How does food market respond to natural disaster Shocks? Evidence from the cabbage wholesale market

Abstract

The agricultural market is highly vulnerable to natural disasters. Since vegetables are highly perishable, vegetable prices fluctuate dramatically as the result of natural disaster shocks. This study examines the impacts of typhoons on fresh cabbage price and quantity using daily transaction data on the largest wholesale market in Taiwan. We pay special attention to the effects on market price and quantity in different time periods of typhoon visits. We distinguish the effects of price and quantity as a result of the changes in consumer demand and market supply. We further examine whether the sequence of the disaster shocks can result in different outcomes. Employing the difference-in-differences and event study approaches to identify the causal and dynamic effects, we find that the occurrence of typhoons had caused the cabbage market price to rise significantly. The price increases are mainly driven by consumers’ psychological expectations rather than from the supply side. In contrast, the equilibrium quantity of the cabbage market is stable because the stock releases of refrigerated imported cabbage effectively balance the domestic market needs. Finally, the availability bias theory proposed in the behavioral economics literature evidently reinforces Taiwanese consumers’ irrational stockpiling as we find that the cabbage price starts to rise earlier and stays at a high level for a longer time during the second and third typhoon hit Taiwan in the same year.