International Markets (Subject) / International Markets (Lesson)

Ag Policy and Trade

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• name five areas of ag policy -Agricultural order (Market order, land property/lease, ag labor law) -Agricultural market and price policy (Single European market, regulation of supply, producer or market prices (quotas, fixed prices), product quality -Direct agricultural income policy (direct payments to farmers) -Agricultural animal welfare policy (conditions under which livestock is kept) -Agricultural foreign trade policy (regulation of ag import/export, tariffs, taxes, export subsidies)
• What are the two kinds of ag policy? -Academic ag policy: builds theoretical foundations and models of ag policy, investigates mechanisms of and evaluates political instruments -Practical ag policy: looks to achieve certain societal change
• name and explain the three dimensions of ag policy 1) Polity: Institutional setting in which policy and politics take place 2) Politics: Actor constellation and power relations between actors 3) Policy: Process of policy formulation and implementation
• Which are the two policy instruments influencing ag policy -political order and regulatory policy (institutional and legal framework for all economic activities -process policy (specific instruments and policies applied to the ag sector
• Explain the continuum of agricultural orders and market structures - Agricultural liberalism (focus on market competition, free trade) - Agricultural order of the social market economy (market competition preferred, governmental             intervention to achieve optimal social outcomes eg. env. protection) -Bureaucratic agricultural order (governmental-bureaucratic allocation, stabilization and                       distribution, ag structure and processes strongly regulated)
• name five stakeholders of ag policy 1. Governments 2. Parliaments 3. International organizations 4. Private sector (producers/consumers/banks/consultants) 5. Research organizations
• name the four objectives of social and economic policy 1. stable/high employment 2. monetary stability (fighting inflation, stabilizing purchasing power and value of money) 3. balance of payments (balanced trade exchanges) 4. economic growth
• give examples of global/international, national and regional stakeholders of german ag policy - global/international: parliament of the EU, WTO, FAO - national: German Federal Parliament, federal ministries, DBV - regional: Landtag, state ministry, agricultural chamber
• Which relationship can policy objectives have to one another? - congruent/complementary objectives (higher employment/higher avg income) - conflicting/competing objectives (promotion of exporting industries/balance of payments) - independent objectives (reduction of ag externalities/monetary stability)
• Critically discuss arguments for a need for ag policy Ag markets and trade: - Agricultural markets are imperfect markets (oligopolistic demand/polypolistic supply, inherent natural fluctuations, externalities - State sovereignty (Self-sufficiency in food production/processing, affordable price levels, shielding ag producers from global markets) - changing demands by consumers and society (food safety/consumer protection, animal welfare) Structural change in agriculture: -increasing factor productivity and total ag production -supply increasing faster than demand -> increasing competition -increased use of technology, specialization, increasing scale of operation, declining number of farms -need for increasing skills/capabilities, shift to corporate farming -demand for more differentiated products, product quality and traceability -relative decline of ag incomes, rural out-migration
• explain the terms market failure and government failure, give an example for each Market failure: the market does not allocate resources to the optimal social outcome (if prices do not include social cost/benefit Example: Climate change, emissions of greenhouse gases are not included in the price of agricultural goods or fuels Government failure: taxes, subsidies, regulations lead to a less efficient allocation of resources compared to the free market Example: Beef export restrictions in Argentina, restricting beef exports was aimed at lowering beef prices for domestic consumers but due to shrinkage of the sector actually led to an increase in producer and thus consumer prices
• What are drivers and causes of international trade? Cause: Differing opportunity costs among nations Drivers: specialization according to comparative advantage leads to higher overall production and more efficient allocation of resources, trade is not a zero-sum game
• Explain the economic effects of trade restrictions -Tariffs: Raises the price of foreign goods above the world price -> Q sold goes down -> creates deadweight loss -Import quota: Q supplied goes down -> domestic price rises above world price -> bad for consumers, good for suppliers Non-tariff barrier: No imports allowed -> price rises above world price -> bad for consumers, good for suppliers
• What are current demand and supply trends on global agricultural and food markets? - growing demand for animal products - increasing wealth and income -> economic development of poor countries -> over-proportionally higher food demand, higher demand for non-starchy foods - food demand is shaped by the particular shape of income distribution across individuals and countries -Supply-side constraints on agricultural production due to limited availability of arable land and increasing scarcity of water -Increasing ag productivity and overall production
• Describe major drivers of global agricultural trade -widespread liberalization -rapid globalization -high growth of global economy -lifting large populations out of poverty (increased demand)
• Describe rationale and origin of protectionist tendencies -globalization viewed as a threat to national sovereignty and identity -protection of critical sectors from foreign direct investment/protection of infant industries -fear of deteriorating standards  -fiscal considerations (governments want to capture producers value share) -producer capacity for collective lobbying -exchange of rural agricultural votes for trade protection and subsidies
• Explain the concept of food security and give reasons for increasing price volatility -Four dimensions of food security: Availability, Access, Utilization, Stability Drivers of price volatility (supply and demand) - increased biofuel production - low levels of global food stocks - supply changes: extreme weather events/climate change - increasing interdependency of markets (high concentration of staple food production, food policy decisions such as export restrictions - higher level of trading in agricultural commodity futures
• Briefly outline the evolution of the global agricultural trade system -1947 GATT established (tasks: periodic trade negotiations, mediation in trade disputes, protection of interests of less powerful countries -1986 Uruguay Round:  Agreement on Agriculture: tariffication of all non-tariff barriers, reduction of trade barriers, reduction of export subsidies Sanitary and Phytosanitary Agreement: Each country can set its own standards for food safety and quality (based on scientific evidence)  -1995 Formation of the WTO (tasks: Administering WTO trade agreements, forum for trade negotiations, handling trade disputes, monitoring national trade policies, technical assistance and training for DCs -2001 Doha round aimed at improving access for farmers in DC into IC markets, failled in 2008
• Explain the economic effects of quotas, voluntary export restrictions and ad-valorem tax Quotas: set fix quantity that can be imported, limits supply Voluntary export restraints: set fix quantity that can be exported, limits supply => no negative feedback between price and demand -> instability of global market Ad-valorem tax: tariff added as percentage of import price, increases the price of imported goods negative feedback of price and demand is maintained -> stabilization of global market
• Evaluate the current state of global trade negotiations -Finalization of Doha round not likely -"global recovery round" (agree on items that are not contested, agree on items with a subset of members, 2nd best option) -increasing number of regional and bilateral trade agreements risks: less transparent, less efficient global trade, discrimination of non-members, trade diversion, trade war between big, powerful trade blocks
• Evaluate regional economic integration as opposed to global multilateral trade agreements Pro: -attempts to create gain based on free trade -larger markets attract foreign direct investment -creates incentives for political cooperation -gives countries greater bargaining power Con: -loss of national sovereignty  -while it may benefit the country as a whole it could also lead to losses for certain groups by increasing competition -provides incentives for trade diversion -> reduces efficiency of global trade
• Critically asses the expected impacts of TTIP Pro: -Significant economic gains for both parties -positive impact on world trade -positive impacts on labor markets by increasing wages and job opportunities -negligible effects on CO2 emissions Con: -lowering of food safety and environmental standards -privatization of EU public health, education and water services -may increase costs by increasing patent protection for large pharmaceutical firms -lack of transparency -allows companies to challenge local laws through investor-state dispute settlement -may decrease imports from LDCs due to lack of standards
• What are potential up/downsides if international trade for DCs? Upsides: -broad-based economic development (through increased scientific, technological exchange) -faster diffusion of productive ideas -incentives for specialization/innovation due to larger markets -access to scarce resources and sophisticated product needed for economic growth  Downsides: -rising dependence -dualism and inequality -environmental degradation -growing international dominance by rich countries
• Discuss major trade-related development strategies and their results Export promotion: Strong: policies geared explicitly to expand exports (eg. currency devaluation) Weak: Policies to not discourage trade but create level playing field Difficulties: -Limited potential for export expansion of primary ag products (low population growth rates in ICs, low price elasticity for demand) -supply rigidities (limited ability of DCs to respond to changes in demand) -limited potential for export-oriented development of primary production ->food production for local populations should be prioritized -exports of manufactured good more successful but: protectionism by ICs, implicit barriers Import substitution: -substituting imports by domestic production (first basic product, later sophisticated goods) -balance of payments should improve due to limited import -protection of infant industries and formation of joint-ventures -initial production costs may be higher but will reach world market level over time leading to new export sector Empirical evidence: -protected industries become inefficient and costly -benefits are reaped by foreign firms and JVs -import of intermediate products leads problems with balance of payments -overvalued exchange rates hurt export of primary goods and promote capital-intensive production ->limited potential for import-substitution based development Export-oriented industrialization: -outward-oriented export-led development strategy -focus on higher-value products  -very successfully pursued strategy by Asian tiger states -non-preferential, active support by government for exporting manufacturers  -government must have enough competence and authority to lead active industrialization process
• What are agricultural subsidies? Government interventions that: -target domestic price levels for agricultural enterprises -aim to give domestic producers and/or exporters an advantage over foreign competitors -distort competitive advantage based on opportunity cost
• How are agricultural subsidies financed? -Financed by taxpayers (direct farm payments, R&D, Marketing, Promotion) -financed by consumers (tariffs, customs duties that increase domestic price)
• What are potential consequences of agricultural subsidies to economic development in DCs? -reduced net agricultural trade by DCs -lost agricultural and agro-industrial income in DCs -damaged farming sector through exports from ICs -increased poverty -export subsidies depress world market prices -forgone exports reduce governmental revenues -> increased aid dependency =>lower economic development
• What are the impacts of quality standards and other non-tariff barriers to economic development in DCs? -domestic producers may be favored over importers -high cost of compliance reduces competitiveness of producers in DCs -but also leads to reduced competitiveness of exporters in ICs -high standards lead to exclusion of smallholder farmers and poor households -compliant farmers observe significant income gains -creates pressure to adopt more productive farming practices, can act as a catalyst for modernization of agricultural sector
• Evaluate the advantages and disadvantages of fair trade Advantages: -guaranteed price -> protection from fluctuating world market price -financing of community development projects -creates long-term relationships -eliminates the middle man -improvements human, natural, financial, social and physical capital Disadvantages: -Lack of transparency -Farmers often don't benefit directly (premium is kept by the cooperative) -no additional income when world market price is high
• Discuss the concept of Aid for Trade -Needed because many DCs are unable to exploit the existing market access Areas of focus: -Technical assistance -Capacity building (training of government officials, building capacity of producers to meet standards at export markets) -Institutional reform (creation of sound and well-functioning institutions for trade -Infrastructure (building of new roads and ports) -Assistance with adjustment cost (fiscal support and advice to deal with transitional adjustment costs of liberalization) 
• What are sources of risk in agriculture? -Production risks (drought, flood, pest/disease, management failure) -Market risks (volatility of input/output price, import/export restrictions, subsidies, exchange rate volatility) -Business enabling environmental risk (crop substitution, infrastructure risk, political risk) -Credit risk -operational risk (low profitability, slow capital circulation,cash flow challenges, small asset base, increased information/transaction cost) 
• What are strategies for agricultural risk control? -risk avoidance (abstaining from relevant activity, cost of avoidance) -risk management (sharing risk with others, eg insurance, hedging) -risk mitigation (diversification, building of flexibility)
• Explain the difference between cash and futures contracts in agricultural commodity markets Cash contract: -seller agrees to deliver an asset, buyer agrees to pay immediately -agreed upon by two parties -forward contract: asset will be exchanged for cash at a later date at price agreed upon now -delivery likely -price fixed over time of the contract Futures contract: -agreement that asset will be exchanged for cash at a later date at price agreed upon now -standardized product -arranged through organized exchange -regulated by agencies
• Critically discuss the impact and benefit of arbitrating, hedging and speculating Arbitrating: -Commodity is bought and sold in two different markets to take advantage of price differentials -contributes to market efficiency through price convergence Hedging: -A owner of the commodity uses commodity futures to transfer their risk -reduced producer risk as price is secured Speculation: -neither the buyer or the seller owns any commodities or plans to take it -both believe they can outguess the market -attempt to profit via greater acceptance of risk -helps in price discovery by revealing opinions of many buyers/sellers about the future
• Explain the difference between futures and options in agricultural commodity markets Futures: -Specify the price for a commodity to be delivered later -settlement terms (physical delivery, cash settlement to offset the contract) -unlimited risk and returns Options: -give the option to buy(call)/sell(put) a futures contract for specific price at a later time -buyer pays a premium to the "writer" in exchange for the risk -option holder limits negative risk with unlimited potential returns -option writer limits their potential return while having unlimited negative risk
• What is public policy? "Actions by government and the intentions that determine those actions"
• What is multi-level governance? Governing activity at all levels (from local to supra-national) is becoming diffused over various actors whose relationships with each other are constantly changing A system of continuous negotiation of nested governments at supra-national, national regional and local levels 
• What are the roles of the institutions of the EU? European Council: -provides impetus and direction European Commission: -submits proposals for new legislation -negotiates international agreements -represents the interest of the EU Council of the European Union: (ministers from each member state) -acts together with the parliament as the legislature -Concludes international agreements European Parliament: (MEPs) -acts together with the Council of the European Union as the legislature -shares budgetary power with the European commission -approves commission members Court of Justice of the EU: -judiciary -ensures uniform interpretation and application of European law European Central Bank: -determines the monetary policy of the Eurozone -ensures stable prices in the Eurozone by controlling the money supply European Court of Auditors: -checks the proper implementation of the budget
• How does the European policymaking process work? Proposal by the European Commission 1sr reading by EP, option to amend 1st reading by the Council, accept(successful)/reject 2nd reading by EP, option to amend otherwise successful 2nd reading by the Council, accept(successful)/reject Conciliation Committee is convened -unsuccessful -> act is not adopted -successful -> 3rd reading by EP and Council accept/reject
• Which legislative acts are there in the EU? Regulation: -binding to all member states -overrides all national laws Directive: -Sets out a goal that all EU member states must achieve -individual countries decide how to achieve the goal Decision: -issued by Council or Commission -applies specifically to one or more stakeholders or members -binding to those addressed Recommendation: -not binding -EU institutions state their opinion and suggest a line of action Opinion: -not binding -can be issued by various EU bodies -allows them to state their opinion during law-making process
• name advantages and limitations of the concept of the policy cycle Advantages: -simplifies complex reality by defining distinct, consecutive steps -captures dynamic nature of the policy-making process -allows for systematic comparisons of policy-making in various fields -suggests a linear, rational process Limitations: -reality is more complex (non-linear, disjointed, unpredictable) -doesn't appropriately consider the fragmented landscape of policy stakeholders -descriptive only (no predictive or explanatory power) -can mislead to over-rationalize in any explanation of past acts
• What were the steps in the evolution of the EU CAP? 1960s: situation: societies damaged by WWII, low ag productivity, food security not guaranteed measures: high support prices, border protection and export subsidies 1970s: situation: increasing productivity, declining competitiveness of agriculture, first overproduction, exploding budget measures: renewal of ag workforce, penalty payments for serious dairy overproduction 1980s:  situation: EU moving towards food self-sufficiency, surplus production of major products, further increasing expense of CAP, increasing distortion of ag trade, consumers unhappy measures: introduction of milk quotas in 1984, introduction of budget stabilizers 1992 reform: situation: EU enlargement measures: direct payments implemented, reduced price support, environmental and afforestation programmes Agenda 2000: aims: economic, social and environmental goals, preservation of siverse farming systems measures: increased direct payments, further decrease of price support (market orientation), implementation of two pillars (production support/rural development)  2003: situation: upcoming EU enlargement, rising CAP budget measures: decoupled subsidy payments, cross-compliance(environment), market orientation 2008: health check, streamlining of CAP
• What are the main features of the 2013 EU CAP? 1st pillar: basic income support to farmers (direct payments: SPS/SAPS) decoupled from production support for small farmers support for young farmers greening 2nd pillar: rural development regulation agro-environmental schemes
• which trends are relevant to the availability of global agricultural land? -global agricultural area slightly increasing/stagnating -agricultural area per capita decreasing (population increase) -HIC have high footprint in land compared to DC
• what are property rights? -provide right-holder to undertake particular actions related to a specific domain -each right defines complementary duties of others to observe this right -defined by rules -enforced by institutions at national, regional and local level examples: -access -withdrawal -management -exclusion -alienation
• why are property rights important? -one solution to socio-economic dilemma situations -guide land-use decisions -act as an incentive for long term investment in land -property rights linked to increased agricultural productivity and reduced poverty -incentivize leasing of land exploring off farm work -> fosters economic growth
• name four categories of property ownership -private -communal -open access -state
• briefly explain the two types of property rights de jure: -granted and enforced by a government -given lawful recognition by formal/legal instruments -secure de facto: -emerged based on traditions/agreements by (local) resource users  -not formally recognized by the government -weak -risk of exploitation
• critically discuss the relationship between land property rights and agricultural productivity benefits: -land property rights encourage long-term agricultural investment -land titles can be used as collateral for credit (fosters investment) -land titles may stimulate the land market and facilitate the transfer of land to more productive farmers however: -weak empirical evidence -land titling programmes are rarely linked to actual agricultural productivity increase -effect may be overlaid by better access of larger/better-off farmers to capital and technology
• critically discuss the relationship between land property rights and agricultural productivity benefits: -land property rights encourage long-term agricultural investment -land titles can be used as collateral for credit (fosters investment) -land titles may stimulate the land market and facilitate the transfer of land to more productive farmers however: -weak empirical evidence -land titling programmes are rarely linked to actual agricultural productivity increase -effect may be overlaid by better access of larger/better-off farmers to capital and technology

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