Tracing the Effects of Agricultural Commodity Prices and Food Costs

We estimate a system of product and input-demand equations for food-processing industries to trace the links among farm commodity prices, food-processing costs, and food prices. Disembodied technical change, which likely reflects increasing consumer demand for convenience and product variety, has sharply reduced agricultural materials demand relative to most other food-processing inputs. This implies weakening impacts of farm price shocks on food prices. But improving quality and falling relative prices for agricultural inputs, in combination with increasing factor substitution, has counteracted these forces to encourage greater usage of agricultural inputs in food processing, and limit these trends.     

Food price increases and net food importing countries: lessons from the recent past

Recent increases in food and other commodity prices have highlighted concerns that many poor countries are net food importers and higher food prices would worsen their trade balances. In this article, we analyze the changes in food trade balances associated with the 32% increase in food prices from 2000/2001 to 2004/2005. We find a small deterioration in food trade balances of low‐income countries and an improvement in middle‐income countries. The deterioration is most severe for countries in conflict and small island states, so attention should be placed first on these countries and on a few very‐low‐income countries that are also vulnerable. Because low‐income countries as a group had much lower agricultural GDP growth rates than middle‐income countries, the answers to food vulnerability in low‐income countries should probably be addressed within the context of incentives for agricultural production.     

A simple model of endogenous agricultural commodity price fluctuations with storage

A debate has been raging for centuries regarding the effects of interannual storage on commodity prices. Most analysts consider storage to function as a price stabilizer, while others place it at the core of an explanation of intriguing features of commodity price series, such as skewed distributions. Most studies have been developed in the context of the theory of competitive storage where random shocks affect supply or demand. Recently, the endogenous chaotic behavior of markets has become another possible hypothesis regarding the origin of commodity price fluctuations. We develop a nonlinear cobweb model with intra‐ and interannual storage, risk averse agents, and adaptive expectations. Like the theory of competitive storage, this nonlinear cobweb model with storage can reproduce some of the stylized facts of agricultural commodity prices (autocorrelation of first rank, low kurtosis, and skewness). In addition, the effects of storage on price variation are mixed. In the presence of interannual storage, chaotic price series show less variation compared to a situation without interannual storage but we find that storage contributes to the endogenous volatility of prices by making chaotic dynamics more likely.     

World Commodity Prices and Domestic Retail Food Price Inflation: Some Insights from the UK

We focus on two aspects of the links between world commodity prices and retail food price inflation: first, the effects of exchange rates and other input costs, and second; the effects of the duration of shocks on world commodity markets, not just the magnitude of price spikes (the latter often commanding most attention). The UK offers a natural and rather unexplored setting for the analysis. Applying time series methods to a sample of 259 monthly observations over the 1990(9)–2012(3) period we find substantial and significant long‐term partial elasticities for domestic food price inflation with respect to world food commodity prices, the exchange rate and oil prices (the latter indirectly via a relationship with world food commodity prices). Domestic demand pressures and food chain costs are found to be less substantial and significant over our data period. Interactions between the main driving variables in the system tend to moderate rather than exacerbate these partial effects. Furthermore, the persistence of shocks to these variables markedly affects their effects on domestic food prices.     

Modeling regime‐dependent agricultural commodity price volatilities

In stark contrast to financial markets, relatively little attention has been given to modeling agricultural commodity price volatility. In recent years, numerous methodologies with various strengths have been proposed for modeling price volatility in financial markets. We propose using a mixture of normals with unique GARCH processes in each component for modeling agricultural commodity prices. While a normal mixture model is quite flexible and allows for time varying skewness and kurtosis, its biggest strength is that each component can be viewed as a different market regime and thus estimated parameters are more readily interpreted. We apply the proposed model to ten different agricultural commodity weekly cash prices. Both in‐sample fit and out‐of‐sample forecasting tests confirm that the two‐state NM‐GARCH approach performs better than the traditional normal GARCH model. A significant and state‐dependent inverse leverage effect is detected only for pork in the regime where the price is expected to drop, indicating the volatility in this regime tends to increase more following a realized price rise than a realized price drop.     

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.     

El Niño,La Niña,and world coffee price dynamics

Coffee is produced in equatorial and subequatorial regions of the world, which are also most affected by El Niño Southern Oscillation (ENSO). ENSO events have a tendency to amplify weather conditions such as droughts or excess precipitation in the affected regions, resulting in production shortage or excess supply, subsequently impacting agricultural commodity prices. In this research we assess effects of ENSO events on world coffee price dynamics using the monthly data between March 1989 and December 2010. We employ smooth transition autoregression framework to examine nonlinear dynamics of ENSO and coffee prices, and illustrate the results of this research using generalized impulse‐response functions. We find that ENSO events indeed have short‐term impacts on coffee prices. The research findings are of interest to coffee producers and intermediaries in the coffee markets as well as researchers in the fields of environmental and development economics.     

Impacts in Uganda of rising global food prices: the role of diversified staples and limited price transmission

This study assesses the potential impact of rising world food prices on the welfare of Ugandan households. While Uganda experienced sharply higher food prices in 2008, as a landlocked, food‐exporting country the causes of those price changes were mainly regional and indirect rather than directly transmitted from global markets. Using trade volumes, food prices, and household survey data we describe how Uganda, unlike some other countries, is partially shielded from direct impacts of global food price movements. Although the majority of Ugandans are net food buyers, the adverse impact at household‐level of rising global prices is moderated by the relatively large quantity and range of staples consumed that come from home production. Moreover, several of these are not widely traded. Some population groups in Uganda are vulnerable to rising food prices, however, primarily those for whom maize is an important staple, including those dependent upon humanitarian relief and the urban poor. Only a relatively small group of Ugandan households will benefit directly and immediately from rising food prices—the significant net sellers of food crops constituting between 12% and 27% of the population. In this assessment we do not estimate the level and extent of wider second round effects from these higher prices.     

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.     

High food commodity prices: will they stay? who will pay?

Much of the public discussion of the food price crisis has focused on the sharply increased use of food commodities for biofuel production, framing debate in simple food versus fuel terms. Reality is more complex. Multiple forces drove food prices to high levels and, according to findings we report in this article, these forces will sustain high prices over the medium term. We also find that the distinction between high world prices for food commodities and the consumer costs of food is an important one to make. Food consumers do not buy raw food commodities at international prices. The degree to which the price of traded food commodities and the price of food are related depends on a long list of factors, most of which operate to dampen price transmission. In the search for appropriate policy response, it is essential to measure consumer effects correctly and to apportion properly the causes of current high prices.     

Agricultural Commodity Price Shocks and Their Effect on Growth in Sub‐Saharan Africa

Commodity price shocks are an important type of external shock and are often cited as a problem for economic growth in Sub‐Saharan Africa. We choose nine Sub‐Saharan African countries that are heavily dependent on a single agricultural commodity for a significant portion of their income. This paper quantifies the impact of agricultural commodity price shocks using a structural non‐linear dynamic model. The novel aspect of this study is that we determine whether the response of per capita GDP for the selected Sub‐Saharan African countries is different to unexpected increases in agricultural commodity prices as opposed to decreases in prices. We conclude that there is very little evidence that an unanticipated price increase (decrease) will lead to a significantly different response in per capita incomes.     

The impact of commodity price shocks among regional economies of a developing country

Volatile commodity prices have become commonplace in the world economy. Although is widely accepted that commodity‐rich countries are affected by this phenomenon, information about how commodity price shocks impacts their regional economies is scarce. This work analyses how shocks in copper prices impact the economies of the major copper‐producing regions in a developing country, such as Chile. To achieve this goal, a two‐step method is implemented. First, we estimate long‐term copper prices using the Wets and Rios approach (2015) and these estimates are then contrasted with those forecast by the Chilean public advisory committee. Second, a general equilibrium model is implemented to simulate the effects of both expansive and restrictive copper price cycles within major producing regions in Chile. Our results show that the proposed approach yields more homogeneous price projections than those made by the Chilean Government, which, in turn, are very close to variations in response to negative shocks. The price simulations confirm that price cycles affect the savings of government and business, which directly dampens regional production, mainly via investment, capital mobilisation and diversification of production. Because of this, fiscal revenues generated by copper sales act as a trade cycle term multiplier in regional economies. Overall, within copper‐producing regions, we suggest implementing long‐term policies to improve profit distribution efficiency.     

中国粮食价格波动的成因及经济效应分析

选取1978—2011年的年度数据,运用协整对中国粮价波动的成因进行实证。结果表明：粮食生产量、农业生产资料价格指数、居民消费价格指数、粮食消费量、国际粮食价格、广义货币量和粮食库存量对粮食生产价格影响显著;粮食生产量、居民消费价格指数、粮食净进口量对粮食零售价格影响显著。而粮价波动的经济效应：2种粮食价格对粮食产量的影响不同;粮价上涨农民得到的很少;不能确定物价与2种粮食价格是否有关。最后提出了相关政策建议。     

The impact of food price increases on caloric intake in China

World food prices have increased dramatically in recent years. We use panel data from 2006 to examine the impact of these increases on the consumption and nutrition of poor households in two Chinese provinces. We find that households in Hunan suffered no nutrition declines. Households in Gansu experienced a small decline in calories, though the decline is on par with usual seasonal effects. The overall nutritional impact of the world price increase was small because households were able to substitute to cheaper foods and because the domestic prices of staple foods remained low due to government intervention in grain markets.     

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.     

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).     

Asymmetric price volatility transmission between food and energy markets: The case of Spain

The proportion of agricultural production that is being transformed into biofuels has been growing worldwide over the last decade. This has spurred the food versus fuel debate. This article aims at shedding light on this issue by studying price volatility relationships between food and biofuel prices in Spain. We use an asymmetric MGARCH model to evaluate volatility spillovers between the Spanish biodiesel blend and refined sunflower oil prices. Empirical results confirm that there are bidirectional and asymmetric volatility spillovers between these two prices.     

Are Shocks Transitory or Permanent? An Inquiry into Agricultural Commodity Prices

This paper contributes to the contentious topic of whether shocks to agricultural commodity prices are permanent or transitory. This is an important issue with regards to forecasting, economic modelling of agricultural prices and risk management. Past studies have not accounted for important characteristics of agricultural prices that matter when testing whether shocks to prices are permanent or transitory. These include the presence or absence of a deterministic trend, the possible break in the trend, non‐stationary volatility, and the problem of the initial deviation of commodity prices from their long‐run mean or trend. We conduct a comprehensive test that incorporates all these characteristics known to plague agricultural commodity prices. Though the conclusion is mixed, the balance is in favour of agricultural price shocks being permanent in nature. This result departs from the general view that in theory, agricultural prices should be stationary, suggesting that the controversy of whether shocks to agricultural prices are temporary or permanent is not yet over.     

The transmission of world maize price to South African maize market: a threshold cointegration approach

This article seeks to provide an explanation for the relationship between domestic maize price in South Africa and world maize prices in order to evaluate comovement and transmission of world prices to domestic prices in sub‐Sahara African countries. This is done by comparing nested and nonnested models that capture different forms of nonlinearity in the price spread. Adopting a Bayesian approach that allows for comparison of models using Bayes factor, we found that the relationship between South African price and world price for maize indicates the presence of nonlinearity in price transmission with three regimes that is triggered by the price spread in previous period.     

Decomposing changes in agricultural price gaps: an application to Russia

The article develops a method for decomposing changes in agricultural price gaps, defined as the difference between a commodity's domestic producer and border prices. We use OECD's procedure for decomposing changes in the market price support part of producer support estimates as the starting point for our decomposition method, and our method provides a basis for critiquing OECD's decomposition approach. The transmission of changes in border prices (world prices and the exchange rate) to domestic prices is a key element in the decomposition. The method is demonstrated using Russian agricultural price gaps. The results support the argument that for Russian agriculture during the transition period, the main cause of changes in price gaps has been incomplete transmission of changes in the exchange rate to domestic prices, and where the weak transmission results mainly not from policy intervention, but rather from deficient market conditions, in particular poor market infrastructure. The policy implication is that underdeveloped infrastructure has strongly limited the benefits to the Russian economy from agricultural trade liberalization.