HAL Id: hal-01937039 https://hal.archives-ouvertes.fr/hal-01937039 Submitted on 27 Nov 2018 HAL is a multi-disciplinary open access archive for the deposit and dissemination of sci- entific research documents, whether they are pub- lished or not. The documents may come from teaching and research institutions in France or abroad, or from public or private research centers. L’archive ouverte pluridisciplinaire HAL, est destinée au dépôt et à la diffusion de documents scientifiques de niveau recherche, publiés ou non, émanant des établissements d’enseignement et de recherche français ou étrangers, des laboratoires publics ou privés. Distributed under a Creative Commons Attribution - NonCommercial - NoDerivatives| 4.0 International License Dynamic relationships between world prices of cakes, corn-gluten-feed and cassava Yves Dronne, Christophe Tavéra To cite this version: Yves Dronne, Christophe Tavéra. Dynamic relationships between world prices of cakes, corn-gluten- feed and cassava. [Research Report] INRA Station d’Economie et Sociologie rurales. 1988, 27 p. hal-01937039
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HAL Id: hal-01937039https://hal.archives-ouvertes.fr/hal-01937039
Submitted on 27 Nov 2018
HAL is a multi-disciplinary open accessarchive for the deposit and dissemination of sci-entific research documents, whether they are pub-lished or not. The documents may come fromteaching and research institutions in France orabroad, or from public or private research centers.
L’archive ouverte pluridisciplinaire HAL, estdestinée au dépôt et à la diffusion de documentsscientifiques de niveau recherche, publiés ou non,émanant des établissements d’enseignement et derecherche français ou étrangers, des laboratoirespublics ou privés.
Distributed under a Creative Commons Attribution - NonCommercial - NoDerivatives| 4.0International License
Dynamic relationships between world prices of cakes,corn-gluten-feed and cassava
Yves Dronne, Christophe Tavéra
To cite this version:Yves Dronne, Christophe Tavéra. Dynamic relationships between world prices of cakes, corn-gluten-feed and cassava. [Research Report] INRA Station d’Economie et Sociologie rurales. 1988, 27 p.�hal-01937039�
Station d'Economie et de Sociologie Rurales de Rennes
Novernber 1988
1
DOCUMENTATION ÉCONOMIE'RURALE RENNES
~1111(1111/ 11111 JIii/ JI/li f Ill !li li~
I . INTRODUCTION
Soybean - which dominated the world oilseed-protein market for
a long time - is still playing a special role in the somewhat
conflictual EC-US trade relationships since the end of world war
II.
After ratification of the Dillon Round agreement in 1962, the
EC elaborated an oilseed-protein market organisation which
simultaneously allows free imports for oilseeds and oilmeals and
maintains support to rapeseed and sunflowerseed domestic producers
through the fixation of annual objective and intervention prices .
Those prices being most of the time higher than corresponding
world prices, crushing subsisdies equal to the gap between
domestic and Rotterdam border prices were distributed by FEOGA and
permitted the preference for Community products. At the beginning
of the 1970's there was a change in the world market structure due
to the expansion of soybean seeds produced by Brazil and Argentin.
At the opposite of US and international crushing firms which had
chosen to directly export seeds to West Europe where they were
crushed into oil and cakes in order to avoid stocks then costly
export programs (as with PL 480 for instance) Brasilian firms
decided to crush themselves and to experts soybeanseed cakes and
oil to various world markets and mainly to EC markets.
The competitiveness of Brasilian and Argentin firm on those
markets directly led to lower US cake experts and to a reduction
in crushing margins of EC firrns. As a result those firms reduced
their new investment and tried to partly diversify their activity
between soybeanseed crushing on one side and sunflowerseed and
rapeseed crushing on the other side .
Along with the apparition of Brasil and Argentin firms on the
2
world scene there was also an increase in EC domestic production
for rapeseeds and soybeanseeds in the late 1970 's due to the
stimulating EC oilseeds support system. Technical improvements on
oilseeds production and efforts made by the Community in order to
stabilize the domestic cereal production made the EEC oilseeds
market regime even more encouraging for EC oilseeds producers.
As a result the EC oilseeds protein sector became in the early
80' s a very important sector which plays a crucial role on the
world market. While the Communi ty is today the first oilseeds,
cakes and oil world importer and one of the first three greatest
world crushers, it is also one of the most important rapeseed and
sunflowerseed world producer and one of the biggest exporter for
soybeanseed and rapeseed oil.
During the past years the United States often criticized the
EC oilseeds market regime and more or less successfully fighted
against some of the adjustements of the EC support system. The
most important dispute appeared in December 1987 with the
complaint made in GATT against EC by the American Soybean
Association (ASA} which accused the Community to deliberatly
restrict the import and the utilization of US soybeanseeds and
soybean cakes. According to the ASA, those behaviors are in
contravention with the Dillon Round Agreements and the EC oilseeds
support policy has to be removed. The Communi ty for i ts part
claimed the reduction in US experts was mainly due to the
competi tion of the South-American producers in the soybean cake
sector, to the increase in other cakes irnported from third world
countries (coprah from he Philippines and Indonesia, sunflower and
flax frorn Argentin, rapeseed from China and India, palm from
Malaya} and to the stagnation of the EC soybeanseed chrushing
acti vi ty due to restricted crushing rnargins. The Communi ty also
claims that EC still remains one of the world greatest imp0rters
for oilseeds products and that the rapid expansion of rapeseed and
sunflowerseed domestic production is now fully controlled via the
3
Maximal Guaranteed Quantities mechanism since crushing subsidies
only permitted to assure the preference for EC domestic products.
Those politics only had a minor impact on domestic markets and had
no effect at all on world markets due to the quasi nul li ty of
export restitutions.
As can be seen the two positions are clearly conflictual.
According to the US, the EC policy greatly restrained quantities
of soybean products imported from US since about 20 years and
especially since 1980.
At the opposite, for the EC, the Community oilseeds system was
quasi neutral since the quantities of cakes demanded by EC
increased faster than the EC domestic oilseed production during
the last seven years. A related issue is that the EC domestic
prices for the various oilseed products quickly reflect the
corresponding world market situation.
The aim of this study is to shed more light on this
controversy by focusing on causali ty relationships between the
prices of the major animal feed ingredients on the Rotterdam
market. Causality will be both analysed in a limited information
bivariate framework and in a full information multivariate
framework according to the lines proposed by Caines-Keng and Sethi
(1981). Both bivariate and multivariate causality results will be
related but preference will be given in the comment to causal
relationships obtained within the multivariate framework.
The remainder of the paper is organized as follows the
The theorical general background is presented in Section 2.
background and the empirical methodology are
presented in Section 3 and section 4.Section 5
evaluates our empirical results while Section 6
concluding comments.
4
respectively
reports and
offers some
II. BACKGROUND
Figure 1 présents the EC animal feed sector demand for cakes,
gluten feed and Cassava for year 1987.
Figure 1.
1987.
Structure of EC cake consumption (EC-12 for year
all quantities are expressed in MMT).
Net Coke Imports
Soybeon 8.07
Sunf'lower 0.9
Rope 0 . 4
Other 6. 23
Imported gluten f'eed EC
Cokes produced with imported seeds
Soybeon
Sunf'lower
Rape
Other
10. 0
0. 1
o . 1
0. 7 3
4.8 ---) A ni mol
Feed 1
Imported Cossovo 1 ~ 6.74
1 Cokes produced with EC domestic seeds
Soybeon
Sunflower
Rope
Ot her
1 . 1
1.7
2.6
o. 2
-----------------------
Whereas some srnall quanti ties of soybean cakes are directly
bought by cattle breeders, the animal feed ingredients retained
for this study are essentially bought on the Rotterdam market by
the EC compound feed sector. They al together account for nearly
5
44 . 8 % of totally produced compound feed while cereals account for
32. 8 % of this production. The industries of the animal feed
sector use linear programming models in order to determine how
much of the various feed ingredients they need for producing every
kind of ration . These models take into account nutritional
contents of
ingredient.
every ingredient, and market prices for each
Ration formulae are more and more quickly adapted to
price variations, at least several times a month.
While cereal prices vary a lot across the various EC countries
due to local market situations and MCAs, import prices for cakes
and cereal substitute products are rather similar within every EC
country. Rotterdam is the most important EC importing zone for
major feed ingredients soybean meals, cassava, gluten feed or
other meals such as coprah, palm. It is located very close to the
main EC industries which crush both imported soybean seeds and
domesticaly produced seeds such as rape seeds and sunflower seeds.
Due to such a situation, Rotterdam (CAF or Fob ex Mill) prices
(or sometimes Hamburg prices) are used as referring prices for all
EC transactions even when exchanged quantities do not physically
transit by Rotterdam.
Prices for these products on every EC market can thus be
correctly calculated from corresponding Rotterdam prices and
transportation costs. As can be seen on Figure 1 the EC compound
feed sector is directly related to four other sectors :
- cakes importers (essentially ~oybean cake importers) at first.
Apart from the cereal sector, this constitutes the most important
sector with an amount of cake imports close to 15 million tonnes
which mainly corne from Brazil.
the EC crushing
million tonnes) and
sector which only uses
especially US soybean
6
imported
seeds is
seeds ( 11
the second
sector.
- Gluten feed and Cassava importers constitute the third sector.
Imports for these products are close to 11. 5 million tonnes and
are respectively provided by US for Gluten feed and Thailand for
Cassava.
- The last sector is the EC crushing industry which uses seeds
produced within EC. This is the only sector concerned with the EC
oilseeds policy. It thus receives a crushing subsisdy,
representing the difference between the world price and the EEC
target price for oilseeds. Al thougth the amount of EC domestic
seeds crushed (5.6 million tonnes) by this sector is much smaller
than the amount of imported seeds crushed by the first described
sector, this fourth sector plays a dominant role on the markets
for sunflower and rape cakes.
7
II. THEORETICAL BACKGROUND
In this section price relationships among the various animal
feed ingredients are derived from the production program of the EC
crushing industry.
Let us assume that the EC crushing sector has a short run cost
minimization behavior it minimizes the variable cost of
producing the vector of outputs Qc condi tional on the vector of
quasi-fixed inputs Z and given prices p for variable inputs X. X
Then, there exists a restricted cost function, dual to the
underlying transformation function
RC = min X
[p'. X X
F ( Qc, X, Z) = 0 ] ( 1)
( 1 ' )
Assuming RC statisfies the usual regularity conditions (1) the
Shepard' s lemma can be used in order to deri ve the condi tional
demand function for a variable input :
D = âRC(.)/âp = D (p ; 0 X , X- X, X
1 1 1
(2)
for i = CGF, soybean meal, rape meal and sunflower meal and for
e = (Qc, z)
(1) RC is non-decreasing in variable input prices, non-decreasing in output, non-increasing in quasi-fixed factors, positively linear homogeneous, concave, continous· in variable input prices and twice differentiable with respect to variable input prices.
8
It may be assumed, at least as a first approximation that feed
ingredients quantities supplied on the Rotterdam market are
function of their own price in the short run according to :
s = s x . x. l. l.
( p ) x.
l.
(3) for every product i
By assuming that these markets are in equilibrium we thus have
e (4) for every i
Since 0 is assumed fixed, linearization of this market clearing
condition around the approximation point gives
dp x.
l.
= I a . .. dp . •..t· l.J XJ
J r l.
with a .. l. J
D = ( E • • l. J
s D . )/[(p ./p .)(c ..
Xl. XJ Xl. l.l. s .
Xl.
(5) for every i
D - C ••
l. l. • D . ) J
Xl.
D S where c . . , c . . are respectively the demand and supply elastici-l.J l.J
ties for product i with respect to the price for product j.
Equation (5) may be rewritten in term of price growth rates
dp ./p .) as Xl. Xl.
P = I /3 p xi j f i ij · xj
wi th /3 • • l. J
D S = [(c ... D. )/(E .. l.J Xl. l.l.
s . Xl.
9
(5') for every i
D - C • •
l. l. • D .)].
Xl.
(p . = Xl.
If we further assume
every product is close
that the own price supply elasticity for
to zero in the short run ( l ~.= 0), 11
coefficients of equation (5) and (5') reduce to D D D D a . . = [-(p . l . . )(p . . l . . )] and /3 .• = [-( l . . / l . . )]. Both may be
1J X1 1J XJ 11 1J 1J 11 positive or negative according to wether products are substitutes
D D ( l .. < 0) or complements ( l .. > 0).
1J 1J
In this respect , if we assume that Rotterdam prices for feed
ingredients are primary influenced by variations in quanti ties
demanded by the compound feed sector in the short-run, i t is
possible to clarify substitut ion - complementari ty relationships
among these products by estimating a reduced form system such as
(5) or (5') . This is precisely the case with VAR models.
In this paper , we choose to estimate such a system with a VAR
methodology. This amounts to assume that relationships such as (5)
are not instantaneously fully realized and that it takes time for
a variation in the price of product i to be transmitted to price
of product j . This leads to a dynamic reformulation of equations
(5) in the following form
dp . = I a .. (L) dp . + ut X1 j i i 1J XJ
for every i
where a .. 1J
( L)
autoregressive
are lag
c oefficients
polynomials.
of a VAR
However
are no t
since the
directly
interpretable, substitution-complementarity relationships will be
analysed on the basis of the dynamic multipliers derived from the
VAR rnodel .
10
III. EMPIRICAL METHODOLOGY AND DATA
During the last years, lots of agricultural specific problems
{lead-lag relationships between wholesale and retail prices of
agricultural products ; dynamic relationships between the price of
a given commodity on different markets, etc) have been treated by
using bivariate causality analysis. However the main inconvenient
wi th such a method is tha t causali ty is only examined wi thin a
restricted information space. Most of the time, considering a
bigger information set reveals a different causal ordering than
the one obtained with a bivariate procedure (1).
Generally multivariate causality analysis are made by using a
VAR model which includes the overall set of available time
series :
(1)
where zt is am components stationary stochastic process, Ut is a
m components inovation process and D(L) is matrix, the elements of
which are p order lag polynomials.
The results of F tests for the null hypothesis that
coefficients on lags associated with particular variables are zero
in each of the autoregressive equation together with the
decomposition of the r - periodes-ahead forecast errer variance of
the model furnish a natural measure of the degree of
endogeneity-exogeneity of each variable.
(1) See for instance the case presented by Granger (1980) p.30.
11
If litterature suggests several technics in order to determine
the autoregressive order of the VAR, their application is
restricted to the cases where every variable enters the model with
the same lag order. However, this restriction can not only reduce
the efficacity of the autoregressive order determination procedure
but it can also lead to a biased value of the estimated
autoregressive order (Akaike 1970). Further more, another point is
that when every variable is allowed to influence other variables
with the same delay - and this is the case with traditional VAR
models - the number of parameters quickly exhaus ts degrees of
freedom.
The Caines-Keng and Sethi modelling methodology allows to
identify the coefficients of the D(L) matrix without imposing the
equali ty of lags on each variable and wi thout appealing to a
priori economic knowledge : all the information used in this model
building method is derived from the data at hand.
This methodology is a sequential procedure based on Granger's
concept of causali ty and Akaike 's final prediction error
criterion. It leads to a reduction in the number of parameters to
be estimated by allowing each variable both to enter the model
with a specific autoregressive order and to be explained by a
sub-space of the whole set of available variables.
The Caines-Keng and Sethi procedure involves five steps
(1) For each pair of stationary processes(X,Y) we first construct
an optimal bivariate autoregressive model on the basis of the
Akaike's FPE criterion.
(1) Caines-Keng-Sethi (1981).
12
(2) From such bivariate models, we then determine for each process
X a set of n causal - in the Granger sense - variables (y1 , ... ;yn) .
The FPE obtained for each causal variable yi in previously
estimated bivariate models (X , Yi) i = 1 n are now used to rank
these causal variables (with respect to X) in the order of
increasing FPE.
( 3) For each caused process X, the optimal uni varia te
autoregressive model is first constructed using FPE criterion . The
X' s multiple causal variables are then included one at a tirne
according to their causal ranks (détermined in the previous step).
At each step, FPE cri terium is used to de termine the optimal
orders of the model.This third step leads to the optimal
ordered univariate multivariable autoregressive model of X
against its causal variables.
(4) All the optimal univariate autoregressives model are now
estimated as a system with the FIML method.
(5) Severa! diagnostic checks are finally performed treating the
tentatively identified system as the maintained hypothesis.
The final model is then used to de termine the endogenei ty,
exogeneity or independance relations between the variables and to
calculate the dynamic multipliers coresponding to each causal
relationship .
When causality links are not rejected by the data, calculation
of associated dynamic multipliers is a mean to quantify such
relationships among time series and to better investigate the
dynamic proporties of the model.
Dynamic multipliers summarize in q simple way the overall set
of interactions that may exist among the endogeneous (caused)
13
variable X and the exogenous (causal) variable Yi. However, since
in this analysis all predetermined variables are lagged endogenous
variables dynamic multipliers are calculated assuming a one time
stochastic shock occurs through the error term. They are thus
calculated from the vectorial moving average form of the VAR
-1 zt = n (L). ut (2)
In this paper, only "long-run" (which might better be called
"total") multipliers will be presented. They provide a rneasure of
the total impact on the expected variable X ·of a change in
variable Yi when a new equilibriurn is reached. More precisely if
IM(rn). is the impact multiplier which shows the impact of a x,y1 . one-time change in variable Y
1 in tirne ton the expected change in
variable X in tirne (t+rn)
ô E [ à X ( t +m) ) IM(rn)i=
x,y ( 3)
then the corresponding long-run multiplier LMxyi represents the
total variation in the expected value of X as rn approaches
infinity:
LM i= lirn xy rn~
00
= I h=l
ôE [8X ( t+rn))
IM(h)i x,y
00
= ~
h=l
ôE [8X ( t+h))
In an atternpt to measure the speed of adjustement of variable
X following a change in Yi, we calculated the number of tirne
14
periods (weeks) i t takes for the sum of impact mul tipliers to
stabilize within 5 percent of the long-run multiplier (1).
Data used in this study are weekly Rotterdam (CIF) prices for
soybean meal (44 % protein), cassava) corn-gluten feed and
use the FOB ex Mill Hamburg price. All prices are cash and $US per
MT. Data are weekly and for january, 1, 1981 to july, 16, 1987. A
first order differenciation of the data was necessary in order to
remove any linear time trends and to achieve stationarity.
(1) This measure of the speed of adjustment is also used by Grant and al (1983) and Boyd and Brorsen (1986). It may reflect the degree of ineeficiency of the considered markets in terms of the time i t takes for information to pass from one market to the other. It also provides an indication on the more or less proximity between markets due to distance between markets or difference in product composition .
15
IV. EMPIRICAL RESULTS
In this paper we present causality results obtained with both
the traditional bivariate approach and the Caines-Keng-Sethi
procedure. However only resul ts obtained wi th this last rnethod
will be cornrnented due to their capacity to ernbody the whole set of
available information.
A detailed presentation of causality results is given in
Annex. Table Al reports statistics derived frorn bivariate analysis
while results of the Caines-Keng-Sethi procedure are presented in
table A2.
Causal links obtained with bivariate analysis reveal a quasi
general interaction of price series. However lots of these
relationships disappear with the Caines-Keng and Sethi procedure
which leads to the following causal structure (at the 5 %
confidence level).
Figure 2. causal relationships between the prices of animal feed
ingredients.
Cassava
J Rape cake-----, CGF f-------- Sunflower cake
~ SoybL cake ~
The long-run rnultipliers and the speeds of adjustrnent attached
to this figure are reported in table 1.
16
Table 1 . Long-run multipliers and adjustment périods between the
Cas price of Cassava, Soyb pric e of soybean meal Rape price of rape meal CGF price of corn gluten feed Sunf price of Sunflower meal. • rej e ct.io n o f t. h e nu 1 1 hyp o t.h esis 0 t. t. h e 1 pe r cent. si gnifi c ont. l eve l •• rej ec t. io n o f t. h e null hyp o t.hesi s at. t. h e 6 per ce nt. s ignif ic ont. l e vel •••rejec t.i o n
( 1) FPR (Y) X
of t. h e null hyp o t.he s i s Q t. t. h e 10 per ce nt. significant.
is the value of the FPE corresponding to the optimal
lagon variable Y in the equation for variable X. (2) This colum gives the calculated value of the Fisher statistic under the null hypothesys that the sum of coefficients of the lags of variables Y in the X equation is null. ( 3) LMXY is the long-run multiplier effect of variable Y on
variable X. It is only presented when Y is found to cause X. (4) Number of weeks needed for realization of 95 % of the adjustment of X to a shock on Y.
25
1 e v e l
Table A2. Model finally retained for the prices of feed ingredients
at the end of the Caines - Keng and Sethi approach .
1 Cos Cos 0 Q <L> 0 0 0 0 Cos u
t, 0 1 t, t, 6 Soyb
Soyb b 0 b < L) 0 0 0 Soybt, u t, 0 2 t,
+ 1 1 + Rope Rope C 0 b < L > C < L) 0 0 Ropet, u
t, 0 3 3 t,
4 1 S unf S u nf d 0 b < L > 0 d < L ) 0 S unf u t, 0 4 4 t. t.
7 4 2 2 4 CGF CGF e 0 ( L) b < L) C < L ) d < L ) e ) CGF u
t. 0 6 6 6 6 6 t, t,
k where xi(L) means that the order of the log polynomial xi(L) is k.
26
AKAIKE H. Annals of 163-180.
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BOYD S.M. - B . W. BRORSEN (1986) . "Dynamic price relationships for US and EC corn gluten feed and related markets". European Review of Agricultural Economies - 13 - p. 199-215.
CAINES P.E. - CW. KENG - SP. SETHI (1981 ) "Causality Analysis and Multivariate Autoregressive Modeling with an Application to Supermarket Sales Analysis". Journal of Economie Dynarnics and Control - 3 - {August) p. 267 - 98.
CCE (1988) La situation de l'agriculture dans la Communauté -Rapport annuel 1987 .
CHOW, GREGORY C. (1975) Analysis and control of dynamic systems. New-York : Wiley.
GRANGER C.W.J. (1980) Viewpoint. Journal of 329-352.
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MAHE L.P. (1984). "A lower but more balanced protection for European Agriculture" . European Review of Agricultural Economies. Vol 11 (2) - p. 2176234 .
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