Academic journal article Agricultural and Resource Economics Review

Yield Variability and Agricultural Trade

Academic journal article Agricultural and Resource Economics Review

Yield Variability and Agricultural Trade

Article excerpt

We examine how changes in yield variability affect the welfare of cereal grain and oilseed buyers and producers around the world. We simulate trade patterns and welfare for 21 countries with a Ricardian trade model that incorporates bilateral trade costs and crop yield distributions. The model shows that world trade volumes would need to increase substantially if crop yield variability were to rise. Net welfare effects, however, are moderate so long as countries do not resort to policies that inhibit trade, such as export restrictions or measures to promote self-sufficiency in crops. Low-income countries suffer the most from increases in yield variability, due to higher bilateral trade costs and lower-than-average productivity.

Key Words: crops, geography, grains, trade liberalization, yield variability

(ProQuest: ... denotes formulae omitted.)

This study examines how yield variability affects buyers and sellers of cereal grains and oilseeds. We develop a multi-country Ricardian trade model and parameterize it through econometric estimation. The model links trade patterns and welfare back to crop yield distributions, the costs of bilateral trade, and land markets. We identify winners and losers from counterfactual scenarios for 21 countries. The results vary systematically across these countries with respect to per capita income. Low-income countries get hurt the most by global increases in yield variability, since they tend to have higher bilateral trade costs in conjunction with lower productivity in the crop sector.

Our interest in yield variability comes from the fact that yields of rain-fed grains and oilseeds remain highly variable despite decades of agronomic advances (FAO 2008, Chen, McCarl, and Schimmelpfennig 2004, Isik and Devadoss 2006). Yield variability is largely a function of weather and may be exacerbated by widespread adoption of common high-yielding varieties and uniform agronomic practices (Anderson and Hazell 1987). Recent research shows that global climate change may increase yield variability since it will likely increase the probability of extreme heat stress events, precipitation extremes, El Niño like events, and other climate phenomena (Meehl and Washington 1993, Meehl et al. 2000, Reilly et al. 2002, Intergovernmental Panel on Climate Change 2007). While there is much uncertainty surrounding these predictions, the implication is that yield variability could rise.

International trade is a natural vehicle for adapting to inter-annual yield variability (Bale and Lutz 1979, Newbery and Stiglitz 1981, Randhir and Hertel 2000, Hallstrom 2004). When one region has a crop failure, spatial arbitrage reallocates supplies from regions of abundance, thereby minimizing the fluctuation of prices. International trade is a far less efficient vehicle than theoretically possible, however, since trade is far from costless. Relative to the general economy, market- insulating tariff and non-tariff barriers are pervasive in this sector. Foreign supply shocks are often cited as a rationale for trade restrictions since they can destabilize local prices. For example, poor rice crops in several rice-producing countries contributed to a doubling of world rice prices within a matter of months in 2007-2008. Several leading exporters imposed severe export restrictions due to concerns over scarcity of supplies (Bradsher 2008).

Our approach has some commonalities with studies that forecast how climate change will impact consumers and producers of agricultural products around the globe. For example, a number of studies link a global economic model to the predictions of atmospheric or agronomic models (Randhir and Hertel 2000, Reilly and Hohmann 1993, Parry et al. 2004, Rosegrant, Strzepek, and Msangi 2005). Relative to such studies, our characterization of climate processes is stylized. While those studies might rely on region-specific climate forecasts, in our approach the parameter with the greatest impact on yield variability is common to all countries. …

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