Abstract
Existing literature has not yet identified the common determinants of price volatility transmission in agricultural commodities from international to local markets and has rarely investigated the role of self-sufficiency measures in the context of national food security. We analyzed several factors to determine the degree of volatility transmission in wheat, rice and maize prices between world and domestic markets using GARCH models with dynamic conditional correlation specifications and panel feasible generalized least square models. Our findings indicate that a grain autarky system can reduce volatility passthroughs for three grain commodities. While the substitutive commodity consumption behaviour between maize and wheat buffers the volatility transmissions of both, rice does not function as a transmission-relieving element for the volatility implying that rice is not a substitute for wheat or maize consumption; grain consumption proves a more effective substitute than cereal self-sufficiency for insulating passthroughs from global markets. These findings may help the governments of developing nations to protect their domestic food markets from the uncertain movements of foreign markets and may thus improve food security.
Highlights
Global food price volatilities have worsened food access for households in recent years, especially in low-income countries (Ivanic and Martin 2008), provoking societal and political instability in various regions (Bellemare 2014).1 For instance, the Prime Minister of Haiti, Jacques Edouard Alexis, was forced to resign because the price of rice in the nation spiked and remained high (Delva and Loney 2008)
The G-dynamic conditional correlation (DCC) model is best suited for almost all of the countries, and the asymmetric generalized DCC (AG-DCC) model is applied to estimate the dynamic correlations between the international wheat prices and Mauritania’s domestic wheat prices
This study sought to identify the factors determining the degree of price volatility transmission between the international and local markets of wheat, rice and maize in developing countries
Summary
Global food price volatilities have worsened food access for households in recent years, especially in low-income countries (Ivanic and Martin 2008), provoking societal and political instability in various regions (see Fig. 1) (Bellemare 2014). For instance, the Prime Minister of Haiti, Jacques Edouard Alexis, was forced to resign because the price of rice in the nation spiked and remained high (Delva and Loney 2008). Global food price volatilities have worsened food access for households in recent years, especially in low-income countries (Ivanic and Martin 2008), provoking societal and political instability in various regions (see Fig. 1) (Bellemare 2014).. Price volatility affects producers with risk-aversion preferences, making it more difficult for farmers to determine the optimal time at which to sell their commodities; this can lead to the misallocation of inputs and distort markets, resulting in limited agricultural investment and lower productivity. Consumers, acting as input procurement (including households and the buyers of food items), are likely to suffer from food price volatilities, losing the ability to make optimal budget allocations. The recent protracted market volatilities of agricultural commodities in the regional markets of developing countries are largely attributable to external markets (Ceballos et al 2017)
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