Mary E. Burfisher

Agricultural policies and migration in a U.S.-Mexico free trade area: A computable general equilibrium analysis

Abstract A United States-Mexico agreement to form a free trade area (FTA) is analyzed using an 11-sector, three-country, computable general equilibrium model that explicity models farm programs and labor migration. The model incorporates both rural-urban migration within Mexico and international migration between Mexico and the United States. In the model, sectoral import demands are specified with a flexible functional form, an empirical improvement over earlier specifications, which use a constant elasticity of substitution function. Using the model, we identify trade-offs among bilateral trade growth, labor migration, and agricultural program expenditures under alternative FTA scenarios. Trade liberalization in agriculture greatly increases rural- urban migration within Mexico and migration from Mexico to the United States. Migration is reduced if Mexico grows relative to the United States and also if Mexico retains farm support programs. However, the more support that is provided to the Mexican agricultural sector, the smaller is bilateral trade growth. The results indicate a policy trade-off between rapidly achieving gains from trade liberalization and providing a transition period long enough to assimilate displaced labor in Mexico without undue strain.

Decoupled Payments: Household Income Transfers in Contemporary U.S. Agriculture

Decoupled payments are lump-sum income transfers to farm operators that do not depend on current production, factor use, or commodity prices. Such payments are not currently constrained by global trade rules, but many countries argue that they distort production and trade and that their use should be limited. This report examines the U.S. experience with decoupled payments in its Production Flexibility Contracts program under the Federal Agriculture Improvement and Reform (FAIR) Act of 1996. The payments have improved the well-being of recipient farm households, enabling them to comfortably increase spending, savings, investments, and leisure but with minimal distortion of U.S. agricultural production and trade. However, farm operators may retain as little as 40 percent of program benefits due to higher land rents. While commercial farms received the largest share of decoupled payments, they rent in over two-thirds of their program acres, which suggests that a sizable portion of their program benefits may be passed through to nonfarming landowners.

North American Farm Programs and the WTO

Since the Uruguay Round, North American countries have implemented less distorting farm programs. The United States adopted the FAIR Act in 1996, which provides for declining, direct payments (Production Flexibility Contracts or PFC) for farmers and the elimination of the deficiency payments program. Since 1994, the United States has also begun to restructure and expand crop and revenue insurance programs, which are partially subsidized. Canada initiated its farm policy reforms beginning in 1991, with the introduction of subsidized revenue insurance

Agricultural and food policies in a United States-Mexico free trade area

Abstract This paper analyzes the effects of a U.S.-Mexico free trade agreement (FTA) on agriculture. We use a 28-sector, three-country computable general equilibrium (CGE) model in which we explicitly model agricultural and food policies in both countries, and differentiate land types. Agricultural policies include tariffs, quotas, input subsidies to farm and food processing sectors, targeted producer prices, fixed retail food prices and deficiency payments. Subsidies to Mexicos food processing industries and deficiency payments are endogenous, rather than fixed, ad valorem price wedges. We use the model to explore the effects of full and partial liberalization of agriculture in an FTA, a restructuring of Mexican domestic farm policies in conjunction with an FTA, and the effects of an increase in the Mexican capital stock. We find that there is potential for Mexican farm program changes to assist agricultures transition to a free trade environment, and that in the long term, increased capital investment will enable Mexican agriculture to benefit from free trade.

Developing Countries and the Gains from Regionalism: Links between Trade and Farm Policy Reforms in Mexico

We use a multi-country computable general equilibrium (CGE) model with agricultural policy details to simulate the effects of North American Free Trade Agreement (NAFTA). We find that Mexico gains from NAFTA only when it also removes domestic distortions in agriculture. In that case, agriculture can generate allocative efficiency gains large enough to offset the terms of trade losses that arise because Mexico has higher initial tariffs than its NAFTA partners. When an RTA forces a developing country to reform its domestic distortions that are linked to trade restrictions, it becomes a building block toward multilateralism. Copyright 2002, Oxford University Press.

The Global Impacts of Farm Policy Reforms in Organization for Economic Cooperation and Development Countries

Multilateral negotiations on agricultural trade liberalization will require World Trade Organization (WTO) members, including Organization for Cooperation and Development (OECD) countries, to improve market access and to reduce domestic support and export subsidies. In this paper, we analyze the effects of agricultural policy reform by three OECD members who are major economies in world agricultural trade—the United States, the European Union (EU), and Japan. We use a multi-country computable general equilibrium (CGE) model with detailed treatment of the agricultural trade and domestic policies in OECD countries. Our framework takes into account the differences in production impacts among traditional, commodity-linked production subsidies and other types of domestic subsidies that recently have become more important in countries’ farm support programs. We capture the operational features of farm support programs, allowing some domestic subsidies to insulate producers from market price changes while treating other payments as fixed, lump sum subsidies. When domestic policies insulate producers from market price signals, they dampen production responses to market access reforms in the domestic econ

Growth and Equity Effects of Agricultural Marketing Efficiency Gains in India

Agriculture is the largest source of employment in India, and food accounts for about half of consumer expenditures. Moving agricultural products from the farm to consumers more efficiently could result in large gains to producers, consumers, and India’s overall economy. This analysis uses a computable general equilibrium model with agricultural commodity detail and households disaggregated by rural, urban, and income class to study the potential impacts of reforms that achieve efficiency gains in agricultural marketing and reduce agricultural input subsidies and import tariffs. More efficient agricultural marketing generates economywide gains in output and wages, raises agricultural producer prices, reduces consumer food prices, and increases private consumption, particularly by low-income households. These gains could help to offset some of the medium-term adjustment costs for some commodity markets and households associated with reducing agricultural subsidies and tariffs.