An intervention analysis on the relationship between futures prices of non-GM and GM contract soybeans in China

China adopted a mandatory labeling policy of Genetically Modified (GM) food products in 2002. The strategy of separating trading was intended by Chinese regulators to protect domestic non-GMO production, provide non-GM soybean growers a higher selling price, and facilitate marketing. On December 22, 2004, the Dalian Commodity Exchange (DCE) introduced a separate futures contract for No. 2 soybeans, which includes GM soybeans. With this change, the No. 1 soybean futures contract defaulted to a non-GM contract. Parcell (2001) defines the difference between the prices of non-GM and GM soybean futures contract soybeans as the price premium for non-GM soybeans. An intervention analysis is used to test the effects of the events on the price premium for non-GM soybeans in each sub-period. We investigate the impacts of three events—two contract specification changes in 2005 and 2010 and one grain law implementation in 2012—focusing on both the direction and size of their impacts. In conclusion the contract specification change from the DCE for the soybean futures contract did affect the price premium between the GM and non-GM soybean futures contracts. Therefore, these two cases of changes can be considered as successful interventions. Hence, there appeared to be informational efficiency in the market. It is also found the law issue has permanently increased the price premium for non-GM soybeans. Studying the market response linkages between the two soybean futures markets is helpful for understanding whether the newly opened GM soybean futures market transmits price information effectively.