Measuring Prefectural Price Differences of Agricultural Products – Location and Product Quality

For a long period Japan's agricultural policy emphasized improving quantitative productivity. This policy stance changed only recently, when the Food, Agriculture and Rural Areas Basic Act was enacted in 1999 to address the 1993 Uruguay Round Agreements. The act stated the importance of enhancing product quality in revitalizing Japanese agriculture. Many agricultural specialists also point out that competitiveness in quality is the only means of survival for Japanese agriculture in global competition. In recent years, therefore, the way to increase income per unit of output has been both recommended and attempted. But, although there are many previous studies on quantitative productivity in Japanese agriculture, we cannot find any research that has a focus on unit price of overall agricultural products and makes comparisons between regions. In this paper we propose the Tornqvist-type index that measures prefectural price differences of agricultural products, which is derived from the revenue function. We collected data on farm shipping prices for many agricultural products in each prefecture from the Agricultural Product Price Statistics Survey. Calculation of the index is done in two steps. First, we estimate prefectural price differences in six major classifications of agricultural products by applying the Country-Product-Dummy method to farm shipping prices. Second, we calculate the index using the shipment value of each major classification for each prefecture as a weight. We conduct regression whose explained variable is the item-wise price at the Fruit and Vegetable Wholesale Market in Tokyo and we find that both estimated price differences in major classifications in producing prefectures and the distance from production area to Tokyo have positive and significant coefficients. We also check the correlation between estimated price differences of grain and the Rice Taste Index. The Tornqvist-type index is decomposed into six major classifications to show that grain and vegetable are two major classifications that produce prefectural price differences in agricultural products. We also confirm that there is a weak correlation between prefectural price differences and agricultural shipment value per unit of farmland.