Economics of export subsidies under costly and imperfect enforcement

The present paper builds on the published literature on agricultural policy analysis under costly and imperfect enforcement by introducing enforcement costs and misrepresentation into the economic analysis of export subsidies. Specifically, the present paper examines the economic causes of cheating on export subsidies and the consequences of enforcement costs and misrepresentation for the welfare effects and the transfer efficiency of this policy instrument. Policy design and implementation is modelled as a sequential game between a government that designs and enforces the policy and the recipients of the payments. Two alternative policy implementation scenarios are considered. In the first scenario, export subsidies are paid to private trading firms while in the second scenario subsidies are paid directly to the producers of the subsidised commodity. Analytical results show that the introduction of enforcement costs and cheating changes the welfare effects of export subsidies and their efficiency in redistributing income to producers. The analysis also shows that, contrary to what is traditionally believed, the incidence of export subsidies depends on the group that is subsidised to export the surplus quantity – the way the policy is implemented. The results provide additional support for the contention that the economic consequences of cheating are highly policy-specific. Finally, the analysis reveals that when the government faces restrictions on either the volume or the value of export subsidies, cheating reduces the distortionary effects of the policy on international markets. This is true irrespective of whether subsidies are paid to trading firms or to producers.     

Sugar‐Cane and Oil Palm Expansion in Guatemala and its Consequences for the Regional Economy

Corporate‐owned sugar‐cane and oil palm plantations in Guatemala are expanding at the expense of smallholder agriculture. Land control grabs are not only having consequences for local communities and ecosystems, but also for regional economies. The present study compares the value chains of smallholder products with those of sugar and palm oil. Primary data were collected from agricultural producers and their backward and forward sectors in the agricultural regions where the plantations are most prominent. The results show that on a regional level, sugar and palm oil generate fewer jobs in comparison to the products of small‐scale agriculture, which have important forward linkages to small and medium trading and processing sectors. In addition, the wealth created by small‐scale farming remains within the regions, whereas profits from the sugar and palm oil industries are being transferred out of them. Therefore, to achieve inclusive regional development, smallholder agriculture should be strengthened rather than promoting monoculture expansion.     

The political economy of agriculture for development today: the “small versus large” scale debate revisited

The role of agriculture in economic development and the development politics of promoting smallholder versus large‐scale agriculture have both been at the center of a long‐lasting and controversial debate. Using an innovative methodology which combines a value chain approach with input‐output‐analysis, the growth multipliers and productivity of both farm types in Guatemala are analyzed. Results show that smallholder agriculture has the same potential to stimulate output growth as large‐scale agriculture. Smallholder value chains include mainly informal sectors and create more jobs than commercial agriculture. Therefore, a reorientation of agricultural and land policies toward small‐scale food producers and within a comprehensive policy of integrated rural development is not only necessary in terms of social equity but also for boosting economic development.     

Value‐Chains in the Andes: Upgrading for Ecuador's Blackberry Producers

We apply a value chain approach to examine how blackberry producers in Ecuador can improve production and marketing practices to obtain more favorable prices. Results show that general upgrading actions are associated with improved producer prices, and specific activities, such as seeking information from reputable sources can lead to substantial welfare improvements. The paper goes beyond most value chain studies which treat participation in a ‘modern’ value chain as a discrete state. Ecuador's blackberry industry is evolving incrementally with no clearly discernible ‘modern’ market chains. Instead, producers incrementally make improvements in multiple dimensions. Relatively low‐cost practices, many of which do not imply substantial risk or investment, are associated with price improvements. Obstacles to participation in incremental value chain upgrading activities are not insurmountable. In particular, scale of production is not a limiting factor: small‐scale producers are not precluded from adopting improved practices and they do not suffer in terms of price received.     

Dynamics of smallholder participation in horticultural export chains: evidence from Ecuador

We study the dynamics of smallholder participation in export value chains focusing on the example of small‐scale broccoli producers in the highlands of Ecuador. Combining cross‐sectional data from a household survey with 11‐year longitudinal data on export market transactions, we explain the hazards of dropping out of a high‐value export chain. We apply a multispell cox duration model that allows us to consider multiple entries and exits from the supply chain. We also provide evidence on the welfare impacts associated with participation. The results suggest that small‐scale farmers’ exit from the export sector is accelerated by high transaction risks experienced in the past. While we find no particular evidence for the exclusion of small‐scale farmers from the export sector, we do find that poorer households and female‐headed households tend to drop out faster, especially as long as the sector is still prospering. Finally, when considering welfare effects, we do not find evidence that participation translates into tangible benefits for broccoli farmers. We discuss some measures that could help improve the long‐term sustainability of smallholder integration in high‐value chains.     

Case Studies of Direct Marketing Value-Added Pork Products in a Commodity Market

Differentiation and branding of fresh pork products have created interest in the potential for swine producers to invest further up the pork supply chain to capture a greater share of the consumer's dollar. However, the ultimate success of producer-owned ventures will depend on their ability to identify market opportunities and execute merchandising strategies to maintain sales of a perishable and seasonally variable pork product in a commodity market environment. To better understand the competitive issues in pork marketing on a small scale, three firms already engaged in direct marketing of fresh pork products are examined and reported as case studies.     

Multilateral Trade and Agricultural Policy Reforms in Sugar Markets

We analyse the impact of trade liberalisation, removal of production subsidies and elimination of consumption distortions in world sugar markets using a partial‐equilibrium international sugar model calibrated on 2002 market data and current policies. The removal of trade distortions alone induces a 27% price increase while the removal of all trade and production distortions induces a 48% increase in 2011/2012 relative to the baseline. Aggregate trade expands moderately, but location of production and trade patterns change substantially. Protectionist Organisation for Economic Co‐operation and Development (OECD) countries (the EU, Japan, the US) experience an import expansion or export reduction and a significant contraction of production in unfettered markets. Competitive producers in both OECD countries (Australia) and non‐OECD countries (Brazil, Cuba), and even some protected producers (Indonesia, Turkey), expand production when all distortions are removed. Consumption distortions have marginal impacts on world markets and the location of production. We discuss the significance of these results in the context of mounting pressures to increase market access in highly protected OECD countries and the impact on non‐OECD countries.     

Cooperatives and the Commodity Political Agenda: A Political Economy Approach

Historically, major agricultural cooperatives in Canada have been intimately involved in commodity policy issues. Large cooperatives were created because farmers were upset about the perceived lack of competition in buying farm inputs or selling farm outputs. Often, the resulting cooperative was the organization farmers saw as the logical organization to represent their view of commodity policy or competition policy. As cooperatives grew and diversified, the ability to represent their members coherently across policy issues was hampered. For processing cooperatives in the supply-managed sector, the requirement that the cooperative be the political arm of industry, process product, and provide maximum returns to producer members made for a complicated objective function. This paper focuses on the twin objectives of providing efficient member services and performing political lobbying in a public choice framework. The results are illustrated by the recent history of a supply-managed further-processing cooperative and a diversified grain cooperative.     

Measuring Food Product Differentiation by Quality Ratings: A Cross‐Entropy Analysis of Specialty Coffee e‐Auctions

Food quality ratings can be used for product differentiation and strategic marketing. This article develops a differentiation measure based on the cross‐entropy of two distributions for speciality coffees. It examines whether quality ratings achieve their objectives for speciality coffee supply chains. The estimation, using e‐auctions data, indicates that the quality rating is more informative in the Cup of Excellence (CofE) relative to the Q auction. To determine significance, a statistical test for comparing the information measure across different e‐auctions and segments of the quality rating was developed. The significant difference between the two auctions is not a surprise as the auctions trade coffee lots of different volumes and the quality evaluation is more important in the case of the CofE, with its jury of renowned coffee experts. The total cross‐entropy measure of product differentiation shows that the 100‐point quality rating does not carry the same information content and meaning in the two different e‐auctions and their respective supply chains. The cross‐entropy measure of product differentiation is shown to be a good indicator of the information and the value created throughout the speciality food supply chain.     

Short supply chain participation and market performance for vegetable farmers in China

The fresh food supply chain in China has begun to reduce the number of intermediaries that connect producers and consumers. Using farm‐level data, this paper investigates the impacts of short supply chain participation on vegetable farmers’ market performance, including profits, productivity, production cost, price and price risk. The results show that the participation in a short supply chain is a profit‐maximising strategy and risk management tool for farmers. The increase in profit is attributed to productivity advantages, farm size expansion, and risk reduction rather than because of price premiums or cost savings. A policy implication is that short supply chain promotion has many benefits, but the government should be more concerned about the sustainability of short supply chains.     

Environmental Policy Uncertainty and Marketable Permit Systems: The Dutch Phosphate Quota Program

Tradable permits are generally considered as an efficient instrument to regulate pollution by individual producers. However, uncertainty about changes in or possible discontinuation of the program could make individual farmers reluctant to invest in tradable permits. This article uses the option approach to derive a theoretical model that shows the impact of policy uncertainty on investment in tradable quota. The empirical assessment provides weak evidence for the existence of option values due to policy uncertainty for phosphate quota in swine production in the Netherlands.     

Demand for Crop Insurance in Developing Countries: New Evidence from India

Determining farmers’ real demand for crop insurance is difficult, especially in developing countries, where there is a lack of formal financial sector integration and a high reliance on informal risk mitigation options. We provide some new estimates of farmers’ willingness‐to‐pay for insurance in the context of a large‐scale subsidised programme in India. We conducted a discrete choice experiment with agricultural households across four states in India, enabling us to estimate preferences for specific insurance policy attributes such as coverage period, method of loss assessment, timing of indemnity payments and the cost of insurance. Our results suggest that farmers do value crop insurance under certain conditions and some are willing to pay a premium for such coverage in excess of the subsidised rates they are currently required to pay under this programme. In particular, farmers value the assurances that they will receive timely payouts when they incur losses, and may not have a strong preference for the method with which losses are assessed. On the other hand, farmers are quite sensitive to coverage periods. Our baseline assessment shows that when optimised to farmer requirements, there can be a sizeable demand for crop insurance by developing country farmers.     

A Market-Forces Policy for the New Farm Economy?

This paper first discusses the changes that are bringing about the New Farm Economy. A wave of consolidation has shifted agricultural production to larger, lower cost producers in almost all sectors of agriculture. At the same time, supply chains represent a new form of ownership and control that is replacing commodity markets as the preferred way to market farm output. Both consolidation and the development of supply chains offer the possibility of producing a greater variety of safer, cheaper food. The paper argues that farm policy, crafted for the agriculture of the 1930s, is no longer necessary to raise or stabilize farm incomes, and is largely ineffective anyway. Moreover, farm policy impedes the market forces driving innovation and efficiency in the farm economy. Letting market forces guide the evolution of the farm economy, unfettered by outdated government programs and unnecessary farm subsidies, is the best way to harness the benefits of the New Farm Economy. Getting rid of government subsidies and control will lead to dramatically fewer farmers in agriculture: a policy to deal explicitly with those who will leave agriculture is needed. A transition policy is described that focuses on helping reduce the number of farmers by offering a buyout to farm producers which subsidizes their exit from farming and prevents reentry.     

Wheat policy and economy-wide reform in Brazil

In recent years, the wheat sector in Brazil has moved from governmental protection and public intervention to a free market and privatization. In this study, those changes are analyzed through measures of governmental intervention on nominal rates of protection and on welfare of producers and consumers. Elasticities of demand and supply of wheat are estimated, and the effects of changes in policies are analyzed under official and shadow exchange rates. Welfare measures indicate that almost US$ 8 billion were spent from 1970 until 1989 with policies to subsidize producers and consumers. The policy-induced stimulus to consumer demand exceeded the stimulus to domestic production, and self sufficiency in wheat declined. The reduction in wheat subsidies since 1989 was more than an isolated sector-specific policy. It was part of macroeconomic antiinflation policy, and it coincided with other economy-wide changes such as real appreciation and a decline in international commodity prices.     

Industrial upgrading and development in Lesotho’s apparel industry: global value chains,foreign direct investment,and market diversification

Many low-income countries are integrated into apparel global value chains through foreign direct investment (FDI), including Lesotho, which has become the largest Sub-Saharan African apparel exporter to the US under the African Growth and Opportunity Act. More recently, South Africa has emerged as a new apparel export market in Lesotho. The two markets are supplied by different types of FDI firms – affiliates of Taiwanese transnational producers and South African manufacturers – which are part of different value chain variants. The paper assesses the implications for industrial upgrading and development of integration into these two value chain variants in Lesotho, drawing on firm-level and institutional interviews. We show that their different characteristics in terms of investors’ motivation, governance structure, end markets, firm set up and most importantly and causally, ownership and embeddedness have crucial impacts on functional, product and process upgrading, local linkages, and skill development.     

Biosecurity in agriculture: an economic analysis of coexistence of professional and hobby production*

One component of biosecurity is protection against invasive alien species, which are one of the most important threats worldwide to native biodiversity and economic profitability in various sectors, including agriculture. However, agricultural producers are not homogeneous. They may have different objectives and priorities, use different technologies, and occupy heterogeneous parcels of land. If the producers differ in terms of their attitude towards invasive pests and the damages they cause, there are probably external effects in the form of pest spread impacts and subsequent damages caused. We study such impacts in the case of two producer types: profit‐seeking professional producers and utility‐seeking hobby producers. We show that the hobby producer, having first set a breeding ground for the pest, under‐invests in pest control. We also discuss potential policy instruments to correct this market failure and highlight the importance of considering different stakeholders and their heterogeneous incentives when designing policies to control invasive alien species.     

Geographical indication regulation and intra‐trade in the European Union

Protection of indications of geographical origin (GIs) can reduce information asymmetry between producers and consumers, and potentially enhance trade. However, GIs can also possibly divert trade. We rely on panel data about agri‐food trade among the 27 countries of the European Union to investigate these issues using variations of estimators proposed by Head and Mayer ( 2000 ) and Santos Silva and Tenreyro ( 2006 ). Our findings suggest that the protection of GIs creates trade when the importing and exporting countries have GI‐protected products. There is also empirical evidence regarding a trade‐diverting effect when the importing country does not have GIs and a border enlargement effect arising from European GI‐protection.     

Incentives and moral hazard: plot level productivity of factory‐operated and outgrower‐operated sugarcane production in Ethiopia

We investigate the unique contractual arrangement between a large Ethiopian sugar factory and its adjacent outgrower associations. The only significant difference between the sugarcane production on the factory‐operated sugarcane plantation and on the outgrower‐operated plots is the remuneration system and thus, the incentives to the workers. We compare the productivity of these two production schemes using a cross‐sectional plot‐level data set. As sugarcane production depends on various exogenous factors that are measured as categorical variables (e.g., soil type, cane variety, etc.), we estimate the production function by a nonparametric kernel regression method that takes into account both continuous and categorical explanatory variables without assuming a functional form and without imposing restrictions on interactions between the explanatory variables. Our results show that outgrower‐operated plots have—ceteris paribus—a statistically and economically significantly higher productivity than factory‐operated plots, which can be explained by outgrowers having stronger incentives to put more effort into their work than the employees of the sugar factory.     

Determinants of Food Industry Performance: Survey Data and Regressions for Denmark

This paper investigates empirically the determinants of firms’ performance in the agri‐food sector by using recent survey data for Denmark. Treating sales per employee as a proxy for value added, we estimate several bootstrapped regression models to draw conclusions on the marginal effects of potential performance determinants such as the form and nature of ownership, stage of the food chain and commodity sector, new product development, staff quality, firms’ competitive stance, and elements of firms’ strategy. To draw robust inferences we apply, besides the ordinary heteroscedasticity‐corrected Tobit maximum likelihood estimator, a non‐parametric least absolute deviations estimator (LAD/CLAD) based on a quantile regression procedure. The results indicate that we cannot reject the hypothesis of no influence of dominant orientation on value added. Rather, firms’ focus on human capital, stage and commodity sector better explains their value addition. We reject the hypothesis that regional networks have no influence on value added. Location in Århus, emphasis on human capital and the negative influence of outsourcing on value added all provide supporting evidence. We reject the hypothesis of no influence of foreign direct investment (FDI), and moreover propose that FDI has targeted the Danish domestic market as a source of value added.     

Payoffs from research and development along the Australian food value chain: a general equilibrium analysis

The payoffs and distribution of payoffs from research and development (R&D) along the food value chain depend on many interacting economic factors. To quantify these, we have developed a general equilibrium model of the Australian economy with detailed farming, processing and marketing information. We use the model to assess potential payoffs and distributions from various R&D scenarios that lead to demand expansion and productivity improvement. We find that productivity improvement caused by R&D is unambiguously beneficial to the whole economy while the benefits of export or domestic market demand expansion mainly accrue to the primary producers and processing industry, when the economy is at full employment. Also, productivity improvement from R&D on‐farm may benefit processors while improvements postfarm may benefit farmers.