The 2008 food crisis highlighted food insecurity issues, prompting research on price volatility transmission, primarily focusing on importing countries. However, food insecurity is also prevalent in exporting countries like Canada, the UK, and Australia, as evidenced by increased reliance on food charities during economic downturns. A net exporter's self-sufficiency might be expected to insulate its domestic market from global price shocks. However, correlations between international and local wheat prices exist, impacting food access for low-income households in exporting regions. Existing literature on price transmission largely focuses on developing countries and importing nations, neglecting the dynamics within exporting countries. This study addresses this gap by examining international price volatility transmissions in wheat-exporting countries, considering the role of self-sufficiency and consumption of substitute goods.

The existing literature on food commodity price transmission is vast, with many studies analyzing price pass-throughs within developing countries. Fewer studies explore the global-to-local market correlations, often using error correction models. The existing literature primarily focuses on price transmission between global markets and food-importing nations, largely ignoring exporting countries and assuming their domestic markets are resistant to external shocks. While the effectiveness of food self-sufficiency as a counter-policy measure has been debated, few studies have rigorously quantified its effects on international price transmissions using advanced econometric frameworks.

This study employs a three-step econometric approach. First, a univariate GJR-GARCH model estimates time-varying variances for each wheat price index (international and domestic for Canada, Kazakhstan, the UK, and the US). Second, using standardized residuals, the conditional correlation function (CCF) approach identifies lead-lag relationships between international and local wheat prices. Engle's DCC model and Hafner and Franses's G-DCC model are used to estimate volatility spillovers. Finally, panel analysis examines the impact of wheat self-sufficiency, maize consumption, and rice consumption on price volatility transmission using FGLS regression and Prais-Winsten regression with PCSEs to account for heteroskedasticity, autocorrelation, and cross-sectional dependence. Data includes monthly international wheat prices from the IMF and monthly retail wheat flour prices converted to USD using FRED exchange rates, seasonally adjusted using X-13-ARIMA. Yearly self-sufficiency rates and consumption data are sourced from FAOSTAT. Structural break tests (Bai and Perron) confirm the absence of structural breaks in mean and variance for all price series.

The CCF analysis reveals bi-directional causality between international and local wheat prices, with international prices leading local prices by approximately one month. GJR-GARCH-DCC model estimation shows statistically significant ARCH and GARCH terms, indicating short-term and long-term volatility persistence. Asymmetric effects are identified in Canada and the UK. The panel analysis, employing three models (SSR only, SSR and MAIZE, SSR and RICE), consistently shows that a higher self-sufficiency rate (SSR) in wheat significantly reduces the dynamic conditional correlations (DCCs) between international and local wheat prices. This indicates that higher self-sufficiency weakens the price association between the two markets. Furthermore, increased consumption of maize or rice also significantly reduces DCCs, suggesting a substitution effect helps mitigate the impact of global market volatility.

The findings address the research question by demonstrating the significant role of self-sufficiency in reducing international price volatility transmissions in wheat-exporting countries. The bi-directional causality highlights the interconnectedness of global and local markets. The negative relationship between SSR and DCCs supports the effectiveness of self-sufficiency policies in stabilizing domestic wheat prices. The substitution effect of maize and rice consumption provides additional insights into market resilience strategies. These results are relevant to policymakers and researchers interested in food security and price volatility management in both exporting and importing countries. The results are consistent with previous research showing that self-sufficiency improves market stability, particularly in importing countries, but emphasize the importance of balancing production between exporting and importing regions to minimize global instability.

This study makes several contributions. First, it examines international price transmission in the agricultural sector focusing on food security in exporting countries. Second, it uses a GJR-GARCH-DCC model to capture time-varying correlations. Third, it identifies factors influencing international price transmissions, particularly self-sufficiency. The findings suggest that increasing wheat self-sufficiency and diversifying food consumption (e.g., increasing maize or rice consumption) can reduce volatility transmission from global to local markets in wheat-exporting countries. Future research could explore the optimal balance of self-sufficiency across exporting and importing regions, examine the costs and benefits of self-sufficiency policies, and investigate alternative econometric methods for converting short-term to long-term DCC.

The study is limited by the availability of monthly wheat flour price data, restricting the sample to four major wheat-exporting countries. The use of retail prices rather than farm-gate or wholesale prices may not fully capture all price transmission dynamics. The analysis focuses on wheat, and findings may not be generalizable to other agricultural commodities. Although the absence of structural breaks is confirmed, potential unmodeled factors might influence the results.