IDEAS home Printed from https://ideas.repec.org/a/bla/agecon/v52y2021i1p3-17.html
   My bibliography  Save this article

Impacts of agricultural price support policy on price variability and welfare: Evidence from China's soybean market

Author

Listed:
  • Wenting Wang
  • Longbao Wei

Abstract

China is a predominant soybean importer; thus, its domestic soybean policies have a large impact on world soybean market dynamics. We develop the first aggregate structural econometric model of China's soybean market and link it to the rest of the world (ROW), which allows us to analyze the impacts of China's soybean price support policy that ran from 2008 to 2013. We investigate the impacts of China's policy on the variability of their domestic and world soybean prices, and adopt a Monte Carlo simulation to evaluate the effects on distributional and aggregate welfare. Our results indicate: (a) after China's soybean price support policy, price transmission elasticity decreases, China's domestic price variability decreases, and world price variability increases; (b) China's producer surplus increases, consumer surplus decreases and the net welfare change in their domestic market is negative; and (c) although soybean exporting countries in the ROW experience significant welfare gains, the world net welfare change is negative.

Suggested Citation

  • Wenting Wang & Longbao Wei, 2021. "Impacts of agricultural price support policy on price variability and welfare: Evidence from China's soybean market," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 3-17, January.
    • Handle: RePEc:bla:agecon:v:52:y:2021:i:1:p:3-17
    DOI: 10.1111/agec.12603
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/agec.12603
    Download Restriction: no
    File URL: https://libkey.io/10.1111/agec.12603?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Sergio H. Lence & Stéphan Marette & Dermot J. Hayes & William Foster, 2007. "Collective Marketing Arrangements for Geographically Differentiated Agricultural Products: Welfare Impacts and Policy Implications," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 947-963.
    3. Will Martin & Kym Anderson, 2012. "Export Restrictions and Price Insulation During Commodity Price Booms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(2), pages 422-427.
    4. Marc Nerlove, 1956. "Estimates of the Elasticities of Supply of Selected Agricultural Commodities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 38(2), pages 496-509.
    5. Tina L. Saitone & Richard J. Sexton, 2010. "Product Differentiation and Quality in Food Markets: Industrial Organization Implications," Annual Review of Resource Economics, Annual Reviews, vol. 2(1), pages 341-368, October.
    6. Kym Anderson, 2009. "Krueger/Schiff/Valdes Revisited: Agricultural Price and Trade Policy Reform in Developing Countries since the 1980s," School of Economics and Public Policy Working Papers 2009-22, University of Adelaide, School of Economics and Public Policy.
    7. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    8. Hejazi, Mina & Marchant, Mary A., 2017. "China’s Evolving Agricultural Support Policies," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 32(2), June.
    9. Bowen Chen & Nelson B. Villoria & Tian Xia, 2020. "Tariff quota administration in China's grain markets: An empirical assessment," Agricultural Economics, International Association of Agricultural Economists, vol. 51(2), pages 191-206, March.
    10. Anderson, Kym & Nelgen, Signe, 2012. "Trade Barrier Volatility and Agricultural Price Stabilization," World Development, Elsevier, vol. 40(1), pages 36-48.
    11. Huang, Jikun & Wang, Xiaobing & Rozelle, Scott, 2013. "The subsidization of farming households in China’s agriculture," Food Policy, Elsevier, vol. 41(C), pages 124-132.
    12. Michael J. Roberts & Wolfram Schlenker, 2013. "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate," American Economic Review, American Economic Association, vol. 103(6), pages 2265-2295, October.
    13. Zheng, Yuqing & Wood, Dallas & Wang, H. Holly & Jones, Jason P.H., 2018. "Predicting Potential Impacts of China’s Retaliatory Tariffs on the U.S. Farm Sector," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 33(2), June.
    14. Stanley R. Thompson & Wolfgang Gohout & Roland Herrmann, 2002. "CAP Reforms in the 1990s and their Price and Welfare Implications: The Case of Wheat," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(1), pages 1-13, March.
    15. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 635-654.
    16. Won W. Koo & P. Lynn Kennedy, 2006. "The Impact of Agricultural Subsidies on Global Welfare," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(5), pages 1219-1226.
    17. Helmut Herwartz & Alberto Saucedo, 2020. "Food–oil volatility spillovers and the impact of distinct biofuel policies on price uncertainties on feedstock markets," Agricultural Economics, International Association of Agricultural Economists, vol. 51(3), pages 387-402, May.
    18. Nico Heerink & Marijke Kuiper & Xiaoping Shi, 2006. "China's New Rural Income Support Policy: Impacts on Grain Production and Rural Income Inequality," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(6), pages 58-69, November.
    19. John Baffes & Bruce Gardner, 2003. "The transmission of world commodity prices to domestic markets under policy reforms in developing countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(3), pages 159-180.
    20. Wu, De-Min, 1973. "Alternative Tests of Independence Between Stochastic Regressors and Disturbances," Econometrica, Econometric Society, vol. 41(4), pages 733-750, July.
    21. Wusheng Yu & Hans G. Jensen, 2010. "China’s Agricultural Policy Transition: Impacts of Recent Reforms and Future Scenarios," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 343-368, June.
    22. Minghao Li & Edward J. Balistreri & Wendong Zhang, 2018. "The 2018 Trade War: Data and Nascent General Equilibrium Analysis," Center for Agricultural and Rural Development (CARD) Publications 18-wp587, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    23. Kym Anderson, 2010. "Krueger, Schiff, and Valdés Revisited: Agricultural Price and Trade Policy Reform in Developing Countries since 1960," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(2), pages 195-231.
    24. A. C. Zwart & K. D. Meilke, 1979. "The Influence of Domestic Pricing Policies and Buffer Stocks on Price Stability in the World Wheat Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 61(3), pages 434-447.
    25. Jikun Huang & Jun Yang & Scott Rozelle, 2010. "China's agriculture: drivers of change and implications for China and the rest of world," Agricultural Economics, International Association of Agricultural Economists, vol. 41(s1), pages 47-55, November.
    26. Taheripour, Farzad & Tyner, Wallace E., 2018. "Impacts of Possible Chinese 25% Tariff on U.S. Soybeans and Other Agricultural Commodities," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 33(2), June.
    27. LIU, Mingxing & XU, Zhigang & SU, Fubing & TAO, Ran, 2012. "Rural tax reform and the extractive capacity of local state in China," China Economic Review, Elsevier, vol. 23(1), pages 190-203.
    28. Yao, Guolin & Hillberry, Russell, 2018. "Structural Gravity Model Estimates of Nested CES Import Demands for Soybeans," 2018 Annual Meeting, August 5-7, Washington, D.C. 274281, Agricultural and Applied Economics Association.
    29. Lichtenberg, Erik & Zilberman, David, 1986. "The Welfare Economics of Price Supports in U.S. Agriculture," American Economic Review, American Economic Association, vol. 76(5), pages 1135-1141, December.
    30. Simone Severini & Antonella Tantari, 2013. "The impact of agricultural policy on farm income concentration: the case of regional implementation of the CAP direct payments in Italy," Agricultural Economics, International Association of Agricultural Economists, vol. 44(3), pages 275-286, May.
    31. Margot Anderson & Philip Garcia, 1989. "Exchange Rate Uncertainty and the Demand for U.S. Soybeans," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(3), pages 721-729.
    32. Colman, David, 1985. "Imperfect Transmission of Policy Prices," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 12(3), pages 171-186.
    33. Larue, Bruno & Ker, Alan, 1993. "World Price Variability versus Protectionism in Agriculture: A Causality Analysis," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 342-346, May.
    34. Colin A. Carter & Funing Zhong & Jing Zhu, 2012. "Advances in Chinese Agriculture and its Global Implications," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(1), pages 1-36.
    35. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-125, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liao, Zhenqi & Zeng, Hualiang & Fan, Junliang & Lai, Zhenlin & Zhang, Chen & Zhang, Fucang & Wang, Haidong & Cheng, Minghui & Guo, Jinjin & Li, Zhijun & Wu, Peng, 2022. "Effects of plant density, nitrogen rate and supplemental irrigation on photosynthesis, root growth, seed yield and water-nitrogen use efficiency of soybean under ridge-furrow plastic mulching," Agricultural Water Management, Elsevier, vol. 268(C).
    2. Jin, Yan & Gardebroek, Cornelis & Heerink, Nico, 2023. "The Impact of Chinese Rice Support Policies on Rice Acreages," 97th Annual Conference, March 27-29, 2023, Warwick University, Coventry, UK 334550, Agricultural Economics Society - AES.
    3. Luca Cattivelli & Federico Antonioli, 2023. "When cointegration is interrupted: Price transmission analysis in the Italian dairy‐feed industry," Agribusiness, John Wiley & Sons, Ltd., vol. 39(3), pages 744-761, July.
    4. Song, Ge & Ren, Gaofeng, 2022. "Spatial response of cultivated land use efficiency to the maize structural adjustment policy in the "Sickle Bend" region of China: An empirical study from the cold area of northeast," Land Use Policy, Elsevier, vol. 123(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wenting Wang & Longbao Wei, 2019. "Impacts of Agricultural Price Support Policies on Price Variability and Welfare: Evidence from China's Soybean Market," Center for Agricultural and Rural Development (CARD) Publications 19-wp592, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. C. Larochez-Dupraz & M. Huchet-Bourdon, 2016. "Agricultural support and vulnerability of food security to trade in developing countries," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 8(6), pages 1191-1206, December.
    3. Tian, Qing & Holland, John H. & Brown, Daniel G., 2016. "Social and economic impacts of subsidy policies on rural development in the Poyang Lake Region, China: Insights from an agent-based model," Agricultural Systems, Elsevier, vol. 148(C), pages 12-27.
    4. Anderson, Kym, 2022. "Trade-related food policies in a more volatile climate and trade environment," Food Policy, Elsevier, vol. 109(C).
    5. Kym Anderson, 2022. "Agriculture in a more uncertain global trade environment," Agricultural Economics, International Association of Agricultural Economists, vol. 53(4), pages 563-579, July.
    6. Doko Tchatoka, Firmin Sabro, 2012. "Specification Tests with Weak and Invalid Instruments," MPRA Paper 40185, University Library of Munich, Germany.
    7. O'Brien, Raymond & Patacchini, Eleonora, 2003. "Testing the exogeneity assumption in panel data models with "non classical" disturbances," Discussion Paper Series In Economics And Econometrics 0302, Economics Division, School of Social Sciences, University of Southampton.
    8. Michael O'Connor Keefe & David Gallagher, 2014. "Does the effect of revealed private information on initial public offering (IPO) first trading day return differ by IPO market heat?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(3), pages 921-964, September.
    9. Guilhem Bascle, 2008. "Controlling for endogeneity with instrumental variables in strategic management research," Post-Print hal-00576795, HAL.
    10. Woutersen, Tiemen & Hausman, Jerry A., 2019. "Increasing the power of specification tests," Journal of Econometrics, Elsevier, vol. 211(1), pages 166-175.
    11. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
    12. Russell Davidson & Victoria Zinde‐Walsh, 2017. "Advances in specification testing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1595-1631, December.
    13. Zhang, Chengsi & Dang, Chao, 2018. "Is monetary policy forward-looking in China?," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 4-14.
    14. Magrini, Emiliano & Morales-Opazo, Cristian & Balie, Jean, 2014. "Supply response along the value chain in selected SSA countries: the case of grains," 2014: Food, Resources and Conflict, December 7-9, 2014. San Diego, California 197193, International Agricultural Trade Research Consortium.
    15. LaFrance, Jeffrey T., 1999. "U.S. Food and Nutrient Demand and the Effects of Agricultural Policies," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt52h9v4dq, Department of Agricultural & Resource Economics, UC Berkeley.
    16. Adrian C. Darnell, 1994. "A Dictionary Of Econometrics," Books, Edward Elgar Publishing, number 118.
    17. M. Huchet Bourdon & C. Laroche Dupraz, 2014. "National food security: a framework for public policy and international trade," FOODSECURE Working papers 17, LEI Wageningen UR.
    18. Anderson, Kym & Strutt, Anna, 2014. "Food security policy options for China: Lessons from other countries," Food Policy, Elsevier, vol. 49(P1), pages 50-58.
    19. Rui HAO & Zheng WEI, 2009. "Sources Of Income Differences Across Chinese Provinces During The Reform Period: A Development Accounting Exercise," The Developing Economies, Institute of Developing Economies, vol. 47(1), pages 1-29, March.
    20. Zhang, Chengsi & Dang, Chao, 2018. "Is Chinese monetary policy forward-looking?," BOFIT Discussion Papers 6/2018, Bank of Finland Institute for Emerging Economies (BOFIT).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:agecon:v:52:y:2021:i:1:p:3-17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/iaaeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.