Asymmetric price adjustment and the world wheat market

If the world wheat market were to be characterised as perfectly competitive, then price increases should be transmitted to the same extent as price decreases. Past studies on the structure of the world wheat market have described it as imperfectly competitive, characterised by product differentiation, market concentration and government intervention, implying that price adjustment might be asymmetric. This paper examines price differentials in pairs for the international wheat market using a cointegration model with asymmetric adjustment known as threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) adjustment. The results indicate that the world wheat market is highly integrated and that little evidence for asymmetry exists. Where asymmetty does exist, the results suggest that the pattern of adjustment may be due to the difference in the quality of wheat, reflecting end-use.