International fish trade and exchange rates: an application to the trade with salmon and fishmeal

Abstract

International fish trade is growing, and fish exports represent an important source of foreign currency for many countries. For a few countries the exports are also an essential part of the economy. We revisit the seminal paper of Richardson (1978) that addresses the issue of exchange rate pass-through in commodity markets, but in a multivariate cointegration framework. The multivariate cointegration framework allows us to test common assumptions like exchange rate pass-through, leading price, central markets, and exogeneity of exchange rates. This approach is particularly suited when studying markets for primary products. We provide empirical examples using salmon imports to Japan and fish meal exports from Peru to Germany.

Notes

¹ Leading price corresponds to the central market hypothesis in the geographical dimension.

² There are also some problems when investigating relationships between prices as when testing for cointegration (McNew and Fackler, 1997). In particular, cointegration in itself is neither a sufficient nor a necessary condition for market integration. However, a priori information about the market indicates that the conditions for these problems to appear are not present in our context.

³ There are several possible sets of prices that are meaningful to test, including prices from the same exporter to different import markets, prices in one import market from different exporters, and prices in different markets.

⁴ However, transportation cost can also be modelled explicitly and can then influence the degree of market integration (Goodwin et al ., 1990b).

⁵ Please note that if we rather normalise on the export price, the sign on the exchange rate parameter will be reversed.

⁶ If β = γ, one can write βp + γe as β(p + e) = βln(P*E).

⁷ Virtually all high-valued salmon consumed in Japan is imported, while the low-valued species chum and pink is mostly supplied by domestic fishermen.

⁸ As Atlantic salmon is mainly imported fresh to Japan, and is not considered as one of the ‘red-meat’ salmons like rainbow trout, coho and sockeye, we have not included it in the discussion.

⁹ Prior to 1994, all the product categories of interest where not available in the import statistics.

¹⁰ The beneficial growth effect of fish meal was earlier attributed to an ‘Unidentified Growth Factor’ (UGF). Today it is suspected that a mix of components such as selenium, vitamin B12, methionine and omega-3 fatty acids in fish meal create this beneficial effect, as one has not been able to isolate any single component as the UGF.