A CGE analysis of trade costs in the Russian agrofood sector

Ten years after the end of central planning, enormous interregional price differences indicate that Russian food markets are not well integrated spatially. Trade potentials are thus not exploited, most probably because of high trade costs. Besides transport costs, transaction costs seem to play an important role as an impediment to interregional arbitrage. These transaction costs can be very high in transition countries due to underdeveloped market structures and weak public institutions. After subtracting transport costs from interregional price differences, large differences remain, particularly in the case of high‐value products. It is assumed that these residual price differences constitute the transaction cost component of total trade costs. The regional economic impact of different trade cost components is quantified using a bi‐regional computable general equilibrium (CGE) model. Simulations show that the results are quite different between the two stylized regions (East and West), depending on which trade cost component is reduced. While the welfare effects of varying customs tariffs and transport margins are rather limited, lower transaction costs of trade seem to be a promising way to achieve a better functioning food market in Russia.     

Global market shocks and poverty in Vietnam: the case of rice

World food prices have experienced dramatic increases in recent years. These “shocks” affect food importers and exporters alike. Vietnam is a major exporter of rice, and rice is also a key item in domestic production, employment, and consumption. Accordingly, rice price shocks from the world market have general equilibrium impacts and as such, their implications for household welfare are not known ex ante. In this article, we present a framework for understanding the direct and indirect welfare effects of a global market shock of this kind. We quantify transmission of the shock from global indicator prices to domestic markets. Then we use an applied general equilibrium model to simulate the economic effects of the price changes. A recursive mapping to a nationally representative household living standards survey permits us to identify in detail the ceteris paribus effects of the shock on household incomes and welfare. In this analysis, interregional and intersectoral labor market adjustments emerge as key channels transmitting the effects of global price shocks across sectors and among households.     

Comparing supply‐side specifications in models of global agriculture and the food system

This article compares the theoretical and functional specification of production in partial equilibrium (PE) and computable general equilibrium (CGE) models of the global agricultural and food system included in the AgMIP model comparison study. The two model families differ in their scope—partial versus economy‐wide—and in how they represent technology and the behavior of supply and demand in markets. The CGE models are “deep” structural models in that they explicitly solve the maximization problem of consumers and producers, assuming utility maximization and profit maximization with production/cost functions that include all factor inputs. The PE models divide into two groups on the supply side: (1) “shallow” structural models, which essentially specify area/yield supply functions with no explicit maximization behavior, and (2) “deep” structural models that provide a detailed activity‐analysis specification of technology and explicit optimizing behavior by producers. While the models vary in their specifications of technology, both within and between the PE and CGE families, we consider two stylized theoretical models to compare the behavior of crop yields and supply functions in CGE models with their behavior in shallow structural PE models. We find that the theoretical responsiveness of supply to changes in prices can be similar, depending on parameter choices that define the behavior of implicit supply functions over the domain of applicability defined by the common scenarios used in the AgMIP comparisons. In practice, however, the applied models are more complex and differ in their empirical sensitivity to variations in specification—comparability of results given parameter choices is an empirical question. To illustrate the issues, sensitivity analysis is done with one global CGE model, MAGNET, to indicate how the results vary with different specification of technical change, and how they compare with the results from PE models.     

Trade liberalisation and regional integration: the search for large numbers

We surveyed the empirical literature using multi–country computable general equilibrium (CGE) models to analyse potential and actual regional trade agreements (RTAs). The studies indicate that these RTAs improve welfare, that trade creation greatly exceeds trade diversion, and that they are consistent with further global liberalisation. The welfare gains are bigger when models incorporate aspects of “new trade theory” such as increasing returns, imperfect competition, and links between trade liberalisation, total factor productivity growth, and capital accumulation. We also conjectured that an RTA expands market size and stability, allowing firms to pursue economies of fine specialisation, generating additional “Smithian” efficiency gains.     

The effects of direct storage subsidies under limited rationality: a general equilibrium analysis

We study here the effects of a public subsidy to private storage set up at world level. To simulate the welfare effects and impacts on market fluctuations of this subsidy, we use a dynamic Computable General Equilibrium model assuming imperfect expectations. We also perform different statistical analysis based on our CGE results and show that the storage subsidy can have the undesired effect of destabilizing agricultural markets, depending on the form of economic agents’ price expectations and on the structure of the shocks impacting the agricultural production.     

Effective use of public funding in the Murray‐Darling Basin: a comparison of buybacks and infrastructure upgrades

Policy instruments designed to increase environmental flows in the Murray–Darling Basin are compared using TERM‐H₂O, a detailed, dynamic regional CGE model. Voluntary and fully compensated buybacks are much less costly than infrastructure upgrades as a means of obtaining a target volume of environmental water, even during drought, when highly secure water created by infrastructure upgrades is more valuable. As an instrument of regional economic management, infrastructure upgrades are inferior to public spending on health, education and other services in the Basin. For each job created from upgrades, the money spent on services could create between three and four jobs in the Basin.     

Regional economic impacts of a plant disease incursion using a general equilibrium approach*

The present study uses a dynamic multiregional computable general equilibrium (CGE) model to estimate the micro‐ and macroeconomic effects of a hypothetical disease or pest outbreak. Our example is a Karnal bunt incursion in wheat in Western Australia. The extent of the incursion, the impact of the disease or pest on plant yields, the response of buyers, the costs of eradication and the time path of the scenario contribute to outcomes at the industry, regional, state and national levels. We decompose the contribution of these individual direct effects to the overall impact of the incursion. This might provide some guidance regarding areas for priority in attempting to eradicate or minimise the impacts of a disease or pest. The study also introduces a theory of dynamic regional labour adjustment in which economic events may lead to both real wage differentials and worker migration between regions.     

Agriculture’s Inter‐industry Linkages,Aggregation Bias and Rural Policy Reforms

As agricultural policy reform and its effects have become increasingly territorialised, analyses that attempt to explain or predict impacts need to be both more localised and to identify spill‐over effects. Local and regional general equilibrium approaches have become increasingly popular because they can extend predictions of policy shocks obtainable from partial equilibrium sectoral models to identify the wider effects. However, agriculture is usually described as a single sector in input–output accounts, whereas policy shocks that affect constituent commodities with differential impacts will have inter‐industry effects that are different to those implied by average input–output coefficients. Regionalisation of aggregated input–output tables adds further to these difficulties. The objective of this study is to develop a practical method for dealing with these problems. It describes the theoretical basis of aggregation bias and shows how it can be measured, in two contrasting case study regions in the UK and Sweden. Having established that this is a significant issue, a simple but effective procedure is demonstrated, based on additional information on variable costs, which transforms policy shocks from a direct change in agricultural output to that transmitted to the suppliers of inputs. This method provides an impact close to that which could be calculated if the general equilibrium system had indeed been disaggregated, and supports use of this approach in impact studies where insufficient time or funding are available for complete disaggregation of an agricultural sector’s regional accounts.     

Cross country maize market linkages in Africa: integration and price transmission across local and global markets

In order to study short‐run price shock propagation, we model twenty seven Sub‐Saharan Africa (SSA) domestic maize markets within a Global Vector Autoregression framework. The main purpose is to fully embed multilateral trade flows as a way to better structure local price transmission dynamics and interdependencies, and get a more comprehensive picture of food price shocks propagation. We found significant between‐country market contagion and prompt regional price shock propagation when trade connection exists. Yet, the integration of SSA domestic maize markets within the continent and with global markets remains generally weak. Furthermore, under regular market conditions, most local price series appear to be more responsive to regional neighbors than to global shocks.     

The impact of deforestation,urbanization, public investments,and agriculture on human welfare in the Brazilian Amazonia

The relationship between human welfare and deforestation in the Brazilian Amazonia has traditionally been thought to follow a boom-and-bust pattern. According to this pattern, forest clearing triggers rapid increases in human welfare levels (“the boom”) due to short-term economic gains; these levels then drop to below national or regional averages (“the bust”) after the forest stocks have declined, thus causing the local populations to become deprived of ecosystem services. However, recent studies have questioned the validity of this boom-and-bust pattern. In this paper, we use panel data and simultaneous autoregressive models to evaluate the effects of deforestation, urbanization, public investments, agriculture, and state policies on temporal changes in human welfare that occurred across multiple municipalities in the Brazilian Amazonia from 2005 to 2012, a period during which governments implemented a set of strategies aimed at controlling deforestation across the region. We found that: (a) signals of a boom-and-bust pattern are weak at the regional level, and therefore this pattern cannot be generalized across the entire region; (b) human welfare is increasing more rapidly in low-development municipalities than in high-development cities, and all municipalities are converging on at least one regional average rather than on a national average; (c) urbanization does not lead to positive changes in human welfare, which indicates that the infrastructure available in regional urban centers is limited; (d) public investments are negatively associated with human welfare growth, thus signifying that if public investments are not used to leverage the potential of other sectors of the local economy, human welfare will not improve; (e) agriculture is negatively associated with positive changes in human welfare at the local level, possibly due to the dominance of cattle-ranching as the predominant economic activity of this sector; and (f) state-level policies matter, and future analyses of regional trends in the realm of development and conservation across this region should take such policies into account. Finally, we suggest that although human welfare and deforestation retain a weak statistical relationship, we cannot contend that they have been fully decoupled. Forest loss across the region is still pervasive, and institutions are too weak to sustain the transition from a frontier development model to a conservation-centered model.     

Coping with systemic risk in index‐based crop insurance

The implementation of index‐based crop insurance is often impeded by the existence of systemic risk of insured losses. We assess the effectiveness of two strategies for coping with systemic risk: regional diversification and securitization with catastrophe (CAT) bonds. The analysis is conducted in an equilibrium pricing framework which allows the optimal price of the insurance and the number of traded contracts to be determined. We also explore the role of basis risk and risk aversion of market agents. The model is applied to a hypothetical area yield insurance for rice producers in northeast China. If yields in two regions are positively correlated, we find that enlarging the insured area leads to higher insurance premiums. Unless capital market investors are very risk averse, a CAT bond written on an area yield index outperforms regional diversification in terms of certainty equivalents of both farmers and insurers.     

Assessing Global Computable General Equilibrium Model Validity Using Agricultural Price Volatility

Computable General Equilibrium (CGE) models are commonly used for global agricultural market analysis. Concerns are sometimes raised, however, about the quality of their output since key parameters may not be econometrically estimated and little emphasis is generally given to model assessment. This article addresses the latter issue by developing an approach to validating CGE models based on the ability to reproduce observed price volatility in agricultural markets. We show how patterns in the deviations between model predictions and validation criteria can be used to identify the weak points of a model and guide development of improved specifications with firmer empirical foundations.     

跨区水资源调配与区域利益关系分析——以南水北调中线工程为例

基于利益相关方理论,提出了跨区水资源调配中区域利益相关方的圈层式结构,并以南水北调中线工程为例,分析了南水北调水资源调配中不同层次利益主体及其区域利益关系的变化,旨在加强受水区和调水区之间的合作,调节区域间的利益关系     

THE INFLUENCE OF THE AGRI-MONETARY SYSTEM ON AGRICULTURAL TRADE IN THE EC: THE CASE OF SUGAR

It is hypothesised that the mechanics of the agri-monetary system impose shocks on EC agricultural markets which influence the Community's agricultural trade flows. A model illustrating links between agri-monetary changes and trade flows of sugar is presented. Empirical tests suggest that agri-monetary changes influence the volume and timing of sugar trade. Hypotheses relating the strength of this influence to self-sufficiency and other factors specific to Member States are discussed, as are the welfare costs of agri-monetary trade distortions. Although these welfare costs are unlikely to spark agrimonetary reform, they could be given consideration in the reform made inevitable by the Single European Market.     

Volatility in Cereal Prices: Intra‐ Versus Inter‐annual Volatility

Intra‐annual (within crop year) price volatility and inter‐annual (between crop years) price volatility are measured for wheat, maize, rice, barley, oats and rye. A set of explanatory variables is used in a pooled regression to explain variations in these price volatilities. With low cereal stocks, supply (yield) shocks (defined here as volatilities, as for the price volatilities) mostly influence inter‐annual volatility while other influential factors are the crude oil price and exchange rate. Cereal demand and interest rate shocks combined with low stocks affect intra‐annual volatility, while other explanatory factors include exchange rate and crude oil price shocks. The derivatives market activity appears to have no significant effect on either intra‐ or inter‐annual volatility. In contrast, large cereal stocks and a well‐functioning international cereal market reduce the effects of shocks in the explanatory variables on both intra‐ and inter‐annual volatilities.     

The impact of grain self‐sufficiency regime on regional welfare and agricultural productivity in China

The nineties’ agricultural reforms in China that were aimed at deregulating the agricultural market eventually resulted in a huge drop in agricultural production and a high rate of inflation in agricultural input prices; this apparently motivated the government to introduce the grain self‐sufficiency regime in 1998. We examine how and to what extent this reform affected the productivity and welfare of grain farmers in China at the regional level. We find that the price regulations that destroyed the incentive to exert more effort adversely affected the growth in agricultural productivity but contributed to the growth in farmers’ welfare. Although the price regulations resulted in short‐term improvement in welfare across all the regions, in the long run such regulations can potentially result in larger drop in agricultural production because of its negative impact on the incentives to produce more.     

Regional interdependence and forest “transitions”: Substitute deforestation limits the relevance of local reversals

Using case studies and concepts we suggest that constraints upon aggregate or global forest transition are significantly more severe than those upon local forest reversals. The basic reason is that one region's reversal can be facilitated by other regions that supply resources and goods, reducing the demands upon the region where forests rise. Many past forest reversals involve such interdependence. For ‘facilitating regions’ also to rise in forest requires other changes, since they will not be receiving such help. We start by discussing forest-transitions analysis within the context of Environmental Kuznets Curves (EKCs), for a useful typology of possible shifts underlying transitions. We then consider the historical Northeast US where a regional reversal was dramatic and impressive. Yet this depended upon agricultural price shocks, due to the Midwest US supplying food, and also upon the availability of timber from other US regions. Next we consider deforestation in Amazônia, whose history (like the Northeast US) suggests a potential local role for urbanization, i.e. spatial concentration of population. Yet inter-regional issues again are crucial. For cattle and soy, expansion of global demands may give to Amazonia a role more like the Midwest than the Northeast US. In addition, across-region interdependencies will help determine where reversal and facilitation occur. Finally we discuss the constraints upon very broad forest transition.     

Balancing productivity and trade objectives in a competing environment: should India commercialize GM rice with or without China?

India is considering approving genetically modified (GM) rice, but it fears losing rice exports to sensitive countries with import regulations on GM food, and may wait for China to lead the way. Using a multiregion, computable general equilibrium (CGE) model, we simulate the economic effects of introducing GM rice in India with or without China in the presence of labeling and import approval regulations of GM food in GM sensitive importing countries. We find that the welfare gains with GM rice in India would largely exceed any potential export loss, and that the segregation of non-GM rice could help reduce these minor losses. We also find no significant first mover advantage for India or China on GM rice. The opportunity cost of segregation of non-GM rice is much larger for sensitive importers than for India, which suggests that these importers would have the incentive to pay for the cost of segregation.     

Broad‐based Agricultural Development versus Food Self‐sufficiency: A General Equilibrium Analysis in India

Intersectoral linkages are analysed using a CGE model based on a SAM constructed from Indian national accounts data for 1988–89. The model includes the rural non‐farm sector, public sector production and aspects of public policy. Evidence supports the arguments of Chakravarty (1987) and Ahluwalia (1986) regarding the importance of broad‐based agricultural development as opposed to increased production in the food sector alone aimed at achieving food self‐sufficiency.     

A copula‐based approach to the simultaneous estimation of group and meta‐frontiers by constrained maximum likelihood

Existing approaches to the meta‐frontier estimation consist of two stages where the estimates of the local frontier parameters obtained in the first step are used to estimate meta‐frontier parameters by means of a linear or quadratic minimisation procedure in the second. Since it was shown by Schmidt (Review of Economics and Statistics 58: 238) that the second step is equivalent to constrained maximisation of a likelihood function, we extend this idea and offer a copula‐based approach to the estimation of the parameters of both meta‐ and group frontiers in a one‐step setting. In this way, we ensure a single data‐generating mechanism for the estimated parameters, expand the set of potential meta‐frontiers and account for the fact that shocks to the individual production units may be correlated with shocks to the local technological environment as a whole. We apply our estimation methodology to a data set on the world agriculture and find that the deviations from the group frontiers are positively correlated with deviations from the meta‐frontier, which is a conclusion that is impossible to reach without accounting for stochastic dependence between the two deviation types represented by a copula.