the downward price adjustment for both private label and branded milk. The speed of adjustment of private label products is significantly faster than branded products in three different price regimes. We further investigate the reasons of heterogeneity in farm‐retail price transmission of private label milk. We find that both retailer market power and state pricing regulations contribute to the heterogeneity in asymmetric price transmission. Higher retailer market power causes retail prices of private label milk to rise faster and to fall slower. The existence of a state pricing regulation slows down the adjustment speed of retail prices of private labels back to the long‐run equilibrium, regardless of whether the retail price is low or high.     

Productivity and international competitiveness of agriculture in the European Union and the United States

This study looks at international competitiveness of agriculture in the European Union and the United States. The most intuitive concept is that of price competitiveness. We calculate relative prices for 11 member states of the European Union and the United States for the period 1973–2002. We assume that markets are perfectly competitive and in long‐run equilibrium, so that the observed price always equals average total cost, as measured by the cost dual to the production function. This assumption is used in our calculation of relative competitiveness and productivity gaps between the European Union and the United States and in our decomposition of relative price movements between changes in relative input prices and changes in relative productivity levels.     

Black Sea and World Wheat Market Price Integration Analysis

In 2008–10, Russia and Ukraine together exported an average of 29 million tons of wheat per year, and have become important players in the international wheat market. This research summarizes the short‐ and long‐run wheat price dynamics between Ukraine and Russia, and other major wheat exporters—the United States, European Union (EU), and Canada—from 2004 to 2010. Tests of market price co‐integration (Johansen maximum likelihood test and residual‐based tests) as well as threshold error correction techniques were performed for this purpose. The results suggest that Russian wheat prices were co‐integrated with EU and U.S. wheat prices but not with Canadian wheat prices. Ukrainian wheat prices were found to be co‐integrated with French wheat prices only. The estimated long‐run wheat price transmission elasticities were estimated to be equal to 1.04 between Russian and French (a representative country of the EU) wheat prices, 1.16 between Russian and U.S. wheat prices, and 1.05 between Ukrainian and French wheat prices. We also found the short‐term relationships between the co‐integrated series to be statistically significant. Price adjustments in all co‐integrated prices were found to be symmetric.     

Food Price Pass‐Through and the Role of Domestic Margin Services

The recent volatility in international agricultural markets has drawn attention to the impact of rising international agricultural prices and the induced price‐insulating measures on consumer food prices. Analyses based on simulation models on this topic typically ignore the role of domestic margin services. We extend the standard Global Trade Analysis Project (GTAP) model to allow for variations in the share of domestic margin services in consumed food across countries. This approach enables us to differentiate consumer prices from producer prices. Following the extension, the results show that domestic margin services reduce the consumer food price volatility for all countries, especially in high‐income countries, where the share of domestic margin services in final food consumption is higher. The effect of price‐insulating border policies is also reduced in the extended model. We find that our extension of the GTAP model greatly improves simulations of the 2007 surge in international agricultural prices. We validate our extension of the GTAP model by showing that the econometrically estimated food price pass‐through is decreasing with income and thus, is smaller in high‐income countries.     

Determination of the international maize price: What is the growing role of Brazil and Ukraine?

This paper examines the relationships among maize prices for four countries to determine if newly emerging exporters, Brazil and Ukraine, influence the international price of maize. Our work focuses on each market's participation in the price discovery process rather than trying to determine a price leader. We find that the United States plays the largest role in price discovery, followed by Argentina, Brazil, and Ukraine. We also search for export thresholds and find that Ukraine's contribution to price discovery rises slightly when an export threshold of 2.3 million tons is reached. No export thresholds were found for Brazil. Export thresholds for Argentina were found but only have a minor impact on price relationships. We also found that price relationships vary considerably across seasons of the year.     

Supermarket Promotions and Food Prices: A Note

Using a sample comprising nearly 250,000 weekly prices from the largest seven UK supermarket chains, this note investigates two pricing practices that have attracted public interest: the tendency for promotions to ‘disguise’ rises in non‐sale prices and the inflation of prices prior to sales which ‘exaggerate’ the discount. Analysing price dynamics before and after periods of promotional discounting results show post‐sale prices are typically lower than pre‐sale prices, contrary to the disguise hypothesis. We do, however, find evidence of exaggeration of the discount, which may potentially explain why prices fall after discounts, although the evidence is not sufficiently widespread for this to be the sole cause. Results parallel the competition authority's view of supermarket promotions and point to the useful contribution that retail price microdata might play in keeping prices in check in countries where highly concentrated retail sectors raise similar concerns.     

Price transmission,asymmetric adjustment and threshold effects in the cotton supply chain: a case study for Vidarbha,India

This study examines price transmission asymmetries in Vidarbha's (India) cotton supply chain from 2002 to 2012. The analysis takes account of thresholds in price adjustments toward their long‐run equilibrium. The first stage considers the price dynamics between international and Indian domestic cotton prices. The second stage considers price transmission from domestic to farm gate cotton prices in Vidarbha. Results from the first stage indicate that Indian and international cotton markets are well‐integrated. In contrast, the second stage reveals significant threshold‐type nonlinearities as well as asymmetries in price transmission between domestic and farm gate prices. The short‐run dynamics suggest that the pass‐through from domestic to farm gate prices is larger when domestic prices decrease than when they increase. Moreover, back of the envelope calculations suggest that the loss in revenue for a typical farmer from a decrease in domestic price is larger than the gains from an increase in domestic price of the same magnitude. The implication is that traders benefit from price fluctuations at the expense of farmers. Evidence from fieldwork in Vidarbha suggest that asymmetries revealed in this analysis may be linked to trader's market power and inadequate market information among farmers.     

Post–Uruguay Round price linkages between developed and developing countries: the case of rice and wheat markets

The Uruguay Round Agreement on agriculture attempted to lower distortions in global agricultural markets. However, the significant fall in commodity prices in the late 1990s may have reduced the incentives for both developed and developing countries to better integrate into world markets. This study analyzes price linkages and adjustment between developed and developing countries during the post–Uruguay Round period. Prices of two key commodities, long‐grain rice and medium‐hard wheat, are assembled for major exporters and producers. Results of multivariate cointegration analysis suggest partial market integration between developed and developing countries in the post–Uruguay Round period. Developed countries are found to be price leaders in these two markets, and in most cases, changes in their prices have relatively large impacts on those of the developing countries. Developing countries (e.g., Vietnam and Argentina) have faced considerable price adjustment due to changes in the developed countries' prices.     

Spatial Market Efficiency and Policy Regime Change: Seemingly Unrelated Error Correction Model Estimation

We investigate the degree to which the wheat markets of France, Germany, and the United Kingdom are in spatial equilibrium and how reforms to the CAP affect the speed of convergence to the long–run relationship. Due to the interrelationship among these markets and the nonstationarity of our data we introduce a seemingly unrelated regression–augmented Dickey–Fuller and error correction methodology. We argue this methodology is more efficient than ordinary cointegration and error correction models. Empirically we find strong evidence of efficient spatial markets and conformity to the law of one price. Market liberalization reforms in the EU increased the comovement of domestic and world wheat prices; our post–Uruguay Round price transmission elasticity was 0.183.     

The effects of China's growth on the food prices and the food exports of other developing countries

This article explores the impacts of China's growth in the international markets of agricultural products along two dimensions: food price inflation and export growth in other developing countries. China's food imports of vegetable oils have grown dramatically over the last decade, linking China's economic growth to the recent increases in global food prices. If China is a source of global food price inflation, exporting countries will benefit whether they sell directly to China or not. These direct and indirect linkages are explored using a short‐run, partial‐equilibrium model of international trade in agricultural products in which consumer prices and trade costs are derived from bilateral trade flows. China's effects on food prices and exports are estimated by reducing Chinese food expenditures in 2007 by half, roughly China's level of expenditures in 1995. Results indicate that food prices as measured by CES price indexes in developing Asia, Africa, and Latin America would have been reduced by 1.27%, 0.32%, and 0.22%, respectively. China has been an important source of growth for exporters selling directly to China. There is no evidence of export growth due to an overall increase in food prices caused by China's growth.     

The effects of the Yuan‐dollar exchange rate on agricultural commodity trade between the United States,China, and their competitors

The United States claims that the undervaluation of Chinese currency, the Yuan, causes U.S. exports to China to decrease and imports from China to increase. Furthermore, because the Yuan is undervalued only against the dollar, U.S. competitors have an advantage in exporting to China and China has an advantage over its competitors in exporting to the United States. This study develops a theoretical model to analyze the effect of the Yuan undervaluation on prices, supply, demand, and trade in the United States, China, and their competitors. This study applies a cointegration/error‐correction model to empirically quantify the short‐run and long‐run effects of the devaluation of the Yuan on important agricultural commodities traded between the United States, China, and their competitors. These commodities include Chinese imports of milk, soybeans, and cotton from the United States and U.S. imports of beans, fruit juice, and fruit from China. The results show that Yuan devaluation causes Chinese imports of U.S. milk, soybeans, and cotton to decline and U.S. imports of beans, fruit juice, and fruit from China to increase in the short run and in the long run.     

Energy‐milk price transmission at the product brand level

This article estimates the pass‐through rates between diesel fuel and retail milk prices at the product brand level. Using a random coefficient logit demand model and taking the direct and indirect impacts of energy prices, this research identifies changes in pass‐through rates before and after the great recession in 2008. Empirical results show that diesel prices significantly impacted the retail prices of milk products and are an important determinant of food price inflation. Pass‐through rates are estimated to range from 0.16 to approximately 0.60 through 2008 with an average of 0.22 for the whole period. Statistical tests indicate that pass‐through rates before June 2008 were significantly higher than after June 2008 when they dropped significantly to 0.04 to 0.17. Interestingly, private label brands have the lowest pass‐through rates, implying that compared to manufacturer brands, private label prices are more insulated from diesel price shocks.     

Structural Change and Long‐run Relationships between US and EU Wheat Export Prices

This paper analyses the nature of the long‐run relationship between US and EU wheat export prices over the period 1981–2000. We employ a novel approach of testing for cointegration with structural change developed by Barassi and Taylor (A Test for Change in the Cointegrating Rank, University of Birmingham, Birmingham, 2004). The method enables us to determine the breakpoint, which is found to occur after the 1992 CAP reforms were implemented. On analysing the two separate subperiods, we find no evidence of a long‐run relationship prior to the 1992 CAP reform. However, clear evidence of a long‐run relationship is found after the CAP reforms were implemented. Further analysis reveals that, in the post‐CAP reform period, the EU wheat prices follow then US soft wheat prices, consistent with the EU export subsidy regime over this period, albeit that export subsidies by the EU have been relatively small.     

Importing High Food Prices by Exporting: Rice Prices in Lao PDR

Lao PDR has extensive export controls on its staple food, glutinous rice, which keep domestic prices low relative to international prices. Using price, harvest, and export data this paper analyses how glutinous rice prices in Laos PDR are related to those in its trading partners, Thailand and Vietnam. We find that rice prices in Lao PDR are more likely to rise following a good harvest year than a bad or a normal year. This is consistent with export controls being relaxed after good harvests, leading to an increase in exports early in the season and rising prices later as stocks are depleted. There is thus a case for removal of trade restrictions since they give rise to price spikes while keeping the long‐term price of glutinous rice low, and thereby hinder increases in income from agriculture. However, since high rice prices are likely to affect the poor negatively in the short to medium term, a combination of an export tax and cash transfers is recommended during the transition period. Although this is a case study of Lao PDR, the findings may equally apply to other developing countries that export their staple food.     

Impact of trade liberalisation on dairy market price co‐movements between the EU,Oceania, and the United States

This study investigates the impact of trade liberalisation on the spatial price co‐movements between the dairy markets of the EU, Oceania, and the United States. We consider two main dairy products, namely butter and whole milk powder (WMP), and employ R‐Vines to assess the development of the tail dependence between the price series. We split the time span (i.e. 2000‐2017) in December 2007 to capture the change in the tail dependence as well as in the potential of each region to act as the central market. Our findings indicate that the EU acts as the central market for butter in both sub‐periods, whereas the EU succeeds Oceania in acting as the central market for WMP from the first sub‐period to the next. Further findings highlight slightly increasing tail dependence in the butter market and in the WMP market for the EU‐OCE and EU‐US pairs. However, the tail dependence for the WMP prices between Oceania and the United States weakens, in which we attribute to the 2013 Chinese ban on milk powder imports from Oceania.     

Market integration between surplus and deficit rice markets during global food crisis period

Applying the maximum‐likelihood method of co‐integration, this study analysed spatial market integration between an adjacent rice surplus market (India) and deficit markets (Bangladesh and Nepal). The main focus is on the government policies of these three rice‐producing countries which have been imposed to reduce domestic price volatilities in rice markets during the recent ‘global food crisis’ in 2007–2008. The co‐integration tests find that domestic rice prices of India, Bangladesh and Nepal are integrated both in short‐run and long‐run periods despite the imposition of export restriction policies by India. The reason that prices are transmitted so effectively is most likely to be the widespread informal cross‐border trade through the porous borders among India, Bangladesh and Nepal.     

The Impact of Biofuel Policies on Crop Acreages in Germany and France

A major concern about biofuels is that increasing biofuel feedstock demand reduces availability of crops for food and feed leading to higher food prices. This paper investigates relations between biofuel policies and prices of rapeseed, the major feedstock used for biodiesel production in Europe, and the impact of rapeseed prices on crop acreages in Germany and France. Biodiesel is an important biofuel in Europe, and Germany and France are the largest biodiesel producers in Europe. First, the various biofuel policies in Germany and France are discussed, followed by an analysis of their effects on rapeseed prices. Although theory indicates that such effects exist, we could not find empirical evidence for them. Second, using regional land use panel data from Germany and France we investigate empirically whether crop shares have been affected by rapeseed prices in the period 2000–2015 and whether these price effects changed because of biofuel policy changes. Results show that wheat shares in Germany and France did respond to rapeseed prices, but barley shares did not. Moreover, mandatory blending introduced in Germany in 2007 and production quotas introduced in France in 2005 led to a stronger effect of rapeseed prices on wheat shares, but again did not affect barley shares.     

Nonlinearities in the U.S. corn‐ethanol‐oil‐gasoline price system

We use a smooth transition vector error correction model to assess price relationships within the U.S. ethanol industry. Monthly ethanol, corn, oil, and gasoline prices from 1990 to 2008 are used in the analysis. Results indicate the existence of long‐run relationships among the prices analyzed. Strong links between energy and food prices are identified.     

Price Discrimination in Russian Wheat Exports: Evidence from Firm‐level Data

Russia emerged as an important wheat exporter in recent years raising the question of how this will affect international wheat markets. In particular developing countries – the main destination of Russian wheat exports – could be harmed by aggressive pricing behaviour. This article analyses the exertion of price discrimination by Russian wheat exporting firms based on Krugman's pricing‐to‐market hypothesis. We apply Knetter's panel model to a firm‐level dataset and find evidence for price‐discriminating behaviour by Russian firms in 25 out of 61 destination countries over the period 2002–2011.