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Decomposing Changes in Agricultural Price Gaps

  • Liefert, William M.

This paper develops a method for decomposing changes in agricultural producer prices. The method builds on a procedure used by the World Bank, with the key variables in the decomposition being trade prices, exchange rates, and agricultural trade policies. The main ways by which we expand on the World Bank decomposition procedure are by broadening the analysis of policy effects, and by adding the effect from incomplete transmission of changes in border prices and exchange rates to producer prices, and the effect on prices from interactions between variables as they change simultaneously. We demonstrate the decomposition method by using the Russian poultry market in the late 1990s, and find that the dominant factor in changing the producer price was the large depreciation of the ruble. Many developing and transition economies have fluctuating exchange rates. The decomposition method presented in this paper could be used to test the hypothesis that exchange rate movements are the main cause of changes in these countries' agricultural commodity prices. Another hypothesis that the method could help test is that an important factor in affecting countries' agricultural prices is incomplete transmission of changes in trade prices and exchange rates to domestic prices, where the incomplete transmission is mainly caused not by policy, but rather by undeveloped market infrastructure.

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Paper provided by International Agricultural Trade Research Consortium in its series Working Papers with number 14576.

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Date of creation: 2007
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Handle: RePEc:ags:iatrwp:14576
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  1. Christopher B. Barrett & Jau Rong Li, 2002. "Distinguishing between Equilibrium and Integration in Spatial Price Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 292-307.
  2. Liefert, William M., 2007. "Decomposing Changes in Agricultural Price Gaps," Working Papers 14576, International Agricultural Trade Research Consortium.
  3. Stefan R Osborne & William M Liefert, 2004. "Price and Exchange Rate Transmission in Russian Meat Markets," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 46(2), pages 221-244, June.
  4. Jorge Quiróz & Raimundo Soto, . "International Price Signals in Agricultural Markets: DoGovernments Care?," ILADES-Georgetown University Working Papers inv088, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  5. Paula De Masi & Vincent Koen, 1996. "Relative Price Convergence in Russia," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 97-122, March.
  6. Valdes, A, 1996. "Surveillance of Agricultural Price and Trade Policy in Latin America during Major Policy Reform," World Bank - Discussion Papers 349, World Bank.
  7. Paula De Masi & Vincent Koen, 1995. "Relative Price Convergence in Russia," IMF Working Papers 95/54, International Monetary Fund.
  8. Csaki, S. & Nash, J., 1998. "The Agrarian Economies of Central and Eastern Europe and the Commonwealth of Independent States. Situation and Perspectives, 1997," World Bank - Discussion Papers 387, World Bank.
  9. Quiroz, Jorge & Valdes, Alberto, 1993. "Agricultural incentives and international competitiveness: Government interventions and exogenous shocks in four East African countries," Food Policy, Elsevier, vol. 18(4), pages 342-354, August.
  10. Roberts, Donna & Josling, Timothy E. & Orden, David, 1999. "A Framework for Analyzing Technical Trade Barriers in Agricultural Markets," Technical Bulletins 33560, United States Department of Agriculture, Economic Research Service.
  11. Christopher B. Barrett, 2001. "Measuring Integration and Efficiency in International Agricultural Markets," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 23(1), pages 19-32.
  12. Matthew Harley, 1996. "Use of the Producer Subsidy Equivalent as a Measure of Support to Agriculture in Transition Economies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 799-804.
  13. Ackerman, Karen Z. & Dixit, Praveen M., 1999. "An Introduction To State Trading In Agriculture," Agricultural Economics Reports 33909, United States Department of Agriculture, Economic Research Service.
  14. Skully, David W., 2001. "Economics of Tariff-Rate Quota Administration," Technical Bulletins 184332, United States Department of Agriculture, Economic Research Service.
  15. Valdes, A., 2000. "Agricultural Support Policies in Transition Economies," Papers 470, World Bank - Technical Papers.
  16. William M. Liefert & David J. Sedik & Robert B. Koopman & Eugenia Serova & Olga Melyukhina, 1996. "Producer Subsidy Equivalents for Russian Agriculture: Estimation and Interpretation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 792-798.
  17. Fackler, Paul L. & Goodwin, Barry K., 2001. "Spatial price analysis," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 17, pages 971-1024 Elsevier.
  18. Gow, Hamish R & Swinnen, Johan F M, 1998. "Up- and Downstream Restructuring, Foreign Direct Investment, and Hold-Up Problems in Agricultural Transition," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 25(3), pages 331-50.
  19. Skully, David W., 2001. "Economics Of Tariff-Rate Quota Administration," Technical Bulletins 33576, United States Department of Agriculture, Economic Research Service.
  20. Barry K. Goodwin & Thomas J. Grennes & Christine McCurdy, 1999. "Spatial price dynamics and integration in russian food markets," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 3(2), pages 157-193.
  21. Mundlak, Yair & Larson, Donald F, 1992. "On the Transmission of World Agricultural Prices," World Bank Economic Review, World Bank Group, vol. 6(3), pages 399-422, September.
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