STATISTICAL ANALYSIS OF PRICE TRANSMISSION IN THE EUROPEAN UNION

The three-step estimator of the co-integrated system approach is used to examine the dynamic transmission of agricultural producer prices through the food marketing system in seven countries of the EU. The results suggest that even if producer and consumer prices drift apart in the short-run, for example when producer price policy changes, market forces return them to their long-run equilibrium. Tests do not reject the hypothesis of long-run ‘perfect’ price transmission for two, pigmeat-pigs and butter-milk, out of five pairs of prices, in six of the seven member countries of the EU considered here, the UK being the exception. The tests do, however, reject the hypothesis of short-run ‘perfect’ price transmission, even in its less restrictive form, across all pairs of prices in all countries.     

Price shock transmission: evidence from the wheat‐bread market value chain in Ethiopia

This study assesses the degree of vertical price transmission along the wheat‐bread value chain in Ethiopia. This is pursued by applying a vector error correction model and an impulse response analysis using monthly price data for the period 2000–2015. Our analysis considers transmission of price shocks across different market levels, including from the international and domestic wheat grain markets at the upstream to the domestic wheat bread market at the downstream of the value chain. The empirical findings indicate that significant cointegration exists across prices of the different market stages. There is a transmission from international prices to domestic prices at downstream markets, in particular to flour and bread prices. Prices at upstream markets are largely influenced by the domestic wholesale market. In general, the speed of adjustment is quite slow with a half‐life of about one year for restoring the equilibrium price relationship. As price margins between the different market stages in the value chain have substantially decreased in the last 15 years, higher transmission, and thus exposure to international market shocks, can be expected in the future. The results also show that causal relationships exist between prices at different market stages—with the wholesale market identified as the key market level where prices and price expectations are formed.     

Institutional attitudes to property investment in the UK — last waltz of the dinosaurs round the ‘prime property’ totem pole?

Summary

Institutions which own and develop property are just beginning to recognize that they are offering a product which no longer enjoys a guaranteed market with ever increasing returns. In the increasingly difficult and discerning letting markets of the 1980's they are having to accept that the price (both in rental and capital terms) of the product they own and offer will depend entirely on how it meets the needs of their customers, the tenants. Like many other quasi‐monopolists used to operating in protected markets in the past, they may find the process of adjusting to this new world goes further, last longer and hurts more than they expect. Against that background, the traditional distinctions between ‘prime’, ‘secondary’ and ‘tertiary’ property in the investment market, as well as the old dividing lines between the office, industrial and retail categories are beginning to break down. Hillier Parker, for example, have published research suggesting that rents of secondary shop properties grew much faster than ‘prime’ rents over the past five years. The lowest yields, and highest prices, rents and investment ratings must eventually come together to produce an explosion of relative value in the locations and buildings with the best record and prospect of growing tenant demand.     

Price Cycles and Asymmetric Price Transmission in the U.S. Pork Market

Economists have proposed several plausible explanations for observed price transmission asymmetries in commodity markets. Unfortunately, the econometric methods commonly used in such studies cannot empirically distinguish pricing behavior under the competing theories. We argue that the theories may be classified by firm responses to high- and low-frequency price cycles and use Engle's band spectrum regression to test the symmetry of high- and low-frequency cycles in weekly pork prices. The findings indicate that changes in wholesale prices are asymmetrically transmitted to retail prices in relatively low-frequency cycles, which does not support search costs and other high-frequency explanations. Conversely, wholesale pork prices asymmetrically adjust to changes in farm prices at all frequencies.     

ISSUES OF AGRICULTURAL POLICY IN A HISTORICAL PERSPECTIVE

Growth in agricultural productivity and the stimulus of price supports have led to overproduction in Western Europe: in particular, the European Community has become a smaller importer and even a major exporter of several products. But as prices in the EC are usually above world levels, this requires expensive subsidisation and leads to trade conflicts. Adjustments now forced on the CAP mean a greater cost-price squeeze, besides imposing quotas on the dairy sector. Policy aims relating to farm incomes and to market balance have thus become very difficult to reconcile. Future policy will also have to take more account of the impact of farming on the environment and of the role of agricultural activity in rural communities. Are there policy instruments, such as direct aids, which can help to achieve such diverse goals? What are the implications of changing circumstances for farming systems, and in particular can low-input systems offer an alternative to the ‘productivist’ farming model?     

Measuring the functional efficiency of agricultural futures markets

This article presents a method for measuring the functional efficiency of agricultural futures markets in terms of social welfare using a standard futures market structural model. Employing the concept of social surplus, it can be shown that, when futures prices are used to estimate future spot prices, the errors in prediction produce to some degree resource misallocation, which in turn results in welfare losses. Therefore, the social welfare associated with the presence of futures markets can be measured using a Social Loss index. The indicator was calculated for the period 1975–2015 and for several subperiods, which allow us to analyse functional efficiency before and after the 2007–2008 spikes in the prices of agricultural commodities. Futures contracts for 12 products are evaluated. The products are grouped in three different categories: ‘soft products’, ‘livestock’ and ‘grains and oilseeds’. The results indicate that livestock contracts tended to be more efficient than the rest of the contracts during the whole period, but in 2008–2015 their efficiency decreased vis‐á‐vis the rest of the products. Nevertheless, 2008–2015 proved to be the most efficient subperiod, confirming the remarkable development of agricultural futures markets over time.     

Futures markets and price stabilisation: An analysis of soybeans markets in North America

The objective of this paper was to determine whether the futures markets have a stabilising or destabilising impact on soybean's spot prices in North America. Directed acyclic graphs (DAGs) are used to test for causality between futures prices, spot prices and ending stocks, followed by time series econometric analysis. The DAGs point to the two-way causal link between futures and spot prices and a lack of a causal link between inventory/stocks and spot price volatility. Time series results, including cointegration, vector error correction, impulse response and variance decomposition analysis, indicate a large impact from futures markets on the level and volatility of soybean spot prices in both the short and long run. These results have potentially important implications, as the impact of commodity price volatility is typically asymmetric across different actors. Farmers, for example, unlike speculators, utilise price risk management (PRM) instruments such as futures markets to mitigate price risks and appear to suffer from intensified volatility precisely because of their use of these instruments. Therefore, additional policies to cope with commodity price volatility, such as direct price controls or mitigation of consequences, can have critical stabilising functions supporting farmers' welfare and regional (rural) development.     

The effects of NCPB marketing policies on maize market prices in Kenya

The Government of Kenya pursues maize marketing policy objectives through the National Cereals and Produce Board (NCPB), which procures and sells maize at administratively determined prices, and stores maize as a contingency against future shortages. A private sector marketing channel competes with the NCPB. This article estimates the effects of NCPB activities on the historical path of private sector prices in Kenyan maize markets between 1989 and 2004. The analysis is carried out using a reduced form vector autoregression model (VAR) estimated with sparse data and imposing only minimal identification restrictions. Results show that NCPB activities have stabilized maize market prices in Kenya, reduced price levels in the early 1990s, and raised average price levels by roughly 20% between 1995 and 2004. Over the past decade, the price-raising activities of the NCPB have transferred income from urban consumers and a majority of small-scale farm households that are net buyers of maize to a relatively small number of large- and small-scale farmers who are sellers of maize.     

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.     

Price formation in the German biodiesel supply chain: a Markov‐switching vector error‐correction modeling approach

Changing linkages between agricultural and energy markets have attracted considerable attention in research and policy discussions during recent years. As one of the largest biofuel markets worldwide, the German biodiesel market is of particular interest. It has grown rapidly since the beginning of the new millennium, with this growth being driven mainly by political interventions. Vertical price transmission channels along the biodiesel supply chain are analyzed in this study. We examine the relationship between diesel and biodiesel prices, and between rapeseed oil, soy oil, and biodiesel prices between 2002 and 2008. Due to pronounced changes in market conditions and the policy framework, a regime‐dependent Markov‐switching vector error‐correction model is used. The regimes are characterized by markedly different price adjustment behaviors. Before 2005 and from late 2007 onward, a regime characterized by the strong orientation of biodiesel prices toward diesel prices dominates. Between 2005 and 2007, biodiesel and rapeseed oil prices are mutually interdependent. Frequent switches between the regimes of the price dynamics during this period indicate a high extent of uncertainty and instability in the market.     

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.     

OPTIONS FOR REDUCING INPUTS TO AGRICULTURE: A NON-ECONOMIST'S VIEW

By adopting new (higher output) technology farmers have largely compensated for the steady fall in ‘real’ EEC farm prices: as a result food production is in surplus. Because immediate price cuts adequate to curb production are unlikely, further restriction on farm output (e.g., milk quotas) appears unavoidable. Farmers must then aim to reduce their input costs so as to produce their ‘quota’ as cheaply as possible. The paper examines options for reducing inputs, and concludes that more research on lower-input production systems is urgently needed, and that the economic discipline must be closely integrated with this research. It notes that a shift towards ‘less intensive’ farming would be in line with public concern on the environment, food quality and animal welfare.     

Crisis Behind Closed Doors: Global Food Crisis and Local Hunger

The high and volatile food prices in 2007–8 triggered estimates of massive increases in poverty and hunger. However, hunger and volatile food prices have long been a feature of developing economies. This paper examines the impact of high global food prices on domestic terms‐of‐trade, food consumption and child undernutrition in the Central African Republic, Ethiopia, Liberia and Sierra Leone, comparing findings with the impacts of ‘seasonality’. As high international food prices permeated domestic markets, households in all the case study areas resorted to coping strategies common in the annual hunger season. Though acute malnutrition has not risen as consistently as in a seasonal hunger crisis, reduced micronutrient intake threatens to have severe long‐term consequences for health and poverty reduction. The similar impacts of seasonal and global food price rises on households provide an opportunity to design appropriate interventions to protect livelihoods.     

Evaluating sustainability options in an agricultural frontier of the Amazon using multi-criteria analysis

Agricultural expansion and deforestation in the Brazilian Amazon are driven by a complex interaction between economic and demographic drivers and institutional constraints. Land use policies such as Conservation Units and the Forest Code law should conserve biodiversity and other environmental aspects while, on the other hand, increasing commodity prices of beef and soy, driven by world markets provokes economic growth and expansion of the agricultural area. We carried out an impact assessment in eleven municipalities within an agricultural frontier along the road BR-163 that runs in the Brazilian Amazon states of Mato-Grosso and Pará. The impact assessment, covered a period between 2008 and 2020, showed that the autonomous development in the study area results in a strong increase in the performance of economic indicators but a reduction in environmental and some social indicators. The studied conservation policies are able to reduce negative environmental impacts to some extent, while hardly affecting economic and social indicators. The multi-criteria analysis (MCA) showed a trade-off relation between the economic and environmental dimension in such a way that the effect was much stronger in the high commodity price scenario than in the low price scenario. The policy implications of the MCA results are discussed in light of the institutional capacity of the Brazilian States under study, to implement effective conservation policies.     

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.     

Evaluating the impact of rising fertilizer prices on crop yields

Because of tensions on fossil energy and phosphorus markets, the rise in fertilizer prices observed during the last decades may continue in the future, putting into question production pathways relying heavily on crop intensification. To evaluate how, in this context, economic choices may alter crop yields, we first construct different fertilizer price scenarios to 2050 based on an econometric relation with oil and gas prices. Other possible scenarios, such as the continuation of historical trends, are also considered. The resulting changes in fertilizer price range between +0.8% and +3.6% per year over the 2005–2050 period. These scenarios are tested in a global land‐use model incorporating an endogenous representation of the land–fertilizer substitution. We find that the supply‐side response to rising fertilizer prices could lower crop yields in 2050 from ?6% to ?13%, with a corresponding increase in global cropland area ranging between 100 and 240 Mha if the demand for food and nonfood products has to be met. The sensitivity of these results is tested with regard to assumptions on food consumption, change in potential yield and nutrient use efficiency.     

The influence of proximity to market on bean producer prices in Nicaragua

Transport costs are an important determinant of smallholder welfare in developing countries. In particular, transport costs influence the prices that smallholders receive for their produce. We propose a simple way of quantifying this influence. Taking the example of bean producers in Nicaragua, we employ a hedonic price model to estimate the effects of a smallholder's proximity to markets on the prices that he/she receives, while controlling for other factors such as the volume and quality of beans sold. We find that on average each additional minute of travel time reduces farm gate prices by 2.5 cents per quintal. Based on these results, the annual income from bean sales of the average smallholder in our sample would increase by between 24 and 110 USD if travel time to markets were reduced by 25%. Estimates of this nature can make an important contribution to cost–benefit assessments of infrastructure investments.     

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.     

The Canadian Beef and Pork Sectors: New Found Relevance of Live Market Information

The structure of price transmission both vertically (between links in the market channel) and horizontally (between market areas) for beef and pork in Canada is examined. The analysis of vertical price transmission indicates that farmgate prices lead retail prices. The hypothesized relationship between retail and farmgate prices is that the farmgate demand curve is shifted by wholesaler anticipation of the retail price changes. Such a situation would place greater importance on the live markets since prices determined in these markets would eventually be reflected in the retail market. The results have further implications for the determination of price margins and related policy issues.