Agricultural and International Trade

1. Agricultural and International Trade By: Brett Sheets Matt Jones Chris Salsbury

2. Trade Policies • Trade policies help to watch and oversee what's going on in agricultural and international trade. • Trade policies around the world look out for all types and sizes of countries, (undeveloped, developing, and developed) by balancing prices between developing third world countries and the more wealthy greater nations of the world.

3. Trade Policies • There are many organizations and policies that oversee trade. • IPC (International Food and Agricultural Trade Policy Council) • WTO (World Trade Organization) • CAP (Common Agricultural Policy) • Each one controls such topics as: tariffs, subsidies, imports, exports, and trade liberalization

4. IPC • The IPC is an organization that is able to communicate with many regions of the world. • They have experts to deal with regional, bilateral, and multilateral agricultural trade proposals and agreements. • Goals • Maximize trade efficiency • Make it economically stable for developing, less wealthy, nations • The IPC negotiates with the more wealthy countries to lower tariffs and subsidies • Gives developing countries a more substantial export system • Increases Income

5. WTO • The WTO is an organization that oversees and sets policies that have to do with international trade and trade liberalization. • WTO makes trade negotiations • Two main negotiations • Uruguay Round, formed in 1986 • Negotiation for lowering tariffs • Doha Development Agenda, which went into effect in 2001 • Negotiation for lowering tariffs

6. CAP • The CAP by definition is a system of the European Union that oversees agricultural subsidies. • Helps to maintain a minimum cost to the producers of agriculture

7. CAP • The first agreement formed by the CAP was the Treaty of Rome • Goals • Ensure agricultural community has a fair standard of living • Establish stable markets • Increase production at the optimum point • Products that Treaty Covers • Milk, beef, sugars, fruits, clothing materials, seeds, and animal feed

8. CAP • The way it works • Raises and lowers certain goods that are imported into the country • Helps to set a world market price • There is also a minimum set price, if the price is under that then the CAP states the European Union will buy goods to raise the prices back up.

9. Comparative Advantage • The concept of comparative advantage is to explain why it is useful for the trade of two countries when one country has a lower cost of production than the other but is still producing the same good • Total cost of production is not important only the opportunity cost

10. Comparative Advantage • Help to understand the benefits of trade • Example: Why the United States trades between other nations of the world • Comparative advantages are relevant in such areas of agriculture as in farming as well as in the aspect of a grocery store.

11. Comparative Advantage • Developed countries • Are starting to be dominated by technology manufacturing • Services and Information • Comparative advantages are shifting more because of the factors of production • Land, labor, and capital

12. Comparative Advantage • More developed countries are out sourcing high labor jobs • High technology for labor • More information based • In agriculture it is becoming more efficient to move production of a crop to a more resourceful area • In international trade of agricultural goods this means it is more affordable and efficient • To produce certain crops, materials, and clothing

13. Comparative Advantage • Example • United States • Wheat • Land, Labor, Capital, and Management • South America • Bananas • Climate

14. Comparative Advantage • It is also possible for the United States the produce bananas, and for South America to produce wheat. • United States • California it is possible to produce bananas • Not as efficient as producing wheat • Proper soil and climate • South America • Limiting factors • capital and management • proper soil and climate

15. Comparative Advantage • Specializing in only one production • The United States will produce wheat • South America will produce bananas • Lower opportunity cost • United States will trade a portion of its wheat to South America • South America will trade a portion of their bananas to the United States

16. Comparative Advantage • United States has a more cost effective supply of bananas • South America has a more cost effective supply of wheat

17. Absolute Advantage • Is the ability of a country to produce a good using fewer resources than another country • One country may be able to produce more of two goods than another country • Means that the country is producing only one good or the other at a time, to produce more than the second country • In comparison a country may have an absolute advantage of two goods over another country, but it is more efficient to take into account of a comparative advantage

18. Absolute Advantage • Example • United States producing wheat • South America producing bananas • United States also may have an absolute advantage over South America • If United States only produces wheat, and South America also only produces wheat, the United States will produce a much higher output

19. Absolute Advantage • Example • Because of the factors of production in United States, and more technologically stable than South America, it is very reasonable to assume the United States (if only producing bananas) will be able to produce more outputs than South America • This gives United States an absolute advantage over South America • United States is able to produce more of the two products • Wheat and bananas

20. Absolute Advantage • Example • Consequently if the United States produces an absolute advantage of bananas, they will in turn not be able to produce as much wheat • Production is wrapped up in producing bananas • Ultimately comparative advantage over rules and the United States will produce wheat, and South America will produce bananas, and the two countries will trade for more efficient means of production.

21. Balance of Trade • The balance of trade is the difference between the monetary value of exports and imports in and economy over a certain period of time. • Positive balance=Trade surplus • Export more than import • Negative balance=trade deficit • Import more than export

22. The balance of trade is part of a country’s current account. • If the current account is in surplus, the country’s net international asset position increases. • Equally, a deficit will decrease the net international asset position.

23. Measuring Balance of trade • Can be problematic • Ex. When official data for the whole world is added up, exports exceed imports. • This shows a positive balance of trade which cannot be true.

24. Factors that affect balance of trade • Prices of goods manufactured at home • Exchange rates • Trade agreements or barriers • Taxes, tariffs and trade measures • Business cycle

25. Many people believe that a trade deficit is a bad thing. • This is not necessarily true. • It all depends on the business cycle

26. Total monetary trade Canada China Mexico Japan Germany Largest trade partners

27. Foreign Exchange Rate The foreign exchange rate between two currencies specifies how much one currency is worth in terms of the other.

28. The foreign exchange market is one of the largest markets in the world. • The current exchange rate is called the spot exchange rate. • An exchange rate for a payment on a future day is the forward exchange rate.

29. An exchange rate that changes almost constantly and varies against that of another currency is a free-floating currency.

30. Importance of Trade to Agriculture • Trade is essential to Agriculture • For every three agricultural acres one acres worth of product is exported internationally • Agriculture exports for 2005 totaled $62.4 billion • According to the USDA Agricultural exports provide 836,000 Americans with employment

31. NAFTA • NAFTA stands for the North American free trade agreement • NAFTA went into effect January 1, 1994 • It is an agreement between Canada, Mexico, and the USA • Removal or reduction of tariffs • Free trade • Intellectual property rights

32. NAFTA • NAFTA includes two supplemental agreements • North American Agreement on Environmental Cooperation (NAAEC) • North American Agreement on Labor Cooperation (NAALC)

33. NAAEC Reason for adding To create universal standards regarding the way corparations conduct themselves on the environmental issues. The NAAEC created North American Commission for Environmental Cooperation (NACEC) The NACEC brought about a means of enforcing the environmental standards that were in place

34. NAALC Reasons for adding To create a foundation amongst the three members to resolve labor problems. To promote greater cooperation amongst trade unions and social organizations. To hold corporations accountable for the treatment of their workers

35. NAFTA vs. European Union • NAFTA • Does not create a set of supranational government bodies • Does not create its own law that supersedes national law • NAFTA can be thought of more as a treaty rather than a organization such as the EU

36. Creation of NAFTA • President George H. Bush • Brian Mulroney of the progressive conservative party of Canada • It was passed in the House by 234 to 200 vote and in the Senate by 61 to 38 vote

37. Opposition • Since the conception of NAFTA there has been a lot of controversy surrounding it • Opposition still exists present day • Labor unions in the U.S. and Canada tend to oppose NAFTA due to the fear that jobs will be lost to corporations moving down to Mexico where lower wage costs exist.

38. Opposition • Mexican farmers tend to oppose NAFTA because they can not compete with large U.S. farm subsidiaries • Many Mexican farmers have been driven out business since NAFTA went into effect

39. Opposition • NAFTA has also faced opposition from various advocacy organizations that feel the bad non-economic consequences greatly outweigh the overall economic benefit • Since the signing of NAFTA poverty has increased and wages are down twenty percent in Mexico bringing the rise of increased illegal immigration from Mexico to the U.S.

40. Controversy • “Chapter 11” • Allows corporations to sue federal governments if they feel a regulation or government decision adversely affects their investment. • This potentially keeps countries from passing environmental regulations for the fear of being sued by the government

41. Examples of Chapter 11 Exploitation • Methanex • The Canadian corporation sued the U.S. government for $970 million after a California ban on MTBE was placed after MTBE had been found in many wells in the state. Methanex claimed the ban was harmful towards its sales of methanol

42. Examples of Chapter 11 Exploitation • Metalclad • The American corporation sued the Mexican government for $16.5 million after Mexico had banned the creation of a toxic waste dump they intended to build.

44. For NAFTA • Large corporations • Some government officials It seems that NAFTA only increases the gap between wealthy and poor.

45. GATT • Stands for the General Agreement on Tariffs and Trade. • GATT was a product of the Bretton Woods conference after World War II • It was intended to help the world recover from the adverse economic effects of the war

46. GATT • GATT had the intention of • Reducing tariffs • Reducing Quantitative restrictions • Creating government subsidies encouraging trade

47. The history of GATT can be summarized by three phases • First Phase (1947-1959) • Froze current tariff levels • What commodities to cover • Second Phase (1959-1979) • Reduction of tariffs • Third Phase (1979-1994) • Extended agreement to cover services, agriculture and intellectual property rights • Gave birth to the World Trade Organization (WTO)