Colin A. Carter

Whither Armington Trade Models

The Armington trade model distinguishes commodities by country of origin, and import demand is determined in a separable two-step procedure. This framework has been applied to numerous international agricultural markets with the objective of modeling import demand. In addition, computable general equilibrium (CGE) models commonly employ the Armington formulation in the trade linkage equations. The purpose of this paper is to test the Armington assumptions of homotheticity and separability with data from the international cotton and wheat markets. Both parametric and nonparametric tests were performed, and the empirical results reject the Armington assumptions. This has important implications for international trade modeling and CGE modeling.

Commodity futures markets: a survey

This review article describes the main contributions in the literature on commodity futures markets. It is argued that modern studies have focused primarily on technical questions, with insufficient economic content. More research needs to be directed towards understanding fundamental economic issues such as why so few farmers hedge, the impacts of government farm programs on commodity futures, and the market impacts of commodity pools. The literature has failed to explain the prevalence of inverted markets in grains and oilseeds, and there is unexplainable price volatility in markets such as hogs and orange juice.

Import Tariffs and Price Formation in the World Wheat Market

A theoretical analysis of price formation in the world wheat market has been presented by McCalla; Taplin; and Alaouze, Watson, and Sturgess. McCalla and Taplin based their models on a duopoly arrangement between the United States and Canada. These models were extended by Alaouze, Watson, and Sturgess to include Australia, and a theoretical model of triopoly pricing in the world wheat market was developed. Canada is assumed to act as a price leader in the triopoly, and it is concluded that producer prices in wheatexporting countries will be higher under triopoly as opposed to duopoly pricing. The major thrust of these papers is that price formation in the world wheat market is largely determined by the major exporters. The purpose of this paper is to suggest and empirically test an alternative hypothesis; namely, that world wheat prices are essentially determined by the major wheat importers. Two major importers-Japan and the European Economic Community (EEC)-are used as the focal point for the analysis. The authors believe the world wheat market is usually a buyers rather than a sellers market. By arguing the market is usually dominated by buyers, it is recognized that there are periodical exceptions to the argument over time, the major one being the commodity boom period of 1973-74. It is well known that the major importers are restricting trade in wheat. This paper suggests that the restrictive policies of the importers (whether consciously or not) are likely to result in a welfare gain to importing nations greater than that under free trade. This suggests that perhaps importing countries are using tariffs in an optimal sense (where all sectors of society are taken into account) rather than merely using them to protect domestic producers from low-priced competitive imports. This is not to argue that a duopoly or triopoly structure does not exist among the United States, Canada, and Australia but rather that the effect of such arrangements is minor relative to the buying power exerted by importers. Although this paper focuses on the world wheat market, the framework of analysis has application to other agricultural markets as well.

Domestic Costs of Statutory Marketing Authorities: The Case of the Canadian Wheat Board

The Canadian Wheat Board (CWB) is a statutory marketing authority with exclusive control over exports of Canadian wheat and barley and sole authority over domestic marketing of milling wheat and malting barley. It is a government marketing board with implicit monopoly rights over the supply of wide-ranging marketing services to farmers, but with no legal responsibility to farmers. These characteristics fit a stylized Niskanen model of bureaucratic decision making, where the CWB is modeled as supplying excess marketing services to farmers. Allowing the market to determine the quantity of marketing services would result in lower marketing costs and presumably higher farm incomes. Copyright 1998, Oxford University Press.

Reforms, the Weather, and Productivity Growth in China's Grain Sector

We use disaggregate county-level production data to study the effects of economic reform on Chinas grain production between 1980 and 1990. Chinas grain production area is divided into five regions based on geographic, agronomic, and meteorological criteria. Regional grain production functions are estimated, and weather is explicitly modeled. The institutional impact of economic reform was found to explain about 38% of the production growth from 1980 to 1985. This is lower than the estimates reported in many previous studies. Regional differences in efficiency gains from economic reform and in the effects of weather on grain production are found to be significant. Copyright 1997, Oxford University Press.

Rationalizing Agricultural Export Subsidies

A conventional view is that export subsidies are inferior to output subsidies as a means of supporting farm prices. However, when there is an excess burden associated with general taxation measures, due to the distortions in markets arising from collection of taxes and any other costs associated with tax collections, export subsidies may be a component of the most efficient producer price support policy. The arguments in this paper provide a more persuasive rationale for pervasive agricultural export subsidies than does much of the recent literature.

New Evidence on Agricultural Commodity Return Performance under Time-Varying Risk

Holding commodity stocks is a major investment that commodity producers, merchants, and processors must continually manage. In this paper we study the conditional risk and return characteristics of commodities. We use a generalized method of moments estimator in a model of conditional expected returns under a single-beta asset pricing theory framework, allowing both the risk premium and the beta to vary with time. We find that expected returns to commodities are lower during times of high interest rates, expected inflation, and economic growth. This suggests that commodities provide a natural hedge against business cycles. Copyright 1997, Oxford University Press.

AGRICULTURAL PRODUCTIVITY GROWTH IN CHINA: FARM LEVEL VERSUS NATIONAL MEASUREMENT

Abstract We measure agricultural productivity growth in China using alternative data sets: farm level data for Jiangsu province, national data, and provincial aggregate data for Jiangsu. For all three data sets, productivity growth was estimated to be strong during the immediate post-reform 1978–1987 period. According to the farm level data, productivity growth then slowed from 1988 to 1996. Alternatively, the national and provincial aggregate figures showed continued high productivity growth in the 1990s. These findings suggest that aggregate data may blur the true picture with regard to agricultural productivity growth in China.

Pricing to Market with Transactions Denominated in a Common Currency

We present a model with two exporters who ship a differentiated commodity to the same import destination. All pricing occurs in a common currency, that of the home exporter. We show that the foreign-exporter to home-exporter exchange rate can influence the home exporters pricing decision. It has been previously argued that only the importer to home-exporter exchange rate matters to the home exporter.

Rejecting New Technology: The Case of Genetically Modified Wheat

Canada has stringent regulations covering the release of new wheat varieties, but the United States has virtually no regulations in this area. Monsanto Co. developed genetically modified (GM) spring wheat for North America, and made a commitment to the U.S. industry to release this new technology simultaneously in both Canada and the United States, or not at all. The Canadian regulatory bias against new varieties acted as a veto against GM wheat and caused Monsanto to shelve the technology in both countries in 2004. Substantial economic rents were foregone in North America due to the rejection of this new technology. Copyright 2006, Oxford University Press.