U.S. and Canadian Livestock Prices: Market Integration and Trade Dependence

Cointegration of Canadian and U.S. livestock prices points to the existence of market integration in the period 1996:1 to 2004:12 even though the trade flows of livestock and beef products were non-existent for many months in 2003 and 2004 (suggesting market segmentation) due to livestock/beef import bans by both countries due to BSE. It was also determined that Canada's trade dependence in livestock and beef is cointegrated with Canadian and U.S. livestock prices. However, as the trade dependence variable is shocked, the effects on Canadian and U.S. prices are opposite although one would expect that in an integrated market the price responses to an exogenous shock would be similar or statistically identical. This result reinforces the case against the use of cointegration in determining presence (or absence) of market integration. Empirical results in this article raise some very difficult questions. Gains from trade are well documented. Yet, once a country is very trade dependent, the prices in it are much more vulnerable to exogenous shocks that reduce the trade flows. Canadian livestock prices plummeted and stayed low following the BSE incident and U.S. (and Japanese) import bans on Canadian livestock and beef. Given the long cycles and high sunk cost in the livestock and beef industry, immediate adjustment (reduction in production) for Canadian producers was difficult and always unlikely. Moreover, the possibility of import bans being lifted in the near future may have further shaped their expectations and prolonged the decisions on herd reduction. In the meanwhile, U.S. prices increased following Canada's trade dependence shock due to BSE and remained above the original long-run equilibrium price.Demand and Price Analysis, Livestock Production/Industries,

The Pitfalls of Transition: Crowding Out the National Virtues

In this paper a view is advanced that explains why the transition to markets did not always lead to the outcomes predicted by the Washington Consensus type strategies. Institutional portfolio theory is used to define a myriad of interests and goals of a transition economy. A model is developed in which external intervention and increased external monitoring are shown to lead to lessening of the intrinsic motivation within transition economies to pursue the reforms as prescribed by Washington Consensus sometimes resulting in very slow growth rates or even a decline of the GDP.external monitoring, institutional change, intrinsic motivation, portfolio theory, Washington consensus, Institutional and Behavioral Economics, P21, O43,

TRANSPORTING THE EXPORT-BOUND GRAIN BY RAIL: A STUDY OF MARKET INTEGRATION

This study addresses the issues of market integration in railroad industry analyzing the export-bound grain transportation. A spatial analysis involving four origin states (Illinois, Iowa, Minnesota and Nebraska) and two destinations (Mexican Gulf and Pacific Northwest) is conducted in order to determine if pricing practices by the same or different railroads in different regions are consistent. A system of structural equations is estimated and dynamic regression tests are conducted because of the dynamic nature of interregional trade and arbitrage activities. The results indicate that grain transportation market by rail is not perfectly integrated. This is primarily due to numerous mergers and combining of railroads that took place during the last twenty years.grain transportation, market integration, railroad industry, International Relations/Trade, D4, L1, L9,

TRADE LIBERALIZATION AND CHANGING COMPOSITION AND QUALITY OF IMPORTS IN JAPANESE BEEF IMPORT MARKETS

We show that the reduction of an ad-valorem tariff lead to an increase in Japanese imports of higher quality US beef relative to the lower quality Australian beef. Increasingly more efficient US beef production and strong income effect further explain the recent domination of the US beef in Japanese market.Ad-valorem tariff reduction, Japanese beef imports, International Relations/Trade,

The Impact of Trade Openness on Technical Efficiency in U.S. Agriculture

This study addresses the impact of trade openness on technical efficiency in the U.S. agricultural sector. The results indicate that trade protectionism illustrated with a decrease in the share of agricultural imports in agricultural GDP led to an increase in technical efficiency. A change in the share of agricultural exports in agricultural GDP had no impact on technical efficiency. These results are partially consistent with the premise of the new trade theory, but also seem to be driven by the intricacies of the agricultural sector and agricultural policy in the United States and internationally.Agricultural Finance, International Relations/Trade,

Dynamic Relationships Between Farm Real Estate Values and Federal Farm Program Payments

This study examines the dynamic relationships among farm real estate values, farm returns, farm program payments, and real interest rates in an income capitalization model. Endogeneity is assumed among the variables in a dynamic framework because the direction of causality is unclear from a theoretical standpoint. The analysis encompasses the period beginning with the introduction of the first farm bill in 1933 and ending in 2006. Results indicate farm program payments have positive direct impacts in the short run and positive indirect impacts (via farm returns) in the long run on farm real estate values.dynamics, farm program payments, farm real estate values, U.S. data 1933 – 2006, vector error correction model, Agricultural and Food Policy, Land Economics/Use,

The Impact of Trade Openness on Technical Efficiency in U.S. Agriculture

This study addresses the impact of trade openness on technical efficiency in the U.S. agricultural sector. The results indicate that trade protectionism illustrated with a decrease in the share of agricultural imports in agricultural GDP led to an increase in technical efficiency. A change in the share of agricultural exports in agricultural GDP had no impact on technical efficiency. These results are partially consistent with the premise of the new trade theory, but also seem to be driven by the intricacies of the agricultural sector and agricultural policy in the US and internationally.Agriculture, Technical Efficiency, Trade Openness, United States, International Relations/Trade, Production Economics, Q17,

Impact of Changes in Dietary Preferences on U.S. Retail Demand for Beef: Health Concerns and the Role of Media

The goal of this study is twofold: to determine if in the long run health concerns affect, via changes in consumer dietary preferences, the retail demand for beef in the United States and to establish if media coverage of popular diets (media frenzy) causes the change in retail demand for beef, or if it simply reports the facts about the changes in consumer dietary preferences. Data used in the analysis are the quarterly retail demand index for beef and the number of newspaper articles and magazine features on low-fat, low-cholesterol and low-carb diets published in the United States between 1990:I and 2004:IV. Johansen's cointegration method and vector error correction (VEC) model based Granger causality test were used in the long-run and short-run analysis respectively. The results indicate that health concerns are an important demand shifter for beef in the long run. In the short run, media serves as a trigger that will swing people to become followers of a certain diet.Health concerns, media, demand for beef, cointegration, VEC, Granger causality, Food Consumption/Nutrition/Food Safety, D12, Q13,

The Exchange Rate Pass-through into Import Prices: The Case of Japanese Meat Imports

The effect of exchange rate pass-through on import prices is a question of significant interest to many nations and especially those with permanent trade deficit. Japan is traditional net importer of food products in general and meat products including beef, pork, and poultry in particular. Most of the Japanese meat imports come from a few countries thus making Japan potentially very sensitive to the swings in one or a few bilateral exchange rates. This was the motivation to estimate the exchange rate pass-through effect on meat import prices in Japan. Interestingly, results for different meats differ substantially. For instance, poultry import prices indicate almost complete exchange rate pass-through, while beef import prices indicate partial (relatively high) exchange rate pass-through. Import prices of pork, on the other hand, indicate zero exchange rate pass-through. In terms of competitiveness, these results suggest almost perfectly competitive markets among poultry importing firms, somewhat competitive markets among beef importing firms, and a high degree of market power among the pork importing firms. One of the key contributions of this paper is the use of the meats imports weighted exchange rates in the analysis. The standard practice in previous agricultural trade studies related to either exchange rate pass-through or pricing to market was to use the aggregate trade weighted exchange rates usually provided by the Central Bank authorities or sources. Our approach is novel and is due to recommendations from Goldberg (2004) and Pollard and Coughlin (2006).International Relations/Trade,

Nature of Dynamic Relationships Between Farm Real Estate Values and Federal Farm Program Payments

The objective of this study is to test the dynamic relationships among variables including farm real estate values, farm returns, farm program payments, and real interest rates in an income capitalization model. Our analysis is unique in multiple ways: (1) it covers the period beginning with the introduction of the first farm bill in 1933 through 2006; (2) assumes endogeneity of the variables, and (3) develops a dynamic modeling framework. Endogeneity is assumed among farm real estate values, farm program payments, and farm receipts since the direction of causality is unclear from a theoretical standpoint. Results indicate that policy makers are reactive rather than pro-active in making transfers to farmers. Once farm program payments are implemented, payments have positive impacts only in the short run on the value of farm real estate. However, considering endogeneity, the model suggests that it is possible that farm program payments have a lasting positive indirect impact (via farm returns) on the value of farm real estate.Dynamics, Farm programs payments, Farm real estate values, Vector error correction model, U.S. data, 1933-2006, Agricultural Finance, Farm Management, Q18, H50, C32,