Globalization & Agricultural Trade

Objectives

• Analyzes the impact of globalization on agricultural trade
• Discusses the influence of institutional changes on agricultural entrepreneurship

Globalization

• Refers to increases in the movement of finance, inputs, output, information, and science across vast geographic areas
• It speeds up the movements and exchanges of human beings, goods, services, capital, technologies, or cultural practices all over the planet

How Globalization Works

• Trade involves the action of buying and selling goods and services
• Countries trade goods and services and invest in each other's economies
• Communication is transformed through globalization by making connectivity easier and increasing available information
• Countries communicate more through the internet, and share ideas and knowledge
• Culture involves the values, ideas, and experiences of a specific culture that are transmitted and disseminated across the world
• Countries exchange cultural practices and learn from each other
• Labor allows countries access to each other's labor markets
• Globalization facilitates the movement of workers across borders, letting people seek employment in different countries

Globalization and its Effects on Agricultural Markets

• Globalization has significantly reshaped agricultural markets around the world
• It fosters both opportunities and challenges

Increased Market Access

• Globalization has expanded the reach of agricultural products, allowing farmers to access international markets
• It provides opportunities for increased revenue, particularly for countries with comparative advantages in producing specific crops or livestock
• Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners
• Opportunity cost is the value of what you give up when you choose one option over another

South America Soybean Production Increasing in 2022/2023 in million bushels

• Brazil produced 4,613 in 2021/2022 and a forecast of 5,564 for 2022/2023
• Argentina produced 1,612 in 2021/2022 and 919 in 2022/2023
• Paraguay produced 147 in 2021/2022 and 367 in 2022/2023
• Uruguay produced 99 in 2021/2022 and 37 in 2022/2023

Top 10 Rice Producing Countries

• China is the world's largest rice producer, with a large harvest area and high consumption (147.691 million tons)
• lndia is the world's largest rice exporter, with a large harvest area (125.039 million tons)
• Bangladesh is a top rice producing country (35.51 million tons)

Trade Liberalization and Competition

• The reduction of trade barriers, like tariffs and subsidies, has created a more competitive global agricultural market
• Tariffs are a tax imposed by one country on the goods and services imported from another country to influence it, raise revenues, or protect competitive advantages
• Subsidies are a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive

Price Volatility

• Global agricultural markets are often subject to price volatility
• Price Volatility due to factors such as climate change, supply chain disruptions, and fluctuating demand

Technological Innovation and Productivity

• Genetically modified crops improve innovation and productivity
• Improved irrigation systems improve innovation and productivity
• Precision farming techniques improve innovation and productivity
• It increases productivity and efficiency in agricultural production

Environmental Impact

• Intensification in production leads to unsustainable practices
• Examples of unsustainable practices are deforestation, overuse of water resources, and soil degradation

Labor and Migration

• Seasonal migration for agricultural labor takes place
• Workers move to areas where demand for labor is highest

Food Security

• Globalization improves food security
• Globalization enables countries to import food products they cannot produce domestically

Institutional Changes in Agriculture (Policies, Trade Agreements)

• A free trade policy is when a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports)
• Trade liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations
• Trade liberalization promotes free trade

Advantage of Trade Liberalization

• Trade liberalization Decreases regulation costs
• Trade liberalization brings lower consumer prices
• Trade liberalization Increases competition from abroad
• Trade liberalization shifts resources to industries in which it may have a competitive advantage

Disadvantage of Trade Liberalization

• Trade liberalization can negatively affect certain businesses within the nation
• Trade liberalization brings greater competition from foreign producers
• Trade liberalization is a threat to developing nations
• Trade liberalization has financial and social risks

Free Trade Agreement

• Is a pact between two or more nations to reduce barriers to imports and exports among them

Free Trade Area

• Is a region in which a group of countries has signed a free trade agreement and maintain little or no barriers to trade
• There's tend to be an increase in international trade among member countries

How a Free Trade Agreement Work

• Free trade policy is implemented by means of a formal and mutual agreement of the nations involved

On the Principles of Political Economy and Taxation

• David Ricardo (1817), included policies in place that exempt specific products from tariff-free status in order to protect home producers from foreign competition

David Ricardo

• British political economist
• Free trade
• Theory of Comparative Advantage
• Capitalize and invest in planting crops that grow better locally

Protectionism

• Restricts international trade
• Goals include the improvement of economic activity within a domestic economy
• Can be motivated for safety and quality concern
• Focuses on imports
• Aims to create domestic jobs

Trade Barriers

• Tariffs are a tax
• Tariffs add to the cost of imported goods
• Tariffs are paid to the customs authority of the country imposing the tariff
• Tariffs intend to make foreign products more expensive for consumers
• Goods from abroad are cheaper because they offer cheaper capital or labor costs

Why are Tariff Barries Used

• Tariffs are often created to protect infant industries and developing economies
• They're used by more advanced economies with developed industries

Five Top Reasons for Using Tariffs

• Protecting employment
• Protecting consumers
• Infant industries protection
• For national security
• For retaliation purposes

Common Types of Tariff and Barriers

• Specific tariffs
• Ad valorem tariffs
• Licenses
• Import quotas
• Voluntary export restraints
• Local content requirements

Tariff Barriers to Trade

• Specific tariffs are a fixed fee levied on one unit of an imported good
• For example, a country could levy a $15 on a pair of shoes imported but levy a $300 tariff on each computer imported

Ad Valorem Tariffs

• Latin for "according to value"
• Levied on a good based on a percentage of that good's value
• For example, there is a 15% tariff levied by Japan on U.S automobiles

Non-Tariff Barriers to Trade

• Licenses are granted to a business by the government and allow the business to import a certain type of good into the country

Quantitative Restrictions

• Government-imposed limits on the quantity or value of goods that can be imported or exported
• Quantitative Restrictions can include quotas, licensing procedures, and prohibitions

Why are Quantitative Restrictions Used

• To protect human, animal, or plant health
• To protect public morals
• To conserve natural resources
• For national security reasons

Voluntary Export Restraints (VER)

• Created by the exporting country rather than the importing one
• VER could be accompanied by reciprocal VER
• Example, Brazil could place a VER on the exportation of sugar to Canada. Canada could then place a VER on the exportation of coal to Brazil

Sanitary and Phytosanitary Measures

• Rules that governments use to protect human, animal, and plant health are in place
• These measures apply to food, beverages, animals, and plants
• They prevent the spread of pests and diseases
• Protect against contaminants, toxins, and disease-causing organisms in food
• Protect against diseases carried by animals, plants, or products thereof
• Protect against risks from additives in food

Embargo

• Government orders restrict commerce with a specified country or the exchange of goods
• Embargo is created as a result of unfavorable political or economic circumstances between nations