TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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4 <strong>INTERNATIONAL</strong> SOFT WHEAT MARKETS <strong>UNDER</strong> 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
International Soft Wheat Markets Under Policy Intervention following two, devoted to the results of the empirical analysis after an alternative theoretical framework has been proposed. The chapter is structured as follows. In paragraph 4.2, an introductory overview of the world wheat market is given, by describing international trade flows (paragraph 4.2.1), and by explaining the functioning of EU domestic and border policies for soft wheat, together with the implementation of the Uruguay Round Agreement on Agriculture of the World Trade Organization (paragraph 4.2.2). In paragraph 4.3, a theoretical framework accounting for policy regimes is developed, in order to test for international price transmission by considering the relevant policy measures. In paragraph 4.4, the data for the empirical analysis are presented together with some considerations on product homogeneity, price leadership, assumptions concerning transport costs. Paragraph 4.5 concludes. 4.2 Trade flows and policies in international wheat markets This work aims at introducing policy variables in cointegration models for the study of international price transmission. The case study is constituted by soft wheat markets in the years 1978-2003. We expect both domestic EU policies and the ones related to international trade agreements to have significantly affected price transmission. To explain why is this the case, a general overview of the functioning of international soft wheat markets, as well as of the relevant policy measures in place, will be given. In paragraph 4.2.1, the data concerning the world wheat trade over the past 50 years are analyzed; in paragraph 4.2.2, EU and international policy measures are described. They are relevant both to the elaboration of a consistent theoretical framework introducing policy regimes while testing for price transmission (which is the object of paragraph 4.3) and to the empirical analysis which will be performed in chapters 5 and 6. 4.2.1 International soft wheat markets: an overview Wheat is a food product which is produced and/or consumed in almost every country in the world. It is a temperate product, grown both in the Northern hemisphere, where the harvest occurs in June to October, and in the Southern Hemisphere, where it is November to January (Ghoshray 2002, p.301). Soft wheat is a heavily traded commodity; in fact, wheat dominates international cereals exports (Faostat 2004). The main exporting countries are Argentina, Australia, Canada, United States (US) and the European Union (EU); in most years, together they account for more than 80% of world wheat exports (Faostat 2007; see figure 4.1, 4.2 and 4.3). Algeria, Brazil, Egypt, Japan and the EU have been some of the biggest importers in the past years, although the import 54
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TESTING INTERNATIONAL PRICE TRANSMI
Page 3 and 4: Associazione “Alessandro Bartola
Page 6 and 7: Index 1 INTRODUCTION ..............
Page 8 and 9: 1 INTRODUCTION The notion of “pri
Page 10 and 11: Introduction These recent phenomena
Page 12: Introduction Whereas the Common Agr
Page 15 and 16: Price Transmission and the Law of O
Page 24 and 25: 3 EMPIRICAL TESTS FOR SPATIAL PRICE
Page 26 and 27: Empirical Tests for Spatial Price A
Page 32 and 33: = β 2 i0 Empirical Tests for Spati
Page 48 and 49: ∆p + t ∑ ⎡β⎤ ' ⎡ p t =
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Page 78 and 79: Empirical Analysis: Cointegration M
Page 82 and 83: α LM test ARCH(13) Empirical Analy
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Empirical Analysis: Cointegration M
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Concluding Remarks These models rep
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REFERENCES Alderman, H., 1992. Inte
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References agricultural policies: s
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References Isard, P., 1977. How far
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References Thompson, S. R., Sul, D.
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Annexes 124 Annex A - Empirical ana
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Annexes METHODOLOGY DATA USED MAJOR
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Annexes Variable swfr 138 Annex B -
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Annexes Variable swfr 140 Table B.3
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Annexes 142 Table B.7 - Unit root t
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Annexes 144 Table C.5 - Cointegrati
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Annexes 146 Table D.4 - Unit root t
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Annexes 148 Annex E - Unit root tes
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Annexes Table E.5 - Unit root tests
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The notion of “price transmission
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