Empirically Testing the Law of One Price in an International Commodity Market: A Rational Expectations Application to the Natural Rubber Market

The Law of One Price (LOP) is an important ingredient in theories of international trade and exchange rate determination. An important shortcoming of the existing empirical literature is that parity is typically assumed to hold contemporaneously. This overlooks the fact that international commodity arbitrage takes place over time as well as across spatially separated markets. Recognizing this fact, we expect to see parity holding for expected prices. A model which incorporates the expectations of commodity arbitragers is constructed and used to test the LOP in the natural rubber market. Results indicate that the inclusion of expectations may be of value when considering the LOP.     

Food Aid, Food Prices, and Producer Disincentives in Ethiopia

Although the short-term aims of food aid are well conceived, strong concerns have been voiced regarding the long-term impacts of such aid on incentives for agricultural producers in recipient countries. This article examines the statistical link between food aid shipments and food prices in Ethiopia over the period 1996–2006. Monthly data from three markets and three commodities are used to estimate a system of seemingly unrelated regression models for food prices. Results indicate that previous year food aid shipments reduce prices in all producer and consumer markets. These effects, however, appear to be limited to the set of internationally traded commodities that are domestically marketed. A recursive regression procedure is used to identify the food aid threshold at which a negative aid effect emerges. Food aid shipments that constitute less than 10% of domestic production appear to be benign, but shipments above this level show signs of being disruptive to local markets. We use a simple policy simulation to argue that production-sensitive targeting, e.g., conditioning food aid on local food production, would help to circumvent disincentive effects.     

Measuring the impact of road rehabilitation on spatial market efficiency in maize markets in Mozambique

This article analyzes the impact of road rehabilitation on the spatial market efficiency of maize markets in Mozambique. We estimate a modified version of the Parity Bounds Model (PBM) that allows us to test the impact of road rehabilitation on spatial efficiency. This article seeks to contribute to the existing literature in three ways. First, a unique data set, where road rehabilitation episodes between market pairs are identified, is developed. Second, special care is devoted to estimation of transaction costs due to the sensitivity of the PBM model to the quality of transaction costs estimates. Finally, as opposed to most existing literature that focuses on relatively distant markets, the article focuses on spatially closed markets. We find that maize markets tend to be segmented due to high transport costs. Following road rehabilitation, inefficiency and average absolute price differentials tend to decrease, and market pairs have tended to shift toward autarky regimes. Overall, while the results point broadly toward a positive impact of road rehabilitation on spatial efficiency, they are not as strong or as robust as one would like. Large increases in fuel prices likely offset the positive impacts of road rehabilitation on transaction costs, contributing to the increase in the probability of being in an autarky regime.     

TESTING FOR INTEGRATION IN EUROPEAN COMMUNITY AGRICULTURAL PRODUCT MARKETS

The degree of spatial market integration in European Community agricultural product markets is investigated. The methodology is based on co-integration analysis. A two-step testing procedure is applied to test the existence of the ‘Law of One Price’ which should be in force if these markets are truly integrated. The results show that market integration has not been achieved in a number of cases even when MCAs are subtracted from the price series used.     

PRICE ARBITRAGE BETWEEN QUEENSLAND CATTLE AUCTIONS

In a competitive market with free information flows, spatial arbitrage will ensure that average prices at geographically separate markets will move in unison. The speed of adjustment is related to information flows between markets; if adjustment lags exist, there may be opportunities for arbitragers to gain. The transmission of price information is modelled using Johansen's procedure and the existence of long-run arbitrage opportunities is investigated. An innovation analysis is used to examine the varying responses to changes in prices at spatially separate markets.     

Will China Become a Major Force in World Food Markets?

From the perspective of China's trading partners, few policy issues are as important as China's emergence onto world agricultural markets. In this essay, we argue that if China is to become a modern developed country, a massive structural transformation of China's agricultural sector must occur. We offer a forward-looking vision of China's food economy and its links with the world in the 21st century. We believe that gains from specialization when China moves to a country with specialized family farms will be huge compared to the returns that have resulted from decollectivization. Following a structural revolution in China's agricultural sector, China will become a major force in world food markets. This transformation will be characterized by land reform, a massive shift of labor out of agriculture, expanded farm size, a significant change in regional cropping patterns, more interprovincial trade, and greater international trade. This structural transformation will occur as long as there is strong economic and political pressure to raise agricultural labor productivity, liberalize markets, boost the rule of law, and increase per capita farm incomes relative to urban incomes.     

中国水生蔬菜出口市场集中度和依赖度分析

[目的]水生蔬菜作为我国区域性特色明显的优势农产品,出口创汇能力强。以莲藕、芋头和荸荠为主要研究对象,分析其出口规模、产品结构和市场分布,可全面把握中国水生蔬菜的出口市场形势,有助于防范出口市场风险,以便更好地推进中国水生蔬菜出口市场的进一步优化。[方法]文章通过测算市场集中率和依赖度系数,对2012—2021年中国水生蔬菜的出口市场集中度与依赖度进行分析。[结果]中国水生蔬菜出口市场集中度高,由高到低依次为芋头、莲藕和荸荠;出口依赖性强,其中莲藕对马来西亚、日本、美国的市场依赖性强;芋头对日本、美国的市场依赖性强;荸荠对马来西亚、新加坡和越南的市场依赖性强。[结论]基于研究结果和发现,提出拓展新兴市场、提升质量标准、延长产业链条等建议,以降低水生蔬菜出口风险、提升国际竞争力,推动中国水生蔬菜更好地发展。     

Options for African agriculture in an era of high food and energy prices

In a world of high food and energy prices, Africa has an imperative to do a better job feeding itself and ensuring that its people are food secure. At the same time, there is a new business opportunity to work with the private sector in developing the continent's potential to produce significantly more food, raw materials, and biofuels for regional and world markets. A challenge for African policy makers is to find the right balance between a food security and a business agenda, and to ensure that the business agenda engages with large numbers of small farms. Agricultural development requires many things, but the fundamentals for Africa are developing markets, increasing agricultural productivity, and managing volatility. This cannot happen at sufficient scale and speed without strong public sector leadership, enabling policies and investments, and well‐focused implementation strategies.     

Testing the Integration of U.S.–Canadian Meat and Livestock Markets

Price transmission is a critically important issue that affects market enlargement and the unification of Canadian–U.S. agriculture. This study adopts alternative frameworks to examine the nature of cross‐border integration in selected meat and livestock markets. The aim is to determine the extent to which selected meat and livestock markets transmit price signals across the international border using time‐series data through 2001. Typically, price‐based studies examining market integration across countries ignore important spatial and temporal factors affecting commodity price relationships such as adjustments lags, changes in the value of national currencies, and policy‐induced trade barriers. Here, we account for such factors in our two model specifications. The first model is based upon the law‐of‐one price (LOP) framework and focuses on spatial efficiency. The second analytical framework is the vector autoregressive (VAR) model that highlights the dynamic notion of market connectedness. The LOP analysis permits us to formally test the existence of perfect market integration and complete market segmentation. The VAR analysis enables us to gauge price‐shock transference. Empirical evidence is generated confirming that the two national markets for whole chicken are segmented, a not unsurprising finding given that poultry is a supply managed sector in Canada. The Canadian–U.S. hog‐ and pork‐product markets were found to be more integrated than the Canadian–U.S. steer‐ and beef‐product markets. Evidence is also provided showing that the Canadian–U.S. exchange rate inhibits cross‐border integration in these commodity markets. La transmission des prix est un sujet extrêmement important qui gêne l'expansion des marchés et l'unification de l'agriculture du Canada et des États‐Unis. Dans la présente étude, nous avons utilisé divers cadres d'analyse pour examiner la nature de l'intégration transfrontalière de marchés sélectionnés de la viande et des bestiaux. L'objectif consistait à déterminer l'étendue avec laquelle des marchés sélectionnés de la viande et des bestiaux transmettent des signaux de prix au‐delà des frontières en utilisant des données de séries chronologiques jusqu'en 2001. Généralement, les études de prix qui examinent l'intégration des marchés entre les pays font abstraction de facteurs spatiaux et temporels importants touchant le rapport des prix des produits de base tels que le décalage dans les rajustements, la variation du cours des devises nationales et les obstacles au commerce induits par les politiques. Dans le présent article, nous avons tenu compte de ces facteurs dans les spécifications de deux modèles. Le premier est modèle fondé sur la loi du prix unique qui met l'accent sur l'efficacité spatiale. Le deuxième est un modèle d'autorégression vectorielle (VAR) qui met en évidence la notion dynamique de la connexité des marchés. Le modèle fondé sur la loi du prix unique nous a permis de vérifier l'existence de l'intégration parfaite et de la segmentation totale des marchés. Le modèle d'autorégression vectorielle nous a permis d'évaluer le transfert d'un choc de prix. L'évidence empirique a confirmé que les deux marchés nationaux du poulet entier étaient segmentés, un résultat qui n'est pas sans surprise compte tenu que l'élevage du poulet au Canada est un secteur soumis à la gestion de l'offre. Nous avons trouvé que les marchés canado‐américains des porcs et de la viande porcine étaient plus intégrés que les marchés canado‐américains des bovins et de la viande bovine. L'évidence empirique a également montré que le taux de change entravait l'intégration transfrontalière de ces marchés de produits de base.     

Nonlinear adjustments in deviations from the law of one price for wholesale hog prices

This article applies the Band‐Threshold Autoregression (Band‐TAR) model to investigate whether the law of one price (LOOP) holds in Taiwanese wholesale hog markets during the period from May 1987 through December 2003. We find evidence of a nonlinear mean reversion in deviations from the LOOP for relative hog prices. Our empirical study confirms the presence of thresholds and provides strong evidence in support of the view that the regional hog markets have been tightly integrated in Taiwan and that the wholesale hog market in Taiwan is an efficient market economy. Furthermore, the estimated half‐lives from the nonlinear generalized impulse response analysis are as short as four months.     

A Price Analysis of U.S. Agricultural Exports in East Asian Markets

This paper examines the price competition between U.S. agricultural exports and that of its competitors in East Asia. The results show weak price competition in Japan's corn and soybean markets, and no price competition in the wheat market. U.S. cotton exports to Japan face strong price competition. In Hong Kong, U.S. market shares are low, while the demand for its rice, corn, soybeans and cotton is elastic. For South Korea and Taiwan, improved political relationships between China, South Korea, and Taiwan have caused the U.S. to lose market shares to China.     

PRICE-SUPPORT EFFECTS ON EC PRODUCERS

This paper presents a new approach to assessing the impact of price-support policies on producer behaviour. This approach takes explicit account of the impact of such policies on a producer's uncertain production environment and includes a numerical procedure for calculating ex ante price variability from ex post producer price data. The method is applied to European Community agricultural industries in which intervention purchasing schemes operate. The results show the extent to which price support-policies distort the signals producers receive from world markets.     

Volatility in Oilseeds and Vegetable Oils Markets: Drivers and Spillovers

Food price volatility has re‐emerged as an important topic of political discussion since the food price crisis of 2007–2008. Different volatility drivers have been identified for different markets in the theoretical and empirical literature. However, there is no comprehensive analysis that considers a large number of potential drivers and investigates their joint effects in a dynamic model of interrelated markets. Our study provides such a volatility analysis for the oilseeds and vegetable oils markets. We use a common GARCH approach and a VAR model to identify volatility drivers and spillover effects. Our results show that exchange rate volatility is very important. However, the hotly debated financialisation of commodity markets is not found to be volatility increasing in our monthly data. Impulse response functions show strong spillover effects. Because many volatility drivers found to be important in other markets have no significant effect in our study, our results suggest that volatility drivers are market specific. This implies that any volatility‐reducing policies need to be designed for the market in question.     

Yield Variability and Harvest Failures in Russia,Ukraine and Kazakhstan and Their Possible Impact on Food Security in the Middle East and North Africa

Exports from Russia, Ukraine and Kazakhstan (RUK) help to improve global wheat availability and, hence, global food security. During the past 15 years, however, RUK wheat exports have shown high variability, mainly because they have been repeatedly diminished by severe harvest failures. We present an outlook for RUK wheat production and exports up to 2027, taking into account possible yield variability and harvest failures, and focusing on the impact on food security in the Middle East and North Africa (MENA), the world’s major wheat importing region. For the analysis we use the stochastic version of the Aglink-Cosimo model. Simulation results show that wheat yields in RUK are a major source of uncertainty for international wheat markets. The projected substantial increases in world market prices due to limited RUK wheat exports threaten food security in MENA and highlight the need for both stabilising RUK yields and novel complementary food security approaches to decrease MENA’s vulnerability to disruptions in agricultural world markets.     

The Political Economy of Contract Farming in China's Agrarian Transition

How does rural China's political economy determine the motivations and constraints that drive small farmers and agribusiness companies into contract farming and shape its practice and impact? This paper identifies three distinctive features of contract farming in China – varied impact on rural inequality, unstable contractual relations and lack of competitiveness with other alternatives – and proposes tentative explanations linked to three features in rural China's political economy: strong collective institutions, active state support for agriculture and strong domestic markets. The recent turn in China's agrarian transition towards vertical integration of agriculture with industries is, however, undermining these conditions and may move China towards more convergence with other countries. Studying contract farming in China's unique political economy context shows not only how variations in the political economy can alter its practice and impact, but also how it needs to be evaluated in comparison with competing alternatives.     

Nonparametric Estimation of Oligopsony Power in First‐Price Auction

This paper proposes a nonparametric procedure to estimate market power for first‐price auction data and applies the procedure to cattle procurement markets. Most previous studies have used parametric methods, which require specific functional forms for retail demand, input supply and processors’ cost equations. However, researchers often find that market power estimates from parametric methods are sensitive to the choice of functional forms and specifications. An application to data from cattle procurement experiments shows that our nonparametric approach greatly outperforms commonly used parametric methods in estimating the degree of market power. While parametric estimates are sensitive to functional form specification and are at least 90% smaller than ‘true’ market power indices, estimates from our nonparametric procedure deviate from the actual value by no more than 25%.     

Requirements for Skill,Training and Retraining in the Mexican Food and Drink Industry

The Mexican food and drink industry has been producing for a more standardized consumer market. The influence of North American and European habits on Mexican traditional habits is very strong, and this population is rapidly coming to be part of the global market. The traditional Mexican foods and drinks are being processed by Mexican and American companies, including new formulas of low calories of healthy diet At the same time, the changes in the food and drink industry requires training in the management of the new biotechnologies and the aspects of business administration and vocational-technical education, in order to increase their competition with its processed products in the internal and also the international markets, through efficiency and quality.     

Decomposing Changes in Agricultural Producer Prices

This article develops a method for decomposing changes in agricultural producer prices. The method builds on a procedure used by the World Bank, with the main variables in the decomposition being trade prices, exchange rates and trade policies. We expand on the World Bank decomposition procedure by broadening the analysis of policy effects, adding the effect from incomplete transmission of changes in trade prices and exchange rates to producer prices, and handling the effect on prices from interactions between variables as they change simultaneously. Decomposition results are presented for various commodities for the major emerging markets of Brazil, China and South Africa.     

Spatial Market Integration in the Presence of Threshold Effects

A large body of research has evaluated price linkages in spatially separate markets. Much recent research has applied models appropriate for nonstationary data. Such analyses have been criticized for their ignorance of transactions costs, which may inhibit price adjustments and thus affect tests of integration. This analysis utilizes threshold autoregression and cointegration models to account for a neutral band representing transactions costs. We evaluate daily price linkages among four corn and four soybean markets in North Carolina. Nonlinear impulse response functions are used to investigate dynamic patterns of adjustments to shocks. Our results confirm the presence of thresholds and indicate strong support for market integration, though adjustments following shocks may take many days to be complete. In every case, the threshold models suggest much faster adjustments in response to deviations from equilibrium than is the case when threshold behavior is ignored.