Profit and Price Effects of Multi‐species Individual Transferable Quotas

Regulators in many countries have adopted individual transferable quotas as a means of dealing with the open access problem inherent in fisheries. Using individual vessel data prior to and after the introduction of ITQs in Canada's multi‐species Scotia‐Fundy mobile gear fishery, the paper uses an index number profit decomposition to compare vessel performance over time and across individual vessels. The approach allows us to undertake both an ex post evaluation of short‐term impacts of ITQs and an ex ante evaluation of longer term impacts. With respect to short‐term impacts, the results suggest that larger vessels have benefited the most from the introduction of ITQs, but that all vessels have enjoyed increases in the prices received for those fish species that are included in the quota program. With respect to longer‐term impacts, the transferability provisions of the ITQ program have encouraged exit and more efficient operations to prevail.     

Foot‐and‐mouth disease and the Mexican cattle industry

The objective of this article is to analyze the domestic and international effects of a hypothetical foot‐and‐mouth disease (FMD) outbreak in the Mexican cattle industry. A discrete time dynamic optimization model of the Mexican cattle sector is specified, and linked to domestic and international markets. Economic consequences of FMD outbreaks are simulated over time and under different scenarios. Specific findings and general policy recommendations are provided. The study reports a range of outbreaks from localized to large scale and suggests that changes in economic surplus due to FMD range from a positive net gain of $0.89 to $1.6 billion to a net loss of about $67 billion, depending on the specific mitigation strategy and outbreak scenario.     

China and Taiwan access to the World Trade Organization: implications for U.S. agriculture and trade

This paper investigates the impact of China's and Taiwan's accession to the World Trade Organization (WTO) on U.S. and world agricultural trade by means of a 12-region, 14-sector Computable General Equilibrium model for world trade and production. The simulation results show that integrating China and Taiwan into the global trading system could induce more competition on labor-intensive Products and reduce their prices. It could drive up the demand for capital and skill-intensive manufactured goods, thus further improving industrial countries' terms of trade. The expansion of labor-intensive sectors in China could also induce contraction in agricultural exports from China and increase its net agricultural imports by as much as US$9 billion annually, causing food and agricultural exports from other regions to increase. Total U.S. food and agricultural exports could increase by about US$2.4 billion annually, with the non-grain crop sectors gaining the most. The biggest winner from China's WTO accession is China itself. WTO membership could bring a net welfare gain of about US$30 billion a year for China, a substantial benefit compared with the gains for the USA (US$8.5 billion).     

Conflicting uses of marine resources: can ITQs promote an efficient solution?*

This paper examines the allocation problem arising from conflicting demands for marine resource use by (i) commercial fishers, (ii) recreational fishers, and (iii) conservationists. It is shown that decentralised trading of individual transferable quotas (ITQs) is capable of an efficient allocation of resource use between the first two parties. In contrast, it is found that the standard ITQ system is not capable of performing the same ideal co‐ordination between the conflicting interests of extractive users, that is, all fishers, and the non‐extractive ones, that is, conservationists. The reason is that quota trades between individual fishers and conservationists are inevitably accompanied by (positive) externalities on both other fishers and conservationists. As a result, decentralised quota trades between these parties cannot be efficient. The fundamental economic observation is that quotas for conservation and for extraction constitute two different goods. It follows that a socially optimal market allocation of these two goods requires two prices instead of the single quota price in the standard ITQ system. Thus, to achieve efficiency, the ITQ system has to be extended to incorporate both types of goods. It is shown in the paper that if fishers and conservationists can organise themselves into groups, trades of conservation quotas between the two groups can in principle lead to fully efficient allocation. An interesting implication of this modified ITQ system is that the need for a fisheries authority to set the total allowable catch (TACs) disappears.     

Evaluating the economic impacts of crop yield change and sea level rise induced by climate change on Taiwan's agricultural sector

This article investigates the effects of sea level rise and climate change induced crop yield alterations on Taiwan as well as possible adaptation strategies. For sea level rise of up to 5 meters, as much as 4.9% of total acreage and 16% of rice acreage would be lost. The empirical findings show that the sea level damages range from NT$ 0.84 to 4.10 billion while crop yield losses range from NT$ 1.79 to 2.55 billion. We investigate alternative adaptation strategies finding crop yield technological progress and tariff reduction could significantly mitigate these effects.     

The welfare implications of Brazil's coffee export price subsidies during the ICA

To increase coffee export revenues during the International Coffee Agreement, Brazil provided selected purchasers with export rebates that could be used to pay for future coffee purchases. This subsidy mutated and grew over time, encouraged by rent seeking. The subsidy had huge cost to the Brazilian Treasury, $9.8 billion in constant 1982 US dollars, or about 13% of coffee export revenues. As exports were usually quota‐constrained, the subsidy increased Brazil's international coffee price, particularly during 1980–1986, absolutely and relative to its competitors’ prices. The unexpected variation in Brazil's price also caused the New York Coffee, Sugar, and Cocoa Exchange to terminate trading in Brazilian coffee futures, making it more costly to hedge Brazilian coffee until today. The econometric evidence is mixed, but it seems likely the subsidy reduced Brazil's net economic welfare and redistributed income from the Treasury to foreign roasters, domestic exporters, and government bureaucrats.     

Roundup Ready soybeans in Argentina: farm level and aggregate welfare effects

Although adoption rates of genetically modified crops have been staggering in some countries, there is still comparatively little evidence about biotechnology impacts under diverse agroecological and institutional conditions. These knowledge gaps lead to an overly precautious attitude among policy makers and the public. This article analyzes the effects of Roundup Ready (RR) soybeans in Argentina, the country with the second biggest transgenic area worldwide. Based on recent survey data, it is shown that the technology increases total factor productivity by 10% on average, with cost savings being somewhat more pronounced for smaller than for larger farms. The reduction in use of toxic herbicides and of tillage operations entails positive environmental repercussions. Aggregate welfare effects are computed over the 1996–2001 period with a three-region, partial equilibrium model, comprising Argentina, the United States, and the rest of the world. In 2001, RR soybeans created more than US$1.2 billion of economic surplus at the global level. The largest share went to consumers (53%), followed by seed and biotechnology firms (34%), and agricultural producers (13%). Due to comparatively weak intellectual property protection, and thus only small technology mark-ups in seed prices and widespread adoption, Argentine soybean growers receive 90% of the benefits in that country. This demonstrates that farmers in developing countries can gain considerably when they obtain access to suitable foreign innovations through technology spill-overs.     

Warming temperatures will likely induce higher premium rates and government outlays for the U.S. crop insurance program

Likely climate change impacts include damages to agricultural production resulting from increased exposure to extreme heat. Considerable uncertainty remains regarding impacts on crop insurance programs. We utilize a panel of U.S. corn yield data to predict the effect of warming temperatures on the mean and variance of yields, as well as crop insurance premium rates and producer subsidies. While we focus on corn, we demonstrate that the subsidy impacts are likely to carry over to other major program crops. We find that warming decreases mean yields and increases yield risk on average, which results in higher premium rates. Under a 1°C warming scenario, we find that premium rates at the 90% coverage level will increase by 39% on average; however, there is considerable statistical uncertainty around this average as the 95% confidence interval spans from 22% to 61%. We also find evidence of extensive cross‐sectional differences as the county‐level rate impacts range from a 10% reduction to a 63% increase. Results indicate that exposure to extreme heat and changes in the coefficient of variation are large drivers of the impacts. Under the 1°C warming scenario, we find that annual subsidy payments for the crop insurance program could increase by as much as $1.5 billion, representing a 22% increase relative to current levels. This estimate increases to 3.7 billion (57%) under a 2°C warming scenario. Our results correspond to a very specific counterfactual: the marginal effect of warming temperatures under current technology, production, and crop insurance enrollments. These impacts are shown to be smaller than the forecasted impacts under a commonly used end‐of‐century general circulation model for even the most optimistic CO₂ emissions projection.     

The impact of social networks on hybrid seed adoption in India

This article adds to the literature about the impact of social networks on the adoption of modern seed technologies among smallholder farmers in developing countries. The analysis centers on the adoption of hybrid wheat and hybrid pearl millet in India. In the local context, both crops are cultivated mainly on a subsistence basis, and they provide examples of hybrid technologies at very different diffusion stages: while hybrid wheat was commercialized in India only in 2001, hybrid pearl millet was launched in 1965. The analysis is based on surveys of wheat and millet farmers in the state of Maharashtra. Comprehensive data on farmer characteristics and social interactions allow for identifying individual networks, thereby improving upon previous research approaches that employed village-level variables as proxies for network effects. Using econometric models, we find that individual social networks play an important role for technology adoption decisions. While village-level variables may be used as suitable proxies at later diffusion stages, they tend to underestimate the role of individual networks during early phases of adoption.     

Marginal Abatement Cost Curves for UK Agricultural Greenhouse Gas Emissions

This article addresses the challenge of developing a ‘bottom‐up’ marginal abatement cost curve (MACC) for greenhouse gas (GHG) emissions from UK agriculture. An MACC illustrates the costs of specific crop, soil and livestock abatement measures against a ‘business as usual’ scenario. The results indicate that in 2022 under a specific policy scenario, around 5.38 Mt CO₂ equivalent (e) could be abated at negative or zero cost. A further 17% of agricultural GHG emissions (7.85 Mt CO₂e) could be abated at a lower unit cost than the UK Government’s 2022 shadow price of carbon [£34 (tCO₂e)^?1]. The article discusses a range of methodological hurdles that complicate cost‐effectiveness appraisal of abatement in agriculture relative to other sectors.     

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%.     

Optimal vessel size and output in the Australian northern prawn fishery: a restricted profit function approach*

Individual transferable quotas (ITQs) are to be introduced into Australia’s Northern Prawn fishery in the near future. Total allowable catches (TACs) are to be set with the objective of maximising economic efficiency in the fishery. Under ITQs, vessel owners have the ability to adjust their fishing activities to maximise profits and changes in fleet structure resulting from management changes need to be considered when determining TACs. A restricted profit function for the fishery was estimated to determine the optimal vessel characteristics and output levels as a guide to how the fleet may adjust under an ITQ system. Vessels were found to be currently close to their optimal size given average historic prices and current stock conditions. However, higher tiger prawn stocks are expected to result in the average size of vessels increasing, with rising fuel prices also likely to result in capital being substituted for fishing days. Optimal average vessel‐level catches of the main species are lower than current average vessel catches for a wide range of input and output prices. These changes in vessel characteristics and behaviour need to be incorporated in the derivation of the optimal TACs if economic efficiency objectives are to be achieved.     

Estimating the supply response of cotton and cereal crops in smallholder production systems: recent evidence from Mali

Cotton is one of the most important crops in West Africa and is a major catalyst of economic development in rural areas, but the sector has suffered from a decline in the world cotton price after 1999. This article exploits an unusual data set following 82 farmers over 14 years, from 1994 through 2007, to estimate a Nerlovian supply response model for cotton, maize, sorghum, and millet in long-term rotation. The resulting system of equations is estimated with two-stage least squares (2SLS), showing that this sample of Malian cotton producers have responded to prices in a relatively inelastic manner, with supply elasticities only about one-half of those estimated for producers in developed countries. Policy reforms could help producers respond more easily to prices changes, as well as to raise average productivity levels.     

Valuing animal genetic resources: a choice modeling application to indigenous cattle in Kenya

In an effort to improve productivity and profits, many farmers have replaced traditional livestock breeds with higher yielding alternatives. While such changes may bring about short‐term economic gains, the loss of traditional livestock breeds could result in the loss of an important genetic resource as a variety of important genetic traits adapted to local conditions gradually become less common in the population. This is a particular problem in Africa, where livestock make a substantial contribution to human livelihoods. Using the example of cattle in Kenya's pastoral livestock markets this study uses a choice experiment approach to investigate buyers' preferences for indigenous breeds such as the Maasai Zebu. The analysis employs a latent class approach to characterize heterogeneity in valuations both within and across respondents buying cattle for breeding, slaughter, or resale. The results show that there are at least three classes of buyers with distinct preferences for cattle traits and that most buyers favor exotic rather than indigenous breeds. Such preferences have implications for the conservation of indigenous cattle in Kenya and in other developing countries and suggest that some form of intervention may be required to ensure the preservation of this important animal genetic resource.     

The research cost of adapting agriculture to climate change: A global analysis to 2050

Investments in agricultural research and development (R&D) made over the next few decades will likely prove critical in offsetting adverse climate change impacts on the global food system. In this study, we offer cost estimates of public R&D-led adaptation to climate change grounded in an explicit framework relating the flow of annual R&D expenditures to building knowledge capital and thereby raising productivity in agriculture. Our research uses a comprehensive collection of historical public agricultural R&D expenditure and a literature review of elasticity estimates linking knowledge stocks to agricultural productivity growth for key world regions. Given climate-driven crop yield projections generated from extreme combinations of crop and global circulation models, we find that offsetting crop yield losses projected by climate and crop models over 2006–2050 would require increased R&D adaptation investments of between $187 billion and $1,384 billion (in 2005 $PPP) if we invest between 2020 and 2040. This is 16–118% higher than global R&D investment if present spending trends continue. Although these costs are significant, worldwide R&D-led climate adaptation could offer favorable economic returns. Moreover, R&D-led adaptation could deliver gains in food security and environmental sustainability by mitigating food price increases and slowing cropland expansion.     

Global trade impacts of increasing Europe's bioenergy demand

European governments are rapidly turning to biomass to comply with the EU's legislated renewable energy targets for 2020 and 2030. To do so, EU member states will likely have to increase imports of biomass from timber rich regions, which will undoubtedly disrupt international wood product markets. In this study, a static global forest trade model of coniferous wood products is used to examine the effects of expanded demand for wood pellets in Europe to generate reliable electricity. Positive mathematical programming (PMP) is used to calibrate the model to 2012 bilateral trade flows. To assess the impact of increased wood-pellet demand on global forest products, we consider a scenario where EU demand for wood pellets doubles. Model results suggest increases in the world prices of industrial roundwood (1%), particleboard ($34/m³), fibreboard ($30/m³), pulp ($65/t) and pellets (71% to 128%), while the prices of sawnwood and plywood & veneer are projected to fall by $12/m³ and $4/m³, respectively. The gains and losses are unevenly distributed between timber rich and timber poor regions; Russia, Canada and the U.S. experience large net welfare gains of $706 million, $544 million and $416 million, respectively, while Asia loses $1.8 billion. In the forest products sector, the gains outweigh losses with economic benefits increasing by some $4.9 billion, but this is a cost to the consumers of electricity and/or taxpayers in the regions implementing these renewable energy policies. The price of wood pellets is projected to rise between $107 and $154 per tonne. The findings highlight the need to account for the interconnections among softwood forest products globally.     

Highgrading in Quota-Regulated Fisheries: Evidence from the Icelandic Cod Fishery

A model with nonlinear discarding costs is developed for a fishery with an individual transferable quota (ITQ) program. The model shows that limited hold capacity and ITQs provide incentives to discard fish. The model is applied to the Icelandic ITQ-regulated cod fishery to test for highgrading and to predict the discarded quantities of different grades of fish. The results indicate that vessels are involved in highgrading, but there is no evidence of quota price-induced highgrading. The predicted total discarded quantities are 4.7% and 2.7% of total landings for gillnet and longline vessels, respectively. These correspond well with official biometric estimates.     

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.     

Productivity Impacts of Veil Nets on UK Crangon Vessels

As with many shrimp fisheries, the North Sea brown shrimp (Crangon crangon) fishery has been characterised by by‐catch and discarding of juvenile fish species that are of value to other fleet segments. To offset this externality, the mandatory use of veil nets or separator panels was introduced in 2003 for all vessels using an aggregate beam length of more than 8 m. Sea trials prior to this date suggested that retained catch might be reduced by between 8% and 35%, depending on the area and season. These studies, however, do not consider the behavioural response by fishers to reduce this impact. In this study, the actual impact of the restrictions on the productivity of UK Crangon vessels was estimated using a production frontier approach. The ex post analysis suggests that a productivity decline of around 14% has been experienced by UK vessels adopting this gear.     

Cost-effective nitrogen leaching reduction as influenced by linkages between farm-level decisions

This article focuses on how the linkages between various farm‐level decisions affect the choice of measures to reduce nitrogen leaching from crop production. A mathematical programming model is developed. The model considers not only management decisions that affect nitrogen leaching directly, but also other decision variables such as scheduling of field operations and machinery investments. A simplified analysis that ignores the latter management decisions, and the linkages between the various decisions, may result in abatement policies that are not cost‐effective because the policies will have other effects than expected. As an example, the empirical results show that subsidies to catch crops and spring ploughing may contribute to increased nitrogen load, quite contrary to the purpose of these subsidies. Further, it is noted that the characteristics of the production system make it costly to change land use, tillage practices, or fertilizer use drastically. Instead, cost‐effective nitrogen abatement includes a mix of various adjustments of farm‐level production practices. The EU set‐aside payment appears to reduce abatement costs.