Transcript Commodity Programs, Distorted Markets, and

Commodity Programs, Distorted
Markets and Economic
Consequences of Invasive
Species Policy
Daniel Sumner, Julian Alston, Hyunok Lee
and Albert Acquaye
University of California, Davis
August 20, 2004
Broad Objectives of the Project

Improve evaluation of economic
consequences of invasive species and related
policies by considering more fully the
interactions with farm commodity policies.

Conduct three case studies to illustrate
conceptually and assess empirically the
implications of commodity policies for welfare
effects of invasive species and related policies.
Background

Elaborate and complex government programs
and policies pervade agriculture and apply to
commodities where invasive species issues are
also important.

We consider such policies as commodity
payment programs, price supports, crop
insurance, marketing orders and trade barriers.

The welfare incidence of invasive species events
and policies to deal with them must therefore be
analyzed in the context of other policies.
Approaches

Our models will include the commodity policies as part
of the framework of the industry and ask how an
invasive species event or policy affects the
equilibrium. Welfare consequences will be drawn from
these models.

Policy for invasive species and policy for agricultural
R&D have much in common.

The R&D literature provides specific insights that can
guide the evaluation of invasive species policy in the
presence of various commodity policies.
Case Studies
 Three
case studies:

Karnal bunt in wheat.

Foot and Mouth Disease (FMD) in dairy.

Citrus canker in citrus.
Justification for Case Studies

We picked case studies such that we have the
opportunity to study the interactions between
invasive species policies and the major
agricultural commodity policies used in the
United States.

Have been picked for empirical results on the
economic impacts of invasive species policy in
distorted markets.

Citrus canker and karnal bunt are currently
present in the United States, and FMD is a
potential serious threat.
Karnal Bunt (1)
1.
2.
3.
4.
5.
Healthy wheat seed.
"Tip" infection.
More advanced tip infection.
Advanced infection.
"Canoe" symptom hollowing out interior of seed
Karnal Bunt (2)

Effects of an outbreak include:

Varying degrees of bunted kernels.

Fishy-smelling wheat grain and flour.

No harm to human life but unpalatable in infestation levels of 3
percent or more.

Minor change to production quantities.

Reduction in the quality of flour.

Trade embargo placed on wheat from infestation area

Increased cost of production. Wheat grain and wheat need to be
treated before they can be processed even for livestock feed
within quarantine area.
Karnal Bunt (3)

Commodity policies for wheat

Direct payments.

Counter-cyclical income support payments.

Marketing loan programs.

Crop yield and revenue insurance.

Export credit guarantees.

Irrigation subsidy in the southwest desert.
Foot and Mouth Disease (1)
Ruptured blisters on the nose
and mouth of a cow, with
excessive salivation.
A ruptured vesicle with blanching of
tissue in the interdigital space.
Foot and Mouth Disease (2)

Effects of an outbreak include:

Causes pyrexia, anorexia, and shivering in animals.

Characterized by blister-like lesions followed by erosions on the
tongue and lips, in the mouth, on the teats, and between the
hooves.

Reduction in milk production for 2-3 days in cattle, and after
recovery pre-infection production rates are hardly ever
matched.

Mortality is very low in adults but higher in calves.

Beef cattle do not regain lost weight for many months.

Loss of markets (as a result of embargoes on meat).
Foot and Mouth Disease (3)
 Commodity
policies for dairy

Import barriers and export subsidies.

Federal milk marketing orders.

Milk price support program.

Milk income loss contract payments.
Citrus Canker (1)
Fruit symptoms of Citrus Canker on
sweet orange
Lesions on orange leaves and twigs
Citrus Canker (2)

Effects of an outbreak include:

Lesions on fruits.

Increased use of chemicals to treat groves for prevention of
attack and treatment of compromised trees.

Use of chemicals to clean fruits before they get to the market.

5 percent to 10 percent increase in fruit drop, results in
reduction in frozen concentrated orange juice (FCOJ)
production.

Quality of FCOJ is not affected.

Trade restrictions are placed on U.S. exports of fruits,
peels, and leaves (but not FCOJ).
Citrus Canker (3)
 Commodity


policies for Florida citrus:
Federal crop insurance for oranges.

In 2002, 69% of eligible Florida orange acreage was under CAT insurance.

About 88% of eligible Florida acreage was covered under federal crop
insurance.
Import tariffs on FCOJ.

Tariff of $0.0785/liter for 2004 (about 40%).

Imports accounted for about 12% ($227 million) of domestic FCOJ
consumption in 2003.
Invasive Species Policy and Import
Tariffs
Price
U.S. Demand
U.S. Supply
Eradication of invasive species
Invasive species outbreak
U.S. price
U.S. tax revenue
World price
U.S. imports
Quantity
Benefits from the Eradication of Invasive
Species in the Presence of Import Tariffs
Price
U.S. supply as a result of
Invasive species outbreak
U.S. Supply
U.S. price
B
Supply shift as a result of eradication
World price
A
Benefits
No
tariff
Import
tariff
Producer
A
A+B
Taxpayers
0
-B
Total
A
A
Quantity
Work Plan
Documentation of commodity policies.
 Documentation of three diseases.
 Models for wheat, dairy, and citrus.

Supply response/demand response.
 Models of commodity policies (especially,
crop insurance).


Citrus canker to be completed for
January 2005 ASSA meetings.