The Impact of an EU–US Transatlantic Trade and Investment Partnership Agreement on Biofuel and Feedstock Markets

We assess the impact of a potential TTIP bilateral free trade agreement on the EU and US bio‐economies (feedstock, biofuels, by‐products, and related competing crops) and major trade partners in these markets. The analysis develops a multi‐market model that incorporates bilateral trade flows (US to EU, EU to US, and similarly with third countries) and is calibrated to the OECD‐FAO baseline for 2013–2022 to account for recent policy decisions. The major policy reforms from a TTIP involve tariff and TRQ liberalisation and their direct contractionary impact on US sugar supply, EU biofuel production, and indirect negative effect on US high fructose corn syrup (HFCS) production. EU sugar and isoglucose production expand along with US ethanol and biodiesel and oilseed crushing. EU sugar would flow to the US, US biofuels and vegetable oil to the EU. We further quantify non‐tariff measures (NTM) affecting these trade flows between the EU and the US. EU oilseed production contracts, and EU crushing expands with improving crushing margins following reduced NTM frictions. Our analysis reveals limited net welfare gains with most net benefits reaped by Brazil and not the two trading partners of the TTIP.     

Trade liberalisation and greenhouse gas emissions: the case of dairying in the European Union and New Zealand*

The link between trade and the environment has aroused considerable interest both in terms of the impact of trade liberalisation on the environment, and also the impact of environmental policy on production and trade. Of key environmental concern at present is global warming and its association with greenhouse gas emissions. Agriculture is a sector of the economy that both contributes to, and will be affected by, climate change. This paper models the impact of agricultural trade liberalisation on greenhouse gas emissions from agriculture around the world, focusing particularly on the effects on New Zealand, a small economy highly dependent on agricultural trade. A partial equilibrium agricultural multicountry, multicommodity trade model is used for the analysis, extended to include physical production systems and their greenhouse gas emissions. Two simulations are performed: removal of agricultural policies in the EU and in all OECD countries. The results indicate that although producer returns in New Zealand increase, greenhouse gas emissions also increase significantly. EU producers face lower returns but also lower greenhouse gas emissions.     

Land use and economic effects of alternative biofuel policies in Brazil and the United States

Being the two largest ethanol producers in the world, biofuel policies in Brazil and the United States affect both their domestic markets and the global food and biofuel economy. In this article we develop a price endogenous mathematical programming model to simulate and analyze the impacts of biofuel mandates and trade distortions on land use, agricultural commodity and transportation fuel markets, and global environment. We find that an 80% increase in total biofuel production from its 103 billion liter baseline level to the mandated 183 billion liter level in 2022 can be achieved with less than 2% increase in total cropland use in both countries. In the United States, this would occur with cellulosic biofuels meeting nearly half of the biofuels consumed and produced largely on cropland pasture and corn ethanol meeting the rest of the mandate and resulting in a 2% increase in corn price. In Brazil, the expansion in sugarcane production would be achieved by reducing land under pasture and a marginal increase in intensification of livestock production. In the aggregate, biofuel policies increase economic surplus in both countries by 1% and redistribute the benefits from agricultural consumers to agricultural producers and the fuel sector. Finally, we also find that full implementation of the mandates in North America, China, and the European Union would reduce the global life‐cycle global greenhouse gas emissions by about 5%.     

The Doha Round of the World Trade Organization and Agricultural Markets Liberalization: Impacts on Developing Economies

We investigate the impacts of multilateral removal of all border taxes and farm programs and their distortions on developing economies, using a world agriculture partial equilibrium model. We quantify changes in prices, trade flows, and production locations. Border measures and farm programs both affect world trade, but trade barriers have the largest impact. Following removal, trade expansion is substantial for most commodities, especially dairy, meats, and vegetable oils. Net agricultural and food exporters emerge with expanded exports; net importing countries with limited distortions before liberalization are penalized by higher world prices and reduced imports. We draw implications for current World Trade Organization negotiations.     

Post–Uruguay Round price linkages between developed and developing countries: the case of rice and wheat markets

The Uruguay Round Agreement on agriculture attempted to lower distortions in global agricultural markets. However, the significant fall in commodity prices in the late 1990s may have reduced the incentives for both developed and developing countries to better integrate into world markets. This study analyzes price linkages and adjustment between developed and developing countries during the post–Uruguay Round period. Prices of two key commodities, long‐grain rice and medium‐hard wheat, are assembled for major exporters and producers. Results of multivariate cointegration analysis suggest partial market integration between developed and developing countries in the post–Uruguay Round period. Developed countries are found to be price leaders in these two markets, and in most cases, changes in their prices have relatively large impacts on those of the developing countries. Developing countries (e.g., Vietnam and Argentina) have faced considerable price adjustment due to changes in the developed countries' prices.     

Impacts of trade liberalizations under the Uruguay Round on the world sugar market

The impacts of the Uruguay Round policy provisions on the world sugar market show that these policies will stabilize the world sugar price at slightly higher levels than in the baseline. Global sugar consumption will increase as a result of the income growth caused by the Uruguay Round. Economic resources will be allocated more efficiently among the sugar industries of the various countries. However, the impacts on the sugar industries in countries with strong producer supports will be rather small because the negotiation process of the Uruguay Round has accommodated the changes in sugar policies already implemented by individual countries in the past few years. Low-cost sugar producing countries will benefit from the higher world sugar price, and consumers in countries with protected markets will benefit from lower domestic prices.     

Market Performance of International Agriculture as Modified by Government Subsidies and Trade Barriers

Many developed countries have reduced agricultural market performance in the last decade with increased domestic subsidies and trade barriers. Several data sets were used to illustrate the extent of market distortion among some markets. Economic theory can show that these distortions reduce the general welfare in the countries with high trade barriers as well as the traditional agricultural exporting countries. The dairy industries appear to have the highest Producer Subsidy Equivalent. Among the developed countries, Western European countries and the Pacific Rim countries have caused major distortions in international markets of many agricultural products. Market performance in agricultural industries would be substantially improved if these major distortions were eliminated.     

Agricultural trade liberalization and economic development: the role of downstream market power

A model is developed to characterize the vertically linked and concentrated nature of developed‐country food markets. This model is then parameterized and used to simulate the effects of varying food market structures on the benefits to developing‐country exporters of agricultural commodities from trade liberalization by developed countries. Results demonstrate that even relatively modest departures from perfect competition can cause much of the benefits from trade liberalization to flow to marketing firms instead of producers in the developing country. The distributional effects under downstream market power differ significantly from the perfectly competitive case and may result, somewhat paradoxically, in developing countries receiving a lower share of the total value added within the food chain as trade reform occurs.     

Food Security and Agricultural Protection in South Korea

South Korea has been pursuing food self-sufficiency using high tariffs and high administrative prices in key agricultural and food markets. Using a dual approach to trade and trade restrictiveness indices, we analyze the impact of these market distortions on welfare and trade volume. Then, we compute second-best distortions, which minimize the welfare cost of meeting observed levels of self-sufficiency and production. We rationalize these second-best distortions to what could be claimed as legitimate protection under a "food security" (FS) box in World Trade Organization (WTO) negotiations. FS-box protection is sensitive to changes in the definition and the extent of the FS objectives. We show that FS via production targets and reliance on imports would be more palatable to consumers and trade partners, while preserving income transfer to the farm sector.     

WORLD AGRICULTURAL TRADE AND THE NEW GATT ROUND

World agricultural markets are grossly imbalanced with supplies running well ahead of demand at current depressed world prices. At the heart of the problem is the high protection given to agriculture in many OECD countries. In particular, price supports to farmers are too high and incentives to maintain or expand production too great. The success of the Uruguay Round in achieving greater liberalisation of trade in agriculture will depend on the willingness of participating governments to undertake significant reforms of domestic agricultural policies, with the aim of reducing overall protection to agriculture and switching support measures away from direct producer price support to income aid for specific disadvantaged producers. In some countries, this notion has run up against complex politico-social and structural objectives, which prevent these countries from agreeing to any significant price reduction. Price support policies, however, have been ineffective in the long run in retarding the outmigration of labour from agriculture. Measures involving only quantitative controls on production will be useful in the short run to reduce surpluses but will not solve the underlying problems which the new GATT Round must address.     

Are We Moving Towards Functioning Agricultural Markets and Trade Relations?

We introduce a special feature on the functioning of international agricultural markets. This feature is motivated by the increased interest in the functioning of commodity markets raised by unprecedented price turbulences since 2008, major structural changes through changed roles of emerging economies and related concerns regarding food security. We argue that the delineation of non‐functioning markets from markets that adequately adjusted to adverse framework conditions lacks theoretical foundation. We discuss the relevance of some results on institutions for agricultural markets in emerging and transition countries. A synthesis of the articles included in the special feature is provided by highlighting the selection of topics that span a topical range covering price formation on world and domestic markets, market power and trade policy modelling.     

Trade Creation and Diversion Effects of Preferential Trade Associations on Agricultural and Food Trade

Agricultural market distortions remain a major focus of contention in world trade negotiations. Estimates of the effects of liberalising current agricultural trade restrictions indicate an approximately $385 billion increase in global welfare, with the disproportionate share of the benefit being enjoyed by developing countries. In response to difficulties in adopting agricultural trade reforms, individual groups of countries have formed multiple bilateral and regional preferential trade agreements (PTA) to enhance trade among members. Few sectoral analyses exist of the effects on agricultural and food product trade of PTAs. This research uses a gravity model to isolate the effects of various PTAs on both intra‐ and extra‐bloc agricultural and food product trade for three time periods: 1995, 2000 and 2004. Findings strongly support PTA benefits in terms of increased intra‐bloc trade in both sectors. The findings also generally support trade creation in agricultural products. PTA membership was also associated with food trade creation in most cases, although diversion was observed for several associations composed primarily of developing countries.     

INSTABILITY IN WORLD GRAIN MARKETS

The paper discusses the nature of international price variability for wheat and coarse grains. In particular, it explores the relationship between variability in national grain markets and international trade. Empirical evidence is presented on the degree to which short-run fluctuations in domestic grain production are transmitted to the world market by major countries or country aggregates, and on their absorption of international market variability. The impact of possible structural or policy changes upon future international price variability is explored. It is argued that multilateral action to promote greater international stability should focus on the modification of domestic storage policies to reduce the transmission of short-run domestic fluctuations in supply or demand to world markets.     

Distortions to World Trade: Impacts on Agricultural Markets and Farm Incomes

The latest versions of the Global Trade Analysis Project database and the Linkage model of the global economy (projected to 2015) are used to estimate the impact of removing all merchandise trade distortions (including agricultural subsidies). Results suggest that a move to free merchandise trade would increase farm employment, the real value of agricultural output and exports, real returns to farm land and unskilled labor, and real net farm incomes in developing countries. This would occur despite the decline in international terms of trade for some developing countries that are net food importers or are enjoying preferential access to agricultural markets of high-income countries.     

Avian influenza,non‐tariff measures and the poultry exports of China

This paper focuses on the direct impact of avian influenza outbreaks and the impact of the consequent non‐tariff measures (NTMs) on the international poultry trade. Using monthly export data from China and its 122 poultry importing countries, a random‐effect gravity model has been adopted. Emphasising the agri‐food trade in a global value chain context, the research analysis distinguishes between ‘agri‐food goods’ (mostly uncooked poultry products) and ‘processed goods’ (mostly cooked poultry products). The results show that domestic avian influenza outbreaks have a significant negative impact on a country's poultry imports compared with such outbreaks in exporting countries. Moreover, NTMs induced by avian influenza reduce the uncooked poultry trade but temporarily increase the cooked poultry trade. However, with a time‐lag, the cooked poultry trade may soon face increasing NTMs. The results also imply that developing countries that attempt to export agri‐food products to developed countries should increase and enhance processed food production.     

Supply and demand for commodity components: implications of free trade versus the AUSFTA for the US dairy industry*

During the negotiations on the Australia–US free trade agreement (AUSFTA), the US dairy industry vigorously opposed opening the US market to imports of Australian dairy products on the grounds that the US industry would be devastated. Subsequently, the agreement signed in February 2004 made an exception for dairy, providing for only limited quota expansion and no free trade, even at the end of the long implementation period. This paper presents a simulation model of world dairy markets, represented by supply and demand equations for fat and non‐fat components of milk and manufactured dairy products. We use the model to analyse the effects on US milk markets of both a hypothetical agreement, allowing free bilateral trade in dairy products, and the actual AUSFTA. An important contribution to the literature is the derivation of explicit supply and demand relationships for milk components. The components model allows an analysis of long‐term production, consumption, and trade patterns that is not tied to specific, fungible products. Simulations indicate that increased imports from Australia resulting from bilateral trade liberalisation would have resulted in small reductions in US milk prices and production. The much smaller increases in Australian access to the US market under the actual AUSFTA will have even smaller, almost negligible, impacts.     

The trade distorting effects of export refunds: The case of beef exports to Africa

The usual sale of European agricultural products to Africa using export refunds has been heavily discussed in recent decades. At the centre of the discussion are the consequences on the agricultural producers in Western and Southern Africa. There are two different points of view: On the one hand, the European Union's (EU) export policy reduces the prices on these markets and relieves high burdens on local producers; on the other hand are claims that refunds do not influence local prices significantly. Hence, the Common Agricultural Policy (CAP) has no effect on markets of third countries, besides depressing world market prices. This paper focuses on the effects of EU's export subsidies for beef exports on its market share in several developing countries. Twenty-seven African countries were analysed using a fixed-effects model between 1988 and 2000. The results clearly show a highly significant positive impact of the export refund rate on the market and the import share. With its export policy, the EU raises its market position and edges out other competitors.     

The Impact of Industrial Market Access Negotiations on African Economies

This paper proposes an extensive data simulation exercise on the likely impact of non-agricultural market access liberalization. The paper analyses real options for tariff cut reduction, special and differential treatment and the treatment of unbound tariffs. This paper also gives indications concerning the likely economic impact of this trade round of industrial market access negotiations on African economies. It shows that an ambitious tariff cut reduction formula would provide greater access to developed country markets for African producers. However, this kind of formula has a major drawback for African countries in the sense that it could accelerate the de-industrialization of African countries and limit incentives to diversify their economies.     

Impacts of WTO restrictions on subsidized EU sugar exports

The study evaluates the impact of World Trade Organization (WTO) restrictions on the European Union (EU) sugar sector and the world sugar market. A small reduction in production quotas would be sufficient to satisfy the export subsidy limitations of the Uruguay Round agreement. Complete elimination of export subsidies by 2005 would require either a 10% reduction in production quotas or the combination of an 8% reduction in quotas and an 11% reduction in intervention prices. Higher world prices resulting from reduced EU exports would result in increased production of unsubsidized C‐sugar, with different impacts across EU member countries explained by differences in institutional pricing arrangements and marginal production costs.     

How would global trade liberalization affect rural and regional incomes in Australia?

Agricultural protection in rich countries, which had depressed Australian farm incomes via its impact on Australia’s terms of trade, has diminished over the past two decades. So too has agricultural export taxation in poor countries, which has had the opposite impact on those terms of trade. Meanwhile, however, import protection for developing country farmers has been steadily growing. To what extent are Australian farmers and rural regions still adversely affected by farm and non‐farm price‐ and trade‐distortive policies abroad? This paper draws on new estimates of the current extent of those domestic and foreign distortions: first, to model their net impact on Australia’s terms of trade (using the World Bank’s Linkage model of the global economy); and second, to model the effects of that terms of trade impact on output and real incomes in rural versus urban and other regions and households within Australia as of 2004 (using Monash’s multi‐regional TERM model of the Australian economy).