Economies of scale and market structure in international grain trade

A large body of literature has examined international grain trade in imperfectly competitive models. The article develops a two-stage duopoly model that considers a private trader and a State Trading Enterprise (STE) competing on a foreign market. The key difference between the private trader and the STE is their international organization; while the STE makes use of external agents to export, the private firm may choose to internalize international transactions. The game is solved for different modes of competition and under both assumptions of homogeneous and differentiated products, in order to assess how these assumptions affect the outcome of the game. The results of the game are examined by using numerical examples. The analysis shows that external shocks on export markets may result in a change of market structure and, consequently, of market shares. These effects depend on the initial market structure. Furthermore, the degree of product differentiation and the assumed mode of competition significantly affect the relative values of transaction and fixed costs at which the market structure changes.     

Moving up the processing ladder in primary product exports: Sri Lanka's "value-added" tea industry

Governments in many developing countries, influenced by the experience of the East Asian newly industrialized countries, have adopted policies to enhance domestic processing of primary commodities as a tool for accelerating employment growth, export revenues, and development. Sri Lanka has traditionally exported tea in the form of bulk (commodity) teas, but “value‐added” teas such as packaged teas, tea bags, etc., have expanded in recent years. This article examines factors affecting the processing of value‐added tea products in Sri Lanka by modeling export supply behavior. Estimates of the long‐run relationship and short‐run dynamics of export supply are presented and discussed. The price of value‐added tea relative to bulk tea, and industry capacity, are identified as the main determinants of export supply, while exchange rate changes have no discernible effect. The policy implications of the analysis for enhancing further expansion of such value‐added teas are presented. These are of interest for both policy makers and development analysts. In particular, the reasons that undermine the effectiveness of exchange rate policy as an instrument to stimulate value addition of primary products have much relevance for similar developing countries.     

Exporting to new destinations and the effects of tariffs: the case of meat commodities

This study uses a random parameter probit estimation to examine the effects of tariff liberalization on the probability of establishing new trading relationships in meat commodities. Our simulation results indicate that the effects of tariff reductions decrease with distance, but increase with the level of development. The probabilities of trade increase at an increasing rate with the size of tariff reductions thus justifying calls for ambitious liberalization schemes. Canada and Mexico are the NAFTA countries that are most likely to export in response to EU tariff reductions on bovine and poultry meats, while Brazil and Argentina emerge as the MERCOSUR countries most likely to penetrate the EU bovine meat market after EU tariff reductions. Uruguay's probability to export poultry meat is most responsive to EU tariff reductions.     

Regional trade agreements and trade in agri-food products: evidence for the European Union from gravity modeling using disaggregated data

The proliferation of regional trade agreements in recent years has intensified the debate on the desirability of these agreements in themselves and their coexistence with multilateral free trade under the WTO. This study contributes to this debate by analyzing trade creation and trade diversion effects of the European Union on trade flows of six major agri‐food products from 1985 to 2000. An extended gravity model is estimated employing pooled data and generalized least squares methods. The results show that the developments in the EU since the mid‐1980s have served to boost agri‐food trade significantly among the members. Some of the growth in intra‐EU trade in agri‐food products came at the expense of nonmembers as the EU reduced the degree of relative openness to trade with nonmembers during this period and diverted trade from the rest of the world into the intra‐EU channels.     

Do stronger intellectual property rights induce more agricultural trade?: a dynamic panel data model applied to seed trade

Do stronger intellectual property rights (IPRs) induce more agricultural trade? Based on panel data for 60 countries during 1990–2000 and using a dynamic panel data model, this article assesses whether and how national differences in IPRs affect the trade flow of planting seeds imports from the United States. The empirical results show that whether or not a country adheres to IPRs agreements has no discernible impact on planting seeds that are imported from the United States, implying that the strengthening of IPRs seems not to induce more agricultural trade. This result sheds some light on the debate in the theoretical literature on the importance of IPRs and trade.     

Supermarkets, wholesalers, and tomato growers in Guatemala

The article shows the asset‐related determinants and the impacts of the participation of small farmers in supermarkets versus traditional market channels in Guatemala. Compared to farmers selling only to the traditional market channels, farmers selling to supermarket channels are larger (but are in the upper tier of the “small farmer” category), have more capital, and are much more specialized in commercial horticulture in general and in tomatoes in particular. While they have higher yields, they also have higher input use, including use of chemicals. In fact, they severely overuse pesticides and fungicides. Moreover, these greater input expenditures mean that their profit rates are roughly similar to those of farmers in the traditional market channel. Supermarket‐channel farmers prefer the more demanding wholesale‐supermarket channel because it offers lower risks and lower transaction costs to market, a variety of quality grades of tomatoes, all year long. In turn, the supermarkets, who do not buy direct but rather source from a few specialized‐dedicated wholesalers, rely on this year‐round supply, lower transaction costs, and consistency of quality.     

Assessing agricultural trade policies options with the European Union: a Brazilian perspective

Brazil has shown interest in agricultural trade negotiations at bilateral, regional, and multilateral levels. This study addresses several important negotiations, using the agricultural sector model CAPRI (Common Agricultural Policy Regional Impact Analysis), to analyze liberalization scenarios between the European Union and the Mercosur countries focusing particularly on their impacts in Brazil. Four possible agreements between Europe and Mercosur are simulated, including a broader multilateral agreement proposed in the G20. The results suggest that a bilateral scenario involving larger tariff rate quota increase, as called for by Mercosur, generates larger gains than accepting the European Union proposal of 2004 or further multilateral trade liberalization based on the G20 proposal. However, much larger increases in tariff rate quotas for all products are not necessarily justified in all cases. Moreover, Brazil's production and export potential is limited by factors other than trade restrictions.     

Trade,policy, and food security

Food insecurity is extensive throughout the world and hunger and malnutrition are expected to remain serious humanitarian and political concerns, both in the short term and for the foreseeable future, particularly in low income developing countries where many rural and urban households are both income and asset poor. In those countries, domestic agricultural production is expected to be especially vulnerable to the impacts of climate change over the next 30 years. Thus international markets for staple agricultural commodities, which have become increasingly important as sources of nutrition for both developing and developed countries over the past 60 years, are likely to become even more important in the future. Free trade policies allow countries to exploit their comparative advantages in economic activity, increasing average per capita incomes, longer term growth rates and a country's capacity to fund social safety nets for the poor. However, many countries abandoned those policies in favor of domestic protections in their efforts to mitigate the effects of short run food crises. The policy challenge is therefore to resolve the tension between optimal long run policies and short run initiatives to address food security concerns.     

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.     

Markets and pro-poor agricultural growth: insights from livelihood and informal rural economy models in Malawi

This article presents the development of a set of programming models describing the major features of different rural livelihoods and of the informal rural economy they together make up in Malawi. The models allow for differentiated responses by different household types to change and for the partial equilibrium effects of consequent supply, demand, and price adjustments in labor and grain markets. The models provide insights into the relations between own‐farm and nonown‐farm activities in different households' livelihoods and in the informal rural economy as a whole, and are used to investigate possible impacts of increasing cash crop prices and of a more open rural economy. Impacts of these changes on the poor are found to be critically dependent upon supply and demand elasticities in labor and grain markets, but the poor could potentially suffer significant losses from increased openness of the local economy leading to increased expenditure by less poor households on imported goods and services.     

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

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

Land titling policy and soil conservation in the northern uplands of Vietnam

In Vietnam, a quasi-private property regime has been established in 1993 with the issuance of exchangeable and mortgageable long-term land use right certificates. Using primary qualitative and quantitative data collected in a mountainous district of Northern Vietnam, this paper investigates the role of the land policy in the adoption of soil conservation technologies by farmers. This issue is of crucial importance in the region where population growth and growing market demands have induced farmers to intensify agricultural production. While poverty has been reduced, environmental problems such as soil erosion, landslides, and declining soil fertility have become more severe over the past years. Our findings suggest that despite farmers’ awareness of erosion, soil conservation technologies are perceived as being economically unattractive; therefore, most upland farmers continue to practice the prevailing erosion-prone cultivation system. Focusing on agroforestry as one major soil conservation option, we estimate household and plot-level econometric models to empirically assess the determinants of adoption. We find that the possession of a formal land title positively influences adoption, but that the threat of land reallocations in villages discourages adoption by creating uncertainty and tenure insecurity. The analyses reveal that these two effects interact with each other but are of small magnitude. We conclude that the issuance of land titles is a necessary but not sufficient prerequisite to encouraging the adoption of soil conservation practices. However, current practices remain economically unattractive to farmers. This deficiency needs to be addressed by interdisciplinary research and complemented by strong efforts by local authorities to promote sustainable land use.     

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.     

Capturing zero‐trade values in gravity equations of trade: an analysis of protectionism in agro‐food sectors

With significant improvements in its theoretical underpinnings, the gravity model has gained renewed interest in the agro‐food trade literature. Notwithstanding, there is a dearth of literature examining the relative trade restrictiveness of tariff barriers across a broad range of agro‐food sectors. This represents an important research gap, which this study sets out to fill. Furthermore, this research reconciles the application of zero‐inflated models with a sectorally disaggregated analysis. More specifically, employing a fully specified gravity equation, a Poisson estimator and variants of the Poisson model (Negative Binomial, Zero‐Inflated Poisson, and Zero‐Inflated Negative Binomial) provide statistically significant and theoretically consistent estimates, while allowing for the inclusion of zero‐trade values. A panel data model with fixed effects is also employed to improve the estimation of the parameters of interest. Estimation results reveal that in the vast majority of sectors examined, import tariffs are found to be statistically significant, whereas export refunds exhibit a statistically smaller role due to the nonsystematic nature of their application in world food markets. Model simulations of tariff barrier eliminations reveal limited trade gains, although there is encouraging evidence of “low” and “lower middle” per capita income country trade gains in wheat, red meat, dairy, sugar, and (particularly) rice markets.     

China’s Agricultural Policy Transition: Impacts of Recent Reforms and Future Scenarios

This article reviews recent developments in China’s agricultural domestic support policy, especially the transition from taxing farmers and agriculture to providing direct subsidies to grain production and purchased inputs. A model‐based quantitative analysis on the effects of these policy changes is presented. Simulation results suggest that recent policy changes have achieved the declared policy goals of increasing grain production and boosting farm income. Much of the increase in grain production and farm income can be attributed to higher per unit return to arable land, land reallocation to grain production and extra agricultural employment triggered by the policy changes. Based on the assumption that China’s public assistance to agriculture and farmers will continue and rise, two hypothetical future scenarios are simulated. Using all the support permitted under WTO de minimis limits with existing instruments, China’s policy will increase grain production, change trade patterns seemingly contrary to China’s comparative advantage, increase rural employment and significantly increase farm income (by more than 12%). If, however, decoupled instruments are applied to raise China’s agricultural domestic support to the same level, China’s agricultural production and trade will remain unchanged, rural employment remain stable, but farm income will be increased by nearly 15%.     

The increasing importance of nonfarm income and the changing use of labor and capital in rice farming: the case of Central Luzon, 1979–2003

There have been sharp increases in nonfarm income among farm households in Central Luzon for the last few decades. This study attempts to identify the effects of the increasing nonfarm income on the use of tractors and threshers and on the employment of hired labor as a substitute for family labor. We found that while the increased nonfarm income positively affects the ownership of tractors, it has no significant impact on the use of agricultural machines due presumably to the development of efficient machine rental markets. We also found that the increased nonfarm income leads to the increased use of hired labor, thereby releasing family labor to nonfarm jobs.     

Dynamics of rice prices and agricultural wages in the Philippines

Rice trade liberalization in the Philippines should decrease domestic rice prices impacting both agricultural wages and the welfare of agricultural wage earners. This study examines the short-run and long-run relationship between rice prices and agricultural wages in the Philippines using a neoclassical wage determination model. Three empirical frameworks are used—a cointegration/error correction framework, which assumes nonstationary variables in long-run equilibrium, a first difference model that assumes nonstationary variables but no long-run equilibrium, and an OLS framework that assumes the model variables are stationary. Conclusions are reasonably robust across the three empirical frameworks with wages adjusting positively to rice price changes with a short-run elasticity of 0.29 to 0.57, and a long-run elasticity of 0.70 to 1.0 in preferred models. An analysis of welfare implications suggests that although households that are heavily reliant on agricultural wages for income will be adversely affected by rice price decreases, other households will benefit.