Is there a case for an optimal export tax on perennial crops?

The idea of an optimal export tax on a commodity is based on the assumption that by imposing a tax, a country can improve its welfare whenit faces a downward-sloping demand curve for the commodity. The idea is thought to be particularly relevant to producers with large world market shares for primary commodities for which the price elasticity of demand is low. An export tax is considered necessary because the scattered farmers'expected marginal revenue is higher than the marginal revenue of the country as a whole. The author uses a model to calculate the optimal tax and to evaluate the effect of the tax and other factors on welfare. Simulation results show that the optimal level of the export tax depends on how farmers and government form their expectations of future prices. The author found that the tax is indeterminate when the government does not know how farmers form their expectations and when farmers'expectations are independent of recent prices or taxes. The author concludes that in imposing an export tax on perennials, a government should give less consideration to the tax's optimality and more to how the tax affects welfare distribution and long-term production.Markets and Market Access,Economic Theory&Research,Environmental Economics&Policies,Public Sector Economics&Finance,Access to Markets

Price stabilization for raw jute in Bangladesh

Fluctuating prices for raw jute have been viewed as contributing to economic problems in the jute subsector. Price fluctuations were thought to reduce the jute farmers'welfare and there has been concern about the costs of parastatals'stocking operations in attempts to stabilize jute prices and incomes. The authors examine these fluctuations and analyze policies that might reduce them. They find that price fluctuations for raw jute reduce farmers'welfare only slightly because farmers'activities are typically diversified and jute's share in total income is small. Although stocking operations by the parastatals contribute to stability in prices and real income, they have been extremely costly and have crowded out private stocking. The authors contend that if the parastatals had refrained from ad hoc stocking and if the private sector had stocked efficiently, jute prices and incomes would have been just as stable - and at no cost. They argue that the Bangladeshi jute market should be free of government intervention and that a a market-based credit system that allows efficient stockholding behavior by the private sector should be established. They also found that improving the flow of market information to farmers and greater price responsiveness by jute mills to raw jute purchases would significantly improve the stability of raw jute prices and incomes. Having more information available would also make private stocking operations more efficient.Economic Theory&Research,Environmental Economics&Policies,Crops&Crop Management Systems,Access to Markets,Markets and Market Access

Impact of the International Coffee Agreement's export quota system on the World's coffee market

Ex-post simulations of the global coffee model over the recent period of operation of the International Coffee Agreement's export quota system, (1981-86) show the following. The quota system had a stabilizing effect on world coffee prices in the 1981-85 period. In 1986, when coffee prices increased sharply due to the drought in Brazil and the export quotas were suspended, prices would have been 24 percent higher in the absence of quotas over the 1981-85 period. However, the quotas have reduced export revenues (in real terms), except for such large producers as Brazil and Colombia. These countries gained form the scheme because they face very small or even zero marginal export revenues from increased exports, due to their large market shares. In projections of the coffee market, with and without the export quota system, prices would be substantially lower during the first half of the 1990s if the quota system were suspended in 1990. But prices would recover in the second half of the decade as production and exports declined in lagged response to the very low prices of the first half.Economic Theory&Research,Environmental Economics&Policies,Markets and Market Access,Access to Markets,Crops&Crop Management Systems

Indonesia's cocoa boom : hands-off policy encourages smallholder dynamism

This case study of Sulawesi's cocoa market is a counterpoint to investigations of highly regulated markets - agricultural and otherwise. The Indonesian island's rapid expansion surprised the world cocoa market, especially because it came mostly from smallholders.The authors examine the smallholders'production and marketing systems and the government policies implemented for smallholders to identify any policy lessons that might be useful for other countries. Following is a brief description of what they found: 1) the following factors contributed to the rapid expansion: the availability of suitable land, low production costs, a highly competitive marketing system, relatively good transport infrastructure, favorable macroeconomic policies, and the smallholders'entrepreneurship; 2) until the recent imposition of a value-added tax, Indonesia's government left cocoa marketing and distribution freer of government interventions than many other commodities. Other commodities were affected by direct involvement of the National Logistics Agency, price controls, and exclusive trade licensing requirements; 3) as a result of the competitive cocoa marketing system, the farmgate price of cocoa in Indonesia is about 90 percent of the f.o.b price - a much higher share than cocoa produced in other countries and than other commodities produced in Indonesia. This relatively free marketing and distribution system must be maintained for cocoa to develop further; and 4) some general government policies have benefited the cocoa subsector as well as others. Exchange rates have been kept competitive, such as the absence of export tax and the building of basic infrastructure in the outer islands. Several issues must be addressed for cocoa to be further developed: the quality of cocoa, the adding-up problem (export revenues not increasing in proportion to export quantities), the recently imposed value-added tax, the cocoa pod-borer, export marketing, research, retribution, local repressing, environmental problems, and governmental interventions now being discussed for cocoa sector. Government and industry must also resist the natural temptation for current players to become more conservative, to protect their interests.Agricultural Knowledge&Information Systems,Crops&Crop Management Systems,Markets and Market Access,Food&Beverage Industry,Economic Theory&Research,Crops&Crop Management Systems,Markets and Market Access,Access to Markets,Food&Beverage Industry,Agricultural Knowledge&Information Systems

Electricity demand in Asia and the effects on energy supply and the investment environment

Demand for energy (including electricity) has been increasing more rapidly in developing Asian economies than anywhere else in the world and is expected to continue growing. To meet rising demand, these countries must address such issues as how to meet the resulting enormous capital requirements and how to prevent environmental deterioration. To calculate what those capital requirements may be, and to estimate potential environmental damage, the authors built econometric energy demand models for seven economies: China, Indonesia, Malaysia, the Philippines, Republic of Korea, Taiwan (China), and Thailand. They estimate that electricity demand will increase an average 8.1 percent a year between 1993 and 2010. To finance power development projects, many governments are encouraging"build, operate, and own"or"build, operate, transfer"schemes, but there is a limit to the use of these schemes, which require foreign capital and thus reimbursements in hard currency. Because the seven governments must mobilize substantial domestic resources to finance capital requirements, it is essential that these countries develop or strengthen development of domestic bond and stock markets. To control emissions of pollutants will cost an estimated US$165 billion in 1994-2010.Environmental Economics&Policies,Montreal Protocol,Energy Technology&Transmission,Engineering,Economic Theory&Research,Energy and Environment,Energy Demand,Environmental Economics&Policies,Electric Power,Economic Theory&Research

A production function-based policy simulation model of perennial commodity markets

In modeling the supply of perennial crops, many researchers have used the vintage-capital production approach, most recently formulated by Akiyama and Trivedi. Implementing this approach requires reliable time-series data on production, total area planted, new planted area, yields, real producer prices, and credit availability. For many producers, these data are not available, and many producers of perennial crops face substantially changed incentive structures in countries undergoing structural adjustment. So, the authors developed an alternative method for modeling perennial crop subsectors. It takes into account past investment decisions and other dynamics of supply response, captures all important features of the market, should be consistent with economic theory, should require minimal data, and should not rely on time-series data or econometric estimates. This production function-based model uses a Cobb-Douglas production function. The model is based on partial equilibrium and does not take into account the impact on individual subsectors on such aggregate variables as wages and interest rates. The authors apply the model to the coffee sector in Nigeria, which is undergoing major reform, but the model can be applied - with only minor modifications - to other types of crops, in other countries. The model results show the following. Policy variables greatly influence the growth and development of the sector. A 10 percent increase in the price of coffee, for example, would increase demand for labor 19 percent and that for fertilizer 29 percent and would expand the area of coffee investment 17 percent. The sector would substantially benefit from greater labor efficiency, lower real interest rates, and a reduction in the real value of the cordoba against the U.S. dollar. Nicaragua could increase its production and exports substantially by the end of the decade, if there were a favorable economic climate - especially in terms of international prices and investment incentives.Economic Theory&Research,Crops&Crop Management Systems,Banks&Banking Reform,Consumption,Environmental Economics&Policies

The adding-up problem : strategies for primary commodity exports in sub-Saharan Africa

Many countries in sub-Saharan Africa remain dependent on a few primary commodities -- coffee, cocoa, cotton, sugar, tea, and tobacco -- for a large share of export earnings. Because demand for these commodities is price-inelastic, production and export expansion can depress world prices and hence reduce net export revenue. The authors discuss the effects of this phenomenon -- the adding-up problem -- on policy and development strategies for major agricultural export commodities in sub-Saharan Africa. They conclude that, as a practical matter, it is not feasible to design a regional commodity production and trade policy for sub-Saharan Africa as a whole because of the difficulty of equitably distributing the benefits of such a policy. Moreover, if an export tax is imposed on sub-Saharan Africa as a whole, the greatest benefits may go to producers in other regions such as Asia and Latin America. Individually, few countries in sub-Saharan Africa have sufficient market power to influence commodity prices in the long run. Possible expectations include Cote d'Ivoire (in cocoa) and to a lesser extent Ghana (in cocoa), Kenya (in tea), and Malawi (in burley tobacco). Export taxes may prove beneficial for these countries but, at certain levels, the primary effect of"optimal"taxes is to transfer resources from smallholders to governments with limited marginal welfare gains.Economic Theory&Research,Environmental Economics&Policies,Crops&Crop Management Systems,Access to Markets,Markets and Market Access

Risk management prospects for Egyptian cotton

The authors examine risk management options for Egyptian cottons, the export prices for which are volatile. They use regression analysis to establish whether Egyptian cotton's prices can be effectively hedged by using existing futures contracts on the New York Cotton Exchange. They find no relationship between the movements in prices of Egyptian long and extra-long cottons and prices for the base quality of U.S. medium staple cotton traded on the New York futures market. (Probably because Egyptian cotton prices are government-determined, U.S. medium staple cotton prices are influenced by price support policies unrelated to the longer staple markets, and the fiber of the cottons analyzed have different physical characteristics.) So, the New York cotton futures market's No. 2 contract is not an appropriate mechanism for hedging the price risk facing Egyptian cotton under present procedures for determining prices - and probably not under market-determined prices. If the cotton market in Egypt is liberalized, cotton prices there may correlate more with prices elsewhere - especially for the longer staple cottons. The authors extend their regression analysis to the prices of other medium staple cottons - Australian, Central Asian, Mexican, Pakistani, and Turkish - to determine how they behave relative to U.S. medium staple cotton prices. None of these prices had short-term movements closely related to U.S. cotton prices, indicating mainly the influence of domestic policies on the U.S. market. Again, the New York futures No. 2 contract does not provide a satisfactory hedge for these cottons. The cotton futures contract recently introduced in New York (world cotton contract) - based on the Cotlook A Index - may prove useful for hedging the price risk for some cottons (especially Australian, Central Asian, and Pakistani) but apparently not Egyptian cotton. The authors recommend (together with privatizing the industry) establishing a domestic spot market to give transparency to the price-forming process. When the spot market is functioning well, establishing a foward market could provide a hedging instrument for Egyptian cotton.Markets and Market Access,Crops&Crop Management Systems,Agricultural Research,Textiles, Apparel&Leather Industry,Access to Markets

Cocoa and coffee pricing policies in Cote d'Ivoire

Coffee and cocoa are Cote d'Ivoire's two most important commodity exports, accounting for about 50 percent of total exports. Falling world prices and an appreciating currency have cut into sales of Ivorian coffee and cocoa at the same time that international supplies have mounted. As several major producers backed up their export efforts with aggressive exchange rate policies, Cote d'Ivoire's exporters lost their competitive position. To offset the slump in revenues, the government needs to reverse this decline in competitiveness. A study under different pricing and subsidy policies confirms that coffee production should be increased, even at the cost of some reduction in the output of cocoa. This will avoid large government subsidies to cocoa growers and will increase future exports of both products. Under current market conditions, government-established producer prices are no match for rapidly changing world markets and exchange rates. Unless Cote d'Ivoire adopts a flexible pricing policy, the country may face continuing problems in international competitiveness.Crops&Crop Management Systems,Environmental Economics&Policies,Economic Theory&Research,Markets and Market Access,Access to Markets

Recent developments in marketing and pricing systems for agricultural export commodities in sub-Saharan Africa

This paper documents the difficulties various countries in sub - Saharan Africa have had with marketing and pricing systems, and shows how these systems have been caused or exacerbated by government controls. It documents the steps several countries have taken toward relaxing those controls and allowing more participation by private enterprise. Some general conclusions are drawn about the kinds of changes in parastatal marketing organizations that most effectively improve their ability to market crops efficiently and cope with changes in world prices. The paper classifies the predominant marketing and pricing structures for export commodities in sub - Saharan Africa, followed by a review of the problems these systems have faced in recent years. Recent developments in these systems are also described and analyzed.Crops&Crop Management Systems,Markets and Market Access,Access to Markets,Health Monitoring&Evaluation,Agricultural Knowledge&Information Systems