Evidence of cost price squeeze in brazilian agriculture

an application of cointegration

Abstract

In 1970’s in Europe and the United States emerged evidence of a narrowing of revenue and costs in agriculture, this phenomenon became known as cost price squeeze. Among the responsible factors one in common predominated, the current model of agricultural production was pointed out by many authors as the main one. This study tested the hypothesis of cost price squeeze in Brazilian agriculture using time series econometrics. More specifically, it sought to identify whether there is a cointegration between the trajectory of prices paid and prices received by producers. We also tested cointegration including macroeconomic variables to verify the validity of the model proposed by Garder (1981) that the cost price squeeze hypothesis can be masked in the presence of other macroeconomic variables. The results showed that the series used were integrated in the same order. However, the tests suggested no cointegration when the price series paid and received by the producers were used, suggesting that the cost price squeeze hypothesis is valid for Brazilian agriculture according to Moss (1992). By including the general price index and the money supply the results also suggest accepting this hypothesis for the Brazilian case.

Keywords: Agricultural prices; Cointegration; Inflation.