Do Agricultural Contracts Affect Grain Prices? Evidence from Mexico
AbstractIn the late 80's and early 90's Mexico eliminated minimum price policies of main agricultural commodities and substituted those policies by government operated contract markets. Contracts can help smooth price variations and facilitate risk-sharing but their impact on price levels is uncertain. We simultaneously estimate the impacts of quantity supplied sold via contracts and the cash market on cash prices for grains participating in contracts: wheat, corn, soybeans and sorghum. By doing so we estimate an inverse grain demand function using supply shifters and other exogenous variables as exclusion restrictions. Our findings show that quantity supplied sold via contracts is a more important determinant of prices than quantity supplied in the cash market. A 10 % increase of volume sold via contracts is estimated to reduce cash market prices by 2.5 %. Additionally, we find no evidence that more contracts affect prices by reducing quantity supplied in the cash market.
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Bibliographic InfoPaper provided by Banco de México in its series Working Papers with number 2012-15.
Date of creation: Dec 2012
Date of revision:
Contracts; Inverse Demand; Three Stage Least Squares; Grains; Supply Shifters.;
Find related papers by JEL classification:
- Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
- Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
- Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
This paper has been announced in the following NEP Reports:
- NEP-AGR-2013-01-19 (Agricultural Economics)
- NEP-ALL-2013-01-19 (All new papers)
- NEP-DEV-2013-01-19 (Development)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hayenga, Marvin L., 2000. "Meat Packer Vertical Integration and Contract Linkages in the Beef and Pork Industries: An Economic Perspective," Staff General Research Papers 10564, Iowa State University, Department of Economics.
- Elam, Emmett W., 1992. "Cash Forward Contracting Versus Hedging Of Fed Cattle, And The Impact Of Cash Contracting On Cash Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(01), July.
- James M. MacDonald, 2006. "Agricultural Contracting, Competition, and Antitrust," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(5), pages 1244-1250.
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