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TRANSCRIPT
Trade Analysis for Development Policy:
Lessons from Cross-country Studies
Kym AndersonUniversity of Adelaide and CEPR
Annual Meeting of the Agricultural and Applied Economics Association, Denver CO, 25-27 July 2010
Financial assistance from the World Bank Trust Funds, particularly from DfID and BNPP, plus the ARC, are gratefully acknowledged, as are the contributions of the country case study authors and the Washington- and Adelaide-based
teams. Views expressed are the authors’ alone and not necessarily those of the World Bank or its Executive Directors. Project details are at www.worldbank.org/agdistortions
OutlineWhat have we learnt about how trade-related policies affecting agriculture evolve during the development process, the political economy forces behind them, and their effects?
What next, in terms of:
Prospective agric price and trade policy trends
Further research on distortions to agricultural incentives
Policy history pre-1950s
Agric trade has been restricted for centuries
Repeal of Britain’s Corn Laws in 1846 and subsequent freeing of European agric trade from 1860 was short-lived
Agric protection growth emerged in late 19th
century in Europe, & from 1904 in Japan
Agric tariffs raised further in early 1930s
• + preferential tariffs within British & other empires
Policy developments in 1950s/1960sGATT came into force in 1948, but initial rounds did little for agric markets
The 1958 Haberler Report on Trends in International Trade warned GATT Contracting parties of threat of agric protection growth in rich countries
Meanwhile, many developing countries, on gaining their independence (most by 1960), promoted import-substituting industrialization including via agric export taxation
Policy developments in 1970s/early1980s
D. Gale Johnson, in his 1973 book on World Agriculture in Disarray, despaired at the persistence of:
high agricultural protection in many high-income countries,anti-agric and anti-trade policies of developing countries, andthe tendency for both sets of countries to insulate their domestic food market from international price fluctuations
Disarray worsened for another dozen years, with agric protection growth in Europe, North America and Japan peaking in 1986, thanks to an agric export subsidy warMeanwhile, some middle-income economies ‘overshot’, going from taxing their farmers to protecting them from import competition (e.g. Korea, Taiwan)
Raising concern that other emerging economies may follow suit
Evidence of distortions up to mid-1980s
Extent of developing country policies’ effects on farmers’ incentives was provided, for 1960-84, by the 1988 Krueger/Schiff/Valdes study of 18 developing countries
Extent of high-income country policies’ effects on farmers’ incentives was provided, from 1986, by the OECD’s PSE/CSE estimates
Impact of both country groups’ policies in 1980s on the mean and variance of international food prices, trade and welfare was provided by various sectoral modeling groups
The good news for the 2 decades since
the Krueger/Schiff/Valdes study:
Many developing countries have undertaken major economic reforms since the 1980s
phased out their agric export taxes, reduced manuf protection, and allowed a larger role for markets to determine the value of their currency
Some rich countries also have begun to reduce trade-distorting supports for their farmers
partly through policy re-instrumentation towards somewhat decoupled measures
Even so, remaining distortionary agric policies as of 2004 are still large, and are still responsible for much of the instability in int’l agric markets
Evidence of lack of integration across
countries’ agricultural markets
Since 1974, real trade in all goods has grown at nearly twice the pace of real global GDP However, for agric, the share of global prod’n traded internationally has grown very little, apart from intra-EU tradeAgriculture’s 2004 share of global prod’n exported (excl. intra-EU) was only 8%
c.f. 31% for other primary products, 25% for other goods
How much have agric distortions been
reduced, how much intervention remains?
New World Bank study by 90 consultants, covering 75 countries (>90% of world agriculture) provides evidence for 1955-2007
available at www.worldbank.org/agdistortions
Measures Nominal Rate of Assistance for farmers (NRA)the percentage by which domestic prices for farm products exceed those in international markets
Also generates a Relative Rate of Assistance (RRA) to producers of agric relative to non-agric tradable goods
Defined as RRA = [(1+NRAagt)/(1+NRAnonagt)] – 1• so RRA<0 if NRAagt < NRAnonagt
Evolution of average RRA for all DCs, 1965-
2004: from very negative to slightly positive
10
-60
-40
-20
0
20
40
60
80
100
1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
percen
t
NRA non-ag tradables NRA ag tradables RRA
However, many distortions remain
Still much dispersion of NRAag and RRAs across countries
Even more so if non-focus developing countries had been included
Also much dispersion of NRAs across products within the agric and non-ag sectors of each country
In particular, an anti-trade bias persists
Dispersion in NRAagric, focus countries, 2000-04
-50
0
50
100
150
Zim
ba
bw
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ote
d 'iv
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bia
Ta
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Arg
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Ukra
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Se
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Eg
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ica
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Su
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th A
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Th
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Ma
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Pa
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Do
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Ba
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Bra
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Ch
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Sri
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ussia US
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Ko
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Sw
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No
rwa
y
NRAagric, focus vs predicted
non-focus countries, 2000-04 (%)
-50 0 50 100
SSAfrica non-focus
Asia non-focus
LAC non-focus
Africa focus
LAC focus
M. East & N. Africa non-focus
Asia focus
ECA focus
HIC focus
Anti-trade bias: in DCs, NRA ag export
taxation disappearing, but NRA ag import-
competing is >0 & growing
-50
-30
-10
10
30
50
1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
import-competing exportables total
Long-run trend in NRA ag import-competing goods is
growing as fast in DCs as in HICs: a worry for WTO
0
10
20
30
40
50
60
70
80
1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
perc
en
t
High-income countries Developing countries
How far have policy reforms reduced the
disarray in world agricultural markets?
New partial equilibrium measures:a Welfare Reduction Index (WRI), anda Trade Reduction Index (TRI)
They are based on Anderson/Neary Trade Restrictiveness Index theory
modified to account for difference between agric NRAs and CTEs (both of which can be positive or negative)
We’ve estimated them for each of the sample 75 countries
Definition of TRI (or WRI)
That ad valorem trade tax rate which, if applied uniformly across all tradable agricultural commodities in a country, would generate the same reduction in trade volume (or same economic welfare loss) as the actual cross-product structure of NRAs and CTEs in that country
Welfare reduction index: DCs, HICs and ETEs,
1960-64 to 2005-07, percent
0
20
40
60
80
100
1960 -64 1965 -69 1970 -74 1975 -79 1980 -84 1985 -89 1990 -94 1995 -99 2000 -04 2005 -07
Developing countries Europe’s transition econs.
High - income countries
Trade reduction index: DCs, ETEs and HICs,
1960-64 to 2005-07, percent
-10
10
30
50
70
1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 2005-07
Developing countries Europe’s transition econs. High-income countries
How far have policy reforms reduced the
disarray in world agric markets (continued)?
Global, economy-wide CGE modeling results on effects of distortions also suggest that, since the early 1980s, the world has gone 3/5ths of the way towards fully liberalizing goods markets, in terms of welfare effects of policies affecting all goods marketsBut agric now accounts for 70% of the global welfare cost of goods-trade-distorting policies, even though agric and food account for only 3% of global GDP and 6% of global trade
And those policies harm agric value added 3 times as much as nonag value added in DCs, thereby contributing nontrivially to global poverty & inequality
Also, insulation of food markets persists, so
volatility of int’l food prices continues
Most farm product NRAs tend to be negatively correlated with movements in international product price
On average, for top dozen traded farm products, barely half the change in an int’l price is transmitted to domestic markets within first year
Applies to export as well as import restrictions
This is becoming a bigger issue as climate change adds to volatility of crop seasons, and as biofuel policy responses link food and fuel
What next, in terms of:
Prospective agric price and trade policy trends?
Further research on distortions to agricultural incentives?
Future agric market developments
Growth in populations and incomes
and hence demand for non-staple farm products
Crude oil price trends and fluctuations
and their impact on bio-fuel demand
Climate change impacts on farm TFP
and hence supplies of farm products
Int’l trade costs, FDI and the supermarket revolution
and their impacts on food value chains, incl. from ‘land grab’
Changes in ag R&D investments, incl. by private firms
biotech revolution, and in response to above developments
Future agric trade-related policy
developments
Unilateral reforms to policies distorting agricultural incentives
Multilateral reforms (will Doha conclude?)
Reforms to water institutions & policies
Other national and multilateral policy responses to climate change (eg biofuel)
Changes in public agric R&D investments
Will DCs move, like HICs did, to
protecting agric as their incomes rise?
-100
0
100
200
300
400
Rela
tive R
ate
of
Assis
tance (
%)
-1 0 1 2 3Ln real GDP per capita
HIC RRA obs HIC fitted values
DC RRA obs DC fitted values
What alternative policy initiatives would
boost food security and reduce poverty?Instead of variable trade measures, encourage governments to pour more of their support into boosting agric R&D, rural health & education, and rural infrastructure, and improving agric factor and product marketsPayoff from agric R&D investments has risen with higher prices & spectre of climate change
Hotter, drier, more volatile seasons add to need for more-integrated global food markets, so as to better share the burden of fluctuating weather, and for more-efficient water and credit markets
Implications for agric trade research agenda
Update, widen the country coverage of, and institutionalize NRA/PSE estimation for DCs
Africa: Gates-funded initiative (FAO/OECD), and also public rural expenditure monitoring (WB)
All DCs: update to 2009 using generic data (WB), so as to cover the price-spike 2008-09 period
Further devt of methodologies for measuring extent of govt distortions to incentives
How to deal with US, EU etc. biofuel mandates?
Water subsidies (incl. for capital works)?
Implications for agric trade research agenda
(continued)
Further analysis of causes of govt interventions
Political e’metrics to explain differences across countries in NRA trends, fluctuations & turning points
Further analysis of effects of govt interventions
Use the above in projecting model baselines forward
• Is status quo the most likely policy counterfactual?
• What about effects of climate change and associated policy responses on baseline going forward? Requires better modeling of energy, land and water markets (see GTAP devts)
Incorporate imperfect competition along the value chain for agric (and other) outputs and inputs?
Build stochastic models, to capture govt insulating behavior (and also greater seasonal volatility due to climate change) and food-fuel market linkages?
Examples of empirical agric trade
policy research agenda items
How well do trade policies stabilize farmer incomes/food consumer expenditure and prevent households falling into extreme poverty?
Compared with more-direct domestic policy instruments?
What role for trade-related policies in presence of externalities (e.g. invasive species, GMOs)?
What role for agric-related policies to mitigate climate change
e.g. affecting biofuels or reforestation, and their effects on food markets
Thanks!
For all Agric Distortions Research Project working papers and global distortions database, see www.worldbank.org/agdistortions
Anderson, K. (ed), Distortions to Agricultural Incentives: A Global Perspective, 1955-2007 , London: Palgrave Macmillan, Oct 2009
Anderson, K., J. Cockburn and W. Martin (eds.), Agricultural Price Distortions, Inequality and Poverty Washington DC: World Bank, March 2010
Anderson, K. (ed.), The Political Economy of Agricultural Price Distortions , New York: Cambridge University Press, forthcoming Sept 2010