Garlic is a crucial crop in Taiwan and a tariff-rate quota (TRQ) has been implemented to protect domestic production and market price under Taiwan’s WTO agreement, as the cost of the domestic output is higher than the importing price. The TRQ regime imposes lower tariffs within import quotas and higher tariffs outside of them.
This study uses threshold regression models to evidence structural changes in the dynamics of garlic price differentials in Taiwan under the TRQ regime. The estimated structural change threshold for the garlic market was 3,768.12 tons, which is close to the regulated tariff quota. This study also reveals that the domestic price of garlic is affected by previous price differentials for up to 5 months if accumulated imports are less than the TRQ and for only 2 months if accumulated imports are greater than the TRQ. The results indicate a tendency for the domestic garlic price to increase when previous price differentials are positive, reflecting excess demand in the garlic market.
Due to structural changes and varying impacts of lagged positive and negative price differentials in previous months, this study suggests monitoring the accumulation of imports in recent months to determine whether it reaches the critical value to maintain the stability of garlic prices under the current TRQ regime. In the future, increasing the TRQ level could also help stabilize Taiwan’s domestic garlic market.