Research Accomplishment Reports 2009

Effects of Policy and Product Changes on the International Demand for US Agricultural Products

M.R. Reed
Department of Agricultural Economics

 

Non-Technical Summary

Many countries are changing their agricultural trade policies through the WTO and other forums. The effects of these changes must be estimated to help agricultural producers and agribusinesses adapt to a changing world economic environment. This project estimates how changing agricultural trade policies and macroeconomic conditions will influence U.S. agricultural exports.

2009 Project Description

The dissertation by Rattanopas shows that the recent changes in US and European Union policies with respect to storage have had minimal impacts on world prices and trade. The fear of severe shocks because governments are no longer holding stocks cannot be confirmed from observations over the past 20 years.

The dissertation by Peng shows that trade liberalization in China (brought about by their accession to the WTO) may not lead to improved livelihoods in all regions of the country. Remote areas that have high transactions costs in getting goods to and from the seaports might not lose from freer trade. China must focus on improving infrastructure and lowering market transaction costs if people in these areas are to improve their living standard.

One of the essays from Xiao examines the causal links between wheat exports and output for Australia, Canada, and the US, who follow very different policies and yet rely heavily on export markets. The analysis employs four-variable vector autoregressive moving average models to examine the casual relationships between exports of wheat and wheat flour and domestic wheat production for these three major wheat exporters. Australia was found to experience export-led production growth; production-led exportation was not observed for this country. The ARMA model, the impulse response functions, and the variance decompositions consistently show Australia wheat causality is uni-directional. Canada and the US have bi-directional effects between exports and production. However, variance decompositions and impulse functions show that this causality differs between these countries. For Canada, the results suggest that the causality from production to exports is stronger than the causality from exports to production. For the US, export variance is explained much more by the variance in production -- just the opposite of Canada.

Three of the studies published looked specifically at quality characteristics of meat products (beef and chicken) exported to Japan. Each study found that U.S. products have specific quality characteristics that distinguish them from meat products from other suppliers. Another study looked at the demand for specific beef products in Asian-Pacific markets. The study found that some U.S. beef export market segments, such as frozen muscle cuts, are likely to grow quite rapidly in the next decade, whereas others will not (i.e., frozen liver and offals).

2009 Impact

The analysis from Rattanopas quells the fears that some observers have about the lack of government grain stocks. She finds that the US's move from government to private storage has had little impact on world wheat prices and trade patterns. The fear that smaller private storage stock levels will lead to more erratic price movements in the future was not borne out by the study.

The analysis by Peng suggests that the US should support countries in their efforts to improve infrastructure in remote, rural areas of less developed countries. Without such an improvement in infrastructure, the US will see little or no increase in exports to these areas with trade liberalization.

The analysis from Xiao supports the idea that agricultural policies of all three major wheat exporters have lead to increased economic growth. Export expansion has a favorable impact on production growth for all major wheat exporters and this has allowed them to increase wheat output over the years. The analysis shows that three variables, the exchange rate, interest rate, and stock prices, are quite important in explaining variations in merger/acquisition (M/A) activity by country. Exchange rate changes in particular have a very elastic impact on outward M/A activity, indicating that price effects are important in determining outward investment flows.

The studies on the Japanese beef market indicate that an appropriate strategy for the U.S. and Australia, the main suppliers of beef to Japan, is to increase quality and advertising to promote their beef in order to overcome the stigma of imported beef. Beef export markets will be quite dynamic in the years ahead if current concerns over BSE are calmed. Canada, Mexico and China will be increasingly important markets for U.S. beef products, while Japan will be less important than they are now.

2009 Publications

Peng, Xuehua. Trade Liberalization and Division of Labor: Implications for Poverty in China. Ph.D. 2006.

Rattanopas, Thitinart. Policy Simulation of the World Wheat Market. Ph.D. 2006.

Mutombo, Kumwimba. Foreign Direct Investment and Corruption in Africa: The Case of SADAC Countries. M.S. 2006.

Xiao, Q. Three Essays in International Economics. Ph.D. Dissertation, 2005.

Reed, M. Outsourcing and Foreign Direct Investment: Boon or Bane Discussion. Review of Agricultural Economics 27 (2005) No. 3: 402-4.

Reed, M. Food Fights over Free Trade Invited book review for the American Journal of Agricultural Economics 87 (2005): 808-10.

Poosiripinyo, R., 2004. Measuring Market Power in the Japanese Chicken Meat Market. Ph.D. dissertation.

Rattanadechakul, W., 2004. Projections of U.S. Beef Exports to APEC Countries: A Gravity Model Study. M.S. thesis.

Reed, Michael and Saghaian, S. Measuring the Intensity of Competition in the Japanese Beef Market. Journal of Agricultural and Applied Economics. 36, Volume 1 (April 2004): 113-22.

Saghaian, S. and Reed, M. Demand for Quality-Differentiated Beef in Japan. Agrarwirtschaft (German Journal of Agricultural Economics) 53 (2004):221-29.

Saghaian, S. and Reed, M. Integrating Marginal Cost into Pricing to Market Models for U.S. Agricultural Products Current Agriculture, Food, and Resource Issues. June 2004 (web-based journal).

Yeboah, G. 2004. Demand Specification and Functional Form Selection: A Case Study of Japanese Meat Demand. Ph.D. dissertation.