Introduction: Context and Motivation

1
Introduction Context and Motivation

• Economics of Food Markets
• Lecture 1
• Alan Matthews

2
Lecture objectives

• To introduce some of the issues dealt with in the
  course
• To give a sense of the very extensive government
  intervention in and regulation of agricultural
  and food markets. Course focuses on the
  evaluation of these interventions.
• To describe course requirements and expectations
  of your involvement

3
A new era for food markets agflation?

• Historical experience has been steady downward
  trend in real price of food, food has never been
  cheaper
• Current dramatic food price increases
• Explanations?
• Demand growth in emerging economies
• Competition from biofuels
• Droughts and climate change
• Constraints on supply capacity

4
Taken from Von Braun, IFPRI, 2005
5
Wheat prices (US No 2 Hard Red Winter)
6
Further reform of Europes agricultural policy

• No real reforms for 30 years, now three major
  reforms since 1992 and discussions starting on a
  fourth
• Explanations?
• Declining economic importance and greater
  differentiation in farm structures has weakened
  power of the farm lobby
• Environmentalist critique of the productivist
  model of agriculture
• Consumer concerns not with prices but with food
  safety and market power
• Development groups concern about impact of the
  CAP on developing countries
• Anti-globalisation food security critique

7
Further reform of Europes agricultural policy

• The reform agenda
• 2008 CAP Health Check
• 2009 EU Budget Review
• 2010-2013 Negotiation of next Financial
  Perspective
• Implications of successful conclusion of Doha
  Round
• Implications of further EU enlargement (Western
  Balkans, Turkey)

8
Reviewing international trade rules

• Agriculture a stumbling block in the current Doha
  Development Round of trade talks
• Absence of international trade disciplines on
  agricultural policies until the Uruguay Round
  1994
• What type of trade rules are appropriate to allow
  legitimate policy space to developed and
  developing country governments while avoiding
  negative spillovers on third countries?

9
Agricultural exceptionalism

• Is agriculture different?
• Plenty of evidence that it is treated differently
• Very significant trade protection and support
• International trade rules different for
  agriculture
• Very prominent role in EU budget
• Different mechanisms for EU decision-making

10
Agricultural exceptionalism

• Reasons for different treatment
• Economic characteristics of food markets
• Political and social importance of farm
  communities
• Food security concerns
• Agriculture as a provider of public goods
• Importance in land management, watershed
  management
• Agriculture as a driver of rural development

11
(No Transcript)
12
EU budget expenditure by heading(commitment
expenditures, EUR million)
Source Commission Financial Report 2006
13
Source Commission Budget Review Consultation
Paper September 2007
14
Paradigms in agricultural policy-making

• The dependent agriculture or state assistance
  paradigm
• The competitive agriculture paradigm
• The European Model of Agriculture of
  multifunctional agriculture
• The food fundamentalist paradigm
• Paradigms frame the objectives which guide
  agricultural policy-making

15
Agriculture in the Irish economy
Source Department of Agriculture and Food,
Annual Review and Outlook 2005-06
16
Agriculture in the Irish economy
Source Department of Agriculture and Food,
Annual Review and Outlook 2005-06
17
Food Markets
Factor markets Input markets
Farm product markets
Wholesale markets
Retail markets
18
A corporate view of the global agri-food
business chain
Source Von Braun, J. The World Food Situation
An Overview, IFPRI, 2005
19
Characteristics of food markets

• Primary commodity markets
• Competitive markets characterised by volatility,
  declining terms of trade and weak bargaining
  power of producers
• Factor markets
• Missing markets (environment, agricultural
  research), regulation of competing uses (land)
• Input and food wholesale markets
• Concentrated markets, concerns about market power
• Food retail markets
• Changing consumer behaviour, asymmetry of
  information, food safety, advertising
• International trade markets
• Level playing field?, fair trade, global supply
  chains

20
The policy analysis perspective

• Food markets are heavily regulated for all kinds
  of reasons
• What objectives?
• What instruments?
• Is the intervention efficient?
• Is the intervention equitable?
• Tools of welfare/cost benefit analysis

21
The Food Markets course

• Examines policy issues arising from the operation
  of food and agricultural markets
• Emphasises blend of institutional knowledge and
  application of economic principles
• Uses simple graphical analysis of markets as the
  principal methodology
• Addresses topical issues, e.g. WTO trade talks,
  biofuels, CAP reform

22
Food Markets outline

• Introduction and motivation
• Agricultural policy objectives why support
  farming?
• EU agricultural policy
• Economics of price support policies
• Rural development and biofuels policies

• Managing agricultures impact on the environment
• Regulating agricultural trade and WTO rules
• Impacts of agricultural trade liberalisation
• Market power in the food chain
• Food law and food safety

23
Food Markets assessment

• Examination ( 70)
• Eight questions, answer four
• Two assessments (15 each)
• Tutorial classes
• Active learning, student presentations
• Contact and office hours
• Tuesdays 4-5 pm, Wednesdays 3-4 pm
• alan.matthews_at_tcd.ie

24
(No Transcript)
25
(No Transcript)
26
Food markets reading

• Wide reading expected
• Core readings for each topic
• Supplementary readings for those who intend to
  specialise in the topic

27
Hope you enjoy the course!