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Understanding the Determinants of structural Change in World Food Markets

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  • Coyle, William T.
  • Mark Gehlhar
  • Thomas W. Hertel
  • Zhi Wang
  • Wusheng Yu

Abstract

American Journal of Agricultural Economics, 80(December):1052-1062. This study assesses the interaction between climate change and agricultural trade policies. We distinguish between two dimensions of agricultural trade policy: market insulation and subsidy levels. Building on the previous work of Tsigas, Frisvold and Kuhn (1997) we find that, in the presence of current levels of agricultural subsidies, increased price transmission --as called for under the Uruguay Round Agreement on Agriculture-- reduces global welfare in the wake of climate change. This is due to the positive correlation between productivity changes and current levels of agricultural support. Increases in subsidized output under climate change tend to exacerbate inefficiencies in the global agricultural economy in the absence of market insulation. However, once agricultural subsidies have also been eliminated, price transmission via the global trading system contributes positively to economic adaptation under climate change. products. This may partially explain the relatively slow growth of world grain import demand in recent years. In addition, bilateral agreements with East Asia, NAFTA, and the evolution of the CAP, have all had important impacts on the structure of world food and agricultural trade. The objective of this paper is to assess the relative role of each of the major forces-- consumer demand, factor accumulation, transport costs, and policy change--in driving changes in the composition of world food trade in 1980-1995. To do so, we employ a modified version of the Global Trade Analysis Project (GTAP) model of world trade which permits us to isolate the contribution of each of these related factors to the changing composition of world food trade in a general equilibrium context. We evaluate the relative role of each of these factors by simulating the model backwards in time, from 1995 to 1980 under different assumptions. This general approach, termed “backcasting” (i.e. backwards forecasting), takes as exogenous the basic drivers of change and attempts to explain the resulting change in food trade composition. The model-produced changes in the composition of agricultural and food trade are compared with historical trade data, to determine the relative importance of each factor on the changing composition of food trade. Given limited space, our focus will be on explaining the changes in the global composition of food and agriculture trade. A natural follow-on effort would target specific markets in more detail. This type of backcasting approach was first employed by Gehlhar (1997) who sought to explain the shift in exports of primary commodities to manufactures in East Asia in the 1980's. He calibrated the GTAP Model to 1992 data, then implemented shocks to factor endowments and economywide total factor productivity (TFP) in order to force each economy back to its 1982 levels of population, land, labor, human capital, physical capital and technology. By comparing actual and predicted changes in export shares in this period, he found human capital accumulation played a key role in explaining the change in the aggregate composition of East Asian exports. Gehlhar, Hertel and Martin (1994) built on this work in an effort to predict future changes in the pattern of agricultural trade from 1992-2002. They also emphasized the importance of supply-side determinants of agricultural trade. In this paper, we go beyond this earlier work in a number of ways. First, we focus on the composition of agricultural exports, rather than simply looking at the share of agriculture in total trade. Secondly, we incorporate the Cranfield et al. estimates of Rimmer and Powell’s recently developed, implicitly directly additive demand system (nicknamed AIDADS) into the GTAP Model. This permits us to better capture the impact of demand-side changes on the pattern of global tr

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Bibliographic Info

Paper provided by Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University in its series GTAP Working Papers with number 260.

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Date of creation: 1998
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Handle: RePEc:gta:workpp:260

Note: GTAP Working Paper No. 02
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Cited by:
  1. Blank, Steven C., 2000. "A Portfolio Of Threats To American Agriculture," 2000 Annual Meeting, June 29-July 1, 2000, Vancouver, British Columbia, Western Agricultural Economics Association 36349, Western Agricultural Economics Association.
  2. Marchant, Mary A. & Kumar, Sanjeev, 2004. "Demand Determinants For U.S. Processed Food Exports By Emerging/Low And Middle-Income Countries," 2004 Annual meeting, August 1-4, Denver, CO, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20276, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Donatella Baiardi & Carluccio Bianchi & Eleonora Lorenzini, 2013. "Food Competition in World Markets: Some Evidence from a Panel Data Analysis of Top Exporting Countries," Working Papers, University of Milano-Bicocca, Department of Economics 262, University of Milano-Bicocca, Department of Economics, revised Dec 2013.
  4. Gehlhar, Mark J. & Dohlman, Erik & Brooks, Nora & Jerardo, Alberto & Vollrath, Thomas L., 2007. "Global Growth, Macroeconomic Change, and U.S. Agricultural Trade," Economic Research Report, United States Department of Agriculture, Economic Research Service 55963, United States Department of Agriculture, Economic Research Service.
  5. Donatella Baiardi & Carluccio Bianchi & Eleonora Lorenzini, 2014. "Food competition in world markets: Some evidence from a panel data analysis of top exporting countries," DEM Working Papers Series, University of Pavia, Department of Economics and Management 083, University of Pavia, Department of Economics and Management.
  6. Gopinath, Munisamy & Carver, Jason, 2002. "Total Factor Productivity And Processed Food Trade: A Cross-Country Analysis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 27(02), December.
  7. Devadoss, Stephen, 1998. "Importance Of The Processed Food Sector For The U.S. Agricultural Industry," Trade Research Center Research Discussion Papers, Montana State University, Department of Agricultural Economics and Economics 29246, Montana State University, Department of Agricultural Economics and Economics.
  8. Alan A. Powell & Keith R. McLaren & K.R. Pearson & Maureen T.Rimmer, 2002. "Cobb-Douglas Utility - Eventually!," Centre of Policy Studies/IMPACT Centre Working Papers ip-80, Victoria University, Centre of Policy Studies/IMPACT Centre.
  9. van Berkum, Siemen & van Meijl, Hans, 2000. "The application of trade and growth theories to agriculture: a survey," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, Australian Agricultural and Resource Economics Society, vol. 44(4), December.
  10. Graham, Brett & Tyers, Rodney, 2002. "Global Population Forecast Errors, Economic Performance and Food Demand: Preliminary Simulations," 2002 Conference (46th), February 13-15, 2002, Canberra, Australian Agricultural and Resource Economics Society 125091, Australian Agricultural and Resource Economics Society.
  11. Blank, Steven C., 2001. "Globalization, Cropping Choices, And Profitability In American Agriculture," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, Southern Agricultural Economics Association, vol. 33(02), August.
  12. Jaakko Kiander & Risto Vaittinen & Tiiu Paas, 2002. "The Eastern Enlargement of the Eurozone and Labour Market Adjustment," Eastward Enlargement of the Euro-zone Working Papers, Free University Berlin, Jean Monnet Centre of Excellence wp06, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Aug 2002.
  13. Gehlhar, Mark J. & Dohlman, Erik, 2006. "Macroeconomic and Global Growth Influences on the U.S. Agricultural Trade Balance," 2006 Annual meeting, July 23-26, Long Beach, CA, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 21324, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Yu, Wusheng & Hertel, Thomas W. & Preckel, Paul V. & Eales, James S., 2004. "Projecting world food demand using alternative demand systems," Economic Modelling, Elsevier, Elsevier, vol. 21(1), pages 99-129, January.
  15. Domingues, Edson P. & Haddad, Eduardo A. & Hewings, Geoffrey, 2008. "Sensitivity analysis in applied general equilibrium models: An empirical assessment for MERCOSUR free trade areas agreements," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 48(2), pages 287-306, May.
  16. Ludena, Carlos E., 2004. "Impact Of Productivity Growth In Crops And Livestock On World Food Trade Patterns," 2004 Annual meeting, August 1-4, Denver, CO, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20366, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  17. Nin, Alejandro & Hertel, Thomas W. & Foster, Kenneth & Rae, Allan, 2004. "Productivity growth, catching-up and uncertainty in China's meat trade," Agricultural Economics, Blackwell, Blackwell, vol. 31(1), pages 1-16, July.
  18. Nin Pratt, Alejandro & Hertel, Thomas W. & Foster, Kenneth A. & Rae, Allan N., 2001. "Productivity Growth And Catching-Up: Implications For China'S Trade In Livestock Products," 2001 Annual meeting, August 5-8, Chicago, IL, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20590, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  19. Romano, Donato, 2006. "Agriculture in the Age of Globalization," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia, International Association of Agricultural Economists 25253, International Association of Agricultural Economists.
  20. Ron Duncan & Qun Shi & Rod Tyers, 2004. "Demographic Change and Demand for Food in Australia," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2004-441, Australian National University, College of Business and Economics, School of Economics.

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