A Note on Tests for Market Integration in a Multivariate Non‐Stationary Framework

In this note relationships among agricultural prices are studied to offer a guide to the degree of market integration. Unlike many previous studies, which examine market integration using pairs of prices, we conduct testing in a multivariate framework to exploit the information embodied in the indirect price linkages. We focus on the formulation of hypotheses that identify the cointegration space using time series data on European pork and lamb markets. Results indicate that the national markets for pork are more closely integrated than those for lamb. Extraneous market information is exploited in an attempt to identify the cause of this segmentation in the European lamb market, although results do not support any of the hypotheses proposed.     

QUARTERLY ESTIMATES OF THE DEMAND AND PRICE STRUCTURE FOR MEAT IN NEW SOUTH WALES

Multiple regression estimates of demand and price relationships for fresh beef, lamb and mutton in the N.S.W. livestock auction, wholesale, and retail markets during the period from January 1951 to June 1963 are presented. The results show that direct price elasticities of demand were negative, and of greatest absolute value in the retail market. Mutton is shown to have been a close substitute for beef and lamb, but the latter were not close substitutes with respect to price.     

Futures Markets and Spot Price Volatility: A Case Study

Futures markets, where they exist, can play a crucial role in determining the storage decision in the underlying spot (physical) market. The futures market acts as a conduit for market information and is a gatherer of agents' expectations about the future prospects for the spot market. As such, it is able to provide both price insurance and price discovery roles, the latter of which generates information for spot market traders and allows them to make rational storage decisions. If this were to be the case, then the efficiency of storage is improved which can potentially lead to a reduction in the volatility of spot prices over the marketing season. The existing literature is ambiguous as to whether futures markets can help spot markets price more efficiently. This paper seeks to examine whether this is the case in the British maincrop potato market by evaluating the volatility of spot prices over the period 1969–96 in a “before-after” analysis of the impact of the introduction of futures trading in 1980. The results suggest that the introduction of the futures market has led to a reduction in price volatility, despite some problems in the operation of the futures market itself.     

Evolving Marketing Channels for Beef and Lamb in the United Kingdom-

This paper investigates the effects of: (1) recent changes to food safety legislation; (2) increasing consumer concerns over animal welfare; and (3) further market integration in the European Union on British agribusiness firms involved in marketing beef and lamb. It is hypothesized that these changes will alter the transaction costs associated with marketing these products. As a result, there is likely to be a reduction in the number of animals sold for slaughter through traditional auction markets and an increase in direct contracting or strategic alliances between supermarkets and farmers' marketing cooperatives.     

Asymmetry in beef,lamb and pork farm-retail price transmission in Australia

The hypothesis of asymmetry in price transmission within the Australian meat market is tested using monthly data for beef, lamb and pork prices at different market levels over the period 1971–1988. The results indicate that asymmetrical price response is a strategy used by beef and lamb retailers and wholesalers to adjust to changing input prices, but not by pork retailers and wholesalers. This difference is perhaps unexpected given the similarity in behaviours relating to price levelling in this market, the high cross-price elasticities of demand between these meats, and the relatively greater degree of concentration in the pork market.     

Intra-annual sheep price patterns and factors underlying price variations in the central highlands of Ethiopia

A sheep market survey was undertaken to determine the effects of certain animal and market characteristics on price and the pattern of sheep prices in relation to seasons. Nine key Ethiopian central highlands markets were surveyed for a period of one year in 1989. Each market was surveyed once a week on the main market day. Price, weight, sex, age, colour, condition score, breed type and buyer's purpose were recorded for all completed transactions as well as the numbers offered and sold on each market day. A total of 50062 cases were recorded. Three markets, each representing redistributive, intermediate and terminal markets, as identified by the distribution in buyer's purpose were chosen for further analysis. Considerable weekly price variation was evident in these markets. Prices were also seasonal with higher premiums paid during some religious festivals. Animal characteristics (weight, age, condition, sex, colour) as well as buyer's purpose and seasons were variably important in explaining variation in price among animals within weeks. Variations in the composition of these characteristics from week-to-wcek were among factors underlying changes in weekly mean prices. R² varied from 0.2659 to 0.3583 in the quadratic price per kg model and from 0.7822 to 0.8413 in the quadratic price per head model in the three markets. However, it was found that price per head was predicted equally well overall by estimated price per kg multiplied by actual weights and that because of wide variation in weights, both within and between weeks, price per kg is more useful market information.     

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.     

Price volatility and rational expectations in a sectoral framework commodity model: a multivariate GARCH approach

This article explores supply response models in a rational expectations framework with endogenous risk by using a multivariate generalized autoregressive conditional heteroskedasticity model with Cholesky decomposition. This approach allows the incorporation of price volatility as a risk factor into the supply response of a primary commodity sector that is composed of several markets of homogenous products. The model is applied to the Greek meat sector, which is composed of four major meat categories, that is, beef, lamb, pork, and broiler, and thus the model for the entire market includes supply and demand equations for all the four meat markets, which are estimated simultaneously. The empirical results confirm that price volatility is a significant risk factor in Greek meat production and also provide useful implications about the cost factors of production. Furthermore, the empirical findings show that the last reform of the Common Agricultural Policy seems to have had a negative effect on beef and lamb production in Greece.     

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.     

Government intervention and market integration in Indonesian rice markets

Long-run spatial price relationships in Indonesian rice markets and factors affecting the degree of market integration are evaluated using multivariate cointegration tests with weekly price data for the 1982-1993 period. The analysis includes evaluation of pre-self-sufficiency and post-self-sufficiency periods as well as Cot the entire period. The cointegration tests for entire Indonesian rice market, represented by the nine most relevant price series, indicate that relative to the pre-self-sufficiency period, the post-self-sufficiency period has a smaller degree of market integration. The change of the degree of market integration over time indicates that rationalizing of the Indonesian rice price policy beyond 1984 rice self-sufficiency has resulted in a less integrated market. This suggests that the policy shift has allowed the government to decrease its intervention without significantly decreasing market integration, indicating that the private sector is responding to price signals appropriately. It is possible that further reduction in intervention through widening the band between the floor and ceiling price could be accomplished without greatly affecting market integration. Regression results show that government intervention in terms of rice procurement significantly influenced market integration during the period of post-self-sufficiency (1985-1993) and the entire period of 1982-1993. This indicates that this aspect of government intervention has had positive influences on market integration, in contrast to distribution efforts, which were not found to be statistically significant, Procurement prices may be high, and could perhaps be lowered, reducing program costs. Regional per capita income is also found to be positively related to highei levels of market integration, suggesting that in periods of economic growth, government intervention may be decreased, thereby reducing program costs.     

A SIMULATION APPROACH TO THE ANALYSIS OF STABILISATION POLICIES IN AGRICULTURAL MARKETS: A CASE STUDY*

Agricultural markets are very often susceptible to year-to-year fluctuations in price and output and it is generally agreed that it would be desirable to control these fluctuations by intelligent market support operations. In this paper we develop a simulation model to assess the efficacy of market support operations in the case of egg market in the U.K. during the period 1958-68. We argue that for this problem a simulation approach is more effective than either a geometric or an algebraic approach. On the basis of our analysis, we find that in the absence of the market support operations of the British Egg Marketing Board during the period 1958-68, the long-run average return to the egg producer would have been only marginally different from the actual but the instability of the market would have been substantially greater. We also found that because of the nature of the subsidy arrangements, there were severe limits to the Egg Board's capacity to increase producer price even in the short run in spite of the inelastic demand curve. More generally, we conclude that marketing Boards in situations similar to the Egg Board's should aim at keeping close to the long-run producer price rather than short-run profit maximisation.     

Spatial integration at multiple scales: rice markets in Madagascar

The dramatic increase in the price of rice and other commodities over the past year has generated new interest in how these markets work and how they can be improved. This article uses an exceptionally rich data set to test the extent to which markets in Madagascar are integrated across space at different scales of analysis and to explain some of the factors that limit spatial arbitrage and price equalization within a single country. We use rice price data across four quarters of 2000–2001 along with data on transportation costs and infrastructure availability for nearly 1,400 communes in Madagascar to examine the extent of market integration at three different spatial scales—subregional, regional, and national—and to determine whether non-integration is due to high transfer costs or lack of competition. The results indicate that markets are fairly well integrated at the subregional level and that factors such as high crime rates, remoteness, and lack of information are among the factors limiting competition.     

A structural time series analysis of US broiler exports

A structural time series model is used to determine the dynamic characteristics, forecasting properties, and policy implications of factors affecting the US broiler export market. The emphasis is on international market responsiveness. The analysis indicates that in addition to the explanatory variables a trend component has been vital in the expansion of the broiler industry during the study period. The results indicate that export markets are more price responsive than the domestic markets, that interventions in the Canadian and Mexican markets reduce their imports, and exchange rate changes have significant impacts on US exports.     

Testing market integration for Japanese retail seafood markets

Although Japan is one of the largest seafood‐consuming countries, with various types of seafood products traded throughout the nation, few studies have explored how this market is integrated from the aspect of market price. Because Japanese consumers in different regions have different preferences for seafood, we focused our study to see how the regional seafood retail markets (Tokyo, Osaka, Nagoya, Sapporo, and Fukuoka) are integrated for 10 major seafood products (horse mackerel, short‐necked clams, yellowtail, scallops, cuttlefish/squid, flounder, tuna, mackerel, saury, and octopus) consumed in Japan. We applied the relatively new Phillips–Sul convergence test for our analysis. For most of the seafood products investigated in this study, our results indicate that the Japanese regional seafood markets cannot be integrated as a whole and that marketing strategies need to consider the peculiar characteristics of the regional seafood markets.     

World market integration for export and food crops in developing countries: a case study for Mali and Nicaragua

Using a generalized error correction model, this article measures and compares market integration for export cash crops versus imported food crops for Mali and Nicaragua, and computes transmission elasticities between changes in the goods’ border and domestic prices. Both Mali and Nicaragua obtain the bulk of their export revenue from a particular agricultural commodity—cotton for Mali and coffee for Nicaragua—and both import the same key staple food of rice. To reap the economic gains from this trade specialization, the two countries’ agriculture must be well‐integrated into world markets. The two countries present an important policy contrast that affects their degree of world market integration and price transmission. In Mali, a parastatal enterprise controls its cotton industry, while Nicaragua has less state direction over agriculture. Reflecting this difference, the results show that for both its main export and import commodity, Nicaragua is more integrated into world markets and has higher price transmission than Mali. The results for Nicaragua also show much higher integration and price transmission for its main agricultural export (coffee) than its major import (rice).     

Generic Advertising of U.S. Lamb

ABSTRACT

Generic advertising of U.S. lamb by the U.S. sheep and lamb industry is an effort to reverse an almost continual decline in the industry since World War II. This analysis explores the answers to three related questions: (1) What have been the effects of the generic lamb advertising on U.S. and foreign sheep, lamb, and wool markets? (2) Has the generic lamb advertising program effectively increased the consumption of domestically produced lamb as intended rather than imported lamb? (3) What have been the returns to U.S. sheep producers, feeders, and packers who pay for the advertising? Using a 70-equation, non-spatial, price equilibrium, simultaneous econometric simulation model of the world sheep, lamb, and wool markets, the analysis concludes that the U.S. lamb industry’s generic lamb advertising program has positively impacted their markets, enhanced profitability of the industry, and increased the industry’s share of domestic lamb consumption.     

COMPARATIVE FORECAST ACCURACY IN THE NEW SOUTH WALES PRIME LAMB MARKET

The market for Australian prime lamb is characterised by high production seasonality and a highly competitive retail demand. Because these factors often translate into substantial market variability, regular forecasts of supply and demand are important requirements of lamb market participants. There has been some forecasting activity in the state and national lamb markets but it has been a somewhat controversial activity. This paper assesses the comparative forecast accuracy of a range of methods in the New South Wales lamb market. The results indicate that no single method is clearly superior in all situations and the greatest scope for improving forecast accuracy in the New South Wales lamb market is through the use of combined econometric and naive approaches.     

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.     

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.     

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.