AGRICULTURAL PRICES AND MARKETS
Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,
Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest
Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest
Author: Imre Fertő Supervised by Imre Fertő
June 2011
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AGRICULTURAL PRICES AND MARKETS
Syllabus
The aim of the module:
The overall objective of this course is to get you to realize that supply and demand constructs are not vacuous notions used only by economists in the context of a chalkboard in front of a classroom. That is, we can combine the basic supply-demand framework from microeconomic theory with statistical methods to learn something about the behavior of commodity prices and/or supply and demand conditions in commodity markets.
Literature:
The module basically follows book by Tomek, W.G.–Robinson, K. (2003): Agricultural Product Prices. Cornell University Press (T–R), supplementary books by Hudson (2007): Agricultural Markets and Prices. Blacwell (H), and Ferris. J.N. (1997):
Agricultural Prices and Commodity Market Analysis. McGraw-Hill (F). In addition, we use various articles for each section.
1. Introduction
• The system of food markets
• Characteristics of food markets
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• Characteristics of food systems
• Issues of food systems
• Structural change in agriculture
• Food for thought: A case study on the “right price of food”
Literature:
Swinnen, JF. M. (2010): The Right Price of Food: Reflections on the Political Economy of Policy Analysis and Communication. Katholieke Universiteit Leuven. Licos Discussion Paper, 25910
FAO (2009): The state of agricultural commodity markets, 2009. Rome
2. Agricultural demand
• Different approaches of consumer behaviour
• The basics of demand theory
• Determining factors of demand
• Price elasticity of demand
• Income elasticity of demand
• Relationships between demand elasticities
• The pattern of food consumption
• The methodologies of demand analysis
• An empirical example: the Hungarian beer consumption Literature:
T–R 2–3. chapter
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H 1. chapter F 2–4 chapter Application:
Chai, A.–Moneta, A. (2010): Engel Curves. Journal of Economic Perspectives, 24 (1) 225–240.
Bouamra-Mechemache, Z.–Réquillart, V.– Soregaroli, C.–Trévisiol, A. (2008): Demand for dairy products in the EU. Food Policy 33, 644–656
3. Agricultural supply
• Theory of agricultural supply
• Determining factors of demand
• Price elasticity of demand
• Characteristics of supply
• The methodologies of supply analysis
• Distributed lags models
• Introduction to efficiency analysis Literature:
T–R 4. chapter H 2. chapter F 6 chapter
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Application
Chavas, J.P. – Johnson, S. (1982): Supply dynamics: the case of U.S. broilers and turkeys. American Journal of Agricultural Economics. 64 558–564
Bakucs, L. Z., Fertő, I., Fogarasi, J., Latruffe, L. (2010) The impact of EU accession on farms’ technical efficiency in Hungary. Post-Communist Economies Vol. 22. (2). 165–
175
4. Market and market structures
• Definitions of market
• Qualitative approach
• Quantitative approach
• Market structure
• Measuring market concentration Literature:
T–R 5. chapter H 3, 10–12 chapter Application:
Sexton R.J. (2000): Industralization and Consolidation in the U.S. Food Sector:
Implication for Competition and Welfare. American Journal of Agricultural Economics, 82, 1087–1104
Bukeviciute, L.–Dierx, A.–Ilzkovi, F. (2009): The functioning of the food supply chain and its effect on food prices in the European Union. European Economy, Occasional Papers 47| May 2009
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5. Marketing margin
• Approaches of marketing margin
• Empirical measurements of marketing margin
• Types and changes of marketing margin
• Price elasticities and marketing margin
• Market structures and marketing margin Literature:
T–R 6. chapter H 4. chapter F 5. chapter Application:
Bakucs Lajos Zoltán: Kereskedelmi árrés és ártranszmisszió a magyar sertéshúspiacon. Közgazdasági Szemle LII. évf., 2005 szeptember 648 – 663.
6. Price differences and spatial relationships
• Intramarket price structures
• Interregional market relationships
• Market boundaries
• Spatial equilibrium models
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Literature:
T–R 8. chapter H 6. chapter F 12. chapter Application:
Bakucs Lajos Zoltán – Fertő Imre: A agricultural prices térbeli integrációja a magyar tejpiacon. Területi Statisztika Vol. 10. (47) (5) pp. 410–426. (2007)
7. Price variation through time
• Price variation through time
• Seasonal variation in prices
• Annual price behaviour
• Long run trends in price
• Cyclical price behaviour
• Explaining variation through time using demand and supply models Literature:
T–R 9. chapter H 7. chapter F. 14. chapter Application:
Waugh, F. (1964): Cobweb models. Journal of Farm Economics 46. 732–754
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Hayes, Dermot J; Schmitz, Andrew (1987): Hog Cycles and Countercyclical Production Response. American Journal of Agricultural Economics, vol. 69, no. 4, 762–70
8. Price differences and quality
• Issue of quality in the economics
• Quality grading in the food chain
• Operational and price efficiency
• The impact of quality grading on D and S
• Relationships between quality grades
• Quality grades and marketing margin
• Classification issues T–R 7. chapter
H 8. chapter Application:
Parcell, J.L. – Schroeder, T.C. (2007): Hedonic retail beef and pork product prices.
Journal of Agricultural and Applied Economics 39 (1) 29–46
9. Agricultural terms of trade
• Determining factors of general level of agricultural prices
• Measuring general level of farm prices
• Agricultural terms of trade
− Definition
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− Measurement
− Facts Literature:
T–R 10. chapter
Colman, D. (2009): Agriculture’s Terms of Trade: Issues and Implications. Presidential Address prepared for presentation at the 27th Conference of the International Association of Agricultural Economists, Beijing, China, August 17, 2009.
Application:
Zanias, G.P. (1998). Inflation, Agricultural Prices and Economic Convergence in Greece. European Review of Agricultural Economics, 25, 19–29.
10. Mechanisms discovering prices
• Meaning and relevance of price discovery
• Different ways of classifying price discovery mechanisms
• Characteristics of different price discovery mechanisms
• Evolution of price discovery mechanisms Literature:
T–R 11. chapter Application:
Bakucs Lajos Zoltán – Fertő Imre Szabó G. Gábor (2010): Contractual relationships in the Hungarian milk sector. IAMO Forum 2010, Institutions in Transition Challenges for New Modes of Governance, 16-18 June 2010, Halle (Saale) Germany,
Mathew C. Stockton, David A. Bessler, and Roger K. Wilson (2010): Price Discovery in
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Nebraska Cattle Markets. Journal of Agricultural and Applied Economics, 42,1:1–14
11. Vertical coordination in agriculture
• Definitions of vertical coordination
• Different approaches to vertical coordination
• Reasons for vertical coordination
• Vertical coordination in practice Literature:
Theory:
Hudson (2007): Agricultural Markets and Prices. Blackwell, Chapter 13.
Peterson, H. C., Wysocki, A., Harsch, S. B. (2001): Strategic Choice along the vertical coordination continuum. International Food and Agribusiness Management Review, 4, 149–166.
Application:
Martinez, S. W. (2002): Vertical Coordination of Marketing Systems: Lessons From the Poultry, Egg, and Pork Industries. USDA, AER No. 807
MacDonald, J. et al. (2004): Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities, USDA, AER No. 837
12. Cooperatives in agri-food chain
• What is a cooperative?
• How important are co-ops in the food system?
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• Do co-ops perform differently than investor owned firms?
− Theoretical perspectives
− Empirical perspectives
• Challenges facing cooperatives and their responses Literature:
Staatz, J. M. (1989): Farmer Cooperative Theory: Recent Developments. ACS Research Report No. 84, June 1989, US Department of Agriculture
Royer JS (1999): Cooperative organizational strategies: A neo-institutional digest.
Journal of Cooperatives 14:44–67
13. Government interventions in agriculture
• The framework of agricultural policy analysis
• The basic forms of price regulations
− Price supports
− Deficiency payments
− Minimum price
− Maximum price
− Price discrimination
• The costs of agricultural policy: The example of the CAP
• Numerical examples
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Literature:
Tomek, W. G. and Robinson, K. (2003): Agricultural Product Prices. Cornell University Press, Chapter 14
Latruffe, L and Le Mouël, C (2009): Capitalisation of government support in agricultural land prices: What do we know? Journal of Economic Surveys, 23(4), 659–691
