Spatial Distribution of the International Food Prices: Unexpected Heterogeneity and Randomness

Globalfoodpricesaretypicallyanalysedinatime-seriesframework.Wecomplementthisapproachbyfocusingonthespatialpricedispersionofthecountry-pairbilateraltradeintheinternationalfoodtradenetwork(IFTN),fortenrelevantcommodities.ThemainpurposesaretoverifyiftheLawofOnePrice(LOP)holdsandtoinvestigatetheemergenceofrandomnessintheprice-formationmechanism.Wedistinguishbetweenthe“internal”variance,whichindicatesthemagnitudeofpricediscrimination,andthe“external”variance,thatisameasureofpricedispersion.Wefindthat,forsomecommodities,spatialpricedispersionisremarkableandpersistentovertime(i.e.,failureoftheLOP)andthatthereexistsastrictcorrelationbetweenpricespikesandpeaksinspatialpricevariability.We test whether the price distribution can be replicated through a stochastic process of extraction.Surprisingly, the actual distribution of prices, for several commodities, is well described by a random dis-tribution.Then,theprocessofdataaggregationisnotneutralbecausetheinformationatthemicro-levelscalemightbelostatthemacro-scale,duetothecomplexityoftheIFTN.Finally,wediscusssomepossibleeconomicexplanationsoftheseoutcomesandthemainmethodological,environmental,andpolicyconsequences.1. IntroductionTheendofhungerandtheachievementoffoodsecurityareglobalkey issues explicitly included in the Sustainable Development Goalsagenda (UN, 2015). The interest of the international community isjustifiedbyacknowledgingthecomplexandinterrelatedenvironmentalandsocialdimensionslinkedtofoodmanagement,suchaswaterre-sources(Generoso,2015;DistefanoandKelly,2017;Distefanoetal.,2018b), energy and pollution (Carlsson-Kanyama et al., 2003;D’Odoricoetal.,2018),landuseanddeforestation(OdegardandVanderVoet,2014),andsocialsecurityandhealth(Bellemare,2015;Bush,2010).Thus,abetterunderstandingoffoodmarkets,especiallyinaneraofglobalisation(Duarteetal.,2014;Biewaldetal.,2014;Suweisetal.,2015),iscrucialtoprovidesolidbasesforfoodpoliciesandre-source management (Wang et al., 2016). This interest has been re-inforcedrecently–afterthetwowavesofworldfoodpricecrises(2008and2011)–whereeconomistsanalysedtheaftermathsofprice‘spikes'to assess the short-run effects (Piesse and Thirtle, 2009; Bellemare,2015)andthemaincausesoftemporalfoodpricevolatility(seeDíaz-Bonilla,2016,foradiscussion).Acommonassumptionbehindthesestudies,andusualamongagriculturaleconomists,istheso-calledLawofOnePrice(henceforthLOP):oncepricesareconvertedtoacommoncurrency (including transaction and transport costs), homogeneousgoods should be sold for the same price in different countries(Miljkovic,1999).1TheLOPshouldholdwhengoodsarehighlytraded,at least in spatially separated international markets (Baffes, 1991;GoldbergandVerboven,2005).Onthecontrary,pricedispersion–namely,ahomogeneousproductbeingsoldatdifferentpricesbydifferentexporters–canemerge,forseveralreasons,suchasentrybarriersandgeographicalseparationofmarkets(Krugman,1991;Yangetal.,2017),differentmarginalcosts(Crucini and Yilmazkuday, 2014; Yilmazkuday, 2016), variations inconsumer preferences (Grebitus et al., 2013), and monetary illusion(FehrandTyran,2001).2Followingthisbranchofliterature,weaimattestingthepresenceornotofLOPintheinternationalfoodtradenet-work(IFTN),extendingtheanalysistotheprice-formationmechanism.Theexistentliteratureempiricallyanalysedspatialfood-pricedisper-siononlyattheretaillevel(e.g.,AnaniaandNisticò,2014)but,toourhttps://doi.org/10.1016/j.ecolecon.2019.01.010Received30January2018;Receivedinrevisedform5November2018;Accepted8January2019*Correspondingauthor.E-mailaddress:tiziano.distefano@polito.it(T.Distefano).1Ancillaryhypothesesarethoseconcerningperfectcompetition:agentsareprice-takers,perfectinformation,nofrictionsonfactormobility,individualrationality,andsoon.2Monetaryillusionindicatesthepsychologicaleffectofmakingmistakesduetotheuseofdifferentcurrencies.Ecological Economics 159 (2019) 122–132Available online 28 January 20190921-8009/ © 2019 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/BY-NC-ND/4.0/).T