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Research Frontiers in Agricultural Trade and Policy

Paper Session

Sunday, Jan. 7, 2024 1:00 PM - 3:00 PM (CST)

Grand Hyatt, Seguin B
Hosted By: Agricultural and Applied Economics Association
  • Chair: Sandro Steinbach, North Dakota State University

Expanding the Phytosanitary Exclusion Zone: Impacts on U.S.-Mexico Avocado Trade

Irvin Royas
,
Center for Research and Teaching in Economics
K. Aleks Schaefer
,
Oklahoma State University

Abstract

Approximately 90% of the avocados consumed in the U.S. are imported from Mexico. Prior to
August 2022, the U.S. only allowed the importation of avocados from one Mexican state—Michoacán—
due to phytosanitary concerns about seed weevils and fruit flies. In Michoacán, avocados have become a
source of cartel conflict and violence. Based on an agreement between the U.S. Animal and Plant Health
Inspection Service (APHIS) and the Ministry of Agriculture in Mexico, authorized shipments of avocados
from an additional Mexican state—Jalisco—were allowed to enter the U.S. beginning in August 2022. This
research investigates the economic impacts of expanding the phytosanitary exclusion zone to include Jalisco.
We use a natural experiment design to analyze the impacts of the regulatory change on avocado prices
and trade quantities crossing the U.S.-Mexico border. We also use applied time series methods to analyze
the impacts of the policy change on weekly avocado prices for 37 local Mexican markets. The expansion
of the phytosanitary exclusion zone was unequivocally beneficial from the perspective of U.S. avocado
users and consumers, who received an economic welfare gain of approximately $40 million per year from
the regulatory change. The policy reduced gross receipts for Michoacán avocado producers by approximately
$310 million per year or more than 6.4% of total gross receipts. The gains to avocado producers in
Jalisco, on the other hand, are much smaller, about $1.2 million per year or 0.33% of total gross receipts.
These market outcomes may affect cartel incentives to control the industry in the future.

Global Trade Reallocation and Welfare Implications of the Russia-Ukraine War for Cereal Grains and Oilseeds

Carlos Zurita Castro
,
North Dakota State University
Sandro Steinbach
,
North Dakota State University

Abstract

The Russian invasion of Ukraine has not only resulted in immense human suffering but has also
had a detrimental impact on global trade. This paper focuses on the trade implications of the war, explicitly analyzing the global trade reallocation and welfare implications for cereal grains and oilseeds. By utilizing detailed trade data and theory-consistent empirical models, we quantify the trade destruction and diversion effects, considering direct and indirect trade impacts and assessing the welfare implications in a structural gravity framework. The preliminary findings reveal that imports of grains and oilseeds from Ukraine during the war period were substantially lower than the counterfactual scenario, experiencing a decline of 68.2%. Russia’s trade impact was negligible, with a 3.4% export decrease. At the same time, imports from nontargeted regions declined by 7.6%, benefitting North America and Europe through trade diversion. Our findings demonstrate significant positive price effects and heterogeneity across commodity groups, with oilseeds and vegetable oils experiencing the most adverse trade effects. By assessing the global reallocation dynamics for grains and oilseeds, this research uncovers that the trade effects of the Russian invasion of Ukraine primarily operate through price effects in non-directly involved markets. We find evidence for positive welfare effects for U.S. and European farmers and adverse effects for those in Ukraine and consumers in developing countries. These insights expand on earlier studies concerning export supply constraints and food security implications of the Russia-Ukraine war. Our paper contributes to the literature by employing theory-consistent trade models and counterfactual evaluation methods for assessing unexpected trade shocks.

A Three-Country Study on Consumer Responses to Political Conflicts: Boycott, Buycott, or Standby

Hao Na
,
Beijing Technology and Business
H. Holly Wang
,
Purdue University

Abstract

Against the background of the recent deglobalization, political conflicts between countries are
more frequent, and political consumption incidents are on the rise, causing disruptions in the market. This study examines consumers’ willingness-to-pay (WTP) in China, South Korea, and the United States (U.S.), for a product using non-Xinjiang cotton after a political conflict over Xinjiang cotton, with the aim to understand the political consumption behaviors of consumers in these countries. A total of 1,770 samples (590 per country) were collected using a hypothetical double-bounded dichotomized choice experiment to elicit the highest bids for imported cotton socks. Consumer WTP by country was estimated, and the degree of consumer boycott/buycott was measured. The results show that Chinese consumers have the lowest WTP for non-Xinjiang cotton socks, indicating their tendency to boycott foreign cotton products. In contrast, consumers in the U.S. and South Korea tend to support non-Xinjiang cotton products. Koreans, as bystanders of the conflict, exhibited buycott behavior during the conflict, suggesting that political conflicts can influence the behavior of consumers in other countries. In addition, we analyzed the factors that may influence political consumption. The study expands our understanding of consumer political consumption behavior. Moreover, it provides a basis for the industry to cope with market turmoil and build sustainable marketing strategies.

When Monopoly Complements Monopsony: A Comparison Between a Zero Welfare Revenue Tariff and an Optimal Welfare Tariff

Sheikh Jafar Emran
,
University of Florida
Andrew Schmitz
,
University of Florida

Abstract

An optimal revenue tariff is designed by the government in the importing countries to collect revenue by exploiting both exporters and domestic consumers. The government exercises market power which generates a double distortion (monopoly and monopsony). The government as an institution in international trade plays a dual role simultaneously by imposing optimal revenue tariffs (Bieri & Schmitz, 1974; Schmitz et. al, 2023). Thus, the role of government resembles that of a ‘pure middleman’ who can distort prices with the imposition of tariffs and collect the necessary revenue. (This is opposite to the optimal welfare tariff where the government collects revenue but does not act as a monopolist). But in reality, governments are only able to impose tariffs that are below the theoretical optimal welfare tariff levels (Ossa, 2014). Thus, this statement also applies to real-world prices under the optimal revenue tariffs. Therefore, we develop a theory of a zero welfare revenue tariff that generates welfare equivalent to that of free trade. In this case, the government still collects revenue but not at the same level as an optimal revenue tariff. By using the Excess Demand (ED) and Excess Supply (ES) framework we show that zero welfare revenue tariff distribution of welfare is entirely different than the distribution of welfare that exists under the free trade. Government gains at the expense of loss of domestic consumers and producers, but it guarantees that welfare is at least equal to free trade.
JEL Classifications
  • A1 - General Economics