International Trade in Agricultural Products

1. International Trade in Agricultural Products AAEC 4306

2. Central importance to the course: • International exchange of goods and services: International Trade. • International exchange of financial products: International Finance.

3. Important Facts about International Trade • As a general rule, all countries produce, consume and exchange many goods and services. • Economic activity in a country can be measured in two ways: • Gross Domestic Product (GDP) • Gross National Product (GNP)

4. GNP vs GDP • Both GNP and GDP provide estimates of total economic activity of the country. • GNP refers to the value of final goods and services produced by domestic factor of production. • GDP refers to the value of final goods and services produced within a country no matter whether the factors of production are domestic or foreign.

5. Classification of Countries • A widely used measure of standard of living is given by the division of GDP or GNP by the level of population of the country. This is referred to as per capita income. • This measure is used to classify countries into developing and developed countries.

6. Per Capita GNP vs. PPP for 2001 in US $

7. Disadvantage of Using Per Capita GNP to Measure Standard of Living • Per capita GNP or GDP converted to U.S. dollars using market exchange rate provides a misleading picture of the standard of living. • Example: You could rent a one-bedroom apartment in New Delhi, India for $20 per month. • Thus, per capita GNP across countries are not directly comparable .

8. Purchasing Power Parity (PPP) • Several International agencies have started using a new measure of standards of living that take into account difference in price paid for goods and services. • In absolute form, PPP suggest that a flexible exchange rate would adjust to ensure that a dollar will buy as much in the US as in any other country. • Example: If we take a number of commodities such that a unit of each costs $2 in the U.S. and a unit of the same commodities cost 10 rupees in India. Then the equivalent exchange rate for a dollar would be 5 rupees instead of market rate of 46 rupees.

9. Per Capita GNP vs. PPP for 2001 in US $

10. Exports & Imports • Exports: Sale of domestic goods and services in the other countries • Imports: Purchase of goods and services from other countries • Country whose imports exceed exports is said to run trade deficit • Country whose exports exceed imports is said to have trade surplus

11. Importance of Trade • Trade has become increasingly important in the world economy. • Index of Openness is a measure of participation in trade: Exports divided by GDP or GNP.

12. Index of Openness (Table 1.1)

13. What has caused explosion in the world trade? • Reduction in trade barriers: • Reduction in transportation and communication costs • Reduction in government imposed limit on trade including tariffs and quotas on imports and exports. • Establishment of multilateral agreements • Establishment of European Union in 1957 • Kennedy round talks in 1960s - >30%cut in tariff • Tokyo round talks in the 1970s - levels

14. Direction of International Trade • We have established that international trade is on the rise. • Has trade expanded for all the countries at an equal rate? • Which countries trade with each other?

15. World Merchandise Trade 2001: $b6,441 Latin America (12) Africa(8.4) 369.1 121.4 EU(73.4) 267.2 2,284.7 ME(6.6) 1047.2 US & CA(35.5) Asia(19.9) 1823.7 2000 ($b6,371.9) 1965 ($b162.2)

16. Major Trading Partners of the United States, 2000 • Canada: 22.62% • Mexico: 14.09% • Japan: 8.36% • United Kingdom: 5.36% • Germany: 3.78% • Korea 3.54%

17. Major Trading Partners of the Mexico, 2000 • United States: 88.72% • Canada: 2.01% • Germany: 0.91% • Spain: 0.91% • Japan: 0.56% • Netherlands: 0.52%

18. Major Trading Partners of the Japan, 2000 • United States: 30.12% • Korea: 6.42% • China: 6.35% • Hong Kong: 5.69% • Singapore: 4.36% • Germany: 4.18%

19. What Goods Are Traded? (1999) • Office machines, computers, parts: 5.8% • Passenger motor cars: 5.6% • Transistors, valves, etc.:4.3% • Crude petroleum: 4.1% • Clothing: 3.5% • Telecom equipments: 3.2% • Artificial resins, plastics:3.1% • Textiles:2.8%

20. Share of agricultural products in world trade • Fruit and Vegetables: 1.4% • Cereals and preparation: 1.1% • Oilseeds, veg. oil, and oil cakes: 1.0% • Meat and preparation: 0.8% • Coffee, tea, cocoa, and spices: 0.6% • Milk and products and eggs: 0.5% • Total: 5.4%

21. Importance of Trade in U.S. Agriculture

22. U.S. Total vs. Ag. Exports

23. U.S. Ag. Exports: Bulk vs. High Value Products

24. U.S. Crop Exports

25. U.S. Cotton Exports

26. World Crop Trade and U.S. Market Share

27. U.S. Livestock Exports

28. World Meat Trade and U.S. Market Share

29. Importance of Trade to the U.S. Agriculture • U.S. agricultural exports account for 30 percent of overall farm production. • On average: • 40 percent of wheat is exported • Roughly one third of rice, cotton, and soybeans are exported. • 20 percent of coarse grains are exported. • In terms of value, it has increased from 6 billion dollars in the 1970s to a all time record of 60 billion dollars in 1996. • This sector has generated 1.4 million jobs.

30. Summary • Importance of world trade is increasing. • Industrialized countries account for the bulk of the world trade • The U.S. is a major trading partner of many countries • Quite a bit of trade is done with neighbors, but this is rapidly changing. • Agriculture accounts for 5-6 percent of total world trade.