Transmission of global wheat prices to domestic markets in Kenya: A cointegration approach

This paper evaluates the extent to which changes in international wheat prices are transmitted to domestic markets in Kenya using an error correction model (ECM) that employs monthly producer price data for the period 2002 to 2020. Domestic wheat markets in Kenya were found to be strongly integrated while, international wheat markets were cointegrated with domestic prices at the port of Mombasa. The long-run elasticity of price transmission was estimated at 0.91, which implies that 91% of the changes in international wheat prices are transmitted to domestic markets in Kenya. The speed of adjustment was estimated at -0.069, which implies that it takes about 14 months for the changes in the international wheat price to be fully transmitted to the Kenyan domestic market. Wheat farmers in Kenya seem to be insulated from international price shocks given the long period of time it takes for domestic markets to adjust to international price changes. Even though not explicitly analysed, government border policies, market and infrastructure impediments seem to be underlying causes of the incomplete price pass-through, along with the low speeds of adjustments. Our analysis suggests that the main constraint to a complete pass-through is the existence of price-setting power at the producer level of the wheat market in Kenya. Investments in infrastructure development and the promotion of liberal trade policies can improve the transmission of international wheat price signals to domestic markets in Kenya.

Dynamic Transmissions and Volatility Spillovers between Global Price and U.S. Producer Price in Agricultural Markets

A considerable number of studies have examined the relationship between global prices and local prices in food-importing nations, but the linkages between international prices and the producer prices of large agricultural exporters have been largely ignored. This paper analyzes the connections between world prices and U.S. producer prices in the wheat, soybeans, and corn markets using a vector error correction generalized autoregressive conditional heteroscedastic model with a multivariate Baba-Engle-Kraft Kroner specification (VECM-GARCH-BEKK) and cross-correlation function (CCF). Our findings indicate firstly that a long-run equilibrium relationship exists between international and U.S. producer prices for the three agricultural crops. It also finds a significant bidirectional causality-in-mean and causality-in-variance between international and U.S. producer prices for these crops. Finally, the empirical results suggest that international wheat and corn prices play a leading role in U.S. local markets in return transmissions and that U.S. wheat price can be considered to be a leading indicator of the global wheat price in volatility transmissions.

Determinants of international price volatility transmissions: the role of self-sufficiency rates in wheat-importing countries

From the 1980s until the early 2000s, many developing governments adopted market liberalization policies due to relatively low agricultural prices and the implementation of structural programs by the IMF. Yet, a paradigm shift occurred with the emergence of the 2008 food crisis, which directed food-deficit governmental bodies to protectionist regimes supporting higher food self-sufficiency. Despite the importance of food autarky to shield domestic food markets, its effects have never been fully discussed in a formalized econometric framework. This article analyses wheat price volatility transmissions from global to local markets in 10 wheat importing countries, identifying the causality with conditional correlation functions (CCF), the degree of volatility transmissions using generalized autoregressive conditional heteroskedasticity (GARCH) models with the dynamic conditional correlation (DCC) specification and potential determinants with a panel analysis. The main findings reveal that a significant unidirectional Granger causality runs from international wheat price to local retail flour prices for wheat importing countries with an approximate five-month lag, the volatility correlations from international to local markets were strengthened around the period of the 2007–08 food crisis and a higher self-sufficiency rate plays a role in alleviating volatility passthroughs from international markets. This evidence that increasing the SSR of an agricultural commodity is effective in isolating the domestic market is valuable for policymakers in food importing countries. The primary beneficiaries of implementing the policy measure are risk-averse producers and consumers because their utility or welfare improves as the price volatility of foodstuffs declines.

A Methodology to Empirically Assess National and Farm-Specific Damages from Contamination of Grain Supply by a Genetically Engineered Strain

On May 29, 2013, the U.S. government announced that contamination of non–genetically engineered wheat supplies occurred. We provide a methodology to empirically assess the impacts of this contamination event on national prices and on farm-specific prices and receipts for spring red hard wheat. Results suggest that U.S. spring red hard wheat farmers in the aggregate had lost receipts ranging from $32.77 million to $131.06 million and incurred a drop of 3.83% in wheat price equivalent to $0.27 per bushel. At the farm level, ahypotheticalfarmer received $0.31 less per bushel culminating in $4,807 in lost receipts.