Structural change and long-run relationships between US and EU wheat export prices

This paper analyses the nature of the long-run relationship between US and EU wheat export prices over the period 1981-2000. We employ a novel approach of testing for cointegration with structural change developed by Barassi and Taylor (A Test for Change in the Cointegrating Rank, University of Birmingham, Birmingham, 2004). The method enables us to determine the breakpoint, which is found to occur after the 1992 CAP reforms were implemented. On analysing the two separate subperiods, we find no evidence of a long-run relationship prior to the 1992 CAP reform. However, clear evidence of a long-run relationship is found after the CAP reforms were implemented. Further analysis reveals that, in the post-CAP reform period, the EU wheat prices follow then US soft wheat prices, consistent with the EU export subsidy regime over this period, albeit that export subsidies by the EU have been relatively small.