Market integration for Chilean wheat prices using Vector Error Correction Models (VECM), a cointegration analysis

Diaz, J (Diaz, Jose). Univ Talca, Fac Agron, Dept Agr Econ, Talca, ChileMarket integration for Chilean wheat prices using vector error correction models (VECM), a cointegration analysis. Cien. Inv. Agr. 38(1): 5-14. Historically Chile has been a wheat net importer country. This situation, added to the small size of its economy, causes that the domestic price of this cereal is highly influenced by import prices of substitute wheat. This research analyzed the integration level of the Chilean wheat market with respect to the USA and Argentinean markets using a vector error correction model (VECM), the impact of the band prices (D-BAND) and the change of the band mechanism introduced in 2004 (D-MECH) by the inclusion of two binary variables in the VECM. The results showed strong market integration among Argentina, Chile and USA, with USA leading the market. Additionally, the price of the Chilean wheat was influenced by the USA and Argentina prices. The binary variables, included in the models, showed that this system had been useful to protect the domestic market by reducing the fluctuations of the wheat prices (D-BAND), and the new mechanism performs as a protection over the international fluctuations (D-MECH). Both coefficients presented non-significative values, probably due to the difference among the input cost and the domestic price support mechanism, the sub-valuated commodities markets, increment on cereal price levels, inflationary scenarios and low number of observations

Does export market concentration matter? A case study of uruguayan beef exports

70 p.As one of the 10 main world beef exporters, Uruguay with a relatively big beef industry, exports 80% of its total beef production. Even though beef production has always been a relevant sector in the Uruguayan economy, during the last 8 years strong growth in exports caused Uruguay to become competitive in the world beef market. Strong investment by the country’s beef industry significantly increased the harvest and processing capacity. Cattle harvesting records were set in 2005 and 2006. The export destinations of Uruguayan beef have been changing drastically during the last 8 years. The outbreak of FMD (Foot and Mouth Disease) in 2001 with the consequent closing of traditional markets, has determined new trade patterns and a different export destination mix. During 2005, 72% of the beef exports had the United States as destination, increasing the fear of dependence in one country. If a Geographic Diversification Index is calculated among the main world beef exporters, the results show that in 2005 the structure of the Uruguayan beef exports is the most concentrated among them. The described scenario constitutes a start at evaluating the actual Uruguayan export mix. This study aims to discuss whether the actual export market concentration makes Uruguay vulnerable and constitutes an economic problem and whether the government can, and should, attempt to diversify trade for economic reasons. The main research questions that emerge from the above situation and that guide the study are the following: 1. Should Uruguay follow its neighbours and also try to diversify? Or, should Uruguay continue to nurture the US and its growing demand? 2. Is it risky to have most of the eggs in one basket? Does it mean the export revenue is not stable and not growing? 3. Does concentration imply more export volume and revenue volatility than if Uruguay had a smaller share of its beef trade with the US? Will a diversification strategy of exports make Uruguay better off? 4. Who and what determine the trade patterns? Is it even feasible for the government to change the Uruguayan share of beef trade with the US? The paper is structured in three main sections besides the conclusions, references and appendix. The first section introduces the reader to the country giving a brief overview of the beef sector, emphasizing the beef industry characteristics as well as its domestic and export markets. The second part describes what is meant by diversification, and the reasons why it is so important. Then, the section exposes what has determined Uruguayan beef market structure and trade patterns to date, and an approximation of a possible future scenario for Uruguayan exports to the US is analyzed. Since geographic diversification is the main concern, the third section focuses on that preoccupation and assesses whether the current state of affairs is problematic from an economic point of view. To systematically describe the current trade mix and consider if it is problematic or too volatile, the concept of return versus risk in investment portfolios is applied to country trade portfolios. Export growth and export revenue are used as measures of return and export volatility as a measure of risk. Due to the fact that this analogy is not a perfect fit, one should not view this framework as providing a definitive answer about Uruguay’s optimal geographic export mix. Instead, it is a starting point to describe and assess the tradeoffs between trad

EU agricultural tariff rate quotas:do they improve market access for Argentine Agricultural Products? A case study of maize and beef TRQs.

80 p.The Uruguay Round Agreement on Agriculture (URAA) was set to be a step forward a fair agricultural market system as all border measures were converted into tariffs. In the face of resulted high bound tariffs, a compromise was reached by the introduction of tariff-rate quotas (TRQs) for guaranteeing minimum and current access to markets. TRQs are not only the combination of two tariffs and a quota but include an administration method that aims at rationing quota rights. Concerns about market access appear obvious since TRQs have resulted in few import opportunities. Allocation methods bring about extra costs as also do other enforced measures applied at the border. Both could be considered non-tariff costs and have the potentiality to bias trade. The EU is one of Argentina’s major destinations of agricultural products and EU TRQs are a means of market access to EU high protected markets. The analysis assesses the implications that non-tariff costs have for Argentine agricultural sector when utilising EU TRQs. Using beef and maize EU TRQs as case studies, this work evaluates how EU TRQs have improved Argentina’s market access to its agricultural market. It is concluded that EU TRQs usage does involve non-tariff costs for agri-food actors exporting from Argentina. These non-tariff costs have not, so far, hindered trade although they reduced the rent accrued by TRQ utilization when this exists. Being acquainted with the negotiating capital involved it is suggested that Argentina should have the reduction of MFN tariffs as principal objective in future multilateral negotiations. Key words: Market access, Argentina, European Union, Tariff Rate Quotas, Administration methods, non-tariff costs

Economic analysis of afforestation projects for carbon sequestration: a case study in Patagonia, Argentina

89 p.La mitigación del calentamiento global en forma eficiente es una de las prioridades de las acciones a escala mundial. Los Mecanismos de Desarrollo Limpio (MDL) del Protocolo de Kioto podrían mitigar el cambio climático y a su vez beneficiar a las comunidades locales. Sin embargo, dada la actual incertidumbre sobre el precio del CO2 para créditos temporales y el alto nivel de costos de transacción, proyectos MDL de pequeña escala podrían no ser factibles. Este estudio aspira a determinar el costo y la rentabilidad de secuestrar carbono por medio de plantaciones de Pinus ponderosa en sitios de calidad medio-alta en el sur de Argentina. La cantidad de certificados de reducción de emisiones (CERs) expedidos se estimó utilizando el método de los créditos temporales (TCER) y el método de créditos a largo plazo (LCER). Por otra parte, los puntos críticos del proyecto para distintas variables, se calcularon como los valores a partir de los cuales los ingresos obtenidos por la venta de CERs cubren los costos de transacción. Los resultados muestran que la producción conjunta - madera y CERs - incrementa la rentabilidad del proyecto comparada con la producción de madera únicamente. Ambos métodos de contabilizar carbono han demostrado casi el mismo funcionamiento, sin embargo, la mayor diferencia surge en la distribución de los pagos en el flujo neto efectivo. Bajo un escenario medio (8,2 €/CER, i=8%), la superficie mínima obtenida para proyectos rentables es de 200 ha usando el método TCER, o 220 ha aplicando el método LCER. Por otra parte, se encontraron ventajas comparativas en el costo de fijación de CO2 a través de plantaciones de pino ponderosa en Patagonia. El valor presente del costo de secuestro de CO2 es 5,3 $/t CO2, y el costo de producción de CERs es 6,2$/TCER y 8,3 $/LCER, siempre a valor presente. El uso de un esquema de financiamiento local para desarrollar carteras de proyectos podría ser una posible alternativa para reducir el problema de escala de los mismos. Como la escala tiene un fuerte impacto sobre la rentabilidad de los proyectos, éstos podrían ser llevados a cabo por medio de la asociación de pequeños productores e inversores. En consecuencia, tanto los riesgos como los beneficios del proyecto serían compartidos entre sus participantes y el atractivo del mismo se vería incrementado. Por lo tanto, bajo los escenarios asumidos, pequeños proyectos de forestación en el marco de los MDL en Patagonia no solo serían viables sino que también ventajosos. SUMMARY The mitigation of global warming in a cost-efficient way is one of the global action priorities. Clean Development Mechanisms of the Kyoto Protocol could mitigate the climate change and to benefit local communities as well. However, given the current uncertainty about carbon prices for temporary credits and the high level of transaction costs, CDM forestry projects of small scale could be unfeasible. This study aims to determine the cost and profitability of sequestering CO2 in Pinus ponderosa plantations on average to high quality sites in the South of Argentina. The number of certified emission reductions (CERs) to be issued is estimated using temporary credits (TCER) and long-term credits (LCER). Furthermore, critic points - for different variables - are calculated as the values where the revenues from sales of CERs cover the transaction costs. Results show that the conjoint production –timber plus CER sales- increases projects profitability compared to timber production alone. Different accounting approaches used have almost the same performance, even though, the major difference is originate in the cash flow payment distribution. Under an average scenario (8,2 €/CER, i=8the minimum size achieved for profitable projects is 200 ha or 220 ha using the TCER or LCER approach respectively. Furthermore, comparative advantages are found in the costs of sequestering carbon dioxide by Ponderosa pine plantations in Patagonia. The present value of carbon sequestration costs is 5,3$/t CO2, and the CERs production costs is 6,2 $/ TCER and 8,3$/ LCER, always in present value. Using a local financial scheme to prepare project portfolios could be a possible alternative to cope with project scale. As the area has a strong impact on the project profitability; these could be carried out by the association of small farmers or investors. Consequently, both the risk and the project benefits would be shared among the participants and the attractiveness of the project increased. Therefore, small scale CDM afforestation projects in Patagonia under the scenarios assumed would not only be feasible but also advantageous

The importance of coffee tariff escalation on adding value at origin

95 p.The current structure of the coffee market and tariffs schedules observed in this study seems to support the economic theory in which tariff escalation inhibits imports of value added products. About 95% of exports from producing countries were in the form of green coffee with little value added and import tariffs were usually absent in developed countries’ markets. Additionally, less than one-fifth of 1% of the coffee exported from its origin was in roast and ground forms. Instant coffee constitutes roughly another 5%; in this case, a pattern of import tariff escalation is observed. Tariff escalation for bound and applied tariffs and the industry’s Effective Rate of Protection (ERP) created by such a tariff structure were evaluated for three major importing markets; EU, USA and Japan, which together account for 97% of world’s green coffee imports. Two important emerging markets, China and the Russian Federation, were also included in the evaluation. Six different exporting countries/regions, Brazil, Colombia, Central America, Vietnam, Ivory Cost and Indonesia, were chosen for this exercise for two reasons: first, they represented about 77% of the world’s exports on green coffee; second, due to their differences in geographical location, the coffee type produced and volume of production also differed and, therefore, they faced different market access treatment. The study concluded that although considerable reduction in importing duties has been achieved since the Uruguay Round Agreement on Agriculture, (URAA), all markets showed escalation in both bound and applied tariffs. Tariffs ranged from 0% (green coffee) to up to 30% for soluble and higher values for coffee preparations for which major markets such as USA and Japan also applied tariff quotas reaching Ad-valorem equivalents higher than 100%. The ERP estimates were significantly higher than nominal tariff wedges observed, reaching values in the range of 20 to 30% from green to roast in most of the markets. Green to soluble ERP on the other hand reached values between 70 to 90% for Japan and China; the EU showed values slightly higher than 30%. Although coffee tariff escalation was evident in coffee trade and the ERP caused as a result, was considerably high, a full removal of these tariffs barriers to trade does not necessarily imply that producing countries could easily add value at origin. Therefore, in order to make value added investment decisions, further studies should be undertaken to estimate the trade effect of full tariff removal. Key words: Tariff Escalation, Effective Rate of Protection, Tariff Wedges

Empirical risk analysis in a model that combines future contracts and warehousing receipts as an income stabilisation measure. A case study for Hungarian wheat farmers under the current common agricultural policy using Monte Carlo simulation approach

159 p.The last reforms of the CAP in compliance with the agreements on agriculture in the Uruguay round and also to prepare the EU for the current Doha-Round, have called for adopting market instruments to manage the risk caused by the volatility of agricultural commodity prices, what the blue box´s measures may not compensate. In the light of this fact, Hungary has gained a great deal of experience in the usage of these instruments for its agricultural commodity markets, specifically for wheat and corn. Both future contracts and warehouse receipts (also called warehouse warrants) have been combined to develop a new mechanism to reduce the potential damages caused by price fluctuation and market volatility in general. This study is based on research conducted by László Kozár and Zoltán Bács, but also includes an extension. This extension is a method to calculate risk using Monte Carlo simulation as well as some adjustment of the inputs of the original model according to the new legislation of the agricultural markets in Hungary under the regime of the Common Agricultural Policy (CAP). The empirical analysis is applied for the Hungarian wheat market. Several scenarios demonstrate the improved performance of the extended model relative to the previous model by providing more information for business decisions. Key word

Description of the policies applied and impact of credit on the agro chain food of conventional coffee in Costa Rican duringthe periods: 1998-1999 and 2000- 2001

133 p.The collapse of international agreements, brought as consequence disequilibrium in the international production and with it came a shortage of coffee supply, increasing international price until middles of 90?s. Costa Rica along with others Latina American countries have reacted to low supply and high coffee price, helping farmers to increase coffee production, the result from this effort was reflecting in the market only 4 years later due coffee has a particularly characteristics in it elasticity which is low in the long and short run in the supply side. Costa Rica banks doesn t have special interest rate for credits to coffee production Moreover interest rate has similarly values than industrial and service sector, may be due the strong position of coffee as commodity with high internal rate of return. National institutions looking forward to diminish the cost of transaction involve credits access that is why government allow processors to grant loan to producers, the principal guarantee that processors ask from producers is in behalf of their future coffee production, therefore this credits allow coffee producers to utilize the maximum inputs and factors of production in order to achieve high quality coffee production. PAM model help to describe how was the impact of agricultural politics in the production of coffee during the periods of production 1998 to 2001, showing the behaviour of the coffee agro chain, the data obtained for these evaluation came directly from ICAFE and the rest of information was asked directly to a different participant in the chain producers, processor, exporters and toasters. PAM analysis interpreted factor capital as factor of production without markets distortion and is not easy to calculate the low cost of transaction involve in loan granted by processors to producers to be include in the PAM model. But may be this transaction cost represented by the time involved in the all process of loan lease, processor do not face opportunity cost, because the direct grand of loan to producers, because they can set the same interest rate as commercial bank which is around 24%, the interest rate comprise from loan granted to harvest season around 7%. PAM analysis from farmers to exporters show clear inputs subsidy, that is reflected in inputs transfers indicator (J) due 10% fix quota policy on coffee for national consume, also this coffee tied to quota has national internal prices around 50 % low than international markets prices, this price add to the quota is reflected in PAM model as a income forgone, this lost is reflected in the outputs transfers (I) and price cost ratio index (PCR). The same situation is present in the valuation of PAM for the agro chain from farmers to toasters. Land factor was evaluated in PAM in both system of the agro chain; farmers to exporters and farmers to toasters, show that factor land, behave as constraint due the high markets prices and it is difficult for producers to expand their plantations. PAM model describe the rent of one hectare for coffee plantations as tax for coffee system, because is not present a marginal benefits from each hectare acquired, as it is show in the positive value of factors transfers (K) where the values for all four years were positive. The Subsidy Ration to Producers (SPR) explain that, from farmers to exports a high market distortion for coffee system, in average is - 0.23 from 1998 to 2000 and -0.69 in 2001, this distortion, could be caused by speculation in land value and this speculation based upon uncertainty in future prices of coffee, which means asymmetric price transmission. PAM model from farmers to toasters show also the higher taxation in the system of coffee and the distortion of (SRP) around 11% in 1998 and 1998 PAM model allow to analysis hypothetical scenarios. The first scenario was including an economic social valuation for land, taking as a value the income forgone for growth conventional coffee besides fair trade coffee, as result, the (SPR) diminished it values to -0.02 from 1998 to 2000, and -0.01 in 2001. The second scenario comprises the mentioned land valuation and hypothetical scenario, which assume that all farmers were involved in fair trade coffee. The result was a positive profitability and comparative advantage in the first two year likewise (SPR) index behave equal to the first scenario and (DCR) show a clear comparative advantage, due values are below one. Even when the next two years the indicators show a loss in profitability and comparative advantage, it is easy to recover this mislaid with a small increment in the output prices or a small adjustment to diminish cost of tradable inputs

Testing for a potential market power of the chilean wine exports: a pricing-to-market approach

84 p.Over the past two decades, the Chilean wine industry has shown a remarkable performance. Exports have risen from less than US$80 million, at the end of the 80’s, to US$ 570 million in 2000. Nevertheless, and due to Chile is far from enjoying the reputation of the leading wine producing countries (France, Italy and Spain), and contributes with only 5 percent of the world exports; it is generally considered that Chilean wine exporters have no market power in the international context, behaving just as “price takers”. Nonetheless, as there is some evidence that the wine industry corresponds to a case of monopolistic competition, a potential Chilean market power is tested. This study uses for that purpose the Pricing-to-Market approach, which has dominated the empirical literature in this field over the last decades. The analysis of this approach focuses on how export prices vary with respect to exchange rate fluctuations. If Chile behaves as a “price taker” in the international wine market, then its wine export price in local currency becomes unresponsive vis-à-vis exchange rate variations, and no Pricing-to-Market behavior is detected. A potential market power of Chilean wine exports is tested on five destination countries: Canada, Germany, Unites States, United Kingdom and Mexico. Results indicate that Pricing-to-Market behavior is present in all the selected countries, but Germany. Thus, Chilean exports would be able to adjust their markups by controlling the wine export price. This behavior is not possible consequently in the German market. The results are expected to provide to Chilean exporters and policy markers with valuable information as a means of collaborating with their marketing and pricing strategies. Keywords : Monopolistic competition, price taker, export prices, exchange rate variations, pricing-to-market

Formulation of a soybean price model

82 p.The soybeans is considered to be one of the most important oilseeds, contributing biologically and chemically to the soil, having intrinsic protein characteristics in and possessing oil quality and quantity. Moreover, it represents an excellent crop rotation alternative, particularly with maize and rice, which benefits from the symbiotic process of this legume and the favorable rotation between gramineuos and legume soybean is a crop whose evolution has been market by requirements of the agro industry. Due to its high oil (20-22%) and protein (30-46%) content, the soybean is the fundamental raw material for the production of edible oils and concentrated animal feed. This paper attempts to achieve the following goals: Formulation of a soybean price forecast model that includes only soybean substitutes and Identification of the main factors influencing soybean prices. This study formulates a soybean world price forecasting model that should only include soybean substitutes. The soybean substitutes included in the model (maize, fish meal and palm oil) at the beginning of the study showed a low influence in soybean world price determination, and, as a result, were excluded from the model. The final model obtained included only the world soybean lag prices. The present study has also generated the following recommendations that could improve future studies: -The model used for the estimation of the obtained coefficients should be tried in the future with the vector autoregression (VAR) model. The VAR model does not include any a priori distinction between endogenous and exogenous variables. This model avoids the misspecification of endogenous variables as exogenous variables and vice versa. Besides the influencing factors named above, other variables should be included in the model, not only substitutes. Variables like, e.g., soybean world stocks, stocks-to-use ratio, and future market prices and future crop or price predictions generated by different institutions

The effects of the central and eastern enlargement of the european union in the chilean wine market: an analysis of trade preferences

102 p.On May 1st 2004 the conformation of the Economic European Union will change through the inclusion of 10 countries from Central and Eastern Europe. This broadening represents an increase in the commercial exchange between the EU-15 and it is new members, situation that will bring a readjustment in the agricultural market and especially in the wine sector. The EU is a relevant market to Chilean wine exports. The principal objective of this study was analysing the wine trade market of the 10 next members of the EU and the 3 candidates for a future growth phase. To determine the wine competitor countries (PWCC), in order to assess a possible wine trade scenario on the EU market with Chile. The competing potential of Chilean and PWCC wine were determined, through a study of trade preferences. The conclusions of the study are as follow: the PWCC are: Cyprus, Hungary, Slovenia, Bulgaria, Romania and Turkey. With Bulgaria and Hungary oriented to quality wine export and the other oriented to bulk wine export to the EU. The PWCC have signed commercial agreements that reduce tariff rates and quotas. This agrees with the Product Coverage index obtained in this study where most of the countries were seen to have already internalized the tariff benefits, allowed them to enjoy a preferential tariff rate since the late 1990’s that on average represents 10.7% of the total value of wine annually exported to the EU. As for Chile, thanks to the commercial agreement signed with the EU had a PC of 67.8% for 2003 year and of 100% in the year 2007, one can expect a progressive increase in the Preference Margin, starting in 2003 with 2.2% of the total value (CIF) of wine exported to the EU, to reach a maximum of 12.2%, which would represent a value of 103.5 million euros in the year 2007. This new scenario represents to PWCC not only benefits like investment plan, but also commitments, such as the adoption of the CAP (Common Agriculture Policy) with restrict vine plantations.To Chile, give a market opportunity to intensify its exports of wine to the new members of the EU, increasing its market participation in these countries, and in the medium term, keeping the development of the potential competitor undo surveillance, who will have an arduous task of technologically transforming their local wine-making industries, in order to allow them to compete with quality wine