Quantifying the impacts of agricultural trade liberalisation

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Quantifying the impacts of agricultural trade
liberalisation

• Lecture 23
• Economics of Food Markets
• Alan Matthews

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Issues to address

• What can we learn from empirical studies about
  the gains from further agricultural trade
  liberalisation?
• How confident can we be in modelling results?
  Why do results vary?

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Reading

• Anderson and Martin book, available on the web,
  esp. Chapters 2 and 12.
• Various briefs and commentaries
• Bouët, Elliott, FAO, Ackerman, Economist

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Early studies showed substantial impacts..

• Many studies purport to show
• Large gains from agricultural trade
  liberalisation
• Large share of gains accruing to developing
  countries
• All developing countries share in these gains
• Examples
• IMF 2002 128 billion, of which 30 billion to
  DCs
• Goldin et al 2003 364 billion, of which 176
  billion to DCs
• Anderson 2003 165 billion, of which 43 billion
  to DCs
• World Bank 2004 400-900 billion from total
  trade liberalisation, more than half of which to
  DCs, of which agriculture would account for 70

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.. But estimates of gains have been steadily
shrinking
Source Bouët 2006
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and not all developing countries will
necessarily gain

• Panagariya 2002
• The presumption that such liberalization will
  broadly benefit the poor countries, implicit in
  the allegations that agricultural subsidies in
  the rich countries hurt the poor in developing
  countries, is unlikely to be supported by closer
  scrutiny in its unqualified form.
• Charlton and Stiglitz 2004
• The existence of net losses for developing
  countries in some areas of reform should not
  imply that no reform is requiredrather it
  suggests that a selective approach is needed.

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Recent World Bank estimatesAnderson, Martin, Van
der Mensbrugge, June 2005
USD billion 2015 Base case 2001 Scaled dynamics 2001 Compara-tive static GTAP elasticities GTAP elas fixed land
World 287.3 156.4 127.4 88.5 77.8
Dev countries 85.7 43.9 23.7 10.6 2.0
Sub Saharan Africa 4.8 2.8 0.7 0.2 -0.1
South Africa 1.3 0.8 0.7 0.5 0.4
Selected SSA countries 1.0 0.6 0.3 0.4 0.3
Rest of SSA 2.5 1.4 -0.2 -0.6 -0.8
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Impact of Doha Round agreement(Bouet et al.,
2004)
Change in production Agri-food exports Agri-food imports Returns to land Change in welfare
EU25 -1.57 2.7 12.8 -15.01 0.14
US -1.05 0.8 2.8 -0.21 0.07
Asia developed -2.08 11.8 9.6 -1.79 0.06
Cairns developed 3.66 12.8 2.8 1.08 0.04
Mediterranean 0.73 8.8 -1.5 0.77 -0.16
Cairns developing 1.25 10.4 -0.7 0.60 -0.07
China 0.01 13.2 10.1 0.30 0.15
RoW 0.64 6.8 -0.7 1.15 -0.08
South Asia -0.01 6.4 7.8 -0.10 0.15
SSA 0.76 4.7 -0.8 0.22 -0.05
World -0.39 6.1 6.0 - 0.09
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Achterbosch et al. 2004(dynamic GTAP model)
Million 1997 USD Million 1997 USD Million 1997 USD Per cent of GDP Per cent of GDP Per cent of GDP
Little Modest Full Little Modest Full
North Africa 67 625 1775 0.0 0.3 0.9
SSA -540 -502 704 -0.3 -0.2 0.3
South Africa -132 93 1223 -0.1 0.1 0.9
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Estimates of costs of OECD country agricultural
protectionism for developing countries

• Anderson 2001 12 billion
• Diao et al 2004 4-8 billion
• Tokarick 2003 4 billion
• Francois et al 2003 1-3.5 billion (from 50
  liberalisation)
• Anderson and Martin 2006 26 billion
• Hertel and Keeney 2005 9.5 billion
• Compare to net ODA flows of around 60 billion

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Channels of impact

• Main impact is through terms of trade effect
• Net exporters gain, net importers lose
• More generally, farmers gain and consumers lose
• Depends on degree of market integration
• Presumption that trade liberalisation is pro-poor
• Picture complicated by the role of preferences
  for net exporting countries

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FAO World Agriculture Towards 2015/2030
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Approaches to quantifying impacts

• Modelling
• Single or multi-commodity models
• Partial or general equilibrium models
• Commodity coverage
• Static or dynamic

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Why results may differ

• Base period and initial levels of protection
• Elasticity assumptions
• Taking account of complementary policies
• Price transmission elasticities

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What determines the impacts - 1

• Scenario assumptions
• Full or partial agricultural trade liberalisation
• Agricultural or total liberalisation
• OECD countries only or global liberalisation
• The counterfactual what assumption is the
  modeller making about the reference scenario
  against which the policy scenario is being
  compared.

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What determines the impacts - 2

• Net trade status
• The existence of preferences
• Dynamic effects through capital accumulation
• Taking account of productivity effects of
  increased trade
• Scaling effects which depend on the base year
  reported
• Modelling structure and parameter estimates

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Recent improvements in modelling techniques

• Many early studies simulated cuts in applied
  tariffs
• Ignored tariff overhang
• Ignored role of preferences
• Good data on applied tariffs have become
  available only recently (MAcMaps), incorporated
  into GTAP 6 2001 database