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The Role of Weather on Agricultural Commodity Prices -- Empirical Evidence Using Vegetable Wholesale Transaction Data in Taiwan

Yi-Ju Su, Tzong-Haw Lee, Hung-Hao Chang, Kannika Saeliw

Abstract


Agriculture economics have a long-standing preoccupation with issues of agricultural price. During the last decades, the agriculture price analysis shifted from production efficiency to the relationship between weather conditions and agriculture due to the climate change. Even though there are multiple literature emphasize on this topic, most of them used to aggregated data or macroeconomic model to analyze the agricultural price trends. In comparison, relatively few studies have been offered using detailed micro-level data. This study aims to fulfill the research gap on the relationship between weather conditions and agriculture wholesale price. In contrast to previous studies on agricultural prices, this study applies big-data technique to construct a combined dataset between large-scale transaction records for six vegetables and a temperature profile in Taiwan in 2009 and 2010 to identify the potential nonlinear effects of the weather on prices. The empirical results indicate a significant relationship between temperature and vegetable wholesale prices. Moreover, the different types of vegetables correspond to weather condition in different ways. Specifically, when temperatures increase, prices decrease for fruit vegetables and mushrooms, however prices increase for leaf vegetables and stalk and stem vegetables between 18°C and 30°C. Our findings provide important implications for the relationship between agriculture price and weather conditions. When we have a good knowledge of the relationship on weather conditions and agriculture price, the government can use this information to design effective agriculture insurance programs or improved agriculture price stability. The implication would help to ensure farmers’ wellbeing.


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