Disentangling non-linearities in the long- and short-run price relationships: An application to the U.S. hog/Pork supply chain

Increased concentration at the retail, food processing and farm input manufacturing levels has brought increased attention to patterns in retail-to-farm price spreads. Most studies documenting asymmetric price transmission focus on non-linear error correction processes, as opposed to the current study which analyzes potential non-linearities in the long-run relationship between the farm and retail prices. The null hypothesis of non-linearity in the long-run relationship between farm and retail prices in the U.S. hog/pork supply chain is rejected in favor of a Smooth Transition Cointegration (STC) framework. The STC framework predicts downward price stickiness in retail prices. The predicted residuals of the non-linear model are used to investigate whether it is possible to disentangle non-linearity in the long-run price relationship from non-linearity in the adjustment towards the long-run equilibrium. The results underline the importance of testing for linearity in the long-run price relationship before modeling non-linearity in short-run dynamics.Smooth transition cointegration; farm to retail price transmission; linear cointegration

Biases in calculating dumping Margins: The case of cyclical products

A dumping investigation involves comparing export prices with a “normal value” loosely defined as the price in the exporter’s domestic market observed in the course of normal trade. However, domestic sales with prices below production costs are excluded from the computation of a normal value; thus increasing the probability products with cyclical prices will get caught with positive dumping margins although there are no intentions to dump. The objective of the paper is to illustrate how price cycles impact the magnitude of estimated dumping margins. The empirical analysis focuses on Canadian hog exports to the U.S. and U.S. potato exports to Canada. The period and amplitude of each price cycles are estimated. The analysis starts with the assumption that export and domestic prices are equal so no true dumping occurs. Margins are then calculated based on rules that exclude below cost sales. The resulting average dumping margins for Canadian hogs and U.S. potato exports are respectively 11.5 and 5.9 percent. Biases in dumping margins depend on the nature of the cycle, the period of investigations, and the estimate of the cost of production.Anti-dumping; frequency estimation; price cycles; hog/pork trade disputes; potato antidumping case

Investigating Canadian Chicken Importers' Preferences Towards TRQ Import Licensing Mechanisms

The Agreement on Agriculture ratified at the end of the Uruguay Round of WTO negotiations called for the conversion of non-tariff barriers to trade into bound tariffs. This tariffication would have resulted in excessively high tariffs, which would have threatened historic market access levels if not for WTO member countries agreeing to introduce tariff-rate quotas (TRQs). TRQs are two-tier tariffs. Imports below an agreed quota are taxed at a usually low (or zero) in-quota tariff rate while imported commodities in excess of the quota level are taxed at the higher (often prohibitive) over-quota tariff rate. In the process of implementing TRQs, WTO members failed to explicitly regulate TRQ administration procedures. As a result, numerous administration procedures for allocating import licenses were developed in many countries. Importing activities in the Canadian chicken industry have been regulated with a TRQ since 1995. Firms holding the right to import chicken products at the in-quota tariff can potentially enjoy significant rents due to the spread between domestic and world prices. The magnitude of these rents depends upon a number of domestic factors such as market concentration in the processing and retail sectors, production technology, farm output regulation, and so on. This analysis evaluates the preferences of Canadian chicken importers towards TRQ import licensing mechanisms and provides insights about importers’ attitudes towards Canadian trade policy in the chicken sector.Agricultural and Food Policy, International Relations/Trade,

A JOINT TEST OF PRICING-TO-MARKET, MENU COST AND CURRENCY INVOICING

This paper investigates PTM behaviour and currency invoicing decisions of Canadian pork exporters in the presence of menu costs. It is shown that when export prices are negotiated in the exporter's currency, menu costs cause threshold effects in the sense that there are bounds within (outside of) which PTM is not (is) observed. Conversely, PTM is not interrupted by menu costs when export prices are denominated in the importer's currency. The empirical model focuses on pork meat exports from Canada to the U.S. and Japan. Hansen's (2000) threshold estimation procedure is used to jointly test for currency invoicing and PTM in the presence of menu costs. Inference is conducted using bootstrap methods. PTM effects are smaller when accounting for currency invoicing decisions and menu costs than under standard linear models. The data does not reject the null hypothesis that Quebec pork exporters exercise PTM behaviour in the Japanese market and invoice their sales in Japanese currency. Evidence of PTM behaviour and foreign currency invoicing is weak for the U.S. market. Ontario pork exporters do not exercise PTM behaviour in any market.International Relations/Trade,

A Joint Test of Price Discrimination, Menu Cost and Currency Invoicing

This paper investigates price discriminating behaviour and currency invoicing decisions of Canadian pork exporters in the presence of menu costs. It is shown that when export prices are negotiated in the exporter’s currency, menu costs cause threshold effects in the sense that there are bounds within (outside of) which price adjustments are not (are) observed. Conversely, the pass-through is not interrupted by menu costs when export prices are denominated in the importer’s currency. The empirical model focuses on pork meat exports from two Canadian provinces to the U.S. and Japan. Hansen’s (2000) threshold estimation procedure is used to jointly test for currency invoicing and incomplete pass-through in the presence of menu costs. Inference is conducted using the bootstrap with pre-pivoting methods to deal with nuisance parameters. The existence of menu cost is supported by the data in three of the four cases. It also appears that Quebec pork exporters price discriminate and invoice in Japanese yen their exports to Japan. Manitoba exporters also seem to follow the same invoicing strategy, but their ability to increase their profit margin in response to large enough own-currency devaluations is questionable. Our currency invoicing results for sales to the U.S. are consistent with subsets of Canadian firms using either the Canadian or U.S. currency.

The Simple Economics of Hog Marketing Reforms in Quebec

Hogs, marketing, vertical coordination, auctions, Industrial Organization, Livestock Production/Industries, Marketing,

THE IMPACT OF THE CANADA-U.S. HOG/PORK TRADE DISPUTE ON THE COMPOSITION OF U.S. PORK IMPORTS

Trade theorists have demonstrated that different trade policy instruments have different effects on the quality and source of imports. Countervailing duties (CVDs), like specific tariffs, should induce quality upgrading. However, the magnitude and timing of the quality adjustments are influenced by the credibility of the duties that can be legally contested and modified after annual administrative reviews. Index numbers are used to assess the timing and magnitude of the product mix and country mix substitution effects in U.S. pork imports in response to the U.S. CVDs on Canadian exports of live hogs and fresh, chilled, and frozen pork.International Relations/Trade,

Structural Implications of Persistent Disharmony in North American Beef and Pork Industries

Industrial Organization, Livestock Production/Industries,

Allocations and Price Trends in Sequential Auctions under Complete Information with Symmetric Bidders

We analyze sequential second-price auctions under complete information involving two or more bidders with similar decreasing marginal valuations. Krishna (1999) designed a 2-bidder numerical example to show the existence of two symmetric equilibria characterized by an asymmetric allocation and weakly declining prices. We generalize Krishna's insights by showing that symmetric (asymmetric) allocations imply constant (weakly declining) price patterns and we derive the necessary conditions supporting symmetric allocations. The conditions become increasingly restrictive as the number of object increases.auctions, complete information, price trends, allocations