On the relevance of world agricultural prices

Abstract

This report is part of an attempt to model the global markets for primary commodities and to use these models for forecasting purposes as well as for policy analysis. In a free market, domestic prices on agricultural products could be expected to vary with world prices. But intervention is so common with agricultural products that prices vary between countries and gaps exist between world and domestic prices. International prices are often used as a proxy for domestic prices. But it is often claimed that world prices are irrelevant to agricultural development in countries that intervene in agricultural pricing. This paper examined the appropriateness of this substitution in measuring, for example, the agricultural supply response to price changes - particularly in the long run. It concluded that on the whole, world prices are indeed relevant. The results - for 18 countries and 17 commodities - are surprisingly robust, and invariant to both data sources and time/commodity pooling.Access to Markets,Environmental Economics&Policies,Economic Theory&Research,Pharmaceuticals&Pharmacoeconomics,Markets and Market Access