Abstract
Vertical price transmission between wheat and flour markets in Kazakhstan has been analyzed using monthly data during the period 2000-2010. We found evidence of global market price spikes and government policies as a response leading to the divergence of prices across regions ofKazakhstan, which is especially notable in the flour market. Strikingly, flour prices are significantly higher in some wheat producing regions.
Highlights
Most empirical studies have shown that the nature of food price volatility has over recent decades (FAO [1])
Why have flour and wheat prices not increased in parallel since 2007? Why is there a high divergence of prices across different regions in the flour market? What was the source of the rising price divergence across different regions in the flour market? Why have flour prices started to diverge dramatically since August 2007? Were government policies able to isolate the domestic market from the global price increase effect?
Results of the Pooled Mean Group (PMG) model show that adjustment coefficients are negative and strongly significant in both cases, which do not contradict the expectation
Summary
Most empirical studies have shown that the nature of food price volatility has over recent decades (FAO [1]). Kazakhstan, along with Russia and Ukraine, accounted for 15% of global grain exports during the 2007-2009 period, and reached a record peak in wheat trade of 26% in 2008-2009 which left behind wheat exporting giants such as the US and EU (EBRD and FAO [4]). One of these countries practiced banning grain exports to limit price volatility, in the immediate aftermath of a fire accident in Russia last year. This could be a sound policy to mitigate price volatility, banning can lead to higher price volatility of agriculture goods as it lowers the profit margins of the farmers. Afterwards, panel econometrics model is applied to assess the prices transmission from wheat to flour market
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