Agriculture and Food in International Trade - Coursework Example

Question One Trade liberalization, poverty alleviation and food security a) Factors influencing degree of price transmission Price transmission more so in the agricultural sector has been a phenomenon that has haunted the sector for decades. One of the factors affecting this is high taxes where exporting for example, the fees may be so unfavorable as to cause shifts in prices of goods (Koning and Pinstrup 2007). It is a known scenario that producers often transfer their costs to consumers and this is one that will definitely be factored in downstream prices. The other factor is delays in clearance whereby the government authorities at the clearing centers take too long to release goods. These delays are known to cost a great deal as for highly perishable produce there is the need to have special facilities for their transportation. This increases the handling cost leading to high prices of operation upstream. Other factors are the cost of freight particularly air freight, availability of freight service infrastructure ie ports, ships and container loading, the availability of a cold chain facilities to keep product frozen or refrigerated then the time it make take to get the product to export market, getting the product on time to the customer because of poor freight schedules can be difficult Things like insurance costs (shipping credit insurance etc , and securing how you are going to get paid are also issues. Another factor is the existence of extensive bureaucracy in documentation at these points making the process of crossing borders and the clearance of stock a long and time consuming process. Many countries in the aim to protect local industry economically, have instituted import quotas, phytosanitary documentation, certification, duty classification and payment all of which are also big factors. The export process requires certain skills, knowledge and international business experience and producers rarely have these skills. As earlier highlighted, these practices increase costs to the producer as for them to make profit they need to factor such costs of the time wasted in terms of opportunity cost. Corruption at the borders is another factor that affects the degree of price transmission. In many countries official import restrictions have led to the development of grey channel practices i.e. export to Hong Kong is a great way to get restricted goods into mainland China. According to Koning and Pinstrup (2007) corruption causes some producers to have preferential treatment while others wait for them to be cleared. The bribery expense is transferred as well as that of delays. These and other factors go a long way in influencing the degree of price transmission especially in the border sections. b) Pros and cons of domestic government support measures Governments the world over develop policies that aim at cushioning their farmers from the adverse effects of the agricultural industry and market. These protectionist moves are both harmful as well as advantageous. Some are pegged to the levels of production while others are not. One of the advantages accruing where levels of production are considered is that the farmers are encouraged to produce more as they have direct incentives towards production. This drives production high thereby increasing the general country’s food output. High production can mean low quality product that buyers do not want or an oversupply in the market which reduces prices and producer profitability. The other advantage is that in the course of increasing production then the farmers have no alternative than to introduce technology in the assumption that this technology is within reach or is available in farming so as to increase efficiency thereby output. However, these measures have some negative effects one of them being that less efficient farmers are left out in reaping these benefits. Therefore, the rich innovative and customer responsive farmers in this context continue to become richer and the poor poorer (Koning and Pinstrup 2007). The other is that increased technology and improved farm practices leads to improved productivity and competitiveness. New innovations such as genetically modified crops can improve yields and improve food production but can be controversial with consumer groups and may suffer bans in some countries. Those factors that are decoupled from production on the other hand have a blanket cover over all farmers. The government aims at supporting all farmers irrespective of their levels of production being one of the biggest advantages. There is also less chances of production of genetically modified foods thereby reducing the chances of controversy. The government is also able to interact with all farmers thereby being able to learn from across the farming fraternity. One of the biggest disadvantages is that there is no specific incentive to produce more. Small farmers remain small while big farmers relax their muscles on growth and expansion because their efforts are not being directly recognized. c) Food aid, food security and poverty alleviation It is important to appreciate that food aid and food aid organizations have helped many to come from their hunger situation as the primary goal to becoming a food secure people and ultimately rid them of poverty. Food aid for it to be effective in providing these situations must not be the only strategy in force. This means that simultaneous implementation of complementing programs is of essence. The reason for this is that food aid will get rid of hunger but does not necessarily cater for the long-term hunger and poverty issue. Some of these programs are those that are devoted to economic growth and sustainable development. Here policies that ensure these initiatives are taken need to be followed as food aid is still being provided in order to build local capacity. USAID is one of the organizations that offer food aid but this is coupled with other sustainable initiatives that revolve around ensuring food security and poverty alleviation like better farming methods and better crops e.g. drought resistant ones (Koning and Pinstrup 2007). It is important to also note that in Doha Round the loosening of trade barriers and movement of agricultural goods was a positive move that will not hamper that much the deliverables of food aid even in future. Question Two Value chain considerations Part 1: Mango and papaya producer in Malaysia and Thailand exporting to UK and USA a) Value chain considerations in selling to these markets When exporting these fruits to the UK and US markets, various considerations are necessary among them being government regulators, logistics suppliers, NGOs, retailers and consumers (Lines, T and IIED 2005). It is important to develop the most effecting chain that ensures the product from the grower can reach the customer. The flow of information in the various ranks affects directly the product flow in these markets. These parties to the flow have and maintain certain relationships which affect directly the product flow. The other consideration is what exactly customers value in those particular markets so as to provide that which will serve the demand. Then it is also important to consider the efficiencies and effective strategies in relation to this market. b) Value chain considerations as a producer of fast-moving packaged food products Selling packaged products requires that they be well checked on compliance of safety and quality standards from Malaysia and Thailand being countries of origin. Therefore, more considerations fall in compliance and the governments’ regulations in both source country and target markets, in this case US and the UK. Packaged products have less logistic supply chains and demands but NGOs are keener on the processes undergone during packaging and whether standards of the target market are met (Lines, T and IIED 2005). Question Three Supermarkets in developing countries a) Role of modern supermarkets and impact on processors, farmers and retailers Supermarkets have been a phenomenon that has taken a rising trend in developing countries and with this has come significant changes and effects to processors, farmers and retailers. Thomas et al. (2004) say that agricultural system in particular has come to benefit a great deal from this sprouting. For the farmers the supermarkets have come to serve as ready and sustainable markets for their produce. They have also in a huge way come to regulate the standards in the market in terms of quality, hygiene and prices. Farmers are now producing high quality goods to cater for the demands of the supermarkets. On the other hand these high standards have come to increase the cost of production as modernized farming methods are demanded for in turn. However, this constraint is covered for the relatively constant and higher prices they sell to the supermarkets. Processors in developed countries have come to expand their businesses as their produce has a ready market i.e. the supermarkets. The issue of high standards as the one applying to farmers applies to processors too. Processors also are guaranteed of payment of their deliveries thereby having a relatively stable cash flows and predictable revenues as they produce that which will serve the market (Thomas, Peter and Juli 2004). Retailers on the other hand are forced to adjust their prices as most customers are rushing to supermarkets for more favorable prices. Retailers are also being forced to expand shop as supermarkets offer a much wider variety thereby acting as a one stop shop. In totality the rise of supermarket business forms has been quite detrimental to retailers. b) Supermarkets’ and traditional retailers’ market position in relation to consumers and government regulators Governments and consumers in developed countries have come to be the biggest determinants of the course supermarkets and traditional retailers will take. The government in one hand establishes the environment to operate in and provides regulatory framework on how to conduct business. Consumers on the other hand have come to affect these businesses in terms of their growth rates and sustainability. The relative rise in consumers’ standards of living in developing countries has played a major role in the thriving of these businesses (Thomas, Peter and Juli 2004). The governments have also encouraged foreign direct investment which has acted as a huge boost in capital outlay. Due to the more attractive environment offered to supermarkets and the ready consumer base, more investment is being channeled this way. Traditional retailers have found that the regulations in place are not as favorable and their customer base has been declining with time losing the same to supermarkets. In China a new Carrefour hypermarket in a new area would put 250 small shops out of business in the first year. There is also the convenience range air-conditioning parking prestige attachment with purchasing from supermarkets that customers feel. This attribute also has served to be a catch to many diverting their interests in the traditional retailers. c) Effect of supermarkets on welfare gains for local producers and consumers Supermarkets establishments are known to have positive impacts to various stakeholders across the production chain as well as in consumption. Thomas et al. (2004) indicate that the net income for producers increases by 30 percent than when they take the same produce to the traditional markets. They are also encouraged to increase output which in the long run turns to be beneficial due to corresponding higher revenues. Supermarkets have also benefitted producers through training on best procurements procedures, offering credit facilities and more so on equipment. These initiatives go a long way in modernizing production operations. Consumers on the other hand gain a great deal in terms of accessibility of items. Supermarkets as earlier mentioned act as a one stop shop. Consumers are thereby able to have all that they require under one roof without hopping from one shop to another. The prices are also lower thereby enabling consumers to save or buy more thereby having more value for their money (Thomas, Peter and Juli 2004). The other critical gain is that of quality products. Supermarkets stock that which is fresh and that which meets high quality standards. This in turn is transferred to the consumers at lower price than the case is in traditional markets. Question Four Private and public standards in food and agriculture trade a) Role, importance, complementarities and interactions – public and private standards All markets need to have standards that govern issues to do with quality and safety of commodities. The food and agricultural trade has such standards that are private and public oriented (Hobbs 2010). These standards in general terms enhance trade in food and agricultural trade. Public standards are set by authorities are act as protectionist kind of policies. They help in ensuring that the products are safe for consumption as well as within the minimum quality bracket. Private standards on the other hand are not regulated by governance structures and more so those that fall under WTO (Hobbs 2010). They more often go beyond basic standards laid by the governance structures. They therefore aim at having product differentiation in the market in regards to quality and safety and therefore hugely used as competitive tools by producers. These standards have been analyzed and they at times pose threats to the market and production. For that reason the public and private standards work well when the two are merged as through these there is also the standardization of the policies themselves. Both therefore need be applied so as they operate hand in hand to achieve desirable effects by all the stakeholders. b) Food and safety Food safety as a standard on its own carries more weight than quality. Safety should the first priority for producers and all involved in the distribution chain until the product reaches the consumer. For that reason standards established both private and public should first and foremost act as safety regulators as suggested by Hobbs (2010). This encompasses safe methods of farming where clean water is used, hygienic handling incorporated as well as in packaging and in produce or product transportation. Of importance to note is that public standards have to be met first before ensuing to cover the private ones. Safety being the bottle neck in regulatory frameworks should be a key focus and private standards that surpass public ones are welcome. c) Incentives to adopt private standards and having them above public standards Firms are increasingly adopting the private standards approach to production of food and agricultural products. This has become a necessity rather than choice for many firms as the agricultural goods and food market has become increasingly competitive. Consumers on the other hand are going for those goods with higher safety standards and of high quality. For this reason the biggest incentive is the competitive arena the firms have found themselves in. the other is the adjustment to consumer needs and preferences. These factors in no doubt have heightened the need for firms particularly modern retailers in developed countries such as UK Europe USA Japan lead the development of standards with their own propriety accreditation systems that suppliers must reach to be given access to their retail channels. Public standards are quite basic and there is room for innovation and advancement for firms that are willing to go an extra mile to provide goods of better quality and improved safety standards (Hobbs 2010). The firms which have taken this route have ripped benefits of higher sales volumes driving others in the agricultural sector to take the same direction. However, this practice is increasing the cost of operations for many firms and for those with low capital base, these competitive strategies are proving to be impossible to adopt. d) Consequences for food security and poverty reduction According to Hobbs (2010) the big firms which have adopted and are complying with high private standards are doing so at a cost and this in turn is being transferred to consumers. This phenomenon among others, contributes to soaring food prices making the poor not access the high quality and safe products. The small firms on the other hand comply with the basic public standards and at times even neglect them since some are far in the rural settings where authorities take less note of. These firms also produce in small scale and considering that it is the poor people who depend on their produce more, they do not cater for the demand affectively. Another point to note is that the poor people are the majority in developing countries making the situation of food security and poverty rise (Hobbs 2010). These small firms also go to an extent of increasing prices as the forces of demand and supply clog the market. Therefore, private standards and costs related to them prove to be quite unfavorable for food security and poverty reduction measures. References Hobbs, JE 2010, Public and private standards for food safety and quality: International trade implications, Electronic Journal of Agricultural and Development Economics, vol 11. Koning, N and Pinstrup, A 2007, Agricultural trade liberalization and the least developed countries, Springer. Lines, T and IIED International Institute for Environment and Development 2005, Agricultural commodities, trade and sustainable development, IIED. Thomas, R, Peter, T and Julio, B 2004, The rapid rise of supermarkets in developing countries: Induced organizational, institutional, and technological change in agri-food systems, Electronic Journal of Agricultural and Development Economics, vol 1. Read More