A Research Agenda for International Agricultural Trade

V The Author(s) 2018. Published by Oxford University Press on behalf of the Agricultural and AppliedApplied Economic Perspectives and Policy (2018) volume 40, number 1, pp. 155173.doi:10.1093/aepp/ppx063Submitted ArticleA Research Agenda for InternationalAgricultural TradeWill MartinWill Martin is a Senior Research Fellow at the International Food Policy ResearchInstitute. Thanks are due to Marc Bellemare, Christophe Gouel, and DonaldMaclaren for excellent comments on an earlier draft. All remaining errors are myresponsibility. This work was undertaken as part of the CGIAR Research Programon Policies, Institutions, and Markets (PIM) led by the International Food PolicyResearch Institute (IFPRI).Correspondence to be sent to: W.M.Submitted 15 April 2017; editorial decision 29 December 2017.Abstract International trade is likely to be a hugely important and interestingarea for research by agricultural and applied economists in the next decade. Whilethe questions for research are likely to changewith less emphasis on large-scaleinternational negotiations and more on national reforms and regional agreementsthere will be important challenges in understanding the driving forces for world ag-ricultural markets, in trade policy, and in ensuring food security. New analyticaltechniques built on the gravity model and geospatial production data create manyopportunities for innovative applications and expand the range of questions towhich researchers in this eld can effectively respond.Key words: international trade, food trade, food policy, gravity model.JEL codes: F13, F63, Q17, Q18.The case for international trade is essentially the same as that for trade innon-agricultural products, with participation in markets allowing producersto specialize and to take advantage of differences in resource endowmentsand skills, and consumers to benefit from a wider range of products. As wewill see, the relevant differences in agricultural factor endowments betweencountries are frequently very substantial, implying that the gains in averagereal incomes from trade are likely to be large and the reductions in volatilityfrom diversification of supplies particularly large.However, international trade in agriculture is highly controversial, andtrade distortions in agriculture are exceptional relative to those in other sec-tors (Trebilcock and Pue 2015). Attacks on agricultural trade come frommany angles, including emotional, analytical, and interest-driven. On theCEconomics Association. All rights reserved. For Permissions, please e-mail: Downloaded from /aepp/article-abstract/40/1/155/4863706by gueston 20 February 2018Applied Economic Perspectives and Policyemotional front, who could resist the appeal of enjoying local, home-grownfood year-round (Conner 2012), or overcoming worries about relying on therest of the world for basic food staples? A frequent analytical error confusesopenness to trade with trade deficits and debt accumulation, which are, ofcourse, determined by the balance between income and spending, ratherthan by trade barriers. And, of course, many trade distortions areintroducedand vigorously defendedby vested interests such as pro-ducers of sugar, rice, and milk in the rich countries, whose politicalstrengthfrequently associated with being smaller in number and easier toorganize than those losing from the policyallows them to obtain astro-nomical levels of protection (Olson 1971; Swinnen 2010).The research agenda for agricultural trade depends on questions such as thefollowing: What are the potential gains from trade, now and in the foreseeablefuture? What are the potential gains from trade policy reform at national, re-gional, and global levels? And do they accrue in the form of gains in economicefficiency, equity, stability, or growth? Or, given the importance of trade infood, do they arise from improvements in the key elements of food securityavailability, access, utilization, or stability? Within this, a key question is whatinstruments are available to achieve the goals of trade policy reform? In addi-tion to these questions driven by the need for answers to important questions,another important influence on the research agenda comes from the supplyside. That is, what new methodological approaches are available or can be de-veloped to provide better answers to both new and old questions?The next section of this paper covers key reasons why trade is a key topicfor research and communication by agricultural and applied economists.The following section identifies some key research questions. The next sec-tion points to areas where advances in techniques and data are likely to in-fluence the research agenda from the supply side. The last section looks atways that research might be most effectively conducted and disseminated.Why is International Trade a Priority Area?International trade is particularly important partly because it is so poorlyunderstood relative to other areas of interest to agricultural and appliedeconomists. This is partly because the impacts of reform are frequently verysubstantial, redistributive and pervasive, and partly because of their impor-tance to many of the worlds poorest and most vulnerable people. The casefor international trade research in agriculture needs to consider the staticgains from reform, as well as productivity gains, impacts on volatility, andimpacts on nutrition.Bernhofen and Brown (2005) provide evidence on the static gains fromtrade from a rare case where a country (Japan) opened from near completeautarchy. These authors estimate the gains from full reform in this heavilyagricultural economy at around 9% of GDP in the 1850s. Historical gainsfrom the liberalization of agricultural trade might understate the gains fromliberalization today because of the enormous changes in factor endowmentssince the mid-nineteenth century. Prior to the industrial revolution, trade inagricultural products was limited and the population of any region closelylinked to its agricultural land basea link that was broken by falls in trans-port costs in the nineteenth and twentieth centuries. Differences in theamount of available (but initially unused) land, differences in the progressof the demographic transition (Mosk 1977), and differences in immigrationDownloaded from /aepp/article-abstract/40/1/155/4863706by gueston 20 February 2018A Research Agenda for International Agricultural Tradeand emigration have resulted in very different land endowments acrosscountries. As an example, the United States now has around 25 times asmuch agricultural land per person as Japan (Fukase and Martin 2016). Withsuch large differences in land endowments, farm prices wouldin the ab-sence of tradebe extremely high in countries with small endowments perperson and extremely low in countries with larger endowments.Despite the decline in the relative size of agriculture, agricultural distor-tions appear to account for a large fraction of the gains from further reform.Anderson and Martin (2007) find that agricultural trade now accounts for al-most two-thirds of the static gains from further reform of global merchan-dise trade, with the small size of the sector outweighed by the higheraverage rates of protection and the greater variations in distortions acrosssectors. New evidence on the potential gains from trade by Costinot andRodrigues-Clare (2014) suggests that these gains may be much higher thanhave traditionally been estimated, particularly when models allow for mul-tiple sectors, intermediate products, and firm entry and exit.There is considerable evidence that productivity gains from liberalizationare much greater than the static gains from reform (see, e.g., Amiti andKonings 2007). Similar findings are evident for agriculture in many studies,including Kolady, Spielman, and Cavalieri (2012) for seeds in India; DeSilva, Malaga, and Johnson (2014) for Sri Lanka and Hassine, Robichaud,and Decaluwe (2010) for Tunisia. There is also considerable documentationof agriculture-specific policy reforms that have been critical for productivitygrowth, such as the liberalization of inexpensive irrigation pumps inBangladesh in the 1980s (World Bank 1999).In terms of volatility, many observers think of opening to world marketsas a source of price volatility, failing to realize that it can sharply reduceFigure 1 Volatility relative to trend in the log of wheat yields, Morocco vs. WorldSource: FAOSTAT.0.600.400.200.00-0.20-0.40-0.60-0.80-1.00-1.20Morocco WorldDownloaded from /aepp/article-abstract/40/1/155/4863706by gueston 20 February 2018Applied Economic Perspectives and Policyoutput and hence supply volatility, the key source of volatility in marketsfor staple foods such as wheat. To provide an indication of the potentiallyenormous reduction in volatility obtainable through diversifying food sup-plies from domestic production to world markets, figure 1 contrasts thevolatility of wheat output in Moroccoa country where wheat is the mainstaplewith the volatility of global wheat yields. The standard deviation ofthe detrended log of yields is 0.07 for the world and 0.35 for Morocco, whiletheir correlation is a minuscule 0.1. The vastly higher volatility of nationalwheat output implies that a self-sufficient wheat market would be muchmore unstable than a market open to trade.The importance of food to the worlds poorest people is very clear. Theyspend very large shares of total expenditure on food, and around half of themderive their incomes from agriculture (World Bank 2008). Because of this duallinkage, we can only assess whether large numbers of poor people are helpedor hurt in the short run by changes in food prices or protection if we have ac-cess to information about their income sources and spending patterns (Deaton1989). To assess the longer-term impacts on the poor, we also need to knowhow producers respond to changes in the prices of agricultural products, andthe impacts of food price changes on the wages of unskilled workers (Ivanicand Martin 2014b). This means the research agenda for international trademust be very wide-ranging.Another reason we need more research on international trade in agriculturalproducts is the dramatic changes in these markets. Much of the literature on ag-ricultural trade policy is conditioned on the idea that most agricultural tradebarriers and most agricultural trade are in or between the industrial countries.However, there have been enormous changes in both these dimensions.Table 1 shows that, in 1992, towards the end of the Uruguay Round negotia-tions on agriculture, the countries not classified as developing accounted for59% of agricultural exports, and almost 40% of agricultural trade was exportsfrom one high-income country to another. By 2012, high-income countries con-tributed only 40% of world agricultural exports and 20% of world agriculturaltrade was between the high-income countries.Up to the early 1990s, average agricultural protection was very high in theindustrial countries, so it made sense for exporters to focus on gaining access toindustrial country markets. Since that time, however, developing country tradeand production have grown much more rapidly than in the industrial countriesand developing countries introduced substantial agricultural protection.Clearly, this combination of a much greater market share and a move fromTable 1 Changes in World Trade Patterns for World Agriculture1992FromHigh-IncomeDevelopingTotalHigh392867Developing201233Total59411002013High-IncomeDevelopingTotal2024442334564258100Source: COMTRADE. Note: Excludes intra-EU trade.Downloaded from /aepp/article-abstract/40/1/155/4863706by gueston 20 February 2018A Research Agenda for International Agricultural Tradenegative to positive protection in developing countries has enormous and, as-yet not widely appreciated, implications for policy.Priority Research IssuesPriority research topics in the coming years will involve both forecastingand what-if policy analysis. On the forecasting side, assessing the impacts ofdifferent drivers in world markets will be important and different fromthose in earlier periods, while on the policy side, issues will arise at thecountry, regional, and global levels. In addition to traditional trade policyissues, we need to understand a wide range of behind-the-border issues thataffect policy outcomes.Forecasting Agricultural OutcomesThe drivers of change in world food markets will be quite different fromwhat they have been in past decades. On the demand side, the importanceof population growth is likely to fall dramatically relative to its dominantrole in the past, with most of the substantial increase in food demand be-tween now and 2050 likely to come from increases in per capita consump-tion (Fukase and Martin 2017). This increases the importance ofunderstanding the responses of food demandboth directly and throughdemand for livestock feedsin understanding the likely evolution of worldfood prices. Fukase and Martin (2017) conclude that global food demand islikely to grow 32% faster over the period to 2050 if incomes converge as im-plied by the Shared Socioeconomic Pathway (SSP2) projections (Leimbachet al. 2015) than under a scenario of uniform growth across countries.On the supply side, climate change seems likely to have substantial, butdifficult to forecast, impacts on world production growth. Monitoring, mea-suring, and predicting these impacts seems likely to be an important priorityfor future work, especially since they work through so many different chan-nels and are quite difficult to predict, particularly for individual regions (seeDAgostino and Schlenker 2016 for examples; Costinot, Donaldson, andSmith 2016 for a global analysis; and McCarls paper in this issue for a re-search agenda). There are also important policy linkages between trade pol-icy and climate change. Because climate change is likely to be very differentin its impacts across regions, open trade policies that allow some of theseimpacts to result in changes in trade patterns are likely to substantiallylower the cost of adapting to climate change (Nelson et al. 2009).The use of agricultural raw materials for biofuels has been particularly im-portant in the past 15 years, in part because of the unexpected rapidity of itsgrowth, in part because of the complexity of its linkages throughout the ag-ricultural sector, particularly its linkages through indirect land use change(Laborde 2011), and because of the interactions between its rapid and unex-pected growth with grain stock levels and commodity prices (Wright 2014).Whether biofuels continue to be an important topic will depend on whathappens to oil prices, whether the blend-wall limits on the share of ethanolin U.S. blended fuel currently impeding further expansion of biofuels arebreached, and whether alternative forms of portable energy reduce the de-mand for traditional liquid fuels in transport applications. If the blend wallis breached and political-economy considerations result in a large expansionof biofuel use, then there could be substantial upward pressure on cropDownloaded from /aepp/article-abstract/40/1/155/4863706159by gueston 20 February 2018Applied Economic Perspectives and Policyprices in the short run as stock levels adjust. If demand for liquid fuelsshould decline rapidly in response to improvements in electricity storagetechnology, there may be a sustained decline in demand for biofuel. Eitherof these scenarios may result in considerable pressure to analyze impactsand potential policy responses.Trade Policy ReformsThe trade policy agenda going forward seems likely to be quite differentfrom that over the past 30 years. It seems unlikely in the short term that wewill see any large-scale negotiations along the lines of the Uruguay Roundand Doha Agenda negotiations. There will definitely be no WTO accessionnegotiations on the scale of Chinas (Bhattasali, Li, and Martin 2004).However, there will be important trade policy issues to be addressed at na-tional and regional levels, and a return to large-scale international negotia-tions cannot be ruled out once the limitations of alternative approaches tomanaging trade-related challenges become clear. In the short term at least, itseems likely that much more of economic policy analysis will need to be di-rected to questioning proposals for higher protection that would reducerather than enhanceeconomic welfare. However, this role of economist asquestioner or critic of policy reforms was hardly an unfamiliar one, evenduring the recent period of relative openness to trade.In industrial countries, this role of questioner seems likely to be particu-larly important for trade policies proposedwith little prospect ofsuccessto combat bilateral trade imbalances and trade deficits more gener-ally. In developing countries, where the long-term pressures to raise agricul-tural protection as incomes rise (Anderson 1995) are likely to be only veryweakly offset by WTO disciplines, scrutiny of proposals that would raise ag-ricultural import barriers will be sorely needed. Another area where ques-tioning seems appropriate is in the staple food policies of many Africancountries, where a focus on availability and frequent use of nontariff barriersresults in trade policy interventions that increase the volatility of priceswithin those markets (Chapoto and Jayne 2009).On a more positive note, the UN Sustainable Development Goals (SDGs)seem likely to lead to an increase in focus on the role of trade policy reforms inensuring goals such as the elimination of poverty, hunger, and gender inequal-ity (UN 2017). Trade and trade policy can have powerful impacts towardsoraway fromachievement of these goals by changing the relative prices ofgoods and factors that are important to individual house