Transcript PowerPoint - Agricultural Policy Analysis Center

Agri-Food and International
Trade: National Specificity
Daryll E. Ray
University of Tennessee
Agricultural Policy Analysis Center
The International Economic Forum of the Americas
Conference of Montreal
June 12, 2013
APAC
Food
IS Different
• Food is a national security issue for
most countries
– Countries want to domestically produce as
much of their food as possible
• Political considerations
– Need to feed the population
– Need to provide a living for millions in agriculture
– Need an orderly exit of workers out of agriculture
• AND food and agriculture are unique in
both their demand and their supply
APAC
Food is Different …
It is a daily biological requirement: Can’t walk
away and do without it (violates non-coercive assumption)
•As a result the aggregate demand for food is relatively
stable regardless of price
– People will pay almost anything (or as much as they can)
when food supplies are limited and prices are high
– When prices are low they will not pay or purchase any more
than necessary
– When prices are low people may change their mix of foods
and add services, but aggregate demand increases very
little—people do not eat four meals a day in response to
lower prices
•Food demand changes little in response to changes in
price
APAC
Food is Different …
Production is the result of biological processes
•These are more constrained than the manufacturing
processes of other products
– Limited annual production periods
• Frost-free days in temperate zones
• Timing of rainfall in monsoonal zones
– Constrained by natural forces
• Temperature
• Weather
– Once planted, the precise production controls available to
other sectors are not available to most crop production
•Crop production changes little in response to changes
in price within a crop season
APAC
Food is Different …
•Contrary to other industries, when prices are “low”—
even across production seasons…
– Farmers tend to plant all their acres continually
– Farmers don’t and “can’t afford to” reduce their
application of yield-determining inputs
– Who farms the land may change
– Essential resource—land— and other resources
remain in production in the short- to medium-run
(violates perfect resource mobility assumption)
•Crop production changes little in response to changes
in price from one year to another
APAC
Trade Implications
• Countries that could import food staples more
cheaply than producing it, don’t (unless they have to)
– At least in the quantities that economists would
normally predict
• Countries use whatever means available to
protect domestic producers; slums already full
– To the continual frustration of economists, farmers
in developed countries and free traders everywhere
• But then, why would we expect anything else??
APAC
WTO As We Know It…
• Stripped to bare essentials, the WTO explicitly
or implicitly assumes:
– Economic considerations trump all else
– Food and Ag have the same walk-away ability
and same resource mobility as other sectors
– All economic activity shows up in GDP
– GDP is a universally good indicator of
countries’ economic wellbeing
• None of these tends to be true in the case
of food and agriculture
APAC
In the Case of Food and
Agriculture…
• Economics is important but staying alive and
having dependably-available food tops the list
– People do not die or storm the streets because
iPhones are not available or cost too much
• Agriculture’s supply and demand curves do not
look like those in Econ 101 (much steeper, look more vertical)
• Most of the food produced by the poorest farm
families are self consumed—not marketed
• Pushing self-sufficient farmers off the land to
produce for the “market” may increase
measured GDP, but…
APAC
WTO …
• Does not account for the unique nature of food and
agriculture
• Needs to understand the difference between DVD
players and staple foods
• Needs to be reformulated to take into account the
unique characteristics of food and agriculture
– Food Reserves to address the inevitable shocks to the
availability and price of food (also facilitates international trade)
– Promoting increases in worldwide productive capacity,
especially a degree of sovereignty of domestic production
– Addressing:
• Agriculture’s inability to gauge the use of productive capacity
to match demand by creating methods to overcome
APAC
– Agriculture’s inability to self-correct in a timely fashion
Weekly Policy Column
To receive an electronic
version of our weekly ag
policy column send an
email to:
[email protected]
requesting to be added to
APAC’s Policy Pennings
listserv
APAC