THE ELASTICITY OF DEMAND FOR THE EXPORTS OF A SINGLE COUNTRY — A RECONSIDERATION

One country's exports of a particular commodity are usually imperfect substitutes for similar exports from other countries. Consequently, the price elasticity of export demand involves unknown cross elasticities between sub-groups of the commodity. However, there are constraints on the relative magnitudes of all the sub-group elasticities. These make it possible to assess the degree to which the whole commodity elasticity divided by the market share is an over-estimate of the export elasticity.     

Food Competition in World Markets: Some Evidence from a Panel Data Analysis of Top Exporting Countries

This paper investigates the relevance of relative prices and world income as determinants of food exports for the top trading countries in the period 1992–2012 using a panel data framework. We find that price elasticities generally take lower values for processed goods, and the opposite holds for income elasticities. Processed goods are also characterised by an inverse relationship between price elasticities and average unit values. The analysis suggests that both emerging and advanced countries can be expected to increase their export specialisation in processed goods. Furthermore, developed economies can face fierce competition from emerging countries by enhancing the quality content of their processed good exports.     

SOURCES OF EXPORT EARNINGS INSTABILITY: THE ROLE OF AGRICULTURE

Previous studies of export earnings for less developed countries have suggested that earnings from primary products — including agriculture — might be more stable than those from industrial goods. Those studies used highly aggregated sectors, so that individual agricultural sectors could not be identified as stable or not. This study measures the export earnings instability of 20 commodity aggregates — more than half of them agricultural — for 27 countries between 1962 and 1983. The results indicate that some agricultural sectors were unstable and that no individual sector was universally stable. Agricultural sectors tended to be among the more stable sectors in low and middle income countries and among the less stable sectors in high income countries.     

Growth in horticultural trade: Japan's market for developing countries

This paper explores possibilities and opportunities of expansion of horticultural exports from developing countries through an investigation on a rapidly growing market, Japan, as an example among major promising markets. In this paper six horticultural commodities are selected to analyze, emphasizing on exports from developing countries. Observations on Japan's horticultural imports make us presume that consumers differentiate products by place of production. Therefore, import behavior is considered in a two-stage budgeting procedure. The second-stage demands for imports from different sources are specified in an almost ideal demand system (AIDS) model and estimated statistically as well as the first-stage import demand equations. The estimated second-stage AIDS equations show that the magnitude of own-price coefficients varies with the source of imports and so does that of expenditure coefficients. Therefore, the characteristics of import demand on a commodity basis, which are captured by the estimates of the first-stage import demand equations, are not equally transmitted to the demand for imports by source in each commodity. The estimated coefficients of the first-stage import demand and the second-stage AIDS equations were combined to obtain the total effects of price and income changes on imports by source. The calculated own-price elasticities are greater than one in absolute value in ten of the 15 cases and so are the calculated income elasticities in twelve cases. The large elasticities promise suppliers that they benefit from Japan's income growth and that they increase their earnings if they can reduce the price by lowering their costs. However, factors in non-price competition also play import roles in the import growth. In this paper, the importance of sales promotions by exporters and preshipment inspections was indicated in the cases of mangoes and cut flowers. Other factors such as market structure and public infrastructure for post-harvest activities were also discussed.     

Agricultural Exports and Economic Growth in Developing Countries: A Panel Cointegration Approach

This paper quantifies the contribution of agricultural exports to economic growth in developing countries. We estimate the relationship between GDP and agricultural and non‐agricultural exports for 42 countries using panel cointegration methods. Results show that a long‐run relationship exists, the agricultural export elasticity of GDP is 0.07 whereas that of non‐agricultural exports is 0.13, and total exports Granger‐cause GDP, which supports the export‐led growth hypothesis. Structural differences exist in the relationship by broad income group. Balanced export‐promotion polices are implied for the poorest countries, but, for those with higher incomes, higher economic growth is achieved from non‐agricultural exports.     

Variability in wheat export demand elasticity: Policy implications

Agricultural economists and policy makers in the United States believe that the magnitude of the export demand elasticity is one of the most important parameters used in farm policy decisions. However, past empirical estimates show wide variation in the size of the U.S. export demand elasticity. Reasons for this wide variation go beyond differences in model specification, estimation methods, and period of estimation to involve factors such as trade policies and changes in the supply and demand conditions of foreign countries. In view of the continual variation in magnitude, the elasticity of export demand should be viewed as a variable rather than as a parameter. In this study, U.S. wheat export demand elasticities are computed using a world wheat trade model. The estimates show that the elasticities vary significantly over time. They also reveal that elimination of trade barriers would more than double wheat export demand elasticities.     

Consumer Behaviour in a Country in Transition with a Strongly Contracting Economy: The Case of Food Consumption in Bulgaria

This paper presents estimates of demand elasticities in Bulgaria using the Almost Ideal Demand system while using interval priors for the parameters. Expenditure elasticities are found to be considerably higher than unity for food items. These results are interpreted as being due to a substantial divergence between consumption and expenditure on food items. It is concluded that under conditions of falling incomes, policies which focus exclusively on food provision may not be appropriate. In the event of a return to income growth, an initial increase in demand for selected food items could outstrip the potential to increase domestic supply, and lead to an increase in imports, or decrease in exports, of a number of agricultural products.     

THE DEMAND FOR INPUTS AND THE AGGREGATE SUPPLY FUNCTION FOR AGRICULTURE*

This paper presents a theoretical derivation of aggregate supply elasticities from the relevant input demand elasticities. By way of illustration, an estimate of the aggregate supply elasticity with respect to product price for United Kingdom agriculture is calculated. In addition, the paper investigates the supply function that is implied by input demand functions which contain a geometrically declining lag distribution. The paper concludes by suggesting that the indirect estimation of aggregate supply elasticities may well be preferable to direct estimation of the elasticities.     

Agricultural Supply Response: A Survey

This paper surveys the literature on agricultural supply response to prices in developing countries. Empirical estimates of elasticities depend both on the methodology adopted and on country-specific factors relating to technology, economic structure and macro constraints. The paper seeks to establish some general conclusions on supply responsiveness within these limitations. Supply response to output prices at the aggregate and at the crop levels is considered first. Crop-specific acreage elasticities range between zero and 0.8 in the short run while long-run elasticities tend to be higher — between 0.3 and 1.2. Yield elasticities are smaller and less stable than acreage elasticities. Clearly, inter-crop pricing can be relied upon to effect shifts in the commodity composition of agricultural output. Evidence also suggests that supply elasticities vary systematically with such factors as price and yield risks, multiple-cropping, the importance of the crop, farm incomes, farm size, tenancy and literacy. The most controversial and important aspect of supply response is the effect on aggregate agricultural output of agriculture's terms of trade. Conventional time-series estimates range from 0.1 to 0.3. A major cross-country study reports an aggregate elasticity as high as 1.66. It is argued that cross-country estimates are apt to exaggerate aggregate responsiveness while time-series studies underestimate it somewhat. For LDCs, a tentative range of 0.4 to 0.5 seems plausible. Hence, the distributive effects of the terms of trade are likely to be more significant than the allocative effects. Asian evidence shows that only a third of the inter-country differences in fertilizer use can be attributed to fertilizer price policies. Provided new technologies and infrastructure are in place, fertilizer subsidies can help in technology diffusion and in overcoming credit constraints. The choice between price supports and input subsidies will depend on a variety of country- or situation-specific factors. Nevertheless, a significant general factor favoring price supports is that they can more easily be coupled with price stabilization goals than input subsidies. Though sparse, the available evidence on the response of marketed surplus suggests that price policy is not a reliable instrument for regulating inter-sectoral trade.     

Trade Elasticity,Gravity and Trade Liberalisation: Evidence from the Food Industry

We present an econometric investigation of the trade effect produced by the elimination of tariffs in 18 food sectors for a large sample of developing and developed countries. The standard CES monopolistic competition trade model and the gravity equation were used to estimate trade substitution elasticities, exploring their sensitivity to different estimation methods. Using these elasticities, we simulate the trade effect of the elimination of tariffs, dealing with the problem of uncertainty in the estimated values. Results point to a significant variation in the elasticities estimated by different econometric methods, suggesting that the Poisson pseudo‐maximum‐likelihood estimator significantly inflates their magnitude. Simulation results indicate that trade liberalisation will strongly increase food exports especially from high income and emerging countries, leading to a general loss of market share by developing countries. The simulated trade flows obtained from the econometric approach are quite close to current evidence based on computable general equilibrium models.     

US agricultural exports and labor market adjustments

This study empirically investigates the impact of US agricultural exports on farm and nonfarm employment and tests how individuals adjust to agricultural export shocks. Based on the data from 1991 to 2017 and a Bartik-style instrument that exploits cross-regional variation in agricultural export exposure stemming from initial differences in agricultural specialization and temporal variation in predicted US exports from exogenous tariff reductions, we find that a 1% increase in agricultural exports increases farm employment by 0.302% and has no statistically significant impact on nonfarm employment. The individual-level analysis shows that, in response to positive agricultural export demand shocks, natives with a college degree are more likely to become self-employed and start farm activities and while non-natives without a college degree are more likely to become hired farmworkers. A back-of-the-envelope calculation based on the estimates of agricultural trade elasticities of employment shows that on balance, job gains due to US agricultural exports are slightly larger than job loss due to agricultural imports, resulting in a net gain of around 0.24 million farm jobs over 1991–2017.     

Estimates of Food Demand Elasticities for Great Britain: 1972–1994

This paper reports the results of the estimation of Almost Ideal Demand Systems (AIDS) for UK food demand using time series data from the National Food Survey. A Bayesian approach is used to impose curvature restrictions in the model. The aim is to obtain estimates of Hicksian, Marshallian and expenditure demand elasticities for UK food which are fully consistent with static optimisation by consumers. Overall, the results concur with expectations as aggregate food demand is both price and income inelastic and individual food categories are mostly price and income inelastic. The notable exception being meat, specifically pork, beef and chicken.     

THE SECTORAL INCIDENCE OF PROTECTION AND ZIMBABWEAN AGRICULTURE

This article applies the literature on ‘incidence analysis’ to the case of Zimbabwe, the main hypothesis being that industrial protection indirectly taxes agricultural exports by increasing the price of non-tradeables. The extent to which industrial protection increases the price of non-tradeables is measured by Sjaastad's incidence parameter. The study shows that there exists a generally high level of incidence and finds major differences in ‘true protection’ across categories of exportables and individual agricultural export commodities. The calculated price effects of industrial protection indicate substantial indirect disincentives to the production of agricultural exportables. On average, these are more than offset by direct subsidies in the case of beef. For other agricultural export commodities, indirect taxes either overcompensate direct subsidies or exacerbate the negative direct protection resulting in extremely high true taxation.     

Demand for food in Myanmar (Burma)

Aggregate quarterly time series data from 1975 to 1987 on government procurement prices and open (black) market prices were used in estimating an almost ideal demand system (AIDS) and double-log models for consumption of foodstuffs in Myanmar. The results from the AIDS model were superior to those from the double-log models. The estimated income elasticity of demand for non-meat foodstuffs was high, even for low-quality rice, which has been shown to be an inferior good in other Asian countries. The income elasticities for the non-cereals (groundnut oil, sesame oil, pulses, potato and onion) are positive and less than one. Contrary to expectation, the income elasticities for all meat items are low. Own-price elasticities for most foodstuffs were less than one. The estimated cross-price elasticities indicate the complementary nature of the basic food items to rice. A brief analysis of the effects of taxing Myanmarese rice exports and subsidising consumers indicated that there are net costs to government, unevenly distributed welfare gains to consumers and welfare losses to farmers.     

MARKETING AGENCIES AND THE ECONOMICS OF MARKET SEGMENTATION*

Increasing importance is being attached to market segmentation strategies as a means of increasing producer returns. In this paper, a generalised model of price discrimination without supply control is developed to analyse the implications of optimal segmentation strategies for non-homogeneous products. It is shown that the magnitude of producer returns is dependent on demand and supply conditions, with increases in returns falling as price elasticities of demand and supply increase. The model is applied to the New Zealand sheep meats industry to reveal that returns to producers from market segmentation strategies could be quite low in the long run.     

Demand for fish in Asia: a cross‐country analysis*

Fish demand patterns in nine Asian countries were investigated using a multistage budgeting framework allowing a disaggregated approach to analysing fish consumption. This paper highlights the heterogeneity of fisheries products in terms of species, sources and cultural responses of consumers, factors that are important in fish demand under the Asian setting. Specifically, fish demand by income groups were compared to determine how the low‐ and high‐income households respond to price and income changes. Results showed that the estimated price and income elasticities of all fish types included in the study were relatively more elastic among the poorer households.     

The impact of OECD biofuels policies on developing countries

OECD countries’ biofuels policies, derived from energy and environmental legislation and activated by high oil prices, were the primary cause of not only the sudden spike in grain and oilseed prices in 2007–2008 but also of the ensuing price volatility. Even though developing countries have a comparative advantage in biofuels production, they were shut out of rich countries’ biofuel markets by trade discriminating biofuels policies. Developing countries would not have been able to take full advantage of the price spike in the short run anyway given the low supply elasticities and the long time required for biofuel production to come online, unlike for corn‐ethanol. The controversy over the right price of food is misplaced and policy makers should instead focus on improving biofuels policies, which like their counterpart agricultural policies in previous decades, have damaged the welfare of developing countries.     

World market integration for export and food crops in developing countries: a case study for Mali and Nicaragua

Using a generalized error correction model, this article measures and compares market integration for export cash crops versus imported food crops for Mali and Nicaragua, and computes transmission elasticities between changes in the goods’ border and domestic prices. Both Mali and Nicaragua obtain the bulk of their export revenue from a particular agricultural commodity—cotton for Mali and coffee for Nicaragua—and both import the same key staple food of rice. To reap the economic gains from this trade specialization, the two countries’ agriculture must be well‐integrated into world markets. The two countries present an important policy contrast that affects their degree of world market integration and price transmission. In Mali, a parastatal enterprise controls its cotton industry, while Nicaragua has less state direction over agriculture. Reflecting this difference, the results show that for both its main export and import commodity, Nicaragua is more integrated into world markets and has higher price transmission than Mali. The results for Nicaragua also show much higher integration and price transmission for its main agricultural export (coffee) than its major import (rice).     

An Empirical Comparison of "Frisch" and "Time Series" Demand price Elasticities for individual Commodities

In a classical article in 1959, Ragnar Frisch [8] developed a procedure, which, under the assumption of want independence¹ and given commodity budget shares, income elasticities, and one own-price elasticity, allows one to calculate a complete matrix of own and cross price elasticities. Between broad commodity groups such an assumption (want independence) has becme increasingly accepted and in fact under the label of separability has formed the basis for a family of demand models that are increasingly used to estimate demand elasticities for broad commodity groups (the linear expenditure system, the Rotterdam model, etc.). At the individual commodity level however, the assumption of want independence seems less viable, e.g., the utility one derives from pork is in general not considered independent from one's consumption of beef. However, it has become increasingly common (and apparently acceptable) to find the Frisch methodology utilized to develop demand price elasticity estimates for individual agricultural commodities [4, 7, 17].     

Food safety issues and fresh food product exports from LDCs

Fresh food products have a high income elasticity of demand and few traditional trade barriers in high income markets. As such, they represent an important opportunity for less developed country (LDC) exporters. Fresh food product exports account for half of all food and agricultural exports from LDCs to high income countries. But these products may be subject to greater food safety risks and potential trade barriers arising from sanitary regulation. This paper reviews the challenges and issues facing LDCs in meeting food safety standards for export. These issues include: (a) the importance of fresh food product trade by region and the kinds of issues that arise from those products; (b) the role of farm to table approaches and hazard analysis critical control points (HACCP) in ensuring safety; (c) the role of the public sector in LDCs in facilitating trade; (d) the potential role of the SPS Agreement in resolving disputes and determining equivalency of standards between high and low income countries.