Exchange Rate Volatility and Agricultural Trade

A general theme that motivates this study is the question of whether increased exchange rate volatility impacts agricultural trade and, if so, how. As indicated in the literature review, the theory on this issue is inconclusive. The papers compiled here look at certain agricultural commodities (soybeans, poultry, hogs, and others) traded by individual countries (Brazil, Canada, Korea, Mexico, Thailand, and the United States) with, when relevant, certain trading partners (e.g., Quebec with the United States; the United States with Germany). The analysis is primarily empirical, albeit sometimes placed within an introductory theoretical framework. This allows for a wealth of experimentation in the modeling approach and the measurement of exchange rate risk as well as for careful handling of the econometric properties of the data series with which that risk is to be associated. The six case studies and the related closing review and comments leave little doubt about its overall conclusion: in studying the relationship between exchange rate risk and international trade, it is less than useful to seek general answers at the aggregate export level. Rather, commodity- and country-specific considerations play a key role. Understanding the market structure; the legal, regulatory and institutional frameworks; and the production cycle under which individual commodities (especially agricultural commodities) are exported is far more revealing of their relationship with exchange rate risk than broad statistical aggregations. The implication is that policy-making should follow suit.