Empirical applications of price transmission in international agri-food supply chains

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Ροκοπάνος, Ανδρέας

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The present thesis presents four essays on the impacts of significant change taking place either as policy reforms or as free trade agreements, on the price transmission mechanism (vertical price transmission along the EU food supply chain and spatial price transmission between main producing countries). Essay 1 (discussed in Chapter 3) investigates the effects of the liberalization changes initiated with the 2003 CAP Reform and further progressed with the 2008 CAP Health Check on the price causal relationships along the EU food supply chain. The empirical approach followed adopts panel cointegration and panel error correction vector autoregressive (EC-VAR) models and utilizes panel data comprising monthly observations from January 2005 to September 2012 from nineteen European countries. The period is split into two sub-periods, January 2005 to December 2008 and January 2009 to September 2012, in order to examine how the liberalization policies of the CAP Health Check have impacted on the causal relationships among agricultural commodity prices (ACPs), producer prices (PPs) and consumer prices (CPs). The results obtained demonstrate the existence of a long-run equilibrium relationship between PPs, ACPs and CPs. Moreover, before the CAP Health Check, ACPs are shown to be exogenous while both PPs and CPs are shown to be endogenous. However, after the CAP Health Check, all the prices become endogenous. Furthermore, short-run bidirectional causality is shown among PPs, ACPs and CPs in both sub-periods, which supports the feedback hypothesis of interdependency between the prices. The empirical results suggest that the decreased support in the agricultural sector, resulting from the changes of the CAP Health Check, has rendered ACPs more respondent to market signals, highlighting a more liberalized market. Essay 2 (discussed in Chapter 4) assesses the price transmission mechanism along the European food supply chain, employing an asymmetric panel vector error correction model (VECM). Panel data comprising agricultural commodity (farmer), producer (processor) and consumer (retailer) prices from nineteen European countries, covering the period 01.2005 to 03.2015, are utilized. The period is split into two sub-periods, before and after the 2008 CAP Health Check (i.e. 01.2005 to 12.2008 and 01.2009 to 03.2015), in order to assess how the price asymmetries on the price transmission mechanism have evolved under the impacts of the CAP Health Check. The results of the Pedroni tests indicate cointegration among the price series and the long-run relationship is obtained through two estimation methods (i.e. fully modified OLS and dynamic OLS). Positive asymmetry is observed from farmer to processor and from processor to retailer before the CAP Health Check. On the other hand, after the CAP Health Check price transmission becomes symmetric. This finding implies that the decreases in the support for agriculture have led to a more efficient price transmission mechanism. Essay 3 (discussed in Chapter 5) explores how the Free Trade Agreements and the liberalization policies, in the aftermath of the 2008 CAP Health Check, have affected the spatial price co-movements between the dairy markets of the EU, Oceania and the US. Two main dairy products are considered, namely, butter and whole milk powder (WMP) and the approach adopted applies the statistical tool of R-Vine copulas in order to assess the development in tail dependence between the price series. The time span for butter (i.e. 02.2000 to 05.2017) and for WMP (i.e. 01.2000 to 05.2017) is split in 12.2007 so as to capture the impact due to the free trade agreements and the liberalization policies in price tail dependence and the potential of each region to act as the central market (i.e. a region establishing direct connections with more than one other regions). The empirical results highlight that the EU acts as the central market for butter in both sub-periods, while regarding WMP, the EU succeeds Oceania as the central market from one sub-period to another. Furthermore, the findings of this study indicate slight increases in the tail dependence in the butter market; and in the WMP market for the pairs EU-OCE and EU-US. On the other hand, tail dependence for the WMP prices between Oceania and the US decreases, which is attributed to the 2013 Chinese ban on milk powder imports from Oceania, resulting in the collapse of tail dependence. Essay 4 (discussed in Chapter 6) investigates the effects of the liberalization policies and the main free trade agreements, in the spatial price transmission between the main skimmed milk powder (SMP) markets (i.e. the EU, Oceania and the US). To this end both parametric and non-parametric, time-varying copulas are applied on bi-weekly data between 09/1998 and 05/2017. Findings of this study demonstrate the increasing overall price dependence between the EU, Oceania and the US. The highest degree of integration is found between the EU and Oceania, followed by the EU and the US, whereas the lowest degree of integration is seen between Oceania and the US.

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Price transmission, Agricultural commodities, Dairy markets, Panel error correction models, Copula models

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