Analyzing the impact of changes in trade and domestic policies the case of the soybean complex
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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

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

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.


Overview

Overview

  • Soybean Industry & international trade barriers

    • Cost Competitiveness

    • Government Policy

  • Methodology

  • Scenarios and Results

  • Conclusions


Soybean industry trade barriers

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


Soybean cost competitiveness 2003 04

Soybean cost competitiveness (2003/04)


Soybean cost competitiveness cont

Soybean cost competitiveness (cont.)

Source: Costa et al. (2007)


Soybean industry trade barriers1

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


Soybean cost argentina vs u s

Soybean Cost Argentina vs. U.S.

  • The difference between the internal price & international price force the soybean growers to be more efficient.

Cost ItemArgentinaU.S.

Land Values$5,000/Ha$6,800/Ha

Rent$200/Ha$290/Ha

Operational Costs600-800kg/Ha935-985kg/Ha

Average Farm Price 2004/05$4.70/bu $5.50/bu

Source: International Trade Report, USDA 2006


Methodology

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


Methodology ii

Methodology II

  • Equilibrium Displacement Model

  • Probability distribution was assigned to selected parameters – Stochastic EDM

∂X/X = EX

Elasticities & parameters

Relative Changes


Methodology iii

Methodology III

  • Parameters

    • Demand elasticities

    • Cost share

    • Output share

    • Supply elasticities

    • Export market share


Scenarios and results

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


Scenario 1 20 transp costs reduction in brazil

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)


Scenario 2 5 decrease in ldp in u s

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)


Scenario 3 17 exp tax increase in argentina

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)


Scenario 4 50 exp tax decrease in argentina

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)


Scenario 5 combination of s1 s2 and s4

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)


Conclusions

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


Conclusions ii

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


Conclusions iii

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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