Price efficency of marketing boards : the case of grain sorghum

Abstract

Concern that the market-oriented grain network in the U.S. may not serve the best interests of producers and consumers has resulted in close scrutiny of the system and proposals for a more market-managed system. The move toward tighter control of U.S. grain exports raises questions about the resultant impact on world grain pricing. This study focuses on comparative pricing efficiency of countries with a marketing board for sorghum relative to a market-oriented system. The study examines the efficiency with which price signals are passed from sorghum users in the major importing country (Japan) to port and inland level pricing points in Argentina, South Africa, Australia, and Texas. A partial adjustment distributed lag model was used to determine the rate at which farm and port level sorghum prices adjusted to other prices and factors in each country. Seemingly unrelated regression (SUR) was employed to derive estimates of the coefficient of adjustment for each system. The adjustment coefficient was compared across countries to determine if prices in one country adjusted significantly faster to other factors than prices in the other countries. Port level prices in Argentina and Australia were analyzed, using analysis of covariance, to determine if the marketing boards in either country had significantly affected price level and stability. A distributed lag analysis of monthly average sorghum prices suggests that from 1973-76, Texas farm prices adjusted at a greater rate than farm prices in Argentina and Australia. Texas prices adjusted 68 percent during the first month, while Argentine and Australian prices adjusted 25 and 37 percent, respectively. Between 1977 and 1980, Texas farm prices adjusted by 44 percent during the first month, a significantly greater rate than the 21 percent and 14 percent for respective Argentine and Australian farm prices. Results of the port prices analysis indicate that Texas prices responded by 54 pecent during the first month, compared to 49 percent for Argentina and 22 percent for Australia and South Africa. Results of the price level and stability analysis indicated that the Argentine marketing board (NGB) effectively raised and stabilized port prices fom 1973-76. The New South Wales Sorghum Board, however, did not raise sorghum prices a significant amount, but did significantly reduce price variability, thereby providing some insulation against price uncertainty for producers.