TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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250 200 150 100 50 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 69
International Soft Wheat Markets Under Policy Intervention 250 200 150 100 50 70 1971:01 Figure 4.9 Soft wheat prices in Germany, Spain, France and Italy (euro/t) 1973:01 1975:01 1977:01 1979:01 1981:01 1983:01 1985:01 1987:01 Source: Eurostat The selection of an appropriate “world” price for European markets is not straightforward. In this work, the US Hard Red Winter wheat is assumed to be the relevant representative world price for EU markets, as it is normally the case in econometric models (AGMEMOD 2007a, 2007b). Moreover, it is assumed as a reference price also in practice. Indeed, its quotations are used to determine the import duties by the European Commission for medium quality EU soft wheat (Gallezot 2007, p.18). However, it might be argued that wheat is a non homogeneous product. This is a well known issue (for a table of the various classes of wheat see Ghoshray 2000, p. 5; Ghoshray and Lyoid 2003, p.28; Ghoshray 2002, p.303): Larue already (1991), shows that wheat is differentiated by end use and by country of origin, and that wheat protein content has a significant influence on prices. Quality differences, namely protein content 62 , could influence international price linkages by making varieties of wheat imperfect substitutes of one another (Mohanty et al. 1999, p. 113; Ghoshray and Lyoid 2003); nevertheless, wheat markets should be interrelated to the extent that individual wheat types are close substitutes in consumption and thus respond to global supply and demand conditions. 62 Wheat type depends on hardness, a milling characteristic, (we have hard wheats, characterised by a high protein content, and soft wheats), and on dough strength, a baking quality (it determines the end use of wheat; strong wheats can produce bread with a large loaf volume and a good texture, differently from weak wheats). Canadian and Australian wheats are often considered to be of better quality than US wheats, which in turn are considered to be of higher quality than EU and Argentinean wheats; anyway, the substitution between the different classes of wheats has been made easier by technical innovations (Ghoshray 2002, p. 302). 1989:01 1991:01 1993:01 1995:01 1997:01 1999:01 2001:01 Germany Spain France Italy 2003:01 2005:01
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TESTING INTERNATIONAL PRICE TRANSMI
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Associazione “Alessandro Bartola
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Index 1 INTRODUCTION ..............
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1 INTRODUCTION The notion of “pri
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Introduction These recent phenomena
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Introduction Whereas the Common Agr
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Price Transmission and the Law of O
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Price Transmission and the Law of O
Page 19 and 20: Price Transmission and the Law of O
Page 21 and 22: 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 =
Page 54 and 55: 4 INTERNATIONAL SOFT WHEAT MARKETS
Page 56 and 57: International Soft Wheat Markets Un
Page 58 and 59: 30.000 20.000 10.000 0 1961 1963 19
Page 76 and 77: 5 EMPIRICAL ANALYSIS: COINTEGRATION
Page 78 and 79: Empirical Analysis: Cointegration M
Page 82 and 83: α LM test ARCH(13) Empirical Analy
Page 96 and 97: 6 EMPIRICAL ANALYSIS: COINTEGRATION
Page 110: Empirical Analysis: Cointegration M
Page 113 and 114: Concluding Remarks These models rep
Page 116 and 117: REFERENCES Alderman, H., 1992. Inte
Page 118 and 119: 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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