“Modeling Food and Agricultural Markets”

Organizers: David Abler

“Modeling Food and Agricultural Markets”
December 4-6, 2005
San Diego, CA

Organizer: David Abler, Penn State University

Monopolistic Competition and Trade: Does the Theory Carry Any Empirical ‘Weight’? (pdf)
Ian Sheldon

Abstract
The overall objective of this paper is to revisit the basic theory of trade in the presence of product differentiation and economies of scale, and to lay out how such a theory can and has been tested for empirically. The paper proceeds as follows: first, the empirical
phenomenon of intra-industry trade is discussed; second, the standard monopolistic explanation for intra-industry trade is briefly laid out, along with a discussion of how this is embedded in a general equilibrium trade model; third, the apparent contradiction between the findings of Helpman (1987), and Hummels and Levinsohn is resolved through a discussion of the theoretical foundations for the gravity equation; and finally, the empirical strategy for testing the increasing returns/product differentiation story is outlined, indicating ways in which it could be applied to processed food and agricultural trade.

Product Differentiation and Trade in Agri-Food Products: Taking Stock and Looking Forward (pdf)
Rakhal Sarker and Yves Surry

The Extent and Impact of Food Non-Tariff Barriers in Rich Countries (pdf)
Scott Bradford

Introduction
International trade negotiations have significantly reduced food tariffs in rich countries, increasing the relative importance of non-tariff barriers (NTBs). Given these considerations, we need to weigh the benefits of reducing NTBs. If these benefits are small, then perhaps the time has come to place a lower priority on achieving deeper economic integration. On the other hand, if the barriers remain substantial, it could be worthwhile to invest considerable political capital in their elimination. This paper presents a new method for estimating tariff equivalents of NTBs for final food goods in OECD countries. The analysis exploits detailed, comprehensive, and careful price comparisons: matched retail prices that the OECD collects on a regular basis in order to calculate purchasing power parity (PPP) estimates. Since this method does not identify policies, I strive to supplement the numbers by presenting preliminary information on possible sources of the barriers. I then use an applied general equilibrium model to provide a broad-brushed assessment of the impact of these NTBs. The results imply that NTBs significantly restrict trade in OECD nations and that removing them would bring large gains to them and to developing countries. Thus, this research implies that continued efforts to negotiate the reduction of NTBs will indeed exceed the costs.

Modeling Production Response to “More Decoupled” Payments (pdf)
Jesús Antón

Abstract
Several significant changes in agricultural policy in OECD countries over the last two decades have been driven by the concept of “decoupling”. In practice, these “more decoupled” payments have changed from linking support to the output to linking the payments to land, and they have been implemented with increasing freedom to produce. This paper explores the economics that explains why these movements are likely to reduce production effects. However, a broad perspective of all the economic mechanisms that affect farmers’ decision making does not allow for the conclusion that there are no impacts. The magnitude
of the impacts of “more decoupled” payments is an empirical question that needs to be investigated using econometric estimation methods. Although the small amount of empirical literature available in this area shows, in general, some impacts, is not conclusive as to their magnitude. This reduces the confidence in simulation results that involve this type of payments. Relevant technical difficulties may explain, but not justify, this lag on the empirical work dealing with the main policy change that has recently occurred in OECD countries. Recent studies using micro data are promising and should be enhanced, while further work is needed to improve the comparability and applicability of estimation results in simulation models.

When Point Estimates Miss the Point: Stochastic Modeling of WTO Restrictions (pdf)
Patrick Westhoff, Scott Brown, and Chad Hart

Abstract
Point estimates of agricultural and trade policy impacts often paint an incomplete or even misleading picture. For many purposes it is important to estimate a distribution of outcomes. Stochastic modeling can be especially important when policies have asymmetric effects or when there is interest in the tails of distributions. Both of these factors are important in evaluating World Trade Organization (WTO) commitments on internal support measures. Point estimates based on a continuation of 2005 U.S. agricultural policies and average values for external factors indicate that U.S. support would remain well below agreed commitments under the Uruguay Round Agreement on Agriculture (URAA). Stochastic estimates indicate that the mean value of the U.S. Aggregate Measure of Support (AMS) is substantially greater than the deterministic point estimate. In 41.8 percent of 500 stochastic outcomes, the URAA AMS limit is exceeded at least once between 2006 and 2014.