Troy G. Schmitz

Ethanol: No Free Lunch

The sharp rise in energy prices in the 1980s triggered a strong interest in the production of ethanol as an additional energy component. Economists are divided as to the payoffs from ethanol derived corn in part because of the complex interrelationship between energy produced from ethanol and energy from fossil fuels. Using a welfare economic framework, we calculate that there can be treasury savings from ethanol using tax credits as these subsidies can be smaller than direct payments to corn farmers which are essentially eliminated from the expansion of ethanol. Also, to the extent that ethanol dampens fuel prices there can be a net welfare gain from ethanol production in the presence of ethanol subsidies.

Import Demand for Disaggregated Fresh Fruits in Japan

Using annual Japanese fresh fruit import data from 1971 to 1997, this study analyzes the import patterns of Japans seven most popular fresh fruits by implementing and testing a general differential dmand system that nests four alternative import demand specifications. When tested against the general system using the five-good case (bananas, grapefutis, oranges, and lemons and aggregating pineapples, berries, and grapes), the analysis rejects the Almost Ideal Demand System and National Bureau of Research specifications but does not reject Rotterdam and Central Bureau of Statistics models. When estimated using the six-good case (bananas, grapefuits, oranges, lemons, and pineapples and aggregating berries and grapes), the analysis rejects all specifications except the Rotterdam model.

Gains from Trade, Inefficiency of Government Programs, and the Net Economic Effects of Trading

A great deal has been written on the inefficiencies of government farm programs and associated welfare effects (e.g., Just, Hueth, and Schmitz 1982; Gardner 1983, 1987; Schmitz, Sigurdson, and Doering 1986; Schmitz 1988). However, common measures of inefficiency and distributional impact have not addressed the following question: How are gains from trade and the inefficiencies of government programs related? From a policy perspective, knowing the trade impacts of government programs is at least as important as knowing the inefficiency effects. For example, is it possible for gains from trade to outweigh farm program inefficiencies? Alternatively, could it be that negative trade impacts combined with farm program inefficiencies create situations in which no trade would be preferred to trade under existing government policy distortions? In this paper we establish the link between classic ‘‘gains from trade’’ and the inefficiency of distortionary government programs. Using this framework, we show both theoretically and empirically that the net economic effects of trading can be negative (i.e., no trade would be preferred to trade under distortions). We show that

Price discrimination in the international grain trade: The case of Canadian Wheat Board feed barley exports

This manuscript discusses the ongoing debate surrounding the involvement of the Canadian Wheat Board (CWB) in international trade. The ability of the CWB to price discriminate among feed barley export markets is tested for the 1980|81 to 1994|95 period. The study finds evidence of the ability of the CWB to price discriminate and shows that the magnitude and significance of price discrimination increased during the operation of the US Export Enhancement Program from 1985|86 to 1994|95. lEcon-Lit citations: F13, L12, L43r

Rent Seeking: The Potash Dispute between Canada and the United States

Despite the Canada-United States Free Trade Agreement, border disputes involving agricultural trade are common. A theoretical basis for the 1987 U.S. countervailing duty case against Canadian exports of potash is developed using excess capacity arguments. Empirically, within a rent-seeking context, the U.S. potash producers gained far less from their legal action against Canada than did U.S. farmers who are significant users of Canadian potash.

U.S. Cotton Subsidies: Drawing a Fine Line on the Degree of Decoupling

The impact of the U.S. cotton policy depends on several interrelated factors; how input subsidies interact with producer price supports, producer price expectations, and the extent to which price supports are decoupled from production. Cotton subsidies have a direct impact on world cotton prices, depending on the extent to which price supports are coupled to production. At one extreme, there is a price impact of 12.4% when producers make decisions at the loan rate, but the average price impact is 20.9% when producers make decisions based on the target price. Results are presented for intermediate cases of decoupling.

Benefit-Cost Analysis: Distributional Considerations under Producer Quota Buyouts

Benefit-cost (B/C) analysis must take into account the distributional effects from a policy or program change. To highlight this, we focus on the theory of production quota buyouts within a B/C framework. As an empirical application, we provide evidence on the distributional effects of the U.S. government buyout of the peanut program in 2002, where production quotas were key ingredients. Two approaches to producer compensation under the buyout are discussed: (1) value of quota approach and (2) gains from quota approach. In the peanut quota program buyout, the U.S. government chose the value of quota approach. Both consumers and producers were made better off as a result of the buyout, and there was a net gain in efficiency. If the government had chosen the gains from quota approach instead, government expenditures and producer gains would have been lower, and consumer benefits would have remained unchanged. Under either approach, the B/C ratios calculated for the government quota buyout are almost identical.

Did StarLink Reduce Import Demand for Corn

This study estimates the impact of reduced demand for U.S. corn during the 2000/01 marketing year caused by the StarLink-contamination event in the year 2000. A partial equilibrium model is constructed that separates both the domestic and foreign demand functions for corn into food and non-food demand curves. The complexities arising from the Loan Deficiency Payment (LDP) Program are also incorporated. The empirical results indicate that the reduction in Japanese corn demand alone would have reduced the average price received by U.S. corn producers in 2000/01 by between U.S. 4.17¢ to U.S. 5.18¢ per bushel if LDP payments did not partially offset the market impact. However, after adjusting for LDP payments, the average price received by U.S. corn producers dropped by only between U.S.

Benefit-cost analysis: government compensation vs. consumer tax model

0.50¢ and U.S. 0.83¢ per bushel over the 2000/01 marketing year. This translates into a loss in revenue of between U.S.

US and EU Agricultural Policy: Divergence or Convergence?

48 and U.S.