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Agri-Food and Agri-Food and International Trade: International Trade: National SpecificityNational Specificity

Daryll E. RayUniversity of Tennessee

Agricultural Policy Analysis Center

The International Economic Forum of the AmericasConference of Montreal

June 12, 2013

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Food Food ISIS Different Different• Food is a national security issue for

most countries– Countries want to domestically produce as

much of their food as possible• Political considerations

– Need to feed the population– Need to provide a living for millions in agriculture– Need an orderly exit of workers out of agriculture

• AND food and agriculture are unique in both their demand and their supply

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Food is Different …Food is Different …It is a daily biological requirement: Can’t walk away and do without it (violates non-coercive assumption)

•As a result the aggregate demand for food is relatively stable regardless of price

– People will pay almost anything (or as much as they can) when food supplies are limited and prices are high

– When prices are low they will not pay or purchase any more than necessary

– When prices are low people may change their mix of foods and add services, but aggregate demand increases very little—people do not eat four meals a day in response to lower prices

•Food demand changes little in response to changes in price

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Food is Different …Food is Different …Production is the result of biological processes•These are more constrained than the manufacturing processes of other products

– Limited annual production periods• Frost-free days in temperate zones• Timing of rainfall in monsoonal zones

– Constrained by natural forces• Temperature• Weather

– Once planted, the precise production controls available to other sectors are not available to most crop production

•Crop production changes little in response to changes in price within a crop season

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Food is Different …Food is Different …•Contrary to other industries, when prices are “low”—even across production seasons…

– Farmers tend to plant all their acres continually

– Farmers don’t and “can’t afford to” reduce their application of yield-determining inputs

– Who farms the land may change

– Essential resource—land— and other resources remain in production in the short- to medium-run (violates perfect resource mobility assumption)

•Crop production changes little in response to changes in price from one year to another

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Trade ImplicationsTrade Implications• Countries that could import food staples more

cheaply than producing it, don’t (unless they have to)

– At least in the quantities that economists would normally predict

• Countries use whatever means available to protect domestic producers; slums already full

– To the continual frustration of economists, farmers in developed countries and free traders everywhere

• But then, why would we expect anything else??

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WTO As We Know It…WTO As We Know It…

• Stripped to bare essentials, the WTO explicitly or implicitly assumes:

– Economic considerations trump all else

– Food and Ag have the same walk-away ability and same resource mobility as other sectors

– All economic activity shows up in GDP

– GDP is a universally good indicator of countries’ economic wellbeing

• None of these tends to be true in the case of food and agriculture

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In the Case of Food and In the Case of Food and Agriculture…Agriculture…

• Economics is important but staying alive and having dependably-available food tops the list – People do not die or storm the streets because

iPhones are not available or cost too much

• Agriculture’s supply and demand curves do not look like those in Econ 101 (much steeper, look more vertical)

• Most of the food produced by the poorest farm families are self consumed—not marketed

• Pushing self-sufficient farmers off the land to produce for the “market” may increase measured GDP, but…

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WTO …WTO …• Does not account for the unique nature of food and

agriculture• Needs to understand the difference between DVD

players and staple foods• Needs to be reformulated to take into account the

unique characteristics of food and agriculture– Food Reserves to address the inevitable shocks to the

availability and price of food (also facilitates international trade)

– Promoting increases in worldwide productive capacity, especially a degree of sovereignty of domestic production

– Addressing: • Agriculture’s inability to gauge the use of productive capacity

to match demand by creating methods to overcome– Agriculture’s inability to self-correct in a timely fashion

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