THE IMPORTANCE OF U.S. FOOD AND AGRICULTURAL TRADE IN A NEW GLOBAL MARKET ENVIRONMENT

• Sponsoring Institution: National Institute of Food and Agriculture
• Project Status: COMPLETE
• Funding Source: HATCH
• Reporting Frequency: Annual
• Accession No.: 1013532
• Multistate No.: S-1062
• Project Start Date: Aug 9, 2017
• Project End Date: Sep 30, 2018
• Program Code: [(N/A)]- (N/A)

Recipient Organization
KANSAS STATE UNIV
(N/A)
MANHATTAN,KS 66506

Performing Department
Agri Economics

Non Technical Summary
The Multistate Project S1062 entitled, "The importance of U.S. food and agricultural trade in a new global market environment," explores a comprehensive set of issues related to the competitiveness of US agriculture in a changing global marketplace.In the portion of the project at Kansas State University, we complement the multistate project by tackling two emerging issues that connect U.S. and global food and environmental security with international trade. These issues are: (1) the dynamics of technological change and how they affect U.S. and global productivity; and (2) the increased volatility in growing season climate and its implications for the resilience of the US agricultural system and the global structure of international markets. Both of these issues have implications for trade policies as well as for the fostering of international markets to sustain a healthy farm economy.Research component 1: International Trade and Technological Progress in AgricultureIncreasing the supply of agricultural goods while improving the sustainability of the food system requires a multi-pronged strategy, of which technological progress is a central component. It is widely acknowledged that technological progress reduces land conversion to agriculture by decreasing the area required to produce a given amount of agricultural goods. However, under some circumstances, technological progress can accelerate land conversion. Such seemingly contradictory effects underlie an influential literature that questions the desirability of investing in agricultural research and development (R&D) as a way of conserving the land resource base.The relationship between technological progress and land use is well understood, at least conceptually. When producers are highly responsive to changes in prices, technological progress is likely to encourage cropland expansion. In contrast, when producers are relatively insensitive to changes in prices, technological progress is associated with less land use. A subtler point is that international markets connect land use responses worldwide. Therefore, even if technological progress is associated with deforestation in a country, it is possible to reduce land use in other countries due to the downward pressure that greater production puts on prices.Although this theory is illuminating, empirical evidence of agricultural technological progress in country-level cropland expansion is lacking. Moreover, the few existing studies on technology and land use have ignored the international interdependence in land use patterns. This topic is important because technological progress is the engine of agricultural productivity and ultimately of a healthy agricultural sector. Technological progress is a process that develops slowly and results from long-term (decades long) investments in research and development. At a time when agriculture faces increasing pressure to satisfy the food, and increasingly fuel, needs of a growing world population, understanding the long term environmental effects of these investments is central to designing public and private policies that can help to produce more food while conserving the natural resource base.In this context, this part of the project investigates the effects of technological progress in agriculture on cropland expansion. We do so at various geographical resolutions, from individual countries to the world. A key innovation of our study is that we formally account for the international dependence of supply responses in different countries linked together by international trade. In terms of the findings, our results indicate that, given current levels of international trade, technological progress is associated with land expansion in most countries of the world. However, globally speaking, technological progress has been an important source of land savings due to the fact that increased production in innovating countries depresses world prices, causing other countries to reduce their cropland use. In the U.S., technological progress is slightly associated with increased cropland expansion; at the same time, improvements in technology in the U.S. reduce cropland expansion in other countries given the large market share of the U.S. in many commodity markets. As this objective evolves, we are expanding our research to translate the effects of technological progress in US agriculture in two key environmental metrics: biodiversity and greenhouse gas emissions.Research component 2: The Role of International Trade in Adapting US Agriculture to Increasing Global Climate VariabilityIncreasing climate volatility is expected to affect the stability of U.S. crop yields with consequences for farm income as well as for sectors that rely on agricultural products as their main inputs. International trade is a main mechanism for stabilizing prices. For instance, the contraction in US exports following the severe drought of 2012 is a prime example of how international markets act as buffers for volatile domestic supplies. A key aspect determining the extent to which international markets are effective in stabilizing domestic supplies is the extent to which supply shocks are correlated across countries.International trade works as a buffer for volatile supplies because it allows for shipping products from where they are abundant to where they are scarce. Thus, if two regions experience supply shortages at the same time, the scope for international trade is limited as the two regions will need to import at the same time. In this context, knowledge of the potential effects of a more volatile climate on US agriculture is essential to understanding the adaptations that occur within the same growing season (such as trade) versus across seasons, such as stockholding. Such understanding is particularly important for products such as corn, where high prices during the period 2007-2011 stimulated production in other countries, reducing the US market share of world markets. Moreover, the tensions between a freer trading system, including improved market access overseas, are often in conflict with other countries' food security policies that rely heavily on stock holding. In sum, an assessment of the effects of a more volatile climate on global food supply is central to the design of policies and strategies that simultaneously reduce market volatility while preserving the competitiveness of US agriculture abroad.In this context, in this project we are working to understand how worldwide climate patterns shape bilateral trade patterns. This will allow for counterfactual scenarios of likely future climates in international markets, including the consequences for US corn markets.

Animal Health Component

100%

Research Effort Categories

Basic

(N/A)

Applied

100%

Developmental

(N/A)

Classification

Knowledge Area (KA)	Subject of Investigation (SOI)	Field of Science (FOS)	Percent
606	2410	3010	100%

Knowledge Area
606 - International Trade and Development;

Subject Of Investigation
2410 - Cross-commodity research--multiple crops;

Field Of Science
3010 - Economics;

Keywords

iternational trade

international trade policies

Goals / Objectives
Determine the impacts of U.S. and foreign policies, market structures, and regulations on U.S. food and agricultural trade, the economy, and the environment. Determine the impacts of international arrangements and institutions on U.S. food and agricultural trade, the economy, and the environment.

Project Methods
Methods to accomplish the objectives of the project include econometrics, simulation, spatial and optimization models, and time series analysis. Market behavior, supply and demand, along with risk and uncertainty will be studied using these methods. The economic impacts will focus on changes in output, value added, employment, the welfare of consumers and producers, and government expenditures. Measures of economic performance will focus on prices, trade, economies at the regional and national level, and the environment. In addition, we will develop new methods as well as extend existing methods to accomplish these objectives.Research component 1: International Trade and Technological Progress in AgricultureConcerning methods, this project introduces three critical innovations into the existing literature that are designed to remedy critical flaws in the available knowledge. Three main areas of improvements have been identified in previous projects. First, the relationships between technology and land use are difficult to capture. Most of the existing analyses fail to isolate the role of different drivers of land supply, such as demand growth, from the effects of technology. Attribution is also an area with some issues as most of the works use crop yields, but crop yields confound greater input usage with the technology itself. Finally, the indirect effects of technology on land use require carefully constructed hypotheses and testable theoretical mechanisms.In this project, we develop a new theory that connects a farm model with international trade and takes into account specific bilateral relationships. This model leads to transparent hypotheses that can be tested with readily observed data on cross-country cropland changes, changes in demand, and changes in land and non-land input prices. We use data from the United Nations Food and Agricultural Organization (FAO) on cropland changes since the 1990s. We also use data from the World Bank Development Indicators for changes in demand per capita. A critical innovation of this project is the use of data on agricultural output values and cross-country cost shares to estimate comparable time series of fertilizer and prices and land rents. The theoretical models are estimated using econometric models.As part of the process to deliver the results of this project, we have one paper under peer review at an influential journal. We are also presenting the paper at conferences and workshops that are attended by both academics and policy analysts charged with informing policy debates in the U.S. and abroad. Activities undertaken to date include a seminar at the USDA Economic Research Service as well as presentation at the 20th Conference of Global Economic Analysis. The work will be presented at an international workshop on indirect land use this fall (Berlin, November 2017). In addition to these activities, we are preparing two more articles, one targeted for a multidisciplinary journal and one targeted for an online blog widely read by the policy community. A main way of evaluating this work is through citations in both academic articles and policy documents as well as on social media. We plan on using Google Scholar citations as well as Altmetrics to track the impacts of the project.Research component 2: The Role of International Trade in Adapting US Agriculture to Increasing Global Climate VariabilityA main contribution of this project is to synthesize the large amount of information on crop yields and climate projections to allow for study of changes in climate variability. In addition to making the data available for our own project, we have also made data tools publicly available on mygeohub.org. These data are being widely used by the research community. Specifically, the AgMIP tool, which delivers projections of crop yields produced by the Global Gridded Crop Modeling Initiative, has had 139 active users and 23,457 data downloads since November 2014. A more recent tool that delivers data on climate from the CMIP5 archive has had 30 users and 330 data downloads since its launch in July 2015.The analysis of these data follows standardized statistical procedures for studying changes in variance and cross-country correlations over time. These data are currently an input in a series of modeling exercises using the so-called gravity of model of trade, which we use to investigate how climate patterns correlate with trade patterns. This gravity model of trade explains the variation in trade patterns in terms of distance and other explanatory variables. The data on climate are also used to perturb a simulation model of trade in order to study the interaction between policies and increased climate variability.Besides the impact of the project through facilitating access to data, our efforts to disseminate this work will seek to inform other researchers, and eventually policy makers, as they discuss the roles of trade policy and stockholding in improving US farm policies geared toward adaptation to a more variable climate.

Progress 08/09/17 to 09/30/18

Outputs
Target Audience:The target audience of this project are academic and non-academic reserchers with the ability to influence decision making in the public and private sectors. During the reporting period (9/30/2017-9/30/2018) we presented papers in seven conferences, all attended by practicioners in the areas of trade, land use, and global change. We also wrote an extension article and a book chapter, both destined to broad audiences, on the evolution of US trade policy. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?The team working on trade issues at K-State comprise two PhD students and a postdoctoral fellow. All of them are in activities directly linked to the project. How have the results been disseminated to communities of interest?Our main vehicle of disseminaton are conference presentations, listed as deliverables. We also disseminate our results through extension documents: . "NAFTA What's next?" (May 2018), posted on our extension website, AgManager, is a polished and shortened term paper from two former AGEC 840 MS students. This brief, targeted to agricultural producers and agribusinesses, summarizes the most critical points of the NAFTA negotiations, most of them unrelated to the agricultural sector. It also summarized the costs for U.S. agriculture reported in various articles looking at a potential reversion of preferential tariffs among the NAFTA countries. This is a sample of how research inform teachingand outreach. What do you plan to do during the next reporting period to accomplish the goals? Nothing Reported

Impacts
What was accomplished under these goals? "The importance of U.S. food and agricultural trade in a new global market environment," explores a comprehensive set of issues related to the competitiveness of US agriculture in a changing global marketplace. In the portion of the project at Kansas State University, we complement the multistate project by tackling two emerging issues that connect U.S. and global food and environmental security with international trade. These issues are: (1) the dynamics of technological change and how they affect U.S. and global productivity; and (2) the increased volatility in growing season climate and its implications for the resilience of the US agricultural system and the global structure of international markets. The work on the dynamics of technological change and how they affect U.S. and global productivityhas been fundamental to understand whether technological change spares natural lands from being converted to agriculture, a particularly controversial issue in the land conservation literature. A major gap in this literature is empirical evidence on the effects of national agricultural technological progress on both domestic and foreign cropland. We fill this gap in "Technology Spillovers and Land Use Change: Empirical Evidence from Global Agriculture," forthcoming in the American Journal of Agricultural Economics, where we estimate the effects of agricultural technological progress on cropland expansion at various geographical resolutions, from the country level to the world as a whole. We find that, in most countries of the world, growth in agricultural total factor productivity (TFP) is either uncorrelated or is positively associated with cropland expansion. Yet, because of the changes in production patterns as countries interact in international markets, worldwide TFP growth has been an important source of global land savings. This work has been widely cited, and frequently appears in many policy briefs and documents related to global food security and the sustainablity of world agriculture. The work on the increased volatility in growing season climate and its implications for the resilience of the US agricultural system and the global structure of international markets has generated a number of important insights: 1. There is a large need for easier access to the complex and large datasets produce by the global climate and crop modeling communities. Processing these data is a prerequisite for conducting research on the economic assessment of the impacts and adaptation strategies in the face of global change. As part of our dissemination strategy, we partnered with the Global Gridded Crop Model group of the AgMIP project, to offer streamlined access to their data archives on climate and crop yields. We offer users the opportunity to aggregate these data to different regional and temporal aggregates, using the software we developed for our own analysis. These peer-reviewed online facilities have delivered spatially disaggregated future projections of crop yields and climate data to 222 users through 28,572 distinct data downloads (as of 9/30/2018). 2. Both imports and stocks are important means with a statistically significant effect in reducing the intra-annual volatility of corn prices in a representative group of developing countries, most of them important destinations of U.S. corn exports. Projected crop yields also predict important increases in intra-annual price volatility in these countries. Our findings suggest that modest increases in imports can offset most of the yield-induced price volatility implied by projections of future yield shocks. Increasing imports, however, is often at odds with self-sufficiency and farmer-protection programs. A major concern in importing countries is that, because of the limited number of corn exporters, imports may increase the vulnerability of domestic markets to shocks originated overseas. 3. Our analysis of the extent to which foreign and domestic supply shocks of the same sign would occur within a given year, indicate limited patterns of correlation among the main world exporters and importers of corn. This evidence suggests that in most years, the concerns of importing volatility from the largest exporters is relatively low. In addition, evidence from related research sparked by this grant suggests that China, a main corn importer in some years, have had some success diversifying its sources of supply. This is an interesting finding as China's demand could stimulate more production form South America and Eastern Europe, which in turn could help to diversify exporters. Such a diversification may reduce concerns in importing countries about the exposure to foreign shocks, which over time, could reduce the rationale for obstructing market access to U.S. corn exports.

Publications

• Type: Journal Articles Status: Published Year Published: 2018 Citation: Villoria, Nelson B., Joshua Elliott, Christoph M�ller, Jaewoo Shin, Lan Zhao, and Carol Song. (2018). Web-Based Access, Aggregation, and Visualization of Future Climate Projections with Emphasis on Agricultural Assessments. SoftwareX. Vol 7. JanuaryJune 2018, pp: 15-22.
• Type: Journal Articles Status: Published Year Published: 2018 Citation: Villoria, N.B. and Bowen Chen (2018) Yield Risks in Global Maize Markets: Historical Evidence and Future Projections in Key Regions of the World. Weather and Climate Extremes, Vol. 19, March 2018, pp: 42-48
• Type: Journal Articles Status: Published Year Published: 2018 Citation: Chen Bowen and Nelson B. Villoria (2018) Climate Shocks, Food Price Stability and International Trade: Evidence from 76 Maize Markets in 27 Net-importing Countries." Environmental Research Letters https://doi.org/10.1088/1748-9326/aaf07f.
• Type: Journal Articles Status: Awaiting Publication Year Published: 2018 Citation: Villoria, N.B. (2018) Technology Spillovers and Land Use Change: Empirical Evidence from Global Agriculture. American Journal of Agricultural Economics (In press).
• Type: Book Chapters Status: Published Year Published: 2018 Citation: Villoria, Nelson B. 2019. The Food Trade System: Structural Features and Policy Foundations. In Encyclopedia of Food Security and Sustainability, edited by Pasquale Ferranti, Elliot Berry, and Anderson Jock, 1:6473. Elsevier.
• Type: Conference Papers and Presentations Status: Accepted Year Published: 2017 Citation: Villoria, Nelson B. Technology Spillovers and Land Use Change: Empirical Evidence from Global Agriculture. Workshop on Land Use and Leakage. Robert Bosch Foundation. Berlin, November 9-10, 2017.
• Type: Conference Papers and Presentations Status: Accepted Year Published: 2017 Citation: Villoria, Nelson B. Sources of Domestic Food Price Volatility: An Empirical Investigation Using a Structural Gravity of Maize Markets. International Agricultural Trade Research Consortium Annual Meeting, Washington, D.C. December 3-5, 2017.
• Type: Conference Papers and Presentations Status: Accepted Year Published: 2017 Citation: Chen, Bowen, Nelson B. Villoria, and Tian Xia. Import Protections in China's Grain Markets: An Empirical Assessment. International Agricultural Trade Research Consortium Annual Meeting, Washington, D.C. December 3-5, 2017.
• Type: Conference Papers and Presentations Status: Accepted Year Published: 2018 Citation: Villoria, Nelson B. "Sources of domestic food price volatility: An empirical investigation using structural gravity of maize markets." Selected Paper at the 2018 AAEA Annual Meeting in Washington, D.C. August 5-7, 2018.
• Type: Conference Papers and Presentations Status: Accepted Year Published: 2018 Citation: Hendricks, Nathan, Aaron Smith And Nelson B. Villoria. "Global Agricultural Supply Response to Persistent Price Shocks." Selected Paper at the 2018 AAEA Annual Meeting in Washington, D.C. August 5-7, 2018.
• Type: Conference Papers and Presentations Status: Accepted Year Published: 2018 Citation: Chen Bowen and Nelson B. Villoria. "Import Protections in China's Grain Market: An Empirical Assessment." Selected Paper at the 2018 AAEA Annual Meeting in Washington, D.C. August 5-7, 2018.
• Type: Conference Papers and Presentations Status: Accepted Year Published: 2018 Citation: Chen Bowen and Nelson B. Villoria. "Food Price Variability and Import Dependence: A Country Panel Analysis." Selected Paper at the 2018 AAEA Annual Meeting in Washington, D.C. August 5-7, 2018.

Progress 08/09/17 to 09/30/17

Outputs
Target Audience:The target audience of this project are academic and non-academic reserchers with the ability to influence decision making in the public and private sectors. During the reporting period (8/9/2017-9/30/2017) we presented a paper in the 2nd conference on econometric models of climate change U. of Oxford, U.K.) which was attended by practicioners in the areas of climate and trade. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided? Nothing Reported How have the results been disseminated to communities of interest?During the reporting period we presented a paper at an international conference on the econometrics of climate change. What do you plan to do during the next reporting period to accomplish the goals?We continue works on several fronts related to objectives 1 and 2: - China's polices toward US grains. - International and domestic land use effects of US agricultural trade. - Agricultural trade and the structural changes in markets, with special emphasis on increased volatility.

Impacts
What was accomplished under these goals? During the reporting period August 9-September 30 we worked on advanceing several lines of work to accomplish the objectives above: - Significant work on a paper titled "Import Protection in China's Grain Markets: An Empirical Assessment" which will be under review this summer (2018). - Significant advances on "Sources of Domestic Food Price Volatility: An Empirical Investigation Using a Structural Gravity of Maize Markets", which will be under review this summer (2018) Both of these are directly related to objective 1 above. Also, during the reporting period the PD started work on a a policy brief about NAFTA, which falls under objective 2.

Publications

• Type: Conference Papers and Presentations Status: Awaiting Publication Year Published: 2018 Citation: Ubilava, David, Jesse B. Tack, and Nelson B. Villoria. The Geography of the Growth Effect of ENSO: Smooth Transitions across Latitudes and Longitudes. 2nd Conference on Econometric Models of Climate Change. September 4-5, 2017. University of Oxford, United Kingdom.