1. Wheat market integration in the regions of South Caucasia and Central Asia Miranda Svanidze, Linde Götz, Ivan Djuric, Jarilkasin Ilyasov and Thomas Glauben IAAE Inter-Conference Symposium 4 – 6 April, 2016 Almaty, Kazakhstan

2. www.iamo.de 2 South Caucasus and Central Asia

3. www.iamo.de 3 Trade status South Caucasus and Kyrgyzstan: net wheat importers – Armenia (100%), Azerbaijan (100%), Georgia (94%), Kyrgyzstan (100%) Black Sea region (Russia, Ukraine and Kazakhstan): net wheat exporters – 12% in total world wheat supply – 16% in total world wheat export

4. www.iamo.de 4 Importance of wheat for South Caucasus and Central Asia 40% - 50% of total working population is employed in agricultural sector 50% of family’s income is spent on food 35% - 55% of total daily calories comes from wheat Food insecurity is chronical in Central Asia and critical in South Caucasus Food security indicators (selected) Central Asia (%) South Caucasus (%) Prevalence of stunting in children under 52217 Prevalence of underweight in children under 564 Prevalence of undernourishment136

5. www.iamo.de 5 Research questions How well are the wheat markets functioning in South Caucasus and Central Asian regions? ─Structure of grain trade relationships ─Integration in the world market ─Role of trade costs ─Price volatility What are the implications for food security in South Caucasus and Central Asian regions?

6. www.iamo.de 6 Wheat import sources

7. www.iamo.de 7 Well-established trade routes dgf

8. www.iamo.de 8 Data description National level monthly data, 2006–2014, 95 observations Domestic markets (producer prices)World markets (export prices) South CaucasusArmenia Azerbaijan Georgia Black Sea regionRussia Ukraine Kazakhstan Central AsiaKyrgyzstan Reference marketsFrance USA

9. www.iamo.de 9 Available literature Goychuk and Meyers (2014) – Black Sea region Meyers et al. (2012) – Europe and Central Asia Bluashvili and Safaryan (2014) – Georgia Halimi et al. (2015) – Afghanistan

10. www.iamo.de 10 Price transmission models: Linear and threshold ECMs

11. www.iamo.de 11 Cointegration tests 1.Linear cointegration tests: Linear vs. no cointegration ̶Johansen (1988) 2.Threshold cointegration tests: threshold vs. Linear cointegration ̶Hansen & Seo (2002) - 1 threshold ̶Larsen (2012) - 2 thresholds

12. www.iamo.de 12 Cointegration test results Model selection h Price pairs Linear cointegrationThreshold cointegration JohansenHansen & Seo (1 th.)Larsen (2 th.) Armenia – Kazakhstan (northern)√  Armenia – Russia√  Armenia – Ukraine√  √ Armenia – France√  Armenia – USA√  Azerbaijan – Kazakhstan (northern)√  Azerbaijan – Russia√  Azerbaijan – Ukraine√  Azerbaijan – France√  √ Azerbaijan – USA√  Georgia – Kazakhstan (northern)√  Georgia – Russia√  Georgia – Ukraine√  Georgia – France√  Georgia – USA√  Kyrgyzstan – Kazakhstan (SaryAgash)√√√ Kyrgyzstan – Russia  Kyrgyzstan – Ukraine  √ Kyrgyzstan – France  Kyrgyzstan – USA  √  √ = confirmed  = not confirmed

13. www.iamo.de 13 Results from ECM and TECM Price transmission elasticity (β)Speed of adjustment (γ) Domestic market World market Armenia Azerbaijan Georgia Kyrgyzstan Armenia Azerbaijan Georgia Kyrgyzstan Kazakhstan 0.55 0.620.79-0.26-0.20-0.28-0.53/-0.66 Russia 0.630.490.74--0.31-0.16-0.36- Ukraine 0.710.620.77--0.39-0.19-0.38- France 0.620.510.75--0.28-0.15-0.36- USA 0.710.600.79--0.28-0.17-0.29- South Caucasus, range of coefficient estimates β: 0.50 – 0.80 γ: -0.15 – -0.40

14. www.iamo.de 14 Trade environment * Doing Business: Trading Across Borders ** Global Competitiveness index (1 = extremely underdeveloped; 7 = extensive and efficient) *** Corruption Perception index (0 = highly corrupt, 10 = very clean) Time to import (days)* Documents to import (number)* Cost to import (US$/km)* Quality of infrastructure (1-7)** Level of corruption (0-10)*** Armenia2079.94.02.6 Azerbaijan501417.14.42.4 Georgia1343.74.63.8 Kyrgyzstan72759.13.72

15. www.iamo.de 15 Transportation costs * if transportation subsidies are applied FromRussiaUkraineKazakhstan To South Caucasus Kyrgyzstan Total transportation rates ($/t) 15-55 80-110 (40-70)* 50-90

16. www.iamo.de 16 Price volatility Domestic markets World markets

17. www.iamo.de 17 Summary results South CaucasusCentral Asia Better integrated in world wheat markets No integration with Russia, Ukraine, France and USA Easier access to the world wheat markets Landlocked More diversified wheat trade High dependence on Kazakh wheat market Lower costs of wheat trade with Black Sea region Higher trade costs with Black Sea region High influence of world wheat prices (EU, USA) – they serve as a minimum price Higher price volatility

18. www.iamo.de 18 Conclusions and policy recommendations Markets in South Caucasus region function more efficiently High price volatility jeopardizes food security in Central Asia Reduction of trade costs in Central Asia is critical to improve the functioning of grain markets Local governments in Central Asia should invest in trade infrastructure, i.e. transportation systems and storage facilities

19. www.iamo.de 19 Miranda Svanidze PhD student svanidze@iamo.de Leibniz Institute of Agricultural Development in Transition Economies Tel: +49 345 29 28 571 Fax: +49 345 29 28 299 Theodor-Lieser Str. 2 06120 Halle Saale, Germany www.iamo.de https://twitter.com/iamoLeibnizhttps://twitter.com/iamoLeibniz #SilkRoadConf https://www.facebook.com/iamoLeibniz/ Thank you for your attention!