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Agri-Food and International Trade: National Specificity Daryll E. Ray University of Tennessee Agricultural Policy Analysis Center The International Economic Forum of the Americas Conference of Montreal June 12, 2013 APAC Food IS 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 APAC 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 APAC 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 APAC 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 APAC Trade 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?? APAC 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 APAC In the Case of Food and 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… APAC 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 APAC – Agriculture’s inability to self-correct in a timely fashion Weekly Policy Column To receive an electronic version of our weekly ag policy column send an email to: [email protected] requesting to be added to APAC’s Policy Pennings listserv APAC