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Price Transmission Analysis of the International Soybean Market in a Trade War Context

Author

Listed:
  • Gustavo Barboza Martignone

    (Food, Land and Agribusiness Management Department, Harper Adams University, Newport TF10 8NB, UK)

  • Karl Behrendt

    (Agri-Tech Economic Modelling at Harper Adams University, Newport TF10 8NB, UK)

  • Dimitrios Paparas

    (Economics at Harper Adams University, Newport TF10 8NB, UK)

Abstract

This study analysed the dynamics of the international soybean market using econometric techniques and economic models to study the impacts of the US–China trade war. It considered the analysis of “spatial” (horizontal) price transmission during an approximately ten-year period from September 2009 to May 2019 using monthly time-series data. The research focused on the leaders in the international soybean market, namely, China, the USA, the EU, Brazil and Argentina. Several econometric techniques were employed. The stationarity of the price time series was determined using the augmented Dickey–Fuller (ADF) unit root test. Structural breaks were inferred using the ADF test with a breaks test and a Bai–Perron multiple break test. The long-term relation/cointegration amongst the series was determined using the Johansen cointegration test (1988), with the previous breaks input as dummy variables. The direction of the causality was inferred using the Granger causality test (1969). The long-term and short-term causal relations were determined using the vector autoregression model (VAR) and the vector error correction model (VECM). The results showed a highly efficient and cointegrated market. The incidents of the trade war, as represented by tariffs and subsidies, had minor effects on the market efficacy, cointegration and price transmission. The arbitrage process of the studied market managed to get around the tariffs. In other words, there was no empirical evidence to support the claim that the law of one price (LOOP) did not hold.

Suggested Citation

  • Gustavo Barboza Martignone & Karl Behrendt & Dimitrios Paparas, 2022. "Price Transmission Analysis of the International Soybean Market in a Trade War Context," Economies, MDPI, vol. 10(8), pages 1-22, August.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:8:p:203-:d:892494
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    References listed on IDEAS

    as
    1. Pavel Vavra & Barry K. Goodwin, 2005. "Analysis of Price Transmission Along the Food Chain," OECD Food, Agriculture and Fisheries Papers 3, OECD Publishing.
    2. Arnade, Carlos & Cooke, Bryce & Gale, Fred, 2017. "Agricultural price transmission: China relationships with world commodity markets," Journal of Commodity Markets, Elsevier, vol. 7(C), pages 28-40.
    3. Mario A. Margarido & Frederico A. Turolla & Carlos R. F. Bueno, 2007. "The world market for soybeans: price transmission into Brazil and effects from the timing of crop and trade," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 17(2), pages 241-270, May-Augus.
    4. Mundlak, Yair & Larson, Donald F, 1992. "On the Transmission of World Agricultural Prices," The World Bank Economic Review, World Bank, vol. 6(3), pages 399-422, September.
    5. Listorti, Giulia & Esposti, Roberto, 2012. "Horizontal Price Transmission in Agricultural Markets: Fundamental Concepts and Open Empirical Issues," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 1(1), pages 1-28, April.
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