TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

4 INTERNATIONAL SOFT WHEAT MARKETS
UNDER POLICY INTERVENTION
4.1 Introduction
In this chapter, a description of what constitutes the case study of this work, i.e.
the international markets for soft wheat, is given. Internationally, wheat is the
most traded commodity; the US and the EU are amongst the major exporting
countries.
Agricultural markets are often subject to considerable policy intervention. For
soft wheat, Ghoshray et al. (2000, p.3) point out that policy regimes play a
significant role in production and export shares. The EU Common Agricultural
Policy (CAP) is a case in point, since thanks to its measures during the 1980s the
EU emerged as the second largest exporter of wheat, having previously been a net
importer.
At the multilateral level, the Uruguay Round Agreement on Agriculture of the
World Trade Organization represents the first attempt of implementing a
multilateral trade agreement specifically related to agriculture, setting common
provisions for all the member countries.
A detailed description of all these policy measures will make clear the need for
taking in due account policy intervention when testing for price transmission. This
has often not been the case, which might explain a very mixed empirical evidence.
For this reason, a consistent theoretical framework will be developed, which
stems from the one outlined in chapter 2, but tries to extend it towards the
inclusion of policy regimes.
It will be this framework which will be used to develop the empirical models
presented in chapters 5 and 6.
Chapter 4 then represents a connection between the first two ones, where,
respectively, the basic concepts necessary for the study of price transmission and
the empirical models used in the relevant literature have been revised, and the