Price responsiveness of trade in non-competitive wheat markets
Abstract
Key components for estimating net export demand elasticities are price and exchange rate transmission elasticities. These measures show the degree of domestic price rigidity relative to world price changes in a non-competitive environment created by institutional arrangements in a country which regulates agricultural trade. Several findings on price and exchange rate transmission for wheat were found: (1) For many countries, domestic prices resisted full price adjustments to world price movements over the short run, but followed world price movements in the long run. (2) For some exporting countries, which are relatively freer traders, it appears that a lag in agricultural program payments to farmers results in small differences between short and long run price response. (3) For the importing countries studied, all have implemented one or a combination of variable levies, quotas, and tariffs. This study found the existence of partial short run price transmission and perfect long run price transmission in many cases. It seems that short and long run policy goals and policy instrument settings in these countries have adjusted over time according to changes in the economic and political environment, both domestic and international. (4) For many importing countries in which domestic prices have been maintained higher than import prices, budgetary considerations may be an important factor in adjustments of domestic prices to changes in world prices. (5) Irreversible domestic price transmission was found for all exporters and five importers, at least for the short run. Domestic prices have responded irreversibly to exchange rate changes for only one exporter and six importers. However, the magnitude of these directional differences are relatively small, and irreversible responses disappeared over the long run. (6) In many cases, the results obtained in this study are consistent with predicted outcomes of countries' agricultural and trade policies. A comparison between this and earlier studies suggests that values of price transmission elasticities vary over time, in response to changes in policies and policy instrument settings that adjust endogenously to domestic and world market conditions. Based on the above findings, previous estimates of the U.S. net wheat export demand elasticity, in which smaller values of short and long run price transmission elasticities for many countries were assumed, appear to be underestimated.
Degree
Ph.D.
Advisors
Abbott, Purdue University.
Subject Area
Agricultural economics
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