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Analyzing the Impact of Changes in Trade and Domestic Policies: The Case of the Soybean Complex

Analyzing the Impact of Changes in Trade and Domestic Policies: The Case of the Soybean Complex. Yan Xia, Rafael Costa, Dwi Susanto, Parr Rosson, and Flynn Adcock. Objective.

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Analyzing the Impact of Changes in Trade and Domestic Policies: The Case of the Soybean Complex

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  1. Analyzing the Impact of Changes in Trade and Domestic Policies: The Case of the Soybean Complex Yan Xia, Rafael Costa, Dwi Susanto, Parr Rosson, and Flynn Adcock

  2. Objective • Analyze and Quantify the Impacts of domestic and trade policy changes on the soybean complex. Three different policies, LDP in U.S., transportation costs in Brazil and export taxes in Argentina are considered.

  3. Overview • Soybean Industry & international trade barriers • Cost Competitiveness • Government Policy • Methodology • Scenarios and Results • Conclusions

  4. Soybean Industry & Trade Barriers • Cost Competitiveness • US has higher fixed costs but is more competitive in variable costs aspects • Brazil & Argentina have lower fixed costs & overall production costs • Inadequate transportation infrastructure in Brazil

  5. Soybean cost competitiveness (2003/04)

  6. Soybean cost competitiveness (cont.) Source: Costa et al. (2007)

  7. Soybean Industry & Trade Barriers • Government Policy • U.S. Farm Policy (DP, CCP, LDP) Loan rate: $5.00/bu 2002-2007 $5.01/bu or $4.92/bu newly proposed – Argentina Export Tax Soybean 23.5%, Meal & oil 20% Soybean ↑27%, Meal & Oil ↑24% 95% soybeans & products are exported

  8. Soybean Cost Argentina vs. U.S. • The difference between the internal price & international price force the soybean growers to be more efficient. Cost ItemArgentina U.S. Land Values $5,000/Ha $6,800/Ha Rent $200/Ha $290/Ha Operational Costs 600-800kg/Ha 935-985kg/Ha Average Farm Price 2004/05 $4.70/bu $5.50/bu Source: International Trade Report, USDA 2006

  9. Methodology • Stochastic Equilibrium Displacement Model • Analytical Model • Exporters: U.S., Brazil, Argentina • Importers: EU, Asia (China & Japan), ROW • Linkage between soybean & joint products • Demand & Supply • Soybean export price determination • Trade restrictions & equilibrium conditions

  10. Methodology II • Equilibrium Displacement Model • Probability distribution was assigned to selected parameters – Stochastic EDM ∂X/X = EX Elasticities & parameters Relative Changes

  11. Methodology III • Parameters • Demand elasticities • Cost share • Output share • Supply elasticities • Export market share

  12. Scenarios and Results • Scenario 1: 20% reduction in transportation costs in Brazil • Scenario 2: 5% decrease in LDP in the U.S. • Scenario 3: 17% increase in export tax in Argentina • Scenario 4: 50% reduction in export tax in Argentina • Scenario 5: Combination of scenario 1, 2, and 4

  13. Scenario 1: 20% transp. costs reduction in Brazil Variables% change Asian soybean import demand (1.99, 6.57) Asian soymeal import demand (-10.24, -5.79) Asian soyoil import demand (-6.28, -3.03) EU soybean import demand (0.43, 2.72) EU soymeal import demand (1.34, 2.84) EU soyoil import demand (-0.76, 1.05) Brazil soybean supply (0.87, 2.99) Argentina soybean supply (0.08, 0.58) US soybean supply (-0.46, 0.02) Brazil soymeal supply (0.66, 1.42) Argentina soymeal supply (0.26, 0.57) US soymeal supply (-2.45, -1.15) Brazil soyoil supply (-2.09, -0.87) Argentina soyoil supply (-2.39, -1.04) US soyoil supply (-1.44, -0.47) Brazil soybean export price (-29.44, -14.48) Brazil soymeal export price (-9.77, -4.81) Brazil soyoil export price (-6.28, -3.09)

  14. Scenario 2: 5% decrease in LDP in U.S. Variables% change Asian soybean import demand (-0.96, 0.07) Asian soymeal import demand (1.19, 3.24) Asian soyoil import demand (0.63, 1.73) EU soybean import demand (-0.31, -0.09) EU soymeal import demand (-0.4, -0.15) EU soyoil import demand (-0.1, 0.06) Brazil soybean supply (-0.04, 0.05) Argentina soybean supply (0.03, 0.16) US soybean supply (-2.87, -0.49) Brazil soymeal supply (0.04, 0.12) Argentina soymeal supply (0.16, 0.45) US soymeal supply (0.55, 1.53) Brazil soyoil supply (0.38, 1.08) Argentina soyoil supply (0.41, 1.14) US soyoil supply (0.35, 1.0) US soybean export price (4.3, 11.83) US soymeal export price (1.91, 5.24) US soyoil export price (1.08, 2.98)

  15. Scenario 3: 17% exp. tax increase in Argentina Variables% change Asian soybean import demand (-1.08, -0.48) Asian soymeal import demand (0.29, 0.72) Asian soyoil import demand (0.11, 0.33) EU soybean import demand (0.08, 0.2) EU soymeal import demand (-1.01, -0.46) EU soyoil import demand (-1.08, -0.41) Brazil soybean supply (-0.49, -0.22) Argentina soybean supply (-3.33, -1.57) US soybean supply (-0.28, -0.1) Brazil soymeal supply (-0.5, -0.17) Argentina soymeal supply (1.77, 3.9) US soymeal supply (-0.33, -0.09) Brazil soyoil supply (-0.3, -0.11) Argentina soyoil supply (1.20, 2.65) US soyoil supply (-0.19, -0.05) Argentina soybean export price (4.47, 9.85) Argentina soymeal export price (1.17, 3.90) Argentina soyoil export price (1.2, 2.65)

  16. Scenario 4: 50% exp. tax decrease in Argentina Variables% change Asian soybean import demand (1.13, 2.57) Asian soymeal import demand (-2.72, -0.68) Asian soyoil import demand (-0.79, -0.20) EU soybean import demand (-0.46, -0.20) EU soymeal import demand (1.09, 2.41) EU soyoil import demand (0.97, 2.58) Brazil soybean supply (0.53, 1.18) Argentina soybean supply (3.74, 7.91) US soybean supply (0.23, 0.67) Brazil soymeal supply (0.88, 1.96) Argentina soymeal supply (0.76, 1.70) US soymeal supply (0.34, 0.76) Brazil soyoil supply (0.21, 0.82) Argentina soyoil supply (0.14, 0.71) US soyoil supply (0.28, 1.05) Argentina soybean export price (-23.38, -10.62) Argentina soymeal export price (-9.46, -4.20) Argentina soyoil export price (-6.3, -2.86)

  17. Scenario 5: Combination of S1, S2, and S4 Variables% change Asian soybean import demand (3.57, 7.29) Asian soymeal import demand (-10.63, -4.38) Asian soyoil import demand (-5.42, -2.17) EU soybean import demand (-0.05, 1.90) EU soymeal import demand (2.53, 4.33) EU soyoil import demand (0.46, 3.21) Brazil soybean supply (1.65, 3.69) Argentina soybean supply (4.33, 8.01) US soybean supply (-2.87, -0.17) Brazil soymeal supply (1.83, 3.01) Argentina soymeal supply (1.38, 2.10) US soymeal supply (0.89, 0.65) Brazil soyoil supply (-0.92, 0.56) Argentina soyoil supply (-1.26, 0.33) US soyoil supply (-0.41, 1.28) US soybean export price (4.69, 13.14) US soymeal export price (2.08, 5.82) US soyoil export price (1.18, 3.31)

  18. Conclusions • U.S. becomes less competitive due to decrease in Loan Deficiency Payment rate • Higher U.S. soybean prices • Fewer soybeans are exported. • Transportation costs reduction will enhance Brazil’s competitiveness • Lower soybean export price • Higher soybean supply • The increase in export tax in Argentina • Further suppress soybean exports • Higher soymeal and oil exports

  19. Conclusions II • If Argentina phase out the export tax • Fewer soybeans are retained domestically • More soybeans are exported • LDP rate reduction and changes in Brazil & Argentina happen simultaneously • U.S. suffers the greatest loss in competitiveness • Prices of soybean, soymeal and oil increase significantly; exports decrease • Brazil & Argentina gain market share

  20. Conclusions III • If U.S. maintains LDP unchanged • Less than 1% increase in soybean supply • Prices of soymeal and oil remain stable • Asia experiences a large increase in soybean imports and decrease in soymeal & oil imports • EU increases soymeal & oil imports; its soybean demand remains stable

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