Effects of Weather Shocks on Agricultural Commodity Prices in Central Asia

ZEF - Discussion Papers on Development Policy No. 171

34 Pages Posted: 14 Dec 2012

See all articles by Alisher Mirzabaev

Alisher Mirzabaev

University of Bonn - Center for Development Research (ZEF)

Daniel W. Tsegai

University of Bonn - Department of Economic and Technological Change

Date Written: November 1, 2012

Abstract

Higher weather volatility may be reflected in higher incidences of weather shocks. Weather shocks could potentially affect the supply of agricultural commodities and their prices. In this study, the effects of weather shocks on agricultural commodity prices in Central Asia are investigated at the provincial scale using monthly data for the period of 2000-2010. The study uses an innovative estimation method, where the idiosyncratic components of the variables are analyzed using Feasible Generalized Least Squares (FGLS) panel regression in the presence of cross-sectional dependence and serial autocorrelation. The analysis indicates that weather volatility and, especially, the fluctuations in the availability of irrigation water have statistically significant effects on wheat and potato prices in Central Asia. Negative shocks, involving lower than usual temperatures and precipitation amounts, could create favorable conditions for higher wheat prices in the region. Lower availability of irrigation water may encourage irrigation-dependent countries of the region to aggressively raise wheat stocks to face expected supply shortfalls, thus leading to higher regional wheat prices. This effect could be further aggravated by negative impacts of lower irrigation water availability on wheat yields. In order to counteract such developments, it is necessary to devise effective grain storage policies. Regional free trade arrangements in agricultural commodities will also be important to minimize price volatility resulting from weather shocks. For protecting agricultural producers, weather insurance schemes could be introduced. It would be also necessary to make investments into crop breeding and agronomic research for developing new crop cultivars resistant to biotic and abiotic stresses, and on promoting water-efficient crop production technologies.

Keywords: weather and price shocks, Central Asia

Suggested Citation

Mirzabaev, Alisher and Tsegai, Daniel W., Effects of Weather Shocks on Agricultural Commodity Prices in Central Asia (November 1, 2012). ZEF - Discussion Papers on Development Policy No. 171. Available at SSRN: https://ssrn.com/abstract=2188353

Alisher Mirzabaev (Contact Author)

University of Bonn - Center for Development Research (ZEF) ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

Daniel W. Tsegai

University of Bonn - Department of Economic and Technological Change ( email )

Center for Development Research (ZEF)
Walter-Flex-Str. 3
Bonn, 53113
Germany

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