Agricultural price transmission across space and commodities during price bubbles

This article investigates agricultural price transmission during price bubbles. The empirical approach concerns the horizontal transmission of cereal prices both across different market places and across different commodities. The trade policy intervention put forward to mitigate the impact of price exuberance is considered. The analysis is performed using Italian and international weekly spot (cash) price data over years 2006–2010, a period of generalized turbulence of agricultural markets. Firstly, the properties of price time series are explored; then, interdependence across prices is specified and estimated by adopting appropriate cointegration techniques. Results suggest that the bubble had only a slight impact on the price spread and the temporary trade‐policy measure, when effective, has limited this impact.     

The political economy of quality measurement: a case study of the USA slaughter cattle market

As agricultural products move from being economic commodities to quality–differentiated goods, price dispersion within specific markets increases and implicit subsidies from high quality producers to low quality producers are removed. The present paper examines how these distributional effects can influence patterns of support and opposition to changes in marketing arrangements. The simple model developed is calibrated using data from the USA slaughter cattle market. Estimates of the impact on prices of measuring quality more accurately are found to be similar in size to previous estimates of market power price suppression in the market.     

DISTRIBUTED LAGS AND BARLEY ACREAGE RESPONSE ANALYSIS

The need to incorporate production response lags in agricultural supply models is established, and two such lags are considered: the familiar adaptive expectations geometric lag, and a more general polynomial lag. These distributed lag supply response models are applied to Australian barley data for the period 1946-47 to 1968-69. A number of statistical problems associated with the adaptive expectations model are discussed, and in particular it is concluded that lags both in the formation of price expectations and in acreage adjustment should be considered when using geometric lag models. While the polynomial lag model does not provide useful results in the present study, its simplicity and flexibility suggest it may be useful in other studies requiring distributed lag models. The short run and long run price elasticity of barley supply estimates are compared with Gruen et al. [14] supply elasticities for the other major rural commodities, from which it appears that barley has a higher short run elasticity but a lower long run elasticity than wheat, wool and meat.     

THE RELATIONSHIP BETWEEN WORLD PRICE INSTABILITY AND THE PRICES FARMERS RECEIVE IN DEVELOPING COUNTRIES

World prices for agricultural commodities are traditionally unstable, but they were particularly turbulent during the late 1970s and early 1980s. This paper uses available post-War data on individual commodity prices to test whether world price instability is increasing, and to examine its impact on the prices producers receive in developing countries. It is found that the recent turbulence was more a statistical fluke than the beginning of any longer-term increase in market instability. Further, while the variability in world prices has been almost entirely transmitted to developing countries in the dollar value of their export unit values, it has not been fully transmitted to average producer prices. Real exchange rates, domestic marketing arrangements and government intervention have acted to buffer price movements for producers in many developing countries.     

Marketing margins and price transmission on the Hungarian beef market

There is a wealth of literature on farm-retail price spread for different commodities and countries. However, research on price transmission and marketing margins in the transition economies is still limited. The paper analyses two specific aspects of transition: the larger probability of asymmetric price transmission and structural changes in the case of Hungarian beef chain. The article identifies the date of structural break applying the Gregory and Hansen procedure with recursively estimated breakpoints and ADF statistics. Exogeneity tests reveal the causality runs from producer to retail prices. Homogeneity is rejected, suggesting a mark-up pricing strategy. Price transmission analysis suggests that, despite the common belief, price transmission on the Hungarian beef meat market is symmetric on both long and short run.     

RELATIVE PRICE VARIABILITY AMONG AGRICULTURAL COMMODITIES AND MACROECONOMIC INSTABILITY IN THE UNITED KINGDOM

This paper develops measures of relative price variability among agricultural commodities in the UK farm sector for the period 1956-88. Econometric tests of the hypothesis that relative price variability is positively correlated with instability in the macroeconomy are carried out. The results indicate that UK agricultural commodity prices become more volatile relative to one another when the economy-wide inflation rate increases and when aggregate output becomes more variable. These findings suggest that UK producers and consumers of domestically grown farm products experience increased risk and uncertainty in their production and consumption decisions during periods of macroeconomic instability. The effects of UK entry into the European Community are also examined; no evidence is found to suggest that adoption of the Common Agricultural Policy reduced year-to-year relative price variability among agricultural commodities.     

Market interdependence and volatility transmission among major crops

This article provides a comprehensive analysis of the dynamics of volatility across major agricultural commodities in the United States. Volatility interactions across markets may lower the effectiveness of diversification strategies to mitigate price risks and should be taken into account when analyzing the pricing behavior of different agricultural commodities. We follow a multivariate GARCH approach to evaluate the time evolution of conditional correlations and volatility transmission across corn, wheat, and soybeans price returns on a daily, weekly, and monthly basis. The period of analysis is from 1998 to 2012. The estimation results indicate a lack of lead‐lag relationships between corn, wheat, and soybeans price returns at the mean level. We find, however, important volatility spillovers across commodities, particularly at the weekly and monthly level. Wheat and corn seem to play a major role in terms of volatility transmission. Despite the supposed higher financial market integration of agricultural commodities, we do not observe that agricultural markets have become more interdependent in recent years.     

The effects of real exchange rate depreciation on stochastic producer prices in low-income agriculture

This paper considers the effects of real exchange rate depreciation on stochastic agricultural producer prices in low-income agriculture. Conventional wisdom, that real depreciation achieved through nominal currency devaluation stimulates tradables production, does not universally hold in the presence of stochastic prices. In fact, real depreciation is only stimulative in two cases–importables that remain importable and nontradables that become exportable. GARCH estimation of time-series price data on several commodities from Madagascar support the hypotheses generated by the analytical model.     

Drivers of food price in China: A heterogeneous panel SVAR approach

In this paper, we examine the effects of shocks in agricultural output, production material price and production price on China's food price using panel data of 26 provinces for the period 2004 Q1–2015 Q4. Employing a heterogeneous panel structural vector autoregressive (SVAR) model, we identify the causal flows between the endogenous variables via directed acyclic graphs method. The empirical results from impulse response functions and variance decompositions suggest sizeable cross‐province variations. The main driving force of food price is the price inertia shock, rather than the agricultural output or the vertical chain of price transmission shocks. The findings support the view that price expectation is the key shifter of food price. Moreover, the shocks in the vertical chain of price transmission are only weakly linked to food price. Our findings are robust to an alternative panel SVAR model identified via Cholesky decomposition.     

Food Price Bubbles and Government Intervention: Is China Different?

The last decade has witnessed different price trajectories in the international and Chinese agricultural commodity markets. This paper compares and contrasts these dynamic patterns between markets from the perspective of price bubbles. A newly developed right‐tailed unit root testing procedure is applied to detect price bubbles in the Chicago Board of Trade (CBOT) and Chinese agricultural futures market during the period 2005–14. Results show that Chinese markets experienced less prominent speculative bubbles than the international markets for its high self‐sufficiency commodities (wheat and corn), but not for low self‐sufficiency commodities (soybean). The difference in price behavior is attributed to differences in market intelligence, and to Chinese agricultural policies related to trade as well as domestic government policies. Besides, it discusses challenges to the sustainability of the stable price trajectory in Chinese markets. Au cours de la dernière décennie, les prix des produits agricoles sur les marchés chinois et international ont suivi des trajectoires variées. Dans le présent article, nous comparons les divers marchés sur le plan des bulles de prix des produits agricoles. Nous avons utilisé un nouveau test de racine unitaire qui exploite la queue de droite de la distribution de la statistique pour déceler les bulles de prix des produits agricoles sur le Chicago Board of Trade (CBOT) et sur les marchés à terme chinois au cours de la période 2005–14. Les résultats de notre étude montrent que les marchés chinois ont connu des bulles spéculatives moins prononcées que les marchés internationaux dans le cas des produits agricoles pour lesquels l'autosuffisance de la Chine est très élevée (le blé et le maïs), par rapport aux produits pour lesquels l'autosuffisance est faible (le soja). La différence sur le plan du comportement des prix est attribuable aux différences sur le plan de l'information commerciale ainsi qu'aux politiques agricoles chinoises en matière de commerce et à la politique intérieure du pays. Nous avons également examiné les défis par rapport à la durabilité d'une trajectoire de prix stables sur les marchés chinois.     

Small Farm Production and the Standardization of Tropical Products

This paper explores the historical relations between labour organization and product qualification in the production of tropical agricultural exports. In supplying international markets for tropical products, peasant farming emerged as the norm for labour organization after the First World War, competing with the large plantations and different systems of forced labour. During the same period, national standards became the dominant tool for product qualification of commodities traded on the global agricultural markets. These standards allow the creation of futures markets and the emergence of traders, instead of auction markets and commission merchants: two changes that were the basis of the subsequent international marketing of peasant-produced commodities. The last part of the paper considers the potential consequences of the current erosion of standards for the position of peasants in tropical export crop cultivation.     

Probability distributions for economic surplus changes: the case of technical change in the Australian wool industry

Mullen, Alston and Wohlgenant (1989) (MAW) examined the distribution of the benefits of technical change in the Australian wool industry. Their conclusions are revisited by examining the probability distributions of changes in the welfare measures, given uncertainty about their model parameters. Subjective probability distributions are specified for the parameters and correlations among some of the parameters are imposed. Hierarchical distributions are also used to model diverse views about the specification of the subjective distributions. A sensitivity elasticity is defined through the estimation of a response surface to measure the sensitivity of the estimated research benefits to individual parameters. MAW's conclusions are found to be robust under the stochastic approach to sensitivity analysis demonstrated in this article.     

IMPERFECT COMPETITION AND THE COBWEB THEOREM: A VEGETABLE CASE

Producer price changes are dependent on final demand, marketed volume and marketing cost, but the less than perfect competition which may determine this last is ignored in formulating the cobweb theorem. Attention to monopsonistic buying of farm products has importance in the choice between stabilisation measures directed at producers and marketing firms, and also as regards the need for integration of the theory of imperfect competition and the analysis of agricultural price cycles. Cyclical instability is a serious problem in the New Zealand vegetable industry. The size and inflexibility of retail margins significantly accentuate producer price fluctuations. Auctions are the main mechanism for price formation, and high retail margins appear to be permitted by the non-competitive elements in this marketing system. The most promising avenues for improvement would be in reform of auction procedures and exploration of alternative marketing channels for vegetables.     

On the Use of Price Ratio in Aggregate Supply Response: Some Evidence from the Poultry Industry

The specification of supply/demand relationships has received considerable attention in agricultural economics (Heien 1977). Economic theory has helped provide a basis for the specification of such relationships, one of its contributions being the proposition that prices should be interpreted only in relative terms. This has had a profound influence on model building in agricultural economics, leading a number of researchers to avoid the use of absolute prices in economic analysis. For this reason, numerous market models of the agricultural economy use price ratios as explanatory variables (e.g., Chen; Chen et al.; Heien, 1976; Gerra; Kulshreshtha and Wilson; Rahn; Talpaz; Morzuck et al.; Houck and Gallagher; Wilson et al.); these examples suggest that the use of such ratios is fairly widespread in econometric modeling of the crop and livestock sectors. One of the best examples of price ratios is the "feed cost to price" ratio commonly used in the analysis of livestock supply response. Indeed, since feed cost constitutes a major part of the total production cost in livestock activities, the "feed cost to price" ratio is often considered a proxy for profitability. For this reason, data on such ratios are regularly published for various livestock activities (e.g., USD A). Also, "feed cost to price" ratios are often employed in the specification of models of livestock supply response, (e.g., Chen; Chen et al.; Heien 1976; Gerra; Kulshreshtha and Wilson; Rahn; Talpaz). However, not all models of aggregate supply response follow this approach. For example, Freebairn and Rausser, and Arzac and Wilkinson, use prices as separate variables rather than in ratio forms in their models. In particular, they do not employ price ratios in their livestock and crop supply equations. The existence of these different approaches raises questions about the appropriateness of the use of price ratios in the modeling of aggregate supply.     

Cash Marketing Styles and Performance Persistence

Much agricultural economics research has been dedicated to determining the best time for producers to sell their commodities. Unlike this past research, we look at how producers actually sell commodities. The extent to which producers display an active or mechanical marketing style is measured using individual farmer sales. The activeness of a producer's marketing strategy is measured by how much the timing of their strategy varies from year to year. Results show no relationship between activeness and net prices received. Furthermore, the results show no evidence of performance persistence by individual producers.     

A Note on Asymmetry in Commodity Futures Markets

This study tests for asymmetry in futures price changes using commodities from a variety of groups such as agricultural, metals, and financials. Tests are used to determine whether or not prices move up in the same fashion as they move down, over varying data frequencies. The results indicate that every commodity analyzed shows at least some degree of asymmetry.
Nous avons scruté les signes éventuels d'asymétrie dans l'évolution des prix à terme de certaines catégories de produits agricoles, industriels (pétrole et métaux) et boursiers. Des tests ont été utilisés pour déterminer si les prix moment de la même façon qu'ils descendent pour diverses fréquences d'établissement des prix (quotidien, hebdomadaire, mensuel). Il ressort de ces analyses que chaque type de produit comportait au mains un certain degré d'asymétrie.     

Using a functional approach to test trending volatility in the price of Mexican and international agricultural products

In this article, we extend the traditional GARCH(1,1) model by including a functional trend term in the conditional volatility of a time series. We derive the main properties of the model and apply it to all agricultural commodities in the Mexican CPI basket, as well as to the international prices of maize, wheat, swine, poultry, and beef products for three different time periods that implied changes in price regulations and behavior: before the North American Free Trade Agreement (NAFTA; 1987–1993), post‐NAFTA (1994–2005), and commodity supercycle (2006–2014). The proposed model seems to adequately fit the volatility process and, according to heteroscedasticity tests, also outperforms the ARCH(1) and GARCH(1,1) models, some of the most popular approaches used in the literature to analyze price volatility. Our results show that, consistent with anecdotal evidence, price volatility trends increased from the period 1987–1993 to 1994–2005. From 1994–2005 to 2006–2014, trends decreased but the persistence of volatility increased for most products, especially for international commodities. In addition, we identify some agricultural products such as avocado, beans, and chicken that, due to their increasing price volatility trends in the 2006–2014 period, may present a risk for food inflation in the short run.     

Testing for Asymmetric Pricing in the Alberta Pork Market

Asymmetry tests have been used by agricultural economists to determine if the effects of price changes in one region or level in the marketing channel are transmitted to other regions or levels in the marketing channel in an identical manner for price increases and decreases. Two tests are normally conducted: sum of coefficients tests and speed of adjustment tests. In this analysis, these two tests are conducted on weekly price response equations that relate Alberta and Ontario price changes. Six separate periods of analysis are used to reflect institutional changes in the Alberta market. Evidence of asymmetrical price response is detected for the period immediately preceding the establishment of the Alberta Pork Producers Marketing Board.
Les spécialistes en économie rurale vérifient i'asymétrie des prix pour voir si la fluctuation des cours dans une région ou un élément du circuit se transmet aux autres régions ou éléments de la même façon pour les hausses et les baisses de prix. On effectue habituellement deux épreuves: (1) somme des résultats des épreuves sur les coefficients et (2) vérification de la rapidité d'ajustement. Les auteurs ont appliqué ces deux épreuves aux équations qui mesurent la réaction des prix hebdomadaires et relient les fluctuations des prix entre l'Ontario et l'Alberta. lis se sont servis de six périodes d'analyse distinctes pour tenir compte des changements institutionnels survenus sur le marché albertain. Les résultats indiquent une réaction asymétrique des prix pour la période qui a immédiatement précédé la création de l'Office de commercialisation des producteurs de pores de l'Alberta.     

Household food consumption in Turkey: a comment

We comment on a recent important article by Akbay et al. anddiscuss some methodological and estimation issues arising fromtheir paper. We then suggest alternative procedures that mayhelp improve their estimates and thereby enhance their usefulnessas a basis for food policy and marketing decisions.     

Market Structure and the Value of Agricultural Contingent Claims

In this paper, we evaluate the proposition that market structure, including supply and demand elasticities, plays a significant role in influencing equilibrium price dynamics. We show that the more inelastic the demand and/or supply of a commodity is, the more price risk will be faced by producers of that commodity. In general one can expect greater volatility from commodities with both demand and supply being inelastic, and the least when they are both elastic. We illustrate how the elasticities of supply and demand can impact the prices of contingent claims on agricultural commodities including revenue insurance.
Dans le présent article, nous évaluons la proposition selon laquelle la structure de marché, y compris l'élasticité de l'offre et de la demande, influence la dynamique du prix d'équilibre. Nous montrons que plus la demande et/ou l'offre d'un produit de base est inélastique, plus les producteurs de ce produit de base sont confrontés au risque de prix. En général, on peut s'attendre à une forte volatilité des produits de base pour lesquels l'offre et la demande sont à la fois inélastiques, et à une faible volatilité lorsqu'elles sont élastiques. Nous faisons ressortir de quelle façon l'inélasticité de l'offre et de la demande peut influencer les réclamations éventuelles concernant des produits agricoles de base, y compris l'assurance−revenu.