In search of price rigidities : recent sector evidence from Argentina

The hypothesis that the price adjustment to nominal shocks is instantaneous has been part of the monetarist approach explaining the inflationary process in Argentina. But the authors argue that monetary and exchange rate policies have had different effects on relative prices and thus have a significant influence on the real side of the economy. The existence of rigidities has prevented full and instantaneous price adjustments. Recent work on inflation in imperfectly competitive markets explain rigidities as a consequence of firms'strategic responses to nominal shocks, which in turn depend on the market structure and demand elasticities faced by firms. Price rigidities emerge when firms facing changes in aggregate demand behave collusively, and there are costs for customers to switch between suppliers. In contrast, when the costs for customers to switch between suppliers are low, firms are obliged to adjust their prices to new demand conditions, otherwise they will lose their customers. Changes in foreign prices affect domestic prices depending on the degree of foreign competition and the price formation mechanism in each sector. As expected, price rigidities are minimal in tradable sectors where firms react to these changes by changing their prices almost instantaneously. The response in nontradable activities depends on indirect effects and whether prices are indexed to a foreign currency. Because understanding this is essential for effective policymaking, the authors analyze price behavior of four economic sectors - agriculture, industry, (retail) commerce, and services - in Argentina from 1981-94. The econometric analysis show large differences in the price behavior across sectors. Firms do not respond uniformly to changes in production costs, foreign prices, and demand conditions. The response of individual prices reflects the distribution of adjustment costs across sectors in the case of nominal shocks. To maintain social and political stability, the government's challenge is to minimize divergence across sectors. Increasing competition appears to be a crucial element of this strategy since monopolistic power is frequently associated with the existence of price rigidities.Economic Theory&Research,Markets and Market Access,Environmental Economics&Policies,Payment Systems&Infrastructure,Settlement of Investment Disputes,Economic Theory&Research,Markets and Market Access,Access to Markets,Environmental Economics&Policies,Settlement of Investment Disputes

Savings and education: a life-cycle model applied to a panel of 74 countries

The authors analyze how education contributes to savings. There are many reasons to believe that education and savings may be linked, either positively or negatively. It is generally expected that people with higher education will earn greater income, thereby leading to higher savings, even if the positive relationships between education and income andbetween income and savings take time to be completely realized. The relationship between education and income can be negative at first because education expenses initially increase consumption and reduce current disposable income. Another argument for a negative link concerns precautionary savings. If there is a precautionary motive for savings, education should reduce income volatility because educated people are less likely to be unemployed, or, if unemployed, they are covered by unemployment insurance. With less need for precautionay savings among the more educated, education and savings would be negatively correlated. The author's major findings for a panel of 74 countries over the period 1960-90 include the following views. Education positively influences savings in the long run. For each percentage point increase in education stock, the savings rate increases 0.37 percent. But it takes more than five years for the positive effect, through income, to compensate for the initial negative impact on savings. The lagged effect (five years) of a change in the stock of education appears positive in all regions except Latin America. The negative correlation in this region can be explained by the worsening quality of education, which reduces the ability to implement new technologies, and by the traditional focus on university education instead of primary and secondary education. Moreover, well-educated people in Latin America seem to have a lower precautionary motive for saving than in other regions. People are more productive, invest more, or are a better complement to physical capital in an environment where many people are well-educated. Accordingly, the positive effect of education on savings appears higher in industrial countries, given their higher initial stock of human capital, than in developing countries. The effects of primary and secondary education on savings are positive and significant in all regions, while the effects of university education is positive only in industrial countries. One explanation might be that industrial countries tend to invest in new projects rather than to adopt existing technology. The authors derive several policy recommendations from their conclusions. First, the positive effect of education on savings is enhanced by a reduction in the cost of education which automatically increases disposable income. In many countries, the unit cost of education may be reduced by exploiting economies of scale and by developing incentives for greater cost-consciousness among consumers and providers. Many education systems may need to upgrade their internal efficiency. Second, a focus on primary education should be encouraged, specifically in developing countries. The empirical results indicate that the positive long-run effect associated with primary education is twice as large as that for secondary and tertiary eduation. Latin America's traditional neglect of primary education contrasts sharply with the policy of Asian countries. Finally, it is important to increase the coverage of education, not only for equity but also for efficiency reasons. Indeed, how much a child learns is influenced by the nature of the learning environment, as supported by the role played by externalities and the intial level of education in the realtionship between eduation and savings.Curriculum&Instruction,Decentralization,Economic Theory&Research,Public Health Promotion,Health Monitoring&Evaluation,Gender and Education,Teaching and Learning,Economic Theory&Research,Curriculum&Instruction,Health Monitoring&Evaluation

The Interaction of Working and Speculative Commodity Stocks

This paper models the interaction of working (also called pipeline) and speculative commodity stocks. We model working inventories (i.e., raw material inventories carried by processors) based on Rameys (1989) model of inventories as factors of production, which allows us to represent storage under inter-temporal price backwardation, observed in commodity markets. We incorporate both speculative and working stocks in a simple model to analyze the interaction and to simulate the relationship between inter-temporal commodity price spreads and stocks. Our model replicates common price patters found in commodity markets.Marketing,

RED MEAT PRODUCERS’ PREFERENCES FOR STRATEGIES TO COPE WITH THE CAP REFORM IN SCOTLAND

It is recognised that following the reform of the Common Agricultural Policy (CAP) farmers may go through a period of transition where they evaluate the different production alternatives available to them according to their existing situation, expectations and preferences. Drawing on a survey of Scottish beef and sheep producers undertaken in mid-2006, the purpose of this paper is to analyse the preferences of producers in relation to a number of possible economic strategies for production adjustment following CAP reform. The results show that the nature of adjustment is still uncertain, reflected in the high numbers of farmers that do not know what strategy to follow or that will maintain the same production levels despite the reform. However, a sizable percentage of farmers indicate their intentions to concentrate on the production of high quality output.Scottish agriculture, single farm payment, red meat producers., Agricultural and Food Policy, Q18.,

Crop Substitution on UK Sugar Beet Farms and its Effects on the Environment: A Multi-Product Cost Function Approach

This paper analyzes the effect that the imminent reform of the EU sugar beet regime will have on United Kingdom (UK) sugar beet farms. Specifically, we estimate a multi-product cost function to analyze the effect the changes on the sugar beet price support and quota will have on the crop allocation of sugar beet farms and their aggregate use of inputs. Based on these estimates we discuss the implications that changes in the crop patterns may have on farm environmental variables such as soil loss and groundwater pollution.Agricultural and Food Policy,

RETAILERS PRICE BEHAVIOUR IN THE UK FRESH FRUIT AND VEGETABLE MARKET

The purpose of this paper is to study the price behaviour of fresh produce at the retail level of two leading supermarkets, Tesco and Sainsbury, with the purpose of gaining knowledge about their interaction. We focus the study on six products from the fresh fruits and vegetable group (i.e., tomatoes, Bramley’s apples, white cabbage, cucumbers, Iceberg lettuce and Round lettuce) due to the fact on the one hand it is a less complex supply chain (e.g., perishable product, less number of intermediaries) and on the other hand, because during the last 20 years the group has significantly evolved with supermarkets becoming the major players in the chain. The empirical methodology consisted of using Granger causality tests to establish the relationship between the series (e.g., leader-follower) and then vector autoregressive (VAR) models and variance decomposition procedures to capture the interaction of supermarket prices by product. Overall results indicate that the competition behaviour amongst the two retailers changes by product and evolve over timeUK retail prices, supermarket competition, UK fresh produce market, Demand and Price Analysis,

A Metafrontier Analysis of Technical Efficiency of Selected European Agricultures

Technical efficiency refers to the situation where it is impossible for a firm to produce, with the given know-how, (1) a larger output from the same inputs or (2) the same output with less of one or more inputs without increasing the amount of other inputs. In practice, the interest is on the relative position in terms of efficiency of a particular firm with respect to others. Therefore, technical efficiency is characterised by the relationship between observed production and some ideal or potential production (Greene, 1993). Although the beginning of the efficiency work can be traced to the 1950s (Farrell, 1957), there have been a growing interest on its use in benchmarking performance, predominantly as a means of identifying best practice and improving the efficiency of resource use within the agricultural industry (e.g., Defra 2004, SAC 2009). This paper deals with the estimation of technical efficiency for the agricultural sectors in several European countries and moreover, it aims to compare the efficiency amongst them using a metafrontier analysis. The use of this type of analysis is justified because a frontier, which represents the best available technology within a particular region/country cannot be strictly compared across other regions/countries, unless they operate under the same production set. The metafrontier analysis has been developed in a number of studies (Battese and Rao, 2002; Nkamleu et al., 2006; Chen and Song, 2006; O‟Donnell et al., 2008.) The metafrontier analysis in this paper, which uses data from the Farm Accountancy data Network (FADN), was focused on four farm types: two specialised farming types (i.e., specialist cereals, oilseed and protein crops and specialist dairying) and two more mixed farming sets (i.e., general field cropping and mixed farms), and was applied to a total of 11 countries namely Belgium, Denmark, France, Germany, Hungary, Ireland, Italy, Netherlands, Poland, Spain and the UK. For most of the countries the information was available from 1995 until 2007, excepting Hungary and Poland, for which it was available only since 2004. Also note that not all the farm types were available for all the countries. The structure of the paper is as follows: it starts presenting an overview of the metafrontier analysis used to compare technical efficiency amongst the European countries. It is followed by the empirical work, which comprises a description of the data used, the estimation and discussion of the results. Finally we present conclusions.Research and Development/Tech Change/Emerging Technologies,

MEASURING CROSS-SUBSIDISATION OF THE SINGLE PAYMENT SCHEME IN ENGLAND

The specific purpose of this paper is to estimate the extent to which decoupled payments under the Single Payments Scheme (SPS) are being used (either explicitly or implicitly) in England to support the continuation of activities that were previously supported by area and headage payments. In the absence of a farm survey, the methodology consists of using information on farm accounts collected through England’s Farm Business Survey (FBS), to estimate a multi-output cost function differentiated by farm size and farm type. This cost function, calibrated to match regional prices in England, is used to estimate the level of cross-subsidisation in the first full year after implementation of the SPS (2005/06). Results indicate that cross-subsidisation was occurring, which might infer that many farmers across England are coupling their payments. Whilst, these results are for the first year, and in that sense may reflect a transitional situation, they are nevertheless important because they provide empirical evidence to inform the discussion concerning the impact and future development of the SPS.English agriculture, single farm payment, micro-econometric models., Agricultural and Food Policy, Research Methods/ Statistical Methods, Q12, Q18,

Prospects for global food security: a critical appraisal of past projections and predictions

During the last half century, a number of individuals and institutions, including the Food and Agriculture Organization of the United Nations (FAO) and IFPRI, have engaged in projections of future food demand, supply, and related variables. In this brief, Alex McCalla and Cesar Revoredo compare projections with real-life outcomes. Projections forecast outcomes on the basis of certain underlying factors. If such forecasted outcomes are undesirable, changes may be made in the underlying factors so that the projections may not, in fact, come to pass. Many projections serve this precise goal. Therefore, the success of projections may not be that they match actual outcomes but that they avoid such outcomes by promoting action to change underlying variables. Unlike predictions, which are successful only if they match actual outcomes, projections that differ from actual outcomes may reflect either poor projection models or changes in underlying variables, possibly caused by the projections themselves.Food consumption., Food security.,

Enhancing the integration of agri-food supply chains: theoretical issues and practical challenges in the UK malting barley supply chain

The purpose of this paper is to explore the issues that may affect the integration (i.e., the relationships) between the different actors that comprise a supply chain. Whist the theoretical part of the paper can be referred to any supply chain, the empirical part is focused on the UK barley to beer supply chain. The main motivation behind the topic is that improvements in the relationships amongst the different segments of a chain can enhance its efficiency and effectiveness, (e.g., through improvements in coordination and cooperation), and therefore, its competitiveness and long term sustainability. The paper is based on two complementary analyses: the first one consisted of a structural equation model (SEM) to determine those factors that affect the sustainability of relationships in the chain. The model is estimated based on a survey of 69 chain stakeholders. The second analysis comprised an in-depth case study based on an important malting-barley- to-beer supply chain in Eastern England, and had the purpose of providing further understanding of those aspects that were highlighted by the SEM. The overall results pointed out to five factors affecting the relationships in the malting barley to beer agri-food supply chain: communication, compatibility of aims in the supply chain, contractual relationships backed by professional regard and personal bonds; high levels of trust exist between the chain participants and a willingness to resolve any problems; and commercial benefit.supply chain management, malting barley supply chain, supply chain coordination, competitiveness, Agribusiness,