Transcript Lecture1_Introduction

Introduction: Context and
Motivation
Economics of Food Markets
Lecture 1
Alan Matthews
Lecture objectives
• To introduce some of the issues dealt with
in the course
• To give a sense of the very extensive
government intervention in and regulation
of agricultural and food markets. Course
focuses on the evaluation of these
interventions.
• To describe course requirements and
expectations of your involvement
A new era for food markets –
agflation?
• Historical experience has been steady
downward trend in real price of food, food
has never been cheaper
• Current dramatic food price increases
• Explanations?
– Demand growth in emerging economies
– Competition from biofuels
– Droughts and climate change
– Constraints on supply capacity
Taken from Von Braun, IFPRI, 2005
July 2007
January 2007
July 2006
January 2006
July 2005
January 2005
July 2004
January 2004
July 2003
January 2003
July 2002
January 2002
July 2001
January 2001
July 2000
January 2000
July 1999
January 1999
July 1998
January 1998
US$/tonne
Wheat prices (US No 2 Hard Red
Winter)
400
350
300
250
200
150
100
50
0
Further reform of Europe’s
agricultural policy
• No real reforms for 30 years, now three major
reforms since 1992 and discussions starting on
a fourth
• Explanations?
– Declining economic importance and greater
differentiation in farm structures has weakened power
of the farm lobby
– Environmentalist critique of the productivist model of
agriculture
– Consumer concerns not with prices but with food
safety and market power
– Development groups concern about impact of the
CAP on developing countries
– Anti-globalisation food security critique
Further reform of Europe’s
agricultural policy
• The reform agenda
– 2008 CAP Health Check
– 2009 EU Budget Review
– 2010-2013 Negotiation of next Financial
Perspective
– Implications of successful conclusion of Doha
Round
– Implications of further EU enlargement
(Western Balkans, Turkey)
Reviewing international trade rules
• Agriculture a stumbling block in the current Doha
Development Round of trade talks
• Absence of international trade disciplines on
agricultural policies until the Uruguay Round
1994
• What type of trade rules are appropriate to allow
legitimate policy space to developed and
developing country governments while avoiding
negative spillovers on third countries?
Agricultural exceptionalism
• Is agriculture different?
• Plenty of evidence that it is treated
differently
– Very significant trade protection and support
– International trade rules different for
agriculture
– Very prominent role in EU budget
– Different mechanisms for EU decision-making
Agricultural exceptionalism
• Reasons for different treatment
– Economic characteristics of food markets
– Political and social importance of farm
communities
– Food security concerns
– Agriculture as a provider of public goods
• Importance in land management, watershed
management
• Agriculture as a driver of rural development
EU budget expenditure by heading
(commitment expenditures, EUR million)
Source:
Commission
Financial
Report 2006
Source: Commission Budget Review Consultation Paper September 2007
Paradigms in agricultural policymaking
• The ‘dependent agriculture’ or ‘state
assistance’ paradigm
• The ‘competitive agriculture’ paradigm
• The ‘European Model of Agriculture’ of
multifunctional agriculture
• The ‘food fundamentalist’ paradigm
Paradigms frame the objectives which guide
agricultural policy-making
Agriculture in the Irish economy
Source: Department of Agriculture and Food, Annual Review and Outlook 2005-06
Agriculture in the Irish economy
Source: Department of Agriculture and Food, Annual Review and Outlook 2005-06
Food Markets
Factor markets
Input markets
Farmers
Farm product
markets
International
trade
Wholesale
markets
Distributors and
retailers
Retail markets
Consumers
Processors
A ‘corporate view’ of the global agrifood business chain
Source: Von Braun, J. The World Food Situation: An Overview, IFPRI, 2005
Characteristics of food markets
• Primary commodity markets
– Competitive markets characterised by volatility, declining terms
of trade and weak bargaining power of producers
• Factor markets
– Missing markets (environment, agricultural research), regulation
of competing uses (land)
• Input and food wholesale markets
– Concentrated markets, concerns about market power
• Food retail markets
– Changing consumer behaviour, asymmetry of information, food
safety, advertising
• International trade markets
– Level playing field?, fair trade, global supply chains
The policy analysis perspective
• Food markets are heavily regulated for all
kinds of reasons
– What objectives?
– What instruments?
– Is the intervention efficient?
– Is the intervention equitable?
• Tools of welfare/cost benefit analysis
The Food Markets course
• Examines policy issues arising from the
operation of food and agricultural markets
• Emphasises blend of institutional
knowledge and application of economic
principles
• Uses simple graphical analysis of markets
as the principal methodology
• Addresses topical issues, e.g. WTO trade
talks, biofuels, CAP reform
Food Markets outline
• Introduction and
motivation
• Agricultural policy
objectives – why support
farming?
• EU agricultural policy
• Economics of price
support policies
• Rural development and
biofuels policies
• Managing agriculture’s
impact on the
environment
• Regulating agricultural
trade and WTO rules
• Impacts of agricultural
trade liberalisation
• Market power in the food
chain
• Food law and food safety
Food Markets assessment
• Examination ( 70%)
– Eight questions, answer four
• Two assessments (15% each)
• Tutorial classes
– Active learning, student presentations
• Contact and office hours
– Tuesdays 4-5 pm, Wednesdays 3-4 pm
– [email protected]
Food markets reading
• Wide reading expected
• Core readings for each topic
• Supplementary readings for those who
intend to specialise in the topic
Hope you enjoy the course!