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Food trade balances and unit values: What can they reveal about price competition?

Author

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  • Mark J. Gehlhar

    (Economic Research Service, U.S. Department of Agriculture,, 1800 M. St., N.W., Washington, DC 20036)

  • Daniel H. Pick

    (Economic Research Service, U.S. Department of Agriculture,, 1800 M. St., N.W., Washington, DC 20036)

Abstract

Price competition is a fundamental assumption in modeling trade. Empirical applications often use unit values as proxies for price. This is a problem if unit values cannot explain trade flows consistent with the price competition assumption. The paper determines whether this condition exists in food product trade. Trade balances by product are used to indicate successful competition in trade. Export and import unit values are used to determine if competition is dominated by price or nonprice competition. Trade flows are then categorized in four ways: successful price competition, unsuccessful price competition, successful nonprice competition, and unsuccessful nonprice competition. This categorization is applied to 372 food products using the Standard International Trade Classification. Nearly 40% of U.S. food exports could be characterized as dominated by nonprice competition. In those instances, we contend that unit values are not valid proxies for price, thereby limiting their usefulness in traditional import demand estimation and trade policy simulation models. © 2002 Wiley Periodicals, Inc.

Suggested Citation

  • Mark J. Gehlhar & Daniel H. Pick, 2001. "Food trade balances and unit values: What can they reveal about price competition?," Agribusiness, John Wiley & Sons, Ltd., vol. 18(1), pages 61-79.
    • Handle: RePEc:wly:agribz:v:18:y:2001:i:1:p:61-79
    DOI: 10.1002/agr.10007
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    References listed on IDEAS

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    1. Holmes, R A, 1973. "The Inadequacy of Unit Value Indexes as Proxies for Canadian Industrial Selling Price Indexes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 19(3), pages 271-277, September.
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    5. Irving Kravis & Robert E. Lipsey, 1974. "International Trade Prices and Price Proxies," NBER Chapters, in: The Role of the Computer in Economic and Social Research in Latin America, pages 253-268, National Bureau of Economic Research, Inc.
    6. R. A. Holmes, 1973. "The Inadequacy Of Unit Value Indexes As Proxies For Canadian Industrial Selling Price Indexes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 19(3), pages 271-277, September.
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    Cited by:

    1. Carbone, Anna & Henke, Roberto, 2012. "Sophistication and Performance of Italian Agri-food Exports," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 3(1), pages 1-13, July.
    2. Donatella Baiardi & Carluccio Bianchi & Eleonora Lorenzini, 2013. "Food Competition in World Markets: Some Evidence from a Panel Data Analysis of Top Exporting Countries," Working Papers 262, University of Milano-Bicocca, Department of Economics, revised Dec 2013.
    3. Juhász, Anikó & Wagner, Hartmut, 2013. "An analysis of Hungarian agri-food export competitiveness," Studies in Agricultural Economics, Research Institute for Agricultural Economics, vol. 115(3), pages 1-7, December.
    4. BOJNEC, Stefan & FERTO, Imre, 2009. "Determinants of agro-food trade competition of Central European countries with the European Union," China Economic Review, Elsevier, vol. 20(2), pages 327-337, June.
    5. Thomas H. Spreen & Richard L. Kilmer & Carlos R. Pitta, 2007. "Nonhomogeneous products and the law of one price," Agribusiness, John Wiley & Sons, Ltd., vol. 23(3), pages 407-420.
    6. Ferto, Imre, 2008. "Comparative Advantage And Trade Competitiveness In Hungarian Agriculture," Bulletin of the Szent Istvan University 43326, Szent Istvan University, Faculty of Economics and Social Sciences.
    7. Lavoie, Nathalie & Liu, Qihong, 2004. "Findings Of Pricing-To-Market: Market Segmentation Or Product Differentiation?," 2004 Annual meeting, August 1-4, Denver, CO 20287, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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