Price relationships between differentiated agricultural products. Do energy and climate shocks matter?

Abstract

Establishing a clear link between prices of conventional and niche product versions can help address challenges associated with anticipating these prices and attenuate concerns related to thin market conditions. In that regard, we analyze the price dynamics, differentiating between agri-product quality and marketing channels. Special attention is devoted to exploring how this price relationship varies when affected by energy or climate-related shocks. Our methodology follows a panel vector autoregression model (PVAR), which we apply to 23 local market prices in Chile for 2014.M10–2019.M12. Results suggest that the marketing channel is a relatively more important attribute than product quality in price determination, with supermarkets exerting clearer leadership in the tomato market compared to the potato market. This difference may be due to the superior storage capacity offered by supermarkets. In addition, our findings indicate that agricultural prices respond more significantly to energy shocks than climate shocks. Furthermore, supermarkets manage to absorb energy shocks in tomato markets quickly. Understanding the degrees of interaction between the prices of these qualitatively differentiated commodities and how shocks mediate this interaction is of high interest to stakeholders and policymakers to forecast more reliable price expectations in the agricultural sector.

Postprint (published version)