The Effect of China’s Pork Reserve Program on Pork Price Volatility
2016
China introduced a systematic pork reserve program in 2009 to decrease pork price volatility. The price stabilization effectiveness of the reserve program is unknown. Two econometric procedures are used to analyze the effectiveness of the program in reducing pork price volatility. The first approach is an autoregressive conditionally heteroskedastic (ARCH) regression model estimated using monthly national average wholesale pork price data for January 2000 to July 2015. Price volatility is modeled as the difference in monthly price in consecutive months. The ARCH procedure controls for domestic production, consumer income and seasonality. A difference in difference (DD) regression procedure, compliments the ARCH procedure, to further investigate the relationship between the reserve policy and price volatility. Two DD analyses are conducted. The first analysis measures monthly price volatility in terms of absolute differences, and the second in absolute percentage change differences. Both the ARCH and DD approaches find that pork price volatility increased, not decreased, after the introduction of the reserve program.
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