@article{Jamora:142241,
      recid = {142241},
      author = {Jamora, Nelissa and Cramon-Taubadel, Stephan von},
      title = {What world price?},
      address = {2012-12},
      number = {858-2016-60315},
      pages = {34},
      year = {2012},
      abstract = {There is no consensus on what defines a reference for the  world rice price. A review on rice as a differentiated  commodity shed two important insights. First, it confirms  that few studies have considered segmentation of rice in  their price analysis. Second, Thai 5% brokens has often  been considered the world reference price for rice but no  empirical exercise has been carried out to validate this.  This study analyzes the extent of market integration in the  international rice market by generating empirical evidence  on the cointegration of different export prices. We start  our analysis with the assumption that rice is not a  homogeneous good. In this context, we establish clusters by  rice quality and determine which export markets best  represent the world rice price within and across clusters.  The study uses 19 monthly average export rice price  quotations from January 2000 to July 2012 extracted from  the FAO Global Information and Early Warning System food  price database and from the Thai Rice Exporters  Association. We also include FAO Export Price indices for  high and low quality indica to assess their performance  with other export prices. Our study contributes to the  limited discussion on rice as a heterogeneous commodity.
We  validate Thai 5% brokens as the benchmark price for rice by  examining its bivariate relationships with other export  prices. We employ Johansen maximum likelihood procedure to  confirm the long-run equilibrium relations and  cointegration of price series. Then, we extend the error  correction model to a multivariate cointegration analysis  by cluster. We test for the Law of One Price, long run  exclusion, and weak exogeneity to assess the dynamics of  price transmission and determine how prices are related  with one another. We build on this information and our  knowledge of the rice market system to answer the question  – What is the world rice price?
We find evidence that the  rice market is highly segmented. This suggests that there  is no single answer to our research question. While we find  that Thai 5% brokens is cointegrated with many other export  prices and contributes strongly in defining long run  equilibrium relations, there are several international rice  prices that could be used as benchmarks. The results imply  that failure to find cointegrating relations from world to  domestic rice markets can be a result of failure to  effectively define the appropriate international reference  price. In price transmission analysis, we find that it is  imperative to examine the types of rice and to discuss the  relevance of specific markets to the benchmark price based  on understanding of rice trade structure. This study  affirms the importance of having up-to-date and reliable  sources of rice prices both in the export and domestic  markets, accounting for differences in quality.},
      url = {http://ageconsearch.umn.edu/record/142241},
      doi = {https://doi.org/10.22004/ag.econ.142241},
}