TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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1978:12
International Soft Wheat Markets Under Policy Intervention
Figure 4.8 Soft wheat French price, US HRW price, intervention price (euro/t)
1980:12
1982:12
1984:12
1986:12
1988:12
1990:12
Source: Eurostat, International Grains Council, European Commission regulations
The three price series have quite a different behaviour. The US price presents a
cyclical pattern, which is quite common for agricultural commodities, and is
mostly due to the inherent characters of agricultural production (Hallett 1968).
The French price appears to track closely the intervention one up to 1992,
when its fluctuations seem to follow more the ones of the US price.
What emerges even from this simple visual inspection, is that the MacSharry
reform clearly marks a turning point in the behaviour of the series. The
intervention price values were constantly set at higher levels during the 1980s and
up to 1992 when, in correspondence to the implementation of the MacSharry
reform, a 30% reduction of their level was agreed (we can notice their strong
seasonality, as seasonal adjustments are established monthly to cover the increase
in storage costs; figure 4.8). Indeed, intervention prices switch from being
constantly above to constantly below the world ones.
The French price is assumed to be the representative EU price, considering the
fact that France is the biggest European wheat producer (Eurostat). In figure 4.9,
moreover, we can see how the European prices from the four major agricultural
producer countries move together over the past 30 years 61 ; once again, we can
notice how, during the eighties, high intervention prices allowed to keep high the
prices in the European markets.
61 As far as Italy and France (amongst the most important EU countries in this respect) are concerned, Verga
and Zuppiroli (2003, p.27) find out that the strong relationships existing between them are not affected by the
MacSharry Reform, which would imply that, besides sharing the same political context, the two countries are
tied by strong commercial linkages. It must be said that older studies (Zanias 1993; Gjolberg et al. 1996) find
evidence of non-integrated wheat markets, unless prices are corrected by Monetary Compensatory Amounts,
which operated as export subsidies/taxes in the intra-EU trade as the “green exchange rate” was fixed and
might diverge from the actual market exchange rate.
1992:12
1994:12
1996:12
1998:12
2000:12
2002:12
swfr
hrw
pint
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