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Rice Price Formation in the Short Run and the Long Run: The Role of Market Structure in Explaining Volatility

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  • Peter Timmer

Abstract

This paper analyzes price formation on the world’s rice market using simple supply and demand models as a start, but moving to “supply of storage” models—a staple of commodity-market analysis for more than half a century—to explain hoarding behavior and its subsequent impact on prices. The supply of storage model, however, does not account adequately for the influence that “outside” speculators have on prices. This paper quantifies the impact of financial factors and actors on commodity-price formation using very short-run prices and Granger causality analysis for a wide range of financial and commodity markets, including rice. The results are highly preliminary but are also very provocative. Speculative money seems to surge in and out of commodity markets, strongly linking financial variables with commodity prices during some time periods, but these periods are often short and the relationships disappear for long periods of time. Finally, the paper addresses the long-run (since 1900) relationships among the prices of the three basic cereal staples, rice, wheat and corn (maize), which have declined more than 1 percent per year over the past century. The decline accelerated after the mid-1980s; only the recent run-up in cereal prices in 2007–08 returned them to the long-run downward trend. Despite these common features and important cross-commodity linkages, however, price formation for rice has several unique dimensions worthy of further study.Length: 46 pages

Suggested Citation

  • Peter Timmer, 2009. "Rice Price Formation in the Short Run and the Long Run: The Role of Market Structure in Explaining Volatility," Working Papers 172, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:172
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    File URL: http://www.cgdev.org/content/publications/detail/1422136/
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    Cited by:

    1. Gibson, John & Kim, Bonggeun, 2013. "Quality, Quantity, and Nutritional Impacts of Rice Price Changes in Vietnam," World Development, Elsevier, vol. 43(C), pages 329-340.
    2. Gibson, John & Kim, Bonggeun, 2013. "Do the urban poor face higher food prices? Evidence from Vietnam," Food Policy, Elsevier, vol. 41(C), pages 193-203.
    3. Joachim De Weerdt & Kathleen Beegle & Jed Friedman & John Gibson, 2016. "The Challenge of Measuring Hunger through Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 64(4), pages 727-758.
    4. Bernardina Algieri, 2014. "A roller coaster ride: an empirical investigation of the main drivers of the international wheat price," Agricultural Economics, International Association of Agricultural Economists, vol. 45(4), pages 459-475, July.
    5. Devereux, Stephen, 2016. "Social protection for enhanced food security in sub-Saharan Africa," Food Policy, Elsevier, vol. 60(C), pages 52-62.
    6. Lawani, Abdelaziz & Reed, Michael & Fiamohe, Rose, 2016. "Impact of Food Reserve Programs on Price Levels and Volatility: Natural Experiment from Benin Rice Market in West Africa," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252860, Southern Agricultural Economics Association.

    More about this item

    Keywords

    rice prices; hoarding behavior; supply of storage; Granger causality analysis;

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