Food price increases and net food importing countries: lessons from the recent past

Recent increases in food and other commodity prices have highlighted concerns that many poor countries are net food importers and higher food prices would worsen their trade balances. In this article, we analyze the changes in food trade balances associated with the 32% increase in food prices from 2000/2001 to 2004/2005. We find a small deterioration in food trade balances of low‐income countries and an improvement in middle‐income countries. The deterioration is most severe for countries in conflict and small island states, so attention should be placed first on these countries and on a few very‐low‐income countries that are also vulnerable. Because low‐income countries as a group had much lower agricultural GDP growth rates than middle‐income countries, the answers to food vulnerability in low‐income countries should probably be addressed within the context of incentives for agricultural production.     

Seasonal protection of F&V imports in the EU: impacts of the entry price system

The measures of border protection applied by the European Union (EU) to imports of fruits and vegetables (FV) are complex and usually not well represented in trade models, not only because of the range of instruments still constraining trade, but also because of product differentiation and seasonality in these products. This article assesses the impact of eliminating entry price (EP) constraints applied to a group of FV products. The proposed model is of a partial equilibrium nature and takes seasonality into account. We have applied the model to imports of tomatoes, cucumbers, clementines, and table grapes. Trade impacts of eliminating EP are significant for particular origins, during specific seasons, most notably for Moroccan tomatoes. The volumes and prices of products originating in the EU experience moderate reductions.     

The price stabilization effects of the EU entry price scheme for fruit and vegetables

The article assesses the stabilization effects of the EU import regime for fresh fruit and vegetables based on the entry price system (EPS). The analysis is carried out on the EU prices of tomatoes and lemons and those of imports from some of the main competing countries on the EU domestic markets: Morocco, Argentina, and Turkey. It is based on the estimation of a threshold vector autoregressive econometric model that is shown capable of taking the workings of the import regime into account. The model shows that prices behave differently when import prices are above/below the trigger entry price. This article allowed to highlight the cases for which the isolation effect of EPS seems reached and the resulting stabilization effects.     

U.S. food aid and American exports to recipient countries during the Cold War

In this article, we test to what extent the food aid granted by the U.S. during the Cold War was strategically motivated and used to promote U.S. interests. Using the data for the period 1971–1990, we investigate whether U.S. wheat aid had an effect on recipient countries’ total import of American products. The evidence we provide suggests a positive and robust relationship and thus it is consistent with the argument that U.S. food aid helped to create larger markets for U.S. producers.     

The use of organized commodity markets to manage food import price instability and risk

The article explores the possibility of insuring the price risks of wheat and maize imports of low‐income food‐deficit countries (LIFDCs). Optimal strategies for an importing agent, who hedges with futures and options are derived, based on the objective of minimizing the unpredictability of import bills. Ex post simulations for a set of LIFDCs are run on wheat and maize imports hedged with futures and options in the Chicago Board of Trade, to explore the extent to which hedging reduces the unpredictability in import bills. Simulations encompass both periods of normal price behavior, as well as the period of global upheaval that occurred in 2007 and 2008. Results show that hedging with futures alone affords agents considerable opportunities for reducing import cost unpredictability, and the same holds with options, albeit, to a lesser extent. However, during the recent price spike of 2007–2008, hedging with options would have increased the unpredictability of some countries’ maize import bills, due to the combination of erratic import patterns and pronounced market uncertainty.     

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.     

Agricultural price transmission elasticity: importance of controlling for unobserved common factors

A voluminous amount of the literature estimates price transmission from world markets to domestic markets ignoring unobserved factors that commonly affect domestic markets. This article reevaluates the long‐run and short‐run transmission elasticity of world food price shocks to domestic markets using a “common factor framework” that takes unobserved common factors that are correlated with regressors into consideration. In the estimation, annual price data for rice, wheat, and maize for a panel of developed and developing countries that are observed over the period of 1960–2007 are used. The results from a common factor framework to those that do not account for common factors are then compared. Our findings suggest that ignorance of common factors is likely to result in upwardly biased elasticity 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.     

Output and input bias effects of U.S. direct payments

This study examines the national effect of U.S. direct payments on the extent and direction of biased technical change on U.S. agriculture. We also assess the economic significance of the estimated bias effects for economic policy modeling endeavors involving a reduction of domestic support payments. A two outputs (livestock and crops) and four inputs (labor, capital, land, and material) translog cost function was estimated from national time series (1948–2011) data. Results indicate that payments do not induce output‐biased technical change. We do find evidence of Hicksian bias that is land using and material input saving attributable to support payments. Global computable general equilibrium simulations suggest that price and output effects of discontinuing direct payments are 1/4 to 1/3 the size once the bias effects are incorporated.     

Energy price reform and food markets: the case of bread supply chain in Iran

Reforming energy price is the core of Iranian economic reform plan during 2010–2014. However, increasing price of energy may have adverse effects on the agricultural and food markets. This study was conducted to address these problems in the most important food of Iranian people “bread” by developing a spatial supply chain model. Results show that consumers’ welfare would experience a sharp decrease though the impacts on farmers are trivial. Also, results indicate that the key to success the reform without political backlash in the short‐run is the cash transfer program under which the government redistributes part of the reform's benefits among consumers. Per capita compensation payments would be equal to 51.50 and 46.09 US$ per year for a typical rural and urban person, respectively. Moreover, the results provide more detailed information about the market characteristics and the payments both in nationwide and regional scale as well as in different income groups.     

Fighting global food price rises in the developing world: the response of China and its effect on domestic and world markets

This article addresses how China is being affected by and is responding to the world food crisis. So far, Chinese officials have responded to higher world prices by drawing down stocks and limiting exports of major grains. These policy instruments were not available for soybeans, so domestic prices of soy and other oilseeds have risen with international prices. Using a global CGE model, we show that the initial world price rise was largely due to higher world oil prices and demand for biofuels as opposed to other factors, especially in maize and soybeans. China's response to this shock has kept domestic grain prices low relative to world grain markets and to domestic soybean prices. As grain stocks are depleted, however, demand growth will push domestic prices back into alignment. Anticipating this pressure on consumers and accelerating supply response through public investment will facilitate adjustment.     

Non‐Reciprocal Trade Preferences and the Role of Compliance Costs in the Agricultural Sector: Exports to the EU

We investigate whether non‐reciprocal preferential regimes granted by the European Union have an impact on agricultural export flows from beneficiary countries while accounting for the costs of compliance that may prevent exporters from taking full advantage of potential benefits. Compliance costs are heterogeneous and difficult to measure. We proxy their influence and specify a model that allows for a different preferential margin impact according to the proxy costs. Adopting the gravity framework and using a sample of 554 lines of agricultural products for 131 developing countries in 2002, we find that the costs of compliance play a role in making the schemes work: the lower the costs, the greater the impact of the preferential margins. Moreover, the estimated margin effect differs between different regimes.     

How important are tariffs and nontariff barriers in international markets for fresh fruit?

International markets for agricultural products are often subject to a range of trade barriers, and horticultural products are no exception. This article examines the economic implications of tariffs and sanitary and phytosanitary (SPS) regulations that are applied to global markets for fresh apples and fresh oranges. We calculate regional‐level tariff rates and ad valorem equivalents for SPS barriers following the price‐wedge approach. A simulation model is developed and used to assess the price, quantity, and welfare implications of reducing tariffs, removing SPS barriers, and removing SPS barriers that have been identified as a Specific Trade Concern (STC) by the World Trade Organization. Results suggest that a 36% reduction in global tariffs would lead to greater welfare gains than would the elimination of SPS measures in apple markets. However, in orange markets, we find that SPS measures have much larger economic implications for producers and consumers. Here, a 36% reduction in tariffs would lead to smaller overall welfare effects compared to removal of all SPS measures, and only slightly larger effects than those from removal of STCs alone.     

You get what you pay for: the link between price and food safety in Kenya

The lack of a reliably safe food supply in developing countries imposes both health and economic costs. Food safety is one of several dimensions of food quality that are typically unobservable at the time of purchase. Branding can overcome this information problem by allowing firms to build reputations based on the quality of their products. If a reputation for food safety is valued directly by consumers, or if food safety is correlated with other valued attributes, firms producing safer food should be able to use their brand equity to charge higher prices. In addition, firms with stronger brand equity have stronger incentives to meet food safety standards in order to maintain that equity. Using data from more than 900 maize flour samples representing 23 distinct brands in eastern and central Kenya, we explore the relationship between price and contamination with aflatoxin. Aflatoxin is a fungal toxin common in maize, groundnuts, and other crops around the world. We find a strong negative correlation between price and contamination at the brand level, consistent with the hypothesized positive relationship between brand equity and food quality.     

Agricultural trade and poverty in Chile: a spatial analysis of product tradability

Many questions have arisen about the relationship between international agricultural trade and poverty in developing countries. This article explores these questions by analyzing local agricultural tradability indices, which measure the degree to which commodities produced in a particular region are traded internationally. Data are examined for Chile, a middle‐income country with a history of international agricultural trade over the last decades. Empirical results indicate that a higher agricultural tradability index is associated with lower poverty rates across Chilean comunas.     

Tariff equivalents of nontariff measures: the case of European horticultural and fish imports from African countries

In the context of the Partnership Agreements between the European Union (EU) and the African, Caribbean, and Pacific countries, this study estimates ad valorem tariff equivalents of European food safety standards on imports of key horticultural and fish products from Kenya, Tanzania, Uganda, and Zambia. The study uses an extension of the price‐wedge method to account for imperfect substitution and factor endowment in monopolistic competition. The estimated tariff equivalents are 55% and 98% for imports of fresh peas from Zambia to the Netherlands and the U.K., respectively. They range from 39% to 64% for imports of green beans and avocados from Kenya and from 63% to 270% for imports of frozen fish fillets in EU countries from the East African Community. We also observe large variations in tariff equivalents for the horticultural and fish products over time and EU importing countries.     

Nontariff measures and product differentiation: Hormone-treated beef trade from the United States and Canada to the European Union

We investigate how a combination of the sanitary and phytosanitary (SPS) measure and product differentiation affects beef trade and the consequences for the United States (US)–European Union (EU) hormone-treated beef trade dispute. We develop a partial equilibrium model to represent the global beef markets and product differentiation between non-hormone-treated beef, hormone-treated beef, and other beef. The results show that removing the SPS measure increases EU hormone-treated beef imports from the US and Canada and decrease beef consumption. In addition, EU hormone-treated beef consumption and imports can be related to a few key indicators of product differentiation. The framework we develop can estimate EU hormone-treated beef consumption and imports based on a minimum of parameters relating to product differentiation, thereby providing useful applied economic analysis of a key trade measure.     

Re‐evaluating the Harbinson Proposal – Prospects for the EU25: A Note

In this study, we use the Harbinson Proposal and July Framework to compare a ‘likely’ Doha scenario with a realistic baseline. The novelty of this study is that we focus exclusively on the trade‐led welfare impacts in selected EU member states. The important features of this note are the: (i) usage of the latest Global Trade Analysis Project (version 6) data; (ii) focus on EU25 regions incorporating all major Common Agricultural Policy instruments and reforms; and (iii) inclusion of binding tariff overhangs into the Harbinson tariff reductions. Results show the damping effects of tariff‐binding overhangs on welfare outcomes. This and other factors which limit the gains to liberalisation mean that the EU25 only realises 10% of its long‐run welfare gain potential, as defined by complete liberalisation.     

Bilateral Import Protection,Free Trade Agreements,and Other Factors Influencing Trade Flows in Agriculture and Clothing

Many factors shape the global network of bilateral trade including fundamental forces of supply and demand factors and government policies. This study uses the generalised gravity framework to distinguish among the different drivers that either deter or aid partner trade in land‐intensive agriculture and labour‐intensive clothing. The dataset used in the analysis includes bilateral trade among 70 countries in 1995, 2000 and 2005. Collectively, the 70 countries account for 85% of the world’s trade in agriculture and 96% of its GDP. Empirical results lend support to the Heckscher–Ohlin explanation of trade, namely that relative factor endowments motivate cross‐border trade. Results also show that tariffs are not always binding and bilateral free‐trade agreements more often divert rather than create trade.