Did the Fischler reform increase market integration between the EU and world commodity markets?

This work assesses the extent to which h the Fischler reform of the CAP increased the elasticity of price transmission (EPT) between the world and the European agricultural commodity markets. Commodities considered are soft and durum wheat, corn, feed barley, and butter. Results show that the reform increased ETP for all commodities even though with different magnitude. Before reform implementation (January 2007), the ETP was almost zero (meaning market isolation) for soft wheat, feed barley, and butter, while it was relatively low (0.4) for corn and durum. After January 2007, the EPT increased to almost unity (perfect transmission) for soft wheat and barley, to 0.9 and 0.8 for durum and corn, and to 0.5 for butter, which had historically been amongst the most protected markets by the CAP. The Fischler reform also helped decreasing “transaction cost,” especially for soft wheat and feed barley, and, to a lesser extent for butter. However the results are sensitive to the methodology used, the time span considered, and data frequency. Starting from 2007, international commodity markets have been affected by strong perturbations - increased global demand, biofuel production, and agricultural commodity financialization - that trans slated into price spikes and increased volatility. The implementation of the Fischler reform is likely to have magnified the e effects of these factors on price relationships. However, the reform did increase market integration. The case of butter – a commodity that is only marginally affected by speculation and biofuel production – is emblematic. Nevertheless, a better understanding of factors affecting world-European price relationship could be attained through better and more sophisticated econometric techniques or – more likely – a wider and more complete dataset.