Agricultural Trade Policy : The Impact of Export Restrictions during Commodity Price Booms

Abstract

The world endured exceedingly high prices on food commodities in the period leading up to May 2008. Grain prices, in particular, experienced rapid growth, with grain commodities selling at well over double the price received in 2006. Countries reacted by implementing export restrictions on rice and wheat, which further exacerbated prices and market volatility. Consequently, many economic authors have attempted to explain the rising prices. Most of the papers produced in the months following the price peak focused on the impact of the expansion in bio-fuel production and the effect of dollar depreciation. Furthermore, policy recommendations were proposed in line with these apparent causes. However, this thesis will rather pay attention to the effect of trade policy on the agricultural commodity markets.

One of the more important objectives of the thesis is to understand the rationale behind countries utilising export restrictions. It can be argued that large food-exporting countries could be acting optimally in their implementation of export restrictions. Advantages arise due to an improvement in terms-of-trade and depressed prices on the domestic market for the commodity. In spite of this, the restrictions place pressure on the international market, with prices becoming high and volatile. The thesis analyses the decisions facing food-importers under such circumstances. Furthermore, it assesses the impact of trade strategies on income and welfare in large exporting and importing countries, as well as small importing countries.

Several global agreements and programs have been utilised in the past to deal with the issues of high and erratic prices. The most anticipated agricultural trade discipline is the current round of WTO trade discussions, namely the Doha Development Agenda. Yet, the slow progress of the discussions has necessitated the development of other avenues of stabilisation. This thesis will put forward and discuss some of the more important of these policies. Furthermore, it assesses the potential impacts of certain strategies that have been mooted for the future.