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Research Frontiers in Agricultural Trade and Policy
Sunday, Jan. 7, 2024
1:00 PM - 3:00 PM (CST)
Agricultural and Applied Economics Association
North Dakota State University
Expanding the Phytosanitary Exclusion Zone: Impacts on U.S.-Mexico Avocado Trade
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
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
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.
Towards the Theory of Zero Welfare Tariff
The theory of optimal welfare tariff is well known (Felbermayr et al., 2013). Under the optimal
welfare tariff, there is a net welfare gain to society. This comes about because, under the optimal welfare tariff, an importer acts as a monopsonist in buying the imported good, and the transaction affects the terms of trade. This is unlike the small country case where the terms of trade are unaffected by the tariffs, and that country suffers net welfare losses (Schmitz et al., 2023). However, many have argued that though the theory of optimal welfare tariffs is an interesting theoretical construct, countries have generally not been able to impose an optimal tariff and apply tariffs that are well below the optimal level. This is because a country is not sufficiently large to influence the terms of trade effect needed to achieve optimal tariff results. In view of this, we develop the theory of zero welfare tariffs, where tariffs are lower than the optimal welfare levels. We provide an empirical counterpart. Under a zero-welfare tariff, there is no net gain to society. However, the distributional effect of this tariff is much different from that that exists under free trade.