Bubbles of Vegetable Basket Prices: Evidence, Characteristics and Enlightenments

Abstract

This paper focuses on the periodic bubbles of vegetable basket prices. As the primary part of consumer price index, the vegetable basket agricultural prices are very important to keep the normal order of daily life and social development. Since the start of the national vegetable basket project in 1988, the tension between supply and demand has been relieved. However, with the accelerated process of urbanization in China, the supply-demand relation of vegetable basket products is challenged in many aspects in recent years. One of the biggest challenges is the expanding price spread between the supply side and the demand side, and the prices of some vegetable basket products demonstrate large fluctuations. Furthermore, based on the vegetable basket products industry, the steady employment demand is also formed by the scaled agricultural firms stemming from the deep-manufacturing procedures in rural areas. Therefore, another challenge to the steadiness of agricultural employment is the threat brought by the price fluctuations. Correspondingly, based on the characteristics of vegetable basket agricultural prices, it is necessary to guide the planting industries and employ feasible regulating policies, hence to hit the speculative forces and reduce the price risks for the farmers in the main production areas related with vegetable basket agricultural products. Therefore, the supply-side reformation should take more efforts on the elimination of price bubbles. To examine the existence of the periodic price bubbles in the vegetable basket agricultural products, firstly we use the X-12 method to decompose the vegetable basket price index into four different time series and obtain the irregular influences series. Based on the periodic characteristics of the irregular influences in the vegetable basket price index, we assume that there exist periodic price bubbles in the vegetable basket products. Two hypotheses are given based on the characteristics of the vegetable basket price index: the existence of speculative bubbles and the periodic characteristic of speculative bubbles. With the utilization of the sup ADF test, we find that there are price bubbles in four subclasses from the nine subclasses in the vegetable basket price index. Considering the detailed backgrounds of the related subclasses, we take the garlic as an example for further analysis. Our results demonstrate that the vegetable basket price index is influenced significantly by the irregular factors, and the prices of four subclasses among nine subclasses contain price bubbles with periodic characteristic, hence the same to the instance of garlic price. Based on the findings, the governments should enforce the supervision on the vegetable basket products, and guide the farmers to improve the planting plan and sales. Surely, to buy agricultural insurance or to hedge in the financial markets are better choices. However, such measures are not available for the long process of training and developing in rural areas, especially on the researches of developing available agricultural indices. Second, the price bubbles related to indices should be taken into the supervision of the market sectors. Furthermore, stricter normalization of the electronic trading programs should be employed, especially on the ways of margin trading and the money flow management. Simultaneously, the procedures of the logistics and the warehousing sectors should be cared enough. In conclusion, the government sectors should hit the speculative bubbles actively, help the farmers to make feasible planting plans, and regulate the market timely for the realization of supply-side reformation.