Abstract
Using a threshold vector error correction model approach, we find the wheat market of Russia to be segmented, with the primary grain export region poorly integrated with the domestic market. Results also indicate that trade costs are high, hindering the spatial market efficiency of wheat markets in Russia. This study demonstrates that an empirical benchmark allows for a more comprehensive assessment of the spatial market efficiency compared to the theoretical benchmark that is normally applied. The study shows that the distinction between grain production and export potential, especially for markets located in peripheral regions of Russia, is essential to correctly identify Russia's future role for global food security. As a general conclusion, apart from increasing agricultural production potential, it is also essential to strengthen spatial market efficiency in the agricultural sector to boost Russia's agricultural export potential and the country's prominent role in global food security.
Highlights
Grain production in Russia has witnessed impressive growth during the country's transformation process from a centrally planned to a market economy
The tests on cointegration of the price pairs involved in the interregional analysis indicate that linear or threshold cointegration exists for all 15 price pairs representing the Russian wheat market, and 53 out of 63 price pairs for the US corn market, whereas, at the intraregional level, cointegration is confirmed for all price pairs for Russia and 40 out of 43 price pairs for the USA (Table 2)
This study has made evident that the integration of regional grain markets within Russia is relatively low compared to the USA; differences in spatial market efficiency within grain production regions in Russia and the USA, where grain is traded over short distances, are much smaller
Summary
Grain production in Russia has witnessed impressive growth during the country's transformation process from a centrally planned to a market economy. Using a price transmission approach, we focus on the primary grain-production regions in Russia and measure their integration with each other; we investigate wheat price relationships at the interregional and intraregional levels. Price relationships within one individual grain production region with small distances between markets are the focus of the intraregional analysis. In this study, the corn market of the USA serves as an empirical benchmark (rather than a theory-based one) for assessing the efficiency of the Russian wheat market. Grain trade in both countries is characterized by large distances, which is decisively important for the analysis of spatial price relationships. This study contributes to the price transmission literature by measuring the interregional and intraregional spatial integration of wheat markets within Russia.
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