Developing monthly agricultural export price indexes Kirk Zammit, Chris Boult, Shiji Zhao & Liangyue Cao Australian Bureau of Agricultural and Resource Economics and Sciences Research by the Australian Bureau of Agricultural and Resource Economics and Sciences 1 December 2017
Outline Why ABARES developed this price index What are the main features of this price index? How did we construct the index? Results 2
Agriculture is highly export oriented Average values, 2012-13 to 2014-15 domestic consumption export $48b $7.4b $8.3b 78% 70% $4.4b 66% $1.2b 74% $1.5b 98% $2.6b 98% 41% Wheat Sugar Cotton lint Beef Wool Dairy products Total agricultural production 3
Existing indexes do not meet our needs Index ABS IPD ABS EPI RBA ICP ABARES unit returns Current weighted Paasche Annually weighted chained Laspeyres Annually weighted chained Laspeyres Annually weighted chained Fisher Weights Average of the most recent two years Average of the most recent two years Annual average Price data source Average export unit values (AUV) Survey and limited use of AUVs Indicator prices AUVs Coverage 100% 100% ~65% ~75% Subindexes Yes Yes No No Frequency Quarter Quarter Month Annual Classification BOP ANZSIC, BOP AHECC Top eight exports by value ABARES 4
Outline Why ABARES developed this price index What are the main features of this price index? How did we construct the index? Results 5
ABARES commodity classification Total agriculture Crops Livestock & livestock products Industrial crops Grains Oilseeds Pulses Horticulture Meat Live animals Wool & skins Dairy Wine Sugar Cotton Wheat Barley Sorghum Oats Maize Rice Canola Cottonseed Sunflower Safflower Soybeans Linseed Chickpeas Lupins Peas Other Fruit Tree nuts Vegetables Other Beef & veal Mutton Lamb Pig meat Poultry Feeder/ slaughter cattle Breeder cattle Live sheep Other Greasy wool Wool semi processed Sheep skins Butter Cheese Milk powders Other Peanuts 6
Source data average export unit values (AUV) Suited for agricultural products (homogeneous) Measure of prices received Comprehensive coverage Readily available 7
Monthly index Agricultural prices are volatile 20 10 % -10 ABS implicit price deflator CPI -20 1995-96 1998-99 2001-02 2004-05 2007-08 2010-11 2013-14 2016-17 Useful for analysis Can be aggregated 8
Outline Why ABARES developed this price index What are the main features of this price index? How did we construct the index? Results 9
We chose the Fisher index 225 Agricultural export price indexes 200 175 Paasche Fisher Laspeyres 150 125 100 75 Index Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11 Jul-14 Jul-17 10
The Fisher index controls for substitution bias 11
Positive relationship between price and quantity is more prevalent in Livestock & livestock products 60 Paasche - Laspeyres spread 50 40 30 20 Livestock & livestock products Crops 10 ppt Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11 Jul-14 Jul-17 12
The Fisher index has desirable axiomatic properties Factor reversal Approximately consistent in aggregation 13
Controlling divergence between the Laspeyres and Paasche Indexes Paasche - Laspeyres spread 16 12 8 Chained Unchained 4 ppt Jul-02 Jul-05 Jul-08 Jul-11 Jul-14 Jul-17 14
Fisher test of transitivity 190 180 170 160 150 140 130 120 Fisher Direct Index Fisher Chained Index 110 100 Index 1913 1914 1915 1916 1917 1918 15
But how frequently should we chain? 430 380 330 280 230 Monthly Chaining Annual Chaining Unchained Fisher 180 130 Index Jul-02 Jul-05 Jul-08 Jul-11 Jul-14 Jul-17 16
Construction of weights 17
Construction of weights Laspeyres Paasche Dec 2017 June 2016 June 2017 June 2018 18
Outline Why ABARES developed this price index What are the main features of this price index? How did we construct the index? Results 19
Monthly agricultural export price indexes 250 210 170 Livestock & livestock products All Agriculture Crops 130 90 Index Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11 Jul-14 Jul-17 20
Monthly agricultural export price indexes 240 200 160 USD AUD 120 80 Index Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11 Jul-14 Jul-17 21
Subindexes crops 250 200 Pulses 150 100 Oilseeds Grains Industrial crops Index Jun-02 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 22
Subindexes livestock and livestock products 350 300 250 200 150 Live animals Meat Dairy Wool and Skins 100 Index Jun-02 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 23
We would really appreciate your feedback on: 1. Chaining method 2. Construction of weights 3. Use of average unit values Thank you 24
agriculture.gov.au/abares
Export price index comparison 180 Export price indexes 160 140 120 100 ABARES RBA 80 60 Jul-1999 Jul-2002 Jul-2005 Jul-2008 Jul-2011 Jul-2014 Jul-2017 26
Indicator prices Available monthly BUT: Difficult to build a comprehensive index Some indicator prices are approximate measures Each indicator price is measured differently Do not reflect the actual return to Australia 27
Cotton prices 4500 4000 3500 3000 2500 2000 1500 AUV Cotlook 'A' 1000 500 $/t Jul-99 Jul-02 Jul-05 Jul-08 Jul-11 Jul-14 Jul-17 28
Survey prices Gold standard BUT: No access/very expensive Only available on a quarterly basis 29
Index formulas 30