Persistence in international prices of agricultural renewable commodities : a fractional integration approach

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Abstract

In this work, we have examined historical data of renewable commodity prices by looking at the order of integration of the series from a fractional perspective. Using historical data from 1900 to 2022, we look at international prices of banana, cocoa, cotton, tea, hides, jute, lamb, coffee, maize, timber, beef, rubber, palm oil, rice, wheat, sugar, and wool. The empirical findings support the hypothesis of fractional integration and mean reversion in all cases, since the integration orders are all within the interval (0, 1). The lowest degree of persistence occurs in the cases of wheat, sugar, palm oil and maize, implying that shocks in these commodities disappear relatively fast. A unique break is permitted in the series and in most cases the break takes place during the 80s, and the only significant change in persistence is observed in lamb. A policy implication of the results is the need for buffer funds or buffer stock to decrease the impacts of volatility of the international agricultural renewable commodities on export returns.