The dynamic effects of price support policy on price volatility: The case of the rice market in China

Abstract

This study examines the economic and welfare effects of a commodity price support policy. It conceptually and empirically evaluates the effects of the domestic pricing policy on the distribution of commodity prices, with an application to the price support program in the Chinese rice market. The empirical analysis relies on a Censored Quantile Autoregression (CQAR) model, which provides a refined and flexible representation of the evolving distribution of prices under a price support program. Based on monthly data over the period 2000-2018, we develop and estimate an econometric model documenting the price effects of policy interventions. We study how a price support program affects price distribution both in the short term and long term. We find that such a program has reduced the domestic rice price volatility, evidenced by lowered variation and increased right-skewness of the price distribution. We also show how China's rice programs' high price support level during the period 2008-2015 caused significant censoring effects and price enhancement with adverse impacts on consumer welfare across all income levels. We further examine alternative situations where a moderate price support level can reduce the long-term mean price without generating consumer welfare losses. Our analysis and findings have implications for the implementation of agricultural price support policies in many developing countries.

Effects of climate and price on soybean production: Empirical analysis based on panel data of 116 prefecture-level Chinese cities

“…For every 1% increase in soybean price, the planting area will increase by 1.650%, and the per unit yield will decrease by 0.898%. Farmers' production is usually blind [60,61], and when the price of a certain agricultural product rises, producers will weigh the benefits they can obtain from the production of various crops, and their land use decisions will be affected by price changes [62], but different crops have slightly different degrees of response [63][64][65]. In addition, studies have demonstrated that the education level and planting experience of farmers have a significant positive impact on crop yield [66,67]; while soybean prices rise, many farmers with less planting experience expand the planting area, resulting in low yield per unit area of the newly added area, thus lower overall soybean yields.…”

Liquidity of China’s agricultural futures market: measurement and cross-market dependence

“…Yet there is not a single liquidity proxy that is proved to be universally suitable and accepted, since the effectiveness of liquidity proxies might be somehow marketand country-specific. Therefore, it is an empirical issue for researchers to find out which proxy works well in specific markets, the efforts of which have been made to bond markets Liquidity of China's futures market (Goyenko and Ukhov, 2009), stock markets (Corwin and Schultz, 2012;Fong et al, 2017) and commodity markets (Ferguson and Mann, 2001;Frank and Garcia, 2011;Marshall et al, 2012;Li et al, 2021). With the rapid growth of production, consumption and trade of agricultural commodities in China, the extant literature has paid an increasing attention to the performance of Chinese commodity futures markets, including price transmission (Wen and Wang, 2004;Wang and Ke, 2005;Xu et al, 2019), intraday trading (Liu et al, 2016;Xu et al, 2018) and liquidity premium (Hung et al, 2015;Li et al, 2019).…”

Price support policy and market price dynamics: The case of Indian wheat

“…The comprehensive effect of the price support policies has attracted extensive attention from academics and policymakers. Many studies have investigated the impacts of price support policies on farm income and welfare (Beghin et al, 2003;Jayne et al, 2008;Lichtenberg & Zilberman, 1986;Li et al, 2021;Miranda & Helmberger, 1988;Mu & Koike, 2009;Otsuka & Hayami, 1985;Qian et al, 2020;Zhao et al, 2017); food security (Qian et al, 2020); and output and productivity (Lu, 2002;Mu & Koike, 2009). The price stabilization and enhancement effects of the price support policy have drawn the attention of economists and policymakers as well (Gouel, 2013;Li et al, 2021).…”

“…Many studies have investigated the impacts of price support policies on farm income and welfare (Beghin et al, 2003;Jayne et al, 2008;Lichtenberg & Zilberman, 1986;Li et al, 2021;Miranda & Helmberger, 1988;Mu & Koike, 2009;Otsuka & Hayami, 1985;Qian et al, 2020;Zhao et al, 2017); food security (Qian et al, 2020); and output and productivity (Lu, 2002;Mu & Koike, 2009). The price stabilization and enhancement effects of the price support policy have drawn the attention of economists and policymakers as well (Gouel, 2013;Li et al, 2021). The effect of price stabilization aids in lowering the volatility of market prices (Jayne et al, 2008;Kim & Chavas, 2002;Li et al, 2021;Miranda & Helmberger, 1988;Qian et al, 2013;Wang & Li, 2012).…”

“…The price stabilization and enhancement effects of the price support policy have drawn the attention of economists and policymakers as well (Gouel, 2013;Li et al, 2021). The effect of price stabilization aids in lowering the volatility of market prices (Jayne et al, 2008;Kim & Chavas, 2002;Li et al, 2021;Miranda & Helmberger, 1988;Qian et al, 2013;Wang & Li, 2012). Anderson et al (2013) note that price enhancement encourages commodity surpluses and may adversely affect economic efficiency and agricultural trade.…”