Rethinking the Challenges of Agricultural Markets – Food Prices, Innovation, and Technical Efficiency
by Gabriel Rosero
Date of Examination:2022-10-28
Date of issue:2024-11-05
Advisor:Prof. Dr. Bernhard Brümmer
Referee:Prof. Dr. Stephan von Cramon-Taubadel
Referee:Prof. Dr. Thomas Kneib
Persistent Address:
http://dx.doi.org/10.53846/goediss-10823
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Abstract
English
Global agricultural markets have reached a critical point; their immediate and long-term development has never been in higher jeopardy. As the rapid growth of the world’s population, coupled with urbanization and rising incomes, continues to exert pressure on global food production systems, the demand for more resource-intensive food and raw agricultural materials rises while our global productive capacities dwindle, strained by environmental degradation, soil depletion and the environmental challenges wrought by climate change. In parallel, political instability, conflicts, pest and disease outbreaks, and exogenous shocks are all exacerbating volatility, instability, and disruption in the agricultural and food markets. These disruptions highlight the fragility of market structures. If we do not foster more efficient and stable agricultural markets, we will undoubtedly fail to meet the quickly increasing demand for food and raw agricultural materials. In the face of these trends and pressing challenges, certain gaps in the agricultural economics literature become worrisome: more empirical research is needed regarding the functioning of agricultural and food markets and the factors driving agricultural production growth. The first research strand focuses on the dynamics of agricultural and food markets, examining how price volatility transmits across supply chains and how market actors, including farmers, adapt to disruptions. The second research strand examines the drivers of agricultural output growth, with a focus on technical efficiency, innovation, and spatial factors. Developing these two research areas will enable us to attain deeper knowledge and the comprehensive tools necessary to guide policymakers and producers in addressing the complex and interrelated challenges facing agricultural markets. Consequently, this will support them in achieving the United Nations Sustainable Development Goals (SDGs). This dissertation contributes to the existing literature by providing novel empirical insights into these two critical research areas, delivered in four essays. The first essay (chapter two) investigates the mechanisms of vertical and horizontal price transmission in the supply chain; the second essay (chapter three) explores the adaptive behaviors of farmers when faced with supply chain interruptions. Together, these studies deepen our understanding of market integration and price transmission, trade policies, and resilience under market shocks. The third essay (chapter four) explores the relationship between productivity, innovation, and technical efficiency in adverse business environments, highlighting the role of innovation in overcoming production barriers; the last essay (chapter five) addresses methodological challenges in measuring production efficiency, particularly by enhancing stochastic frontier analysis (SFA) to account for issues such as strong parametrization of the production function and spatial heterogeneity. These contributions provide a more refined understanding of agricultural production dynamics, particularly in the context of adverse market and environmental conditions. I provide a more detailed explanation of each study below. In the first essay, Unraveling complex market relationships. A study on the price volatility of Brazilian pork, I analyze price volatility spillovers along the pork supply chain and across markets. Since Brazil was the leading exporter of pork to Russia up until 2020, I study the spatial relationship between these two pork markets, focusing on the effects of four Russian trade policy interventions on Brazilian live swine volatility. The results show that Brazilian live chicken and beef cattle prices drive the volatility of live swine prices. Despite their high fluctuation, corn, soybean, and exchange rate correlations have, on average, low volatility spillovers. The spatial relationships between Brazil and Russia are relatively small, showing a low spatial price volatility transmission. Nevertheless, Russian barriers to pork exports caused an increase in the volatility of live swine prices in the short term and altered the time-varying correlations in the Brazilian market. In the second essay, To sell, not to sell, or to quit: exploring milk producers' approaches after a supply chain disruption in Northwest Cameroon, I explore the ad hoc responses of dairy producers in Bameda after facing a supply market disruption and the factors that influenced their responses. This study provides insights into producers' responses to supply chain disruptions and reveals farm-level factors that help them stabilize and maintain their livelihoods. The first results show statistical differences between the production systems and responses to disruption of the pastoral Mbororo and the sedentary Grassfielder producers, suggesting that one-size-fits-all policies should be avoided. Specifically, Mboboro pastoralists are likelier to remain sellers, when they have greater access to production factors, such as a larger cropland area and a connection to piped water, while Grassfielder producers are likelier to remain sellers, when they have land titles and higher livestock diversity. Dairy-focused training within functional cooperatives can help both groups maintain their livelihoods after disrupting the supply chain. In the third essay, Agribusiness under Siege: Firm-level Innovation, productivity, and Technical Inefficiency in an Adverse Economic Environment, I study the links between innovation, productivity, and technical inefficiency among agribusinesses that exist in economically adverse environments characterized by a high perception of insecurity, corruption, and property crime in El Salvador between 2010 and 2016. I apply two approaches: the sequential Crépon-Duguet-Mairesse and the Stochastic Frontier analysis. In contrast to the assumption that prevails in the literature, I found that, in this adverse environment, innovation outputs did not translate into higher sales levels. They did, however, lead to higher levels of technical efficiency. I also found that a higher perception of insecurity reduces innovation expenditures but positively influences innovation outputs and firms' technical efficiency. The partial contribution of security costs (i.e., partial elasticities) to total sales is comparatively as large as capital investments. These findings suggest that the adverse business environment faced by Salvadoran agribusiness might have forced them to use sub-optimal coping mechanisms to remain in the market. The last essay, \Semiparametric stochastic frontier analysis accounting for spatial dependency. A countrywide analysis of Ecuadorian cocoa producers, makes novel methodological and empirical contributions to the debate on production efficiency. Firstly, in order to analyze the production efficiency of cocoa producers in Ecuador, I introduce a streamlined version of the GAMLSS-SFA --the Distributional Stochastic Frontier Model (DSFM)-- which allowed me to handle potential linear, non-linear, random, and spatial effects in a one-step estimation. The results of the DSFM show that the semiparametric model specification that contemplates spatial heterogeneity effects in the production frontier and the inefficiency component fits the data significantly better than the other model specifications. Secondly, as an empirical contribution, I found that cacao farmers operate with increasing returns to scale and that adverse effects on their production stem primarily from the advanced age of cocoa plantations and the utilization of premium varieties. Furthermore, the discrete spatial analysis reveals that cocoa production and technical efficiency depend on the farm's location, and there might not be a direct link between low production and technical efficiency.
Keywords: Food prices; Firm-level innovation; Technical efficiency; Price volatility; Spatial heterogeneity; Development economics; Agricultural markets; Market disruption; Meat and dairy markets; Cocoa market
