- Treatment of agriculture in Regional Trade agreements and their impacts for multilateral trade negotiations.
- The impact on developing countries of the Uruguay Round agreement on agriculture and the agreement on the application of sanitary and phytosanitary measures.
- State Trading Enterprises and the next World Trade Organisation Round: A comparative analysis focusing on trade distortion.
- The impact of the 1997/98 Asian financial crisis on agriculture and forestry in New Zealand.
- Evaluation and development of wool price forecasting framework.
2. Facilitating agricultural market access
2.1 AMA 100
Programme Title: |
Treatment of agriculture in Regional Trade agreements and their impacts for multilateral trade negotiations. |
| Programme Leader: | Robert Scollay |
| Institution: | University of Auckland |
Additional work is being completed on the final report for this project and a summary is therefore unavailable for inclusion in this report. The results of this project will be included in the next Research Results report.
2.2 AMA 101
Programme Title: |
The impact on developing countries of the Uruguay Round agreement on agriculture and the agreement on the application of sanitary and phytosanitary |
| Programme Leader: | Brian Bell |
| Institution: | Nimmo Bell |
Summary
This programme aimed to understand the concerns of developing countries, especially those that are net food importers, about the effects of the Uruguay Round.
A survey of literature uncovered a wide variety of issues and concerns about the impact of the Uruguay Round on developing countries. The literature was assessed and organised into an Excel database that is available to MAF. The information was analysed and reported on. The basis of key issues relating to countries or regions included: domestic policies of developing countries; increased food prices; increased income; inexperience of developing countries in trade negotiations; food security; food aid, the impact of environmental standards on agricultural trade; and the loss of preferential treatment agreements. The researchers found genuine issues of concern in each of the areas.
The general conclusion is that benefits from the Uruguay Round largely depend on a country’s economic environment and the extent of liberalisation efforts. A lower level of liberalisation is partly a reflection of the nature of the agreements concluded. Many of the reductions in non-tariff areas are designed for the types of policies in industrial countries where subsidies are the issue. In contrast developing countries tend to tax agriculture which is not negotiated by WTO agreements.
Objective 1: Search and assess literature
Objective 2: Develop a framework of analysis
Objective 3: Write up of the report.
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Background
New Zealand needs to understand the effects of the Uruguay Round Agreement on agriculture on trading partners, in preparation for the next round of negotiations starting in 2000. While the positions of New Zealand’s major trading partners are largely understood, less understood are the positions that might be adopted by some developing countries. In particular, a number of net food importing developing countries expressed concerns during the Uruguay Round that they would be negatively affected by agricultural trade liberalisation. The goal of the project was to understand the concerns of developing countries, especially those that are net food importers, about the effects of the Uruguay Round.
Approach & Outcomes
A survey of literature uncovered a wide variety of issues and concerns about the impact of the Uruguay Round on developing countries. Once the researchers had assessed the content of the literature, it was organised into an Excel database. Ministry of Agriculture and Forestry will be able to sort this information by type. The researchers analysed the information and reported on the basis of key issues relating to countries or regions including:
· domestic policies of developing countries;
· increased food prices;
· increased income;
· inexperience of developing countries in trade negotiations;
· food security;
· food aid;
· the impact of environmental standards on agricultural trade;
· the loss of preferential treatment agreements.
The general conclusion is that benefits from the Uruguay Round largely depend on a country’s economic environment and the extent of liberalisation efforts. A lower level of liberalisation is partly a reflection of the nature of the agreements concluded. Many of the reductions in non-tariff areas are designed for the types of policies in industrial countries where subsidies are the issue. In contrast, developing countries tend to tax agriculture which is not negotiated by WTO
A major concern is over rising food import bills. However overall it is expected that agricultural export earnings will keep pace with rising food import bills. This situation will be more problematic for some countries than others.
Developing countries are disadvantaged by the inexperience of their people to prepare and take part in international trade negotiations. Limited resources are over stretched as a number of informal meetings go on in the WTO simultaneously. There is also a concern over their ability to understand and contribute to
Food security is raised as a major concern, particularly the ability to maintain food imports at desired price and quantity levels and the reliability of access to these imports. Foreign exchange is limited by debt repayments, declining terms of trade and limited export potential. Intertwined with this is a concern over food aid, which has been declining in recent years. In the future, such aid may be more responsive to general public perceptions of its usefulness in value to donor countries.
Environmental issues are a concern as developing countries generally have comparative advantage in labour and pollution intensive industries. These countries are concerned that they are vulnerable either to being pressured to enforce stricter standards, or to facing reduced market access for their exports in stricter standard countries.
The erosion of the value of preferential margins or benefits is a concern. However it may be possible to restore these benefits through other trade concessions or by other forms of compensation.
Finally, the proliferation of regional trade agreements is a concern due to the cost imposed by the separation of trading system into exclusive blocks.
2.3 AMA 102
Programme Title: |
State Trading Enterprises and the next World Trade Organisation Round: A comparative analysis focusing on trade distortion. |
| Programme Leader: | Dr John Yeabsley |
| Institution: | NZIER |
Additional work is being completed on the final report for this project and a summary is therefore unavailable for inclusion in this report. The results of this project will be included in the next Research Results report.
2.4 AMA 103
Programme Title: |
The impact of the 1997/98 Asian financial crisis on agriculture and forestry in New Zealand. |
| Programme Leader: | Phillip Bishop |
| Institution: | NZIER |
Summary
This programme aimed to understand the impact of the Asian financial crisis on farmers’ returns and the consequential impacts on the wider economy in both the short run and long run. A variety of extant models were used to undertake the analysis. While the crisis has undoubtedly affected many sectors of the economy, some quite severely, in general the New Zealand economy has not been as badly affected as the initial forecasts suggested. Several factors account for this:
- some of the affected countries, Korea especially, have recovered much quicker than was anticipated;
- the depreciation of the New Zealand dollar helped considerably to offset the fall in export prices;
- New Zealand exporters have proven to be quite adept at seeking out and securing alternative markets;
- the buoyant economies of the United States and Australia have partially counteracted the negative pressures brought about by the crisis; and
- domestic events such as the AMP demutualisation and the 1998 tax cuts have muted, at least initially, the downward pressure on consumption spending in New Zealand.
In summary, this analysis reveals that as at the end of 1998, the Asian crisis has had a negative impact on gross domestic expenditure of almost two billion dollars. There will, however, be further costs as the aftermath of the crisis lingers on.
Objective 1: Short run impact of Asia on farm returns.
Objective 2: Short-run impact on macro variables in NZ.
Objective 3: Long-run impact on New Zealand economy.
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Background
At the time this project was commissioned, the Asian crisis had the makings of a shock to the New Zealand economy potentially as severe as the oil crises of the seventies. Given the importance of Asian countries as destinations for New Zealand’s agricultural and forestry exports, it was imperative that MAF came to terms with the consequences of the crisis.
The goal of this project was to gain an understanding of what the impact of the Asian financial crisis will be, to ensure accuracy in forecasting farmers’ returns and the consequential impacts on the wider economy in both the short run and long run.
Approach & Outcomes
There were four analytical components to this research. The first was a descriptive analysis of New Zealand’s agricultural and forestry trade position. The second described how the GTAP General Equilibrium model was used to explore the long run consequences of the crisis. An econometric VAR model was then described. This model was used to investigate the short run impact of the crisis on key macroeconomic variables. Finally, MAF’s Pastoral Sector Supply Response and Input-Output models were used to analyse the short-term implications of the crisis for the primary sector.
The report begins with a brief review of the literature describing the origins of the Asian financial crisis. The researchers then presented a descriptive analysis of New Zealand’s agricultural, horticultural and forestry trade position. In particular, the trade links with the five countries most central to the crisis – Indonesia, Malaysia, the Philippines, Thailand, and South Korea – are examined.
The long run impact of the Asian crisis was analysed using a 21-region, 15-sector version of the GTAP GE model. Using forecasts of GDP growth made in early 1997 (i.e. before the crisis) and the most recently available forecasts, the researchers were able to simulate global trade for a ten-year period under both a “no crisis” and a “with crisis” scenario. While prices immediately declined with the onset of the crisis, they found that for New Zealand, the export price declines were only of the order of 2.6 to 3.9 percent. By 2001 export prices in all sectors had recovered to more than their pre-crisis levels.
A VAR model was then used to investigate the short run impact of the Asian crisis on key macroeconomic variables such as aggregate consumption, investment, and gross domestic expenditure. The macroeconomic modelling shows that the crisis affected the investment sector early, but has taken some time to feed through to consumption. Lags between the investment and export effect, and flow-on effect through to the rest of economy mean there may be some delayed consequences for GDP. To summarise, the researchers results suggest that over the June 1997 to December 1998 period, the Asian crisis had a $119 million negative impact on exports, and a $1,215 million negative impact on gross domestic expenditure.
Finally, the researchers explored the short run impact on the pastoral and forestry sectors. In particular, they focused on producer revenue. The wool sector fares the worst while the dairy, sheepmeat, and beef sectors are shown to suffer negligibly or not at all. The forestry and logging sector fared the worst with the loss of about 470 full-time equivalent jobs attributable to the Asian crisis. Furthermore, given the regional nature of the forestry sector, these job losses would be concentrated in localised areas. Despite the Asian crisis, the model predicts demand for wood and wood products from countries unaffected by the crisis to remain strong, with a mitigating effect on the logging sector.
Publications
NZ Institute of Economic Research (1999) The Asian Crisis and New Zealand Agriculture and Foresty. A report prepared for the Ministry of Agriculture and Forestry, Wellington, July 1999.
2.5 AMA 112
Programme Title: |
Evaluation and development of wool price forecasting framework. |
| Programme Leader: | Phil Briggs |
| Institution: | NZIER |
Summary
This programme aimed to review previous wool price forecasting methods to enable the researchers to construct their own wool price forecasting models. The researchers then developed a framework to analyse the factors influencing wool prices. Using this framework, econometric models were built for strong and fine wool prices. Models for medium wool prices and a wool price market indicator were then constructed using the strong and fine wool model results.
The researchers used an error correction framework, which allowed them to combine differing short and long-term factors that determine wool prices into one model. A causal model, such as an error correction model, aids the understanding of what drives wool prices as well as providing wool price forecasts
Objective 1: Review of wool price models
Objective 2: Derivation of wool price equation
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Background
The goal of the project was to review previous wool price forecasting methodologies and performance and derive a wool price forecasting equation. The price of wool is a major determinant of farm incomes, and hence of the economic position of much of rural New Zealand. Wool prices are historically volatile which is a reflection of the numerous supply and demand factors that set the price in the wool industry. Given the historical relevance of wool receipts to the growth and development of the New Zealand economy, it is important to develop a robust method of forecasting prices.
It has been surprising how little progress appears to have been made on structural modelling of wool prices since the early work of Philpott and Rodgers in the 1960s and 70s. Much of the recent work has been on cross sectional analysis, time series modelling, or the effects of government intervention on wool prices.
Approach & Outcomes
A framework focusing on the supply and demand factors influencing world wool prices has been developed to analyse the drivers of wool prices. Using this framework, causal error correction models for strong and fine wool prices were constructed. The advantages of causal models compared to time series models is that they:
- Identity “cause and effect” relationships between different variables, and therefore allow “what if” scenarios to be examined.
- Produce relatively accurate long-term forecasts, reasonable short term forecasts, and are relatively good at picking turning points.
Hence, a causal model - one that aids understanding of what drives wool prices was developed. Using an error correction framework allowed the researchers to combine the differing short and long-term factors affecting wool prices in one model.
Wool prices proved very difficult to model. While the long-term trends in wool prices can be identified, the short-term variation in wool prices are very difficult to predict. Part of the reason for the difficulty in forecasting the short-term variation is due to the lack of relevant quarterly information. For example, wool stocks are generally recorded on an annual basis, which allows limited insight into the role stocks play in the short-term variation of wool prices.
The research undertaken represents progress in the following areas:
- Development of a framework within which to analyse the factors influencing wool prices. In particular, the framework involves looking at the drivers of world wool prices.
- Production of a long-term historical indicator series for the prices of strong, medium, and fine wool. These series butt together well with the New Zealand Wool Group’s indicator series, thereby extending these numbers further back into the past.
- Derivation of an equation for forecasting strong wool prices.
- Derivation of an equation for forecasting fine wool prices.
- Derivation of an equation to forecast medium wool prices from strong and fine wool prices.
- Derivation of an equation to forecast the New Zealand Wool Group’s market indicator from the strong, medium, and fine wool prices.
Problems with the project centre on data issues. The lack of quarterly world supplier stocks data and the lack of any data on processor stocks limits the ability of these models to account accurately for the short-term fluctuations in wool prices. The fine wool equation, which uses a reasonable proxy for quarterly world supply stocks, performs better in the short term than the strong wool. Estimation of both suppliers and processors stocks needs to be undertaken. Better estimates will allow more accurate quantification of the effects of other influences on wool prices and hence better forecasts will be obtained.
Stocks data is not the only issue. The lack of a suitable quarterly polyester price series may also be limiting the success of the models to account for the short-term fluctuations in wool prices.
Publications
Steel, D. and Jansen, M. (1998). Forecasting Wool Prices - Review of Methodologies, NZIER report to MAF, Contract No. 163 1.
Steel, D. (1999). Wool Price Forecasting Models, NZIER report to MAF, Contract No. 163 1.
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