Spatial Price Integration in U.S. and Mexican Rice Markets

Agricultural trade between the U.S. and Mexico has become progressively liberalized over the past 20 years, with significant increases in bilateral trade in many sectors. The rice sector in both nations, however, continues to be highly protected, with producers and millers on both sides of the border continuing to protest the other nation's protectionist policies. This paper examines market efficiency and spatial price integration in ten U.S. and Mexican rice markets over the 1998-2002 period, during which a retaliatory antidumping duty was imposed by Mexico. The paper uses a multiple step analytical process, including analysis of market price differentials, stationarity tests, bivariate and multivariate cointegration tests, and impulse response analysis. Based on the cointegration results, long-run equilibrating relationships are shown to bind most Mexican markets to U.S. markets, and the U.S. markets are shown to be integrated with continuity. Smaller and more remote Mexican markets located far from transport hubs and milling centers tend not to be integrated with other regions, suffer from information asymmetries, and are characterized by relatively high price levels. In large markets where tariffs tend to be binding, trade policy plays a key role in determining equilibrium market relationships. For example, the tariff structure largely determines whether rice consumed in Mexico will primarily be milled domestically or in the U.S. in the long run. Overall, the results suggest that while consumers in major urban centers have benefited from freer trade, those in remote rural markets have yet to realize significant gains from liberalized rice markets.