Research Accomplishment Reports 2008

Impacts of Trade and Domestic Policies on the Competitiveness and Performance of Southern Agriculture

M.R. Reed, D. Freshwater
Department of Agricultural Economics

 

Non-Technical Summary

Current and future domestic policy reform and changes in trade agreements are important in determining the competitiveness of agriculture in the U.S., particularly in the South. This project is the primary national cooperative research effort to assess structural adjustments, changes in international competitiveness, and international trade with respect to major agricultural commodities resulting from a dynamic, global policy environment.

The influence on Southern agriculture of domestic policy reform and changes in trade agreements is important. Without a doubt, trade and competitive impacts stemming from changes in domestic agricultural and economic policies, combined with continued reforms in trade treaties and agreements, will be major factors in determining the continued competitiveness of the Southern agriculture sector.

This project will help in understanding and predicting changes resulting from changes in trade agreements. Through this work there will be an improved ability to understand and predict changes resulting from changes in domestic policy.

Project Description

Babool measures the impacts of environmental policies, competition policies, and food safety standards on exports from certain developing countries. He finds that the value of exports in food and food products is negatively affected by aflatoxin standards. A one percent increase in food safety standards decrease exports by approximately one percent. He finds that environmental regulations play a large role in determining international competitiveness in some industries, but it plays no role in determining food exports.

Rattanopas finds that the recent changes in U.S. and European Union policies with respect to storage have had minimal impacts on world prices and trade. The fear of severe shocks because governments are no longer holding stocks cannot be confirmed from observations over the past 20 years.

The dissertation by Peng shows that trade liberalization in China (brought about by their accession to the WTO) may not lead to improved livelihoods in all regions of the country. Remote areas that have high transactions costs in getting goods to and from the seaports might not lose from freer trade. China must focus on improving infrastructure and lowering market transactions costs if people in these areas are to improve their living standard.

Xiao examines the causal links between wheat exports and output for Australia, Canada, and the U.S., who follow very different policies and yet rely heavily on export markets. Australia was found to experience export-led production growth; production-led exportation was not observed for this country. Canada and the U.S. have bi-directional effects between exports and production. For Canada, the results suggest that the causality from production to exports is stronger than the causality from exports to production. For the U.S., export variance is explained much more by the variance in production -- just the opposite of Canada.

Three of the studies published looked specifically at quality characteristics of meat products (beef and chicken) exported to Japan. Each study found that U.S. products have specific quality characteristics that distinguish them from meat products from other suppliers.

Impact

Large changes in food standards (which are common these days) will have salutary, deleterious impacts on food exports by developing countries. When importing countries change their policies, it is difficult for exporting countries to comply and it can be costly in terms of lost exports. The World Trade Organization and other groups need to assure that food standards reflect sound science and represent a legitimate balancing of risks and implementation costs.

The analysis from Rattanopas quells the fears that some observers have about the lack of government grain stocks. She finds that the U.S.'s move from government to private storage has had little impact on world wheat prices and trade patterns. The fear that smaller private storage stock levels will lead to more erratic price movements in the future was not borne out by the study.

The analysis by Peng suggests that the U.S. should support countries in their efforts to improve infrastructure in remote, rural areas of less developed countries. Without such an improvement in infrastructure, the US will see little or no increase in exports to these areas with trade liberalization.

The analysis from Xiao supports the idea that agricultural policies of all three major wheat exporters have lead to increased economic growth. Export expansion has a favorable impact on production growth for all major wheat exporters and this has allowed them to increase wheat output over the years.

Publications

Ashfaquel Babool. The Impact of Domestic Policies on International Competitiveness. Ph.D. 2007.

Xiao, Qing and Michael Reed. Export and Production Growth: Evidence from Three Major Wheat Exporters Of Australia, Canada, and the United States Applied Economics 39 (2007): 309-21.

Poosiripinyo, Rangsit and Michael Reed. Measuring Market Power in the Japanese Chicken Meat Market in New Topics in International Agricultural Trade and Development. Miljkovic, editior. Nova Science Publishers. 2006: 135-148.

Peng, Xuehua. Trade Liberalization and Division of Labor: Implications for Poverty in China. Ph.D. 2006.

Rattanopas, Thitinart. Policy Simulation of the World Wheat Market. Ph.D. 2006.

Xiao, Qing. Three Essays in International Economics. Ph.D. 2005.

Reed, Michael. Outsourcing and Foreign Direct Investment: Boon or Bane Discussion. Review of Agricultural Economics 27 (2005) No. 3: 402-4.

Reed, Michael and Saghaian, S. Measuring the Intensity of Competition in the Japanese Beef Market. Journal of Agricultural and Applied Economics. 36, Volume 1 (April 2004): 113-22.

Saghaian, S. and Reed, M. Demand for Quality-Differentiated Beef in Japan. Agrarwirtschaft (German Journal of Agricultural Economics) 53 (2004):221-29.