The Demand for Organic and Conventional Produce in London,UK: A System Approach

The majority of studies on consumer demand for organic products neglect the presence of non‐organic competitors, ignoring their effect on consumer demand for organics. This article uses a demand system which includes both organic and non‐organic fruits and vegetables, with actual (as opposed to stated) data for household purchases. Estimation of our model provides empirical evidence on the interrelationships between organic and non‐organic products, as the relevant cross‐price elasticities. Own‐price elasticities indicate that organic fruits and vegetables are more price elastic than their non‐organic counterparts, and that lower social class households with children have the most own‐price elastic demand. Cross‐price elasticities indicate relatively strong loyalty to organic products.     

Are commodity prices chaotic?

We conduct tests for the presence of low‐dimensional chaotic structure in the futures prices of four important agricultural commodities. Though there is strong evidence of non‐linear dependence, the evidence suggests that there is no long‐lasting chaotic structure. The dimension estimates for the commodity futures series are generally much higher than would be for low dimension chaotic series. Our test results indicate that autoregressive conditional heteroskedasticity (ARCH)‐type processes, with controls for seasonality and contract‐maturity effects, explain much of the non‐linearity in the data. We make a case that employing seasonally adjusted price series is important in obtaining robust results via some of the existing tests for chaotic structure. Finally, maximum likelihood methodologies, that are robust to the non‐linear dynamics, lend strong support to the Samuelson hypothesis of maturity effects in futures price changes.     

On the Segregation of Genetically Modified,Conventional and Organic Products in European Agriculture: A Multi‐market Equilibrium Analysis

Evaluating the possible benefits of the introduction of genetically modified (GM) crops must address the issue of consumer resistance as well as the complex regulation that has ensued. In the European Union (EU), this regulation envisions the co‐existence of GM food with conventional and quality‐enhanced products, mandates the labelling and traceability of GM products and allows only a stringent adventitious presence of GM content in other products. All these elements are brought together within a partial equilibrium model of the EU agricultural food sector. The model comprises conventional, GM and organic food. Demand is modelled in a novel fashion, whereby organic and conventional products are treated as horizontally differentiated but GM products are vertically differentiated (weakly inferior) relative to conventional ones. Supply accounts explicitly for the land constraint at the sector level and for the need for additional resources to produce organic food. Model calibration and simulation allow insights into the qualitative and quantitative effects of the large‐scale introduction of GM products in the EU market. We find that the introduction of GM food reduces overall EU welfare, mostly because of the associated need for costly segregation of non‐GM products, but the producers of quality‐enhanced products actually benefit.     

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.     

Wages,Prices and Agriculture: How Can Indian Agriculture Cope with Rising Wages?

Rapid economic growth in India has resulted in rapidly rising rural wages. Using the framework of variable profit functions and household level data, we study econometrically the wage impacts on crop agriculture. Rising wages are associated with decreasing crop output, other things being equal. Crop prices would need to increase by 80% in the short run to offset the effect of an agricultural wage increase, or by 140% in the short run to offset rural non‐farm wage increases as well. However, because non‐land farm assets respond positively to the non‐farm wage, in the medium term this increase is reduced to 74%. During the period of 1999/00‐2007/08, growth in non‐land farm assets, the labour force, education and technology has easily compensated for the wage increase, and probably also for the accelerating wage growth. Focusing on growing these shifter variables is a much better policy option than raising prices that would come at the expense of consumers or taxpayers.     

Supply and demand for commodity components: implications of free trade versus the AUSFTA for the US dairy industry*

During the negotiations on the Australia–US free trade agreement (AUSFTA), the US dairy industry vigorously opposed opening the US market to imports of Australian dairy products on the grounds that the US industry would be devastated. Subsequently, the agreement signed in February 2004 made an exception for dairy, providing for only limited quota expansion and no free trade, even at the end of the long implementation period. This paper presents a simulation model of world dairy markets, represented by supply and demand equations for fat and non‐fat components of milk and manufactured dairy products. We use the model to analyse the effects on US milk markets of both a hypothetical agreement, allowing free bilateral trade in dairy products, and the actual AUSFTA. An important contribution to the literature is the derivation of explicit supply and demand relationships for milk components. The components model allows an analysis of long‐term production, consumption, and trade patterns that is not tied to specific, fungible products. Simulations indicate that increased imports from Australia resulting from bilateral trade liberalisation would have resulted in small reductions in US milk prices and production. The much smaller increases in Australian access to the US market under the actual AUSFTA will have even smaller, almost negligible, impacts.     

Supermarket Promotions and Food Prices: A Note

Using a sample comprising nearly 250,000 weekly prices from the largest seven UK supermarket chains, this note investigates two pricing practices that have attracted public interest: the tendency for promotions to ‘disguise’ rises in non‐sale prices and the inflation of prices prior to sales which ‘exaggerate’ the discount. Analysing price dynamics before and after periods of promotional discounting results show post‐sale prices are typically lower than pre‐sale prices, contrary to the disguise hypothesis. We do, however, find evidence of exaggeration of the discount, which may potentially explain why prices fall after discounts, although the evidence is not sufficiently widespread for this to be the sole cause. Results parallel the competition authority's view of supermarket promotions and point to the useful contribution that retail price microdata might play in keeping prices in check in countries where highly concentrated retail sectors raise similar concerns.     

Sustainability Labels: Are Price Premia Relevant in Online Food Retailing?

Consumers are willing to pay a higher price for products certified as sustainable. By implication, such certification is in the interest of producers, too. A general claim that sustainability characteristics automatically imply a price margin may not, however, be justified. Rather, several price premia might be necessary. This analysis based on 882 product prices of the German online retail, is concerned with the price premia attached to various labels and products. It estimates individual price premia for products, like coffee, tea, sweets, spices, etc., showing that sustainable food labeling is not always an indicator for a price markup. In fact, for some products (e.g. spices, chocolate) and labels (e.g. UTZ) a negative price effect is even estimated. Such markdowns may be due to a differing emphasis on sustainability issues along the supply chain for some products or the label’s certification policies.     

Wheat stocks and the cointegration of wheat prices

We examine the effect of wheat stocks on the relationship between port and inland wheat prices in western Canada after the dissolution of the Canadian Wheat Board in 2012. Standard statistical tests find no evidence that the port price is cointegrated with inland prices. We argue that large harvests in 2013–2014 and 2014–2015 are responsible for this lack of cointegration. A simple theoretical model demonstrates how wheat stocks drive a wedge between inland and port prices. After including wheat stocks in the cointegrating vector, we find the expected cointegrating relationships between the port and inland prices. Using an error correction model, we show that a 10% increase in the wheat stocks reduces producer prices in Alberta and Manitoba by 6% and 4%, respectively. We conclude by discussing policy options for reducing the size of wheat stocks on the prairies.     

Effects of supermarket monopsony pricing on agriculture

Potential effects of alleged monopsony pricing of farm food products by supermarkets on farm product prices, quantities, incomes and land values are assessed relative to competitive behaviour. A long‐run comparative static equilibrium model is used. For export‐competing and import‐competing products, the farm food input supply curve facing the supermarkets is close to perfectly elastic and this limits monopsony behaviour. At the margin, the opportunity to reallocate agricultural land between traded and nontraded farm products means a highly elastic supply function for nontraded food inputs facing supermarkets and very limited monopsony effects.     

Comparing economic performance of organic and conventional U.S. beef farms using matching samples*

Economic performance measures of organic and transitioning‐to‐organic cow–calf farms are compared with those of non‐organic cow–calf farms. A method of matching samples is used for the comparison, estimating sample average treatment effects for the subpopulation of the treated. Each organic farm is matched with one non‐organic farm that is involved in the same beef industry segments and farm size classes, and in the same region. Furthermore, farmer demographic, farming system, and technology variables are used to identify matches. Bias is reduced by estimating separate weighted regression functions for the treated and untreated groups. Results suggest that higher cost of organic production is due primarily to higher capital recovery, taxes and insurance, and overhead costs. Evidence is found for differences in beef enterprise profitability by organic status.     

Farmland prices, structural breaks and panel data

Previous time series evidence has indicated that farmland pricesand cash rents are not cointegrated, a finding at odds withthe present value model of farmland prices. We argue that thisfailure to find cointegration may be due to low power of testsand to the presence of structural change representing a shiftingrisk premium on farmland investments. To accommodate this possibility,we use panel unit root and cointegration methods that are morepowerful than conventional time series methods and allow forbreaks in the cointegration relationship. Our results, basedon a large panel covering 31 US states between 1960 and 2000,suggest that the present value model of farmland prices cannotbe rejected.     

Productivity improvement in Korean rice farming: parametric and non‐parametric analysis†

The published empirical literature on frontier production functions is dominated by two broadly defined estimation approaches – parametric and non‐parametric. Using panel data on Korean rice production, parametric and non‐parametric production frontiers are estimated and compared with estimated productivity. The non‐parametric approach employs two alternative measures based on the Malmquist index and the Luenberger indicator, while the parametric approach is closely related to the time‐variant efficiency model. Productivity measures differ considerably between these approaches. It is discovered that measures of efficiency change are more sensitive to the choice of the model than are measures of technical change. Both approaches reveal that the main sources of growth in Korean rice farming have been technical change and productivity improvements in regions of the country that have been associated with low efficiency.     

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.     

Spatial integration between Finnish and Dutch potato markets

This study estimated a conditional mean model for producer prices of fresh potatoes in Finland and for wholesale selling prices of fresh potatoes in the Netherlands. Unit roots were tested in the Finnish and Dutch price series. Then, an asymmetric error correction model with thresholds was estimated for potato prices between Finland and the Netherlands. Asymmetry was allowed both in short and long-run price transmission. The results suggest that the prices are cointegrated and the arbitrage system is functioning, but with a significant time lag between the Finnish and Dutch potato markets. The price response is also asymmetric in that the Finnish price moves towards a steady state equilibrium faster from above than from below the equilibrium.     

Is Australia on a sustainability path? Interpreting the clues*

Genuine savings is a conceptually valid one‐sided indicator as to whether Australia is on a weak sustainability path (negative GS would warn that current welfare is unsustainable). The World Bank's adjusted net savings (ANS) data summarise the available evidence, and by this indicator Australia is muddling along, at best. ANS misses some important pieces of the picture – net depletion of water, soil and biodiversity, and most kinds of pollution damage – and thus overstates Australia's genuine savings performance. Weak sustainability can be promoted by getting the prices right, and piecemeal efforts are underway via regulatory approaches and resource/environmental markets of various kinds. Nevertheless, particular resource problems – habitat conservation, biodiversity, climate change and dryland salinity – are likely to also require strong sustainability approaches. A sustainable future involves pushing weak sustainability as far as the body politic permits, invoking precautionary instruments for specific resource crises, and nurturing policy processes that encourage the consensus‐building that will be necessary to get it done.     

What Explains Agricultural Price Movements?

After 2005, commodity prices experienced their longest and broadest boom since World War II. Agricultural prices have now come down considerably since their 2011 peak, but are still 40% higher in real terms than their 2000 lows. This paper briefly addresses the main arguments on the causes of the agricultural price cycle. It broadens the scope of analysis by focusing on six agricultural commodities, and identifies the relative weights of key quantifiable drivers of their prices. It concludes that increases in real income negatively affect real agricultural prices, consistent with the Prebisch–Singer hypothesis and its predecessor, Engel's Law. Energy prices matter most (not surprisingly, given the energy‐intensive nature of agriculture), followed by stock‐to‐use ratios and, to a lesser extent, ex‐change rate movements. The cost of capital affects prices only marginally, probably because it not only influences demand, but also evokes a supply response. The added value of these results lies in that, when examined in tandem and against market fundamentals, they challenge the conclusions from uni‐dimensional approaches that often put disproportionate weight on an individual factor.     

Preference Learning in Consecutive Experimental Auctions

This paper explores the origins of the strikingly high price premia paid for new food products in lab valuation exercises. Our experimental design distinguishes between two explanations of this phenomenon: novelty of the experimental experience versus the novelty of the good, i.e., preference learning—bids reflect a person's desire to learn how an unfamiliar good fits into their preference set. Subjects bid in four consecutive experimental auctions for three goods that vary in familiarity, candy bars, mangos, and irradiated meat. Our results suggest that preference learning is the main source of the high premia, and that novelty of the experimental experience does not in itself artificially inflate valuations.     

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.     

Rethinking Organic Farming in the Post‐Socialist Context: Lessons from Bulgaria

On the basis of an in‐depth qualitative study, this article discusses the case of Bulgaria as an example of a new EU Member State that implemented EU organic farming policies in a top‐down process during EU accession. We explore the difficulties in transposing a concept originating in Western Europe to post‐Socialist countries, and particularly ask what this transposing of an alien concept means for long‐term development of the organic sector. We found that the top‐down agenda‐setting for organic farming in Bulgaria resulted in inefficient policies that inhibited an orientation of producers towards the market's needs. Tacit assumptions underlying the concept of organic farming in Western Europe, such as the relevance of social capital could not be sustained in Bulgaria, which added to the challenges of policy implementation. To increase policy efficiency, we recommend a policy process that involves the expertise of all organic sector actors, including organic operators, but also policymakers, organic organisations, consumers and academic experts. Expertise and knowledge requirements are diverse, touching policy, market, collective action and practice‐oriented skills. Integrating these skills could maximise success in finding the best solution for implementing – and adjusting – a foreign concept meaningfully in a particular local context.