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The impacts of production uncertainties on world food prices

The impacts of production uncertainties on world food prices Purpose – Because of large time lags between the production decision, completion and sale of output, any uncertainty during the process of production, such as bad weather, disease or financial crisis, can affect the prices within food markets systematically. Therefore, the paper aims to analyze the influence of production uncertainties on world's wheat and corn prices. Design/methodology/approach – In a specially designed two‐step method, at first, the contributions of deterministic and uncertainty factors to wheat and corn production in around 100 countries are decomposed. Then, a panel model is applied to estimate the combined impact of each type of factors on the prices. Furthermore, the authors decompose the explained variances of the panel models in order to determine the importance of each type of factors for price adjustments. Findings – The uncertainties in wheat production do significantly affect both wheat and corn prices on a global scale, whilst those of corn do not. Moreover, the variance decompositions reveal that deterministic factors contribute much more to the explanation of world food prices than indeterministic factors. Practical implications – As deterministic factors are much more important than uncertainty factors for explaining market price movements, farmers should organize themselves to coordinate production in order to stabilize world food prices. Originality/value – The paper proposes a simple methodology, which enables scholars to integrate production uncertainties into food price analyses. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Agricultural Economic Review Emerald Publishing

The impacts of production uncertainties on world food prices

China Agricultural Economic Review , Volume 5 (4): 14 – Nov 15, 2013

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Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
1756-137X
DOI
10.1108/CAER-05-2012-0045
Publisher site
See Article on Publisher Site

Abstract

Purpose – Because of large time lags between the production decision, completion and sale of output, any uncertainty during the process of production, such as bad weather, disease or financial crisis, can affect the prices within food markets systematically. Therefore, the paper aims to analyze the influence of production uncertainties on world's wheat and corn prices. Design/methodology/approach – In a specially designed two‐step method, at first, the contributions of deterministic and uncertainty factors to wheat and corn production in around 100 countries are decomposed. Then, a panel model is applied to estimate the combined impact of each type of factors on the prices. Furthermore, the authors decompose the explained variances of the panel models in order to determine the importance of each type of factors for price adjustments. Findings – The uncertainties in wheat production do significantly affect both wheat and corn prices on a global scale, whilst those of corn do not. Moreover, the variance decompositions reveal that deterministic factors contribute much more to the explanation of world food prices than indeterministic factors. Practical implications – As deterministic factors are much more important than uncertainty factors for explaining market price movements, farmers should organize themselves to coordinate production in order to stabilize world food prices. Originality/value – The paper proposes a simple methodology, which enables scholars to integrate production uncertainties into food price analyses.

Journal

China Agricultural Economic ReviewEmerald Publishing

Published: Nov 15, 2013

Keywords: WTO; Wheat; Corn; Indeterministic factors; World food prices

References