Abstract
This paper investigates the international quarterly prices of wheat and rice from 1983(1) to 2012(4). The empirical analysis takes place with the structural time series methodology which decomposes the price series into their trend, cycle, seasonal and irregular components. The empirical results indicate that wheat prices present cyclical behavior while rice prices except for cyclicality are mainly governed by the irregular component. The results strain the importance of treating wheat and rice like two distinct commodities that require country specific and commodity specific policy measures. Finally, the impact of the shrinking Chinese grain stocks after 2002 is proposed as an important factor that resulted in the 2008 price spike.
Highlights
From late 2006 through to mid-2008, the world witnessed unusual price increases in major agricultural commodities like wheat and rice (Dethier and Effenberger, 2011)
The present study has analyzed the international prices of wheat and rice from 1983(1) to 2012(4) using the structural time series analysis
The price series were decomposed into their trend, seasonal, cyclical, and irregular components
Summary
From late 2006 through to mid-2008, the world witnessed unusual price increases in major agricultural commodities like wheat and rice (Dethier and Effenberger, 2011). Until the world was used to generally low price variability in agricultural commodities especially after the volatile decades of 1970s and 1980s (Gilbert, 2006). This episode renewed the interest in agricultural commodities since they are tightly connected to food security, in developing and underdeveloped countries. This research has mainly focused on investigating the reasons for the price spike between 2006 and 2008 It has enriched the literature with new insights into the drivers of agricultural commodities price changes. The extent to which given production and consumption shocks translate into the formation of prices depends on supply and demand elasticities, which reflect the responsiveness of producers and consumers to price changes.
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