Can the Japanese agri-food producers survive under freer trade? A general equilibrium analysis with farm heterogeneity and product differentiation

The roles of firm heterogeneity and product differentiation in the manufacturing industries have attracted research attention on the “new new trade theory.” The agricultural sectors also produce new goods using product differentiation through breeding, branding, and other activities. In reaction to globalization, the Japanese Government has sought to revitalize its agri-food sectors by promoting exports of differentiated products. This computable general equilibrium study examines the relevance of this policy, focusing on five agri-food sectors other than grains. We simulate Japan’s three trade deals and a policy intervention that cuts fixed export costs to promote exports. We show that only a few agri-food sectors can increase exports and maintain domestic output under freer trade, and that export promotion would markedly increase entrants into export markets and increase exports of the vegetables and fruit, and processed food product sectors. In these trade deals, tariff and nontariff barriers have different impacts on trade, output, and farm/firm entry.