Luciano GUTIERREZ "Short and long-run impact of climate changes on worldwide grains prices"

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  • 1. Outline Motivation Model Results Conclusions Short and Long-run Impacts of Climate Changes on Worldwide Wheat Prices L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSUR UNCCD Conference session : Integrated modelling of climate impacts on food and farming at regional to supra-national scales, Bonn 11 April 2013L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 2. Outline Motivation Model Results ConclusionsOutline Motivation Model Results Conclusions and Future worksL. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 3. Outline Motivation Model Results ConclusionsOutline Motivation Model Results Conclusions and Future worksL. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 4. Outline Motivation Model Results ConclusionsOutline Motivation Model Results Conclusions and Future worksL. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 5. Outline Motivation Model Results ConclusionsOutline Motivation Model Results Conclusions and Future worksL. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 6. Outline Motivation Model Results ConclusionsMain Determinants of Prices (and Production)in World Grains Market The recent rise in international agricultural commodity prices has enlivened the debate on what the determinants of commodity price behavior are and has reawakened interest in coordinated policy actions at both the national and international level. Although numerous factors have been proposed in the literature as explaining recent commodity price movements, there is no general consensus on the relative weight that should be attributed to each of them.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 7. Outline Motivation Model Results ConclusionsMain Determinants of Prices (and Production)in World Grains Market The recent rise in international agricultural commodity prices has enlivened the debate on what the determinants of commodity price behavior are and has reawakened interest in coordinated policy actions at both the national and international level. Although numerous factors have been proposed in the literature as explaining recent commodity price movements, there is no general consensus on the relative weight that should be attributed to each of them.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 8. Outline Motivation Model Results ConclusionsMain Determinants of Prices (and Production)in World Grains Market Growing food demand (Trostle, 2008; Von Braun, 2007; Krugman, 2011) Oil prices and Biofuel programs (Mitchell, 2008; Headey and Fan, 2008) The decline of commodity stocks (Abbot, Hurt and Tyner, 2008; Mitchell, 2008) Speculation (Irwin and Merrin, 2010; Gutierrez 2012) Climate Effects ?L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 9. Outline Motivation Model Results ConclusionsMain Determinants of Prices (and Production)in World Grains Market Growing food demand (Trostle, 2008; Von Braun, 2007; Krugman, 2011) Oil prices and Biofuel programs (Mitchell, 2008; Headey and Fan, 2008) The decline of commodity stocks (Abbot, Hurt and Tyner, 2008; Mitchell, 2008) Speculation (Irwin and Merrin, 2010; Gutierrez 2012) Climate Effects ?L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 10. Outline Motivation Model Results ConclusionsMain Determinants of Prices (and Production)in World Grains Market Growing food demand (Trostle, 2008; Von Braun, 2007; Krugman, 2011) Oil prices and Biofuel programs (Mitchell, 2008; Headey and Fan, 2008) The decline of commodity stocks (Abbot, Hurt and Tyner, 2008; Mitchell, 2008) Speculation (Irwin and Merrin, 2010; Gutierrez 2012) Climate Effects ?L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 11. Outline Motivation Model Results ConclusionsMain Determinants of Prices (and Production)in World Grains Market Growing food demand (Trostle, 2008; Von Braun, 2007; Krugman, 2011) Oil prices and Biofuel programs (Mitchell, 2008; Headey and Fan, 2008) The decline of commodity stocks (Abbot, Hurt and Tyner, 2008; Mitchell, 2008) Speculation (Irwin and Merrin, 2010; Gutierrez 2012) Climate Effects ?L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 12. Outline Motivation Model Results ConclusionsMain Determinants of Prices (and Production)in World Grains Market Growing food demand (Trostle, 2008; Von Braun, 2007; Krugman, 2011) Oil prices and Biofuel programs (Mitchell, 2008; Headey and Fan, 2008) The decline of commodity stocks (Abbot, Hurt and Tyner, 2008; Mitchell, 2008) Speculation (Irwin and Merrin, 2010; Gutierrez 2012) Climate Effects ?L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 13. Outline Motivation Model Results Conclusions This study developed a methodology for analyzing and quantifying the impact of the main factors, as shock to stocks, oil prices, cost inputs, exchange rates and...drought on wheat prices and production. The model is composed by 6 sub-models. Each sub-model analyzes a specific country or region − >. − > (i.e) the main exporter countries : Argentina, Australia, Canada, Russia, EU, USA.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 14. Outline Motivation Model Results Conclusions This study developed a methodology for analyzing and quantifying the impact of the main factors, as shock to stocks, oil prices, cost inputs, exchange rates and...drought on wheat prices and production. The model is composed by 6 sub-models. Each sub-model analyzes a specific country or region − >. − > (i.e) the main exporter countries : Argentina, Australia, Canada, Russia, EU, USA.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 15. Outline Motivation Model Results Conclusions This study developed a methodology for analyzing and quantifying the impact of the main factors, as shock to stocks, oil prices, cost inputs, exchange rates and...drought on wheat prices and production. The model is composed by 6 sub-models. Each sub-model analyzes a specific country or region − >. − > (i.e) the main exporter countries : Argentina, Australia, Canada, Russia, EU, USA.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 16. Outline Motivation Model Results Conclusions This study developed a methodology for analyzing and quantifying the impact of the main factors, as shock to stocks, oil prices, cost inputs, exchange rates and...drought on wheat prices and production. The model is composed by 6 sub-models. Each sub-model analyzes a specific country or region − >. − > (i.e) the main exporter countries : Argentina, Australia, Canada, Russia, EU, USA.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 17. Outline Motivation Model Results Conclusions To analyze the relationship we use the Global Vector AutoRegression (GVAR) methodology proposed by Pesaran et al. (2004) and Dees et al. (2007). Each country model is individually estimated by including country-specific and global foreign-specific variables. The specification of the model requires two stages. First each country VARX model is estimated. In the second stage we stack all six individual VARX models and link them using a Trade weight matrix.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 18. Outline Motivation Model Results Conclusions To analyze the relationship we use the Global Vector AutoRegression (GVAR) methodology proposed by Pesaran et al. (2004) and Dees et al. (2007). Each country model is individually estimated by including country-specific and global foreign-specific variables. The specification of the model requires two stages. First each country VARX model is estimated. In the second stage we stack all six individual VARX models and link them using a Trade weight matrix.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 19. Outline Motivation Model Results Conclusions To analyze the relationship we use the Global Vector AutoRegression (GVAR) methodology proposed by Pesaran et al. (2004) and Dees et al. (2007). Each country model is individually estimated by including country-specific and global foreign-specific variables. The specification of the model requires two stages. First each country VARX model is estimated. In the second stage we stack all six individual VARX models and link them using a Trade weight matrix.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 20. Outline Motivation Model Results Conclusions To analyze the relationship we use the Global Vector AutoRegression (GVAR) methodology proposed by Pesaran et al. (2004) and Dees et al. (2007). Each country model is individually estimated by including country-specific and global foreign-specific variables. The specification of the model requires two stages. First each country VARX model is estimated. In the second stage we stack all six individual VARX models and link them using a Trade weight matrix.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 21. Outline Motivation Model Results Conclusions To analyze the relationship we use the Global Vector AutoRegression (GVAR) methodology proposed by Pesaran et al. (2004) and Dees et al. (2007). Each country model is individually estimated by including country-specific and global foreign-specific variables. The specification of the model requires two stages. First each country VARX model is estimated. In the second stage we stack all six individual VARX models and link them using a Trade weight matrix.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 22. Outline Motivation Model Results Conclusions The GVAR model includes five variables for each country-specific VARX model: the wheat export prices, the wheat stock to utilization ratio, the nominal exchange rate measured as the ratio of the local currency per unit of US dollar, the fertilizer price and the standardized precipitation index SPI for which we take the negative values. The SPI is an index based on the probability of recording a given amount of precipitation. The index is negative for drought, and positive for wet conditions.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 23. Outline Motivation Model Results Conclusions The GVAR model includes five variables for each country-specific VARX model: the wheat export prices, the wheat stock to utilization ratio, the nominal exchange rate measured as the ratio of the local currency per unit of US dollar, the fertilizer price and the standardized precipitation index SPI for which we take the negative values. The SPI is an index based on the probability of recording a given amount of precipitation. The index is negative for drought, and positive for wet conditions.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 24. Outline Motivation Model Results Conclusions The GVAR model includes five variables for each country-specific VARX model: the wheat export prices, the wheat stock to utilization ratio, the nominal exchange rate measured as the ratio of the local currency per unit of US dollar, the fertilizer price and the standardized precipitation index SPI for which we take the negative values. The SPI is an index based on the probability of recording a given amount of precipitation. The index is negative for drought, and positive for wet conditions.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 25. Outline Motivation Model Results Conclusions The country-specific VARX also includes foreign-specific variables. The foreign-specific variables are constructed using export-based weights. The choice of weights based on exports is undertaken with the rationale that exogenous shocks, as wheat stocks reductions or exchange rate shocks, could pass-through on export prices in all countries with the trade channels. Thus the model allows country-specific variables to be affected by foreign variables. For example, wheat export prices in a country will be also influenced by the world trade weighted wheat prices of its competitors.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 26. Outline Motivation Model Results Conclusions The country-specific VARX also includes foreign-specific variables. The foreign-specific variables are constructed using export-based weights. The choice of weights based on exports is undertaken with the rationale that exogenous shocks, as wheat stocks reductions or exchange rate shocks, could pass-through on export prices in all countries with the trade channels. Thus the model allows country-specific variables to be affected by foreign variables. For example, wheat export prices in a country will be also influenced by the world trade weighted wheat prices of its competitors.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 27. Outline Motivation Model Results Conclusions The country-specific VARX also includes foreign-specific variables. The foreign-specific variables are constructed using export-based weights. The choice of weights based on exports is undertaken with the rationale that exogenous shocks, as wheat stocks reductions or exchange rate shocks, could pass-through on export prices in all countries with the trade channels. Thus the model allows country-specific variables to be affected by foreign variables. For example, wheat export prices in a country will be also influenced by the world trade weighted wheat prices of its competitors.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 28. Outline Motivation Model Results Conclusions We present here the impulse response of wheat prices to a shock of the drought variable (SPI) The impulse response traces out the response of current and future values of a variable (wheat export prices and production) to a (standardized) shock of other variables as in this case a drought shock. Analyzing how a variable responds to shocks to other variables we obtain information on the economic relationshipsL. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 29. Outline Motivation Model Results Conclusions We present here the impulse response of wheat prices to a shock of the drought variable (SPI) The impulse response traces out the response of current and future values of a variable (wheat export prices and production) to a (standardized) shock of other variables as in this case a drought shock. Analyzing how a variable responds to shocks to other variables we obtain information on the economic relationshipsL. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 30. Outline Motivation Model Results Conclusions We present here the impulse response of wheat prices to a shock of the drought variable (SPI) The impulse response traces out the response of current and future values of a variable (wheat export prices and production) to a (standardized) shock of other variables as in this case a drought shock. Analyzing how a variable responds to shocks to other variables we obtain information on the economic relationshipsL. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 31. Outline Motivation Model Results ConclusionsResults : Impulse Response of Wheat Prices (P)L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 32. Outline Motivation Model Results ConclusionsResults : Impulse Response of Wheat Production (Q)L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 33. Outline Motivation Model Results ConclusionsResults : Demand-Supply GraphL. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 34. Outline Motivation Model Results ConclusionsConculsions and Future works Adverse weather can induce a reduction of global average yields for grains and affect prices The model allows for the analysis of the channels of transmission from external shocks ( heavy increase/decrease in oil-based fuel prices, strong depletion in stocks level, effective exchange rate changes, adverse climate change) to wheat prices and production. The model may help to monitor the worldwide wheat commodity market and to allow for the analysis of the impact of different shocks at national as well as at global level.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 35. Outline Motivation Model Results ConclusionsConculsions and Future works Adverse weather can induce a reduction of global average yields for grains and affect prices The model allows for the analysis of the channels of transmission from external shocks ( heavy increase/decrease in oil-based fuel prices, strong depletion in stocks level, effective exchange rate changes, adverse climate change) to wheat prices and production. The model may help to monitor the worldwide wheat commodity market and to allow for the analysis of the impact of different shocks at national as well as at global level.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 36. Outline Motivation Model Results ConclusionsConculsions and Future works Adverse weather can induce a reduction of global average yields for grains and affect prices The model allows for the analysis of the channels of transmission from external shocks ( heavy increase/decrease in oil-based fuel prices, strong depletion in stocks level, effective exchange rate changes, adverse climate change) to wheat prices and production. The model may help to monitor the worldwide wheat commodity market and to allow for the analysis of the impact of different shocks at national as well as at global level.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 37. Outline Motivation Model Results ConclusionsConclusions and Future works Enlarging the number of sub-models, i.e. including Brasil, China and India. Enlarging the analysis to other commodities as corn and soybeans Linking the results to micro-models Provide a Java graphical interface.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 38. Outline Motivation Model Results ConclusionsConclusions and Future works Enlarging the number of sub-models, i.e. including Brasil, China and India. Enlarging the analysis to other commodities as corn and soybeans Linking the results to micro-models Provide a Java graphical interface.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 39. Outline Motivation Model Results ConclusionsConclusions and Future works Enlarging the number of sub-models, i.e. including Brasil, China and India. Enlarging the analysis to other commodities as corn and soybeans Linking the results to micro-models Provide a Java graphical interface.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 40. Outline Motivation Model Results ConclusionsConclusions and Future works Enlarging the number of sub-models, i.e. including Brasil, China and India. Enlarging the analysis to other commodities as corn and soybeans Linking the results to micro-models Provide a Java graphical interface.L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices
  • 41. Outline Motivation Model Results ConclusionsThanks Thanks!L. Gutierrez, F. Piras and P.P. Roggero NRD - UNISS-Dipartimento di Agraria - MACSURShort and Long-run Impacts of Climate Changes on Worldwide Wheat Prices