Transcript Section 1 - University of Hawaii at Manoa

1
INTRODUCTION TO THE COURSE:
WHY SHOULD WE STUDY
AGRICULTURAL TRADE?
Lectures 1 AHEED Course “International Agricultural Trade
and Policy”
Taught by Alex F. McCalla, Professor Emeritus, UC Davis.
March 29 ,2010, University of Tirana, Albania
Course Purpose and Outline
2
Is in 4 Sections:
Section 1--to acquaint students with the nature of agricultural trade and how it
is influenced by domestic and international policies. It addresses agricultural
protection, current state of trade and recent events.
Section 2—A review of Neo Classical Trade Theory: General equilibrium trade
theory will be briefly reviewed and a simple partial equilibrium two country
model will be introduced.
Section 3--A simple partial equilibrium trade model will be the basic analytical
framework used to analyze the impacts of protective trade and domestic
agricultural policies on world markets. Empirical approaches will be reviewed
and some attention will be paid the Uruguay Round WTO Agriculture
Agreement including new trade remedy law and current Doha Round
negotiations.
Section 4--Special topics will include new trade theory, globalization,
biotechnology and trade, and what may be ahead for the world economy.
Lecture Schedule -1
3
Section 1: The Nature, Evolution and Current Status of International
Agricultural Trade.
Lecture #






1 -March 29. Introduction to course; Why we should study agricultural trade; While it is a
declining share of total trade it remains the most protected sector; While nations pursue domestic
support policies which require border protection international trade is critical to national food
security strategies.
2 –March 29. The History of Agricultural Protectionism.
3 –March 30. A Quantitative Snap shot of agricultural trade- commodity composition, bulk vs
processed, major players and trade flows.
4 –March 30. Agricultural trade in the broader macro context- BRIC’s, growth rates, trade flows
and Balance of Payments.
5 –March 31. (Public Lecture). Agricultural Commodity Markets in a broader context- linkages to
other commodity and financial markets.
6 –March 31. (Public Lecture). The Commodity Price Spike of 2007/08- what caused it? Some
alternative theories. Does it portend an end to declining real grain prices? What has happened since
and why?
Section 2: A Review of Neo-classical Trade Theory.


7 –April 1. Classical approaches- Adam Smith – absolute advantage; Ricardian trade theorycomparative advantage; Heckscher-Ohlin –Samuelson (HOS) neo-classical model.
8 –April 1. HOS cont.; financial flows and balance of payments.
Lecture Schedule - 2
4
Section 3. Approaches to Trade Policy Analysis and Modeling.





9. –April 2. A partial –equilibrium approach. The simple graphics of excess S & D functions; a two
country world; introduction of transport costs and simple unit tariffs.
April 2. MID-TERM EXAM 1 hour
10 April 5. Modeling country interventions; ad valorem tariffs, quotas, variable levies; impacts on
price stability and price transmission.
11 –April 5. Tariff Rate Quota’s (TRQ’s)
12– April 6. Empirical approaches to trade modeling: General Equilibrium (CGE) models-World
Bank; Partial Equilibrium IFPRI IMPACT model.
13–April 6. Trade Remedy Law & Agriculture: anti dumping, countervailing duties, and dispute
resolution.
Section 4: Topics.





14 –April 7. New Trade Theory; Political Economy of Trade.
15 –April 7. Globalization and Agriculture.
16 –April 8. A Case Study of an emerging trade issue- Biotechnology and GMO’s .
17–April 8. What’s Ahead for the World Economy?
April 9 Class summary and FINAL EXAM (2 hours)
Why Study Agricultural Trade?
5


Agricultural trade is a small and declining share of world
merchandise trade- so why worry about it?
But it is the sector which remains the most protected



under GATT/WTO average tariffs on industrial trade have
decreased from in excess of 40% to less than 5% since 1950;
But average agricultural tariffs have remained in the 40-50%
range; (see next slide).
Thus benefits of potential gains from agricultural trade
liberalization are very large almost as much as if industrial tariffs
were reduced to zero;
The Uruguay Round Ag. Trade Agreement set the stage for
liberalization through tariffication but little real reduction has yet
been agreed despite 10 years of Doha talks
Why Study Agricultural Trade?-2
Because it needs reform.
6
1947
GATT's
establishment
1962
Pre-Kennedy
Round
1972
Post-Kennedy
Round
1987
Post-Tokyo
Round
Post-Uruguay
Round
Source: Organization for Economic Cooperation and Development
(OECD),
"Agricultural Policies in OECD Countries: A Positive Reform
Agenda"
(November 6,2002).
Why Study Agricultural Trade? -3
7





So reason one is there is a lot to be gained from making it work
better.
Reason 2 is that for some developing countries agricultural trade is
important either as a potential source of Fx earning or as a critical
source of food imports- for 15 developing countries> 50% OF
EXPORTS; for 20 developing countries >25% OF IMPORTS.
The composition is changing towards more processed and packaged
goods as the global super market revolution plays out.
For all countries international markets and how well they function is a
crucial element of their National Food Security Strategy.
So will look a few slides about these issues
The Changing Nature of Agricultural
Trade.-1
8

Agricultural Trade is a declining share of world
trade – never >40% but dropping steadily since
WWII, but nevertheless has grown –just less rapidly
than all trade.
Agricultural Trade Trends - Value and Share of Total Trade 1950 -2006
1950
1965
1976
1995
2000
Value of Ag Trade
20.6
$US Billion nominal
Ag Trade as % of
33.7
Total Merchandise Trade
2006
38.7
138
449
439
746
24.3
13.9
9.1
7.1
6.2
Rapid Growth in all trade since 1950 but
Agriculture Slower
9
The Changing Nature of Ag. Trade.-Composition is
shifting away from bulk commodities.
10
The Changing Nature of Agricultural
Trade.-Composition -2
11
Ag Trade critical to many small developing
countries-as food source
12
Ag Trade critical to least developed
countries- for export earnings
13
World Ag Markets important to all countries for
their National Food Security Strategy
14

Food Security Involves Four Critical Elements:
 Availability
 Access
of sufficient supplies of food;
to food via sufficient earned income or by
safety nets;
 Nutritional
Wholeness access to complete and healthy
diet; and recently added a fourth;
 Stable
Access to Sufficient Food at All Times - this
where world markets come in.
Many More Countries are Net Importers
15
What is A Food Security Strategy?
16


I Argue that every Country’s Obligation is Assure That
Every Citizen is Food Secure.
That Requires a Macro Economic and Social Policy
Commitment Equivalent to:

-Growth and Development
- Fiscal Balances
- Monetary Policy
- Balance of Payments Policy

- Sustainable Food Security.



Must be Comprehensive and Pursued at the
Presidential or Prime Ministerial Level
Why a Macro Policy at PM – Cabinet Level ?
17



Failure, as we have seen in many countries in the last three
years, is first and foremost a humanitarian and a political
crisis.
Left to fester it can lead to social instability.
Equally important a poorly designed policy can put other
macro economic policies at risk;
 Rising
fiscal costs of production subsidies and feeding
programs;
 Inflationary pressures from rising food prices;
 Drains on Foreign exchange balances;
And a devastating effect on the poor who spend more than
50% of their income on food.
How To Construct a Macro FS Strategy.
18
 The Task is Complex – On the Demand
side:
it involves forward projections of population,
income and urbanization to determine
commercial food demand;
 It requires projections of poverty and food
safety net needs;


This gives us Aggregate Consumption
Needs;
19
How To Construct a Macro FS Strategy-2
20
Consumers access food through the Domestic Supply
Chain made up of;
Retailers, wholesalers, processors and distributors
who can acquire their supplies from:
The Domestic Agricultural Sector or World Markets

Either as raw materials or processed products
21
How To Construct a Macro FS Strategy-3
22







On The Supply Side we need to assess the comparative
advantage of domestic agriculture;
What is our natural resource endowment?
What level of domestic supply of basic foods do we judge
to be essential; e.g. Japan on rice;
What can we profitably export and use the proceedings to
import food;
How we manage competition for resources e.g water;
How much should we invest in R&D?
This analysis will determine how much we need to trade
23
Food Security as a National Macro Policy
24
Fiscal
Costs
Trade
Policy
Bottom Line
25
If all countries depend on world markets for some of
their food supply;
 And many countries depend on world agricultural
markets for critical export earnings;
 Having an understanding of how these markets work;
and
 How they are influenced by domestic protective policies
pursued by most countries is important.
If you can show me one country that does not
intervene to some extent in agricultural and/or food
markets by managing the border =PRIZE
