Welfare And Nutritional Implications From Changes In Government Expenditures For U.S. Agricultural Export Promotions

Abstract

Trade promotion programs that subsidize exports of agricultural products continue to be employed in the United States (e.g., the Market Access Program) and elsewhere. In addition, many countries, including the United States, Canada, Australia and European member states have domestic promotion programs for agricultural products that are funded by both industry and government. Trade promotion programs have been heavily criticized as inefficient government expenditures while recently Kinnucan and Cai (2010) argue that they also can lead to reductions in domestic consumer welfare. Here we extend this line of research to examine the market and welfare effects of the changes in government export promotion expenditures. An equilibrium displacement model that considers domestic and foreign markets, and two types of food products- foods and energy-dense foods-has been employed in this study; Alston et al. (2009) adopted a similar approach that included healthy and unhealthy foods. Several scenarios are investigated within our framework to quantify the impacts of hypothetical changes in government and industry promotion expenditures allocated for different purposes on consumers in domestic food markets: i) increased expenditures on trade promotion programs, ii) reduced expenditures on trade promotion programs, and iii) reduced expenditures on trade promotion programs coupled with increased expenditures on domestic promotional efforts. Furthermore, due to the fact that much of the expenditures for export promotions are applied to specialty crops, we also examine how changes in government monies spent on promotional efforts in foreign markets have impacted domestic consumption of i horticultural and non-horticultural products respectively and domestic dietary-intake as a whole. This is done to shed new light on the potential health consequences (in terms of caloric and nutrient intake) of government support applied to agricultural markets both overseas and in the United States, and further build on a growing literature in this area (e.g., Rickard, Okrent and Alston 2012). Our simulations employ promotional elasticities estimated here and demand elasticities published by previous studies, in combination with information from government and academic sources to parameterize the model. Simulation results show that even modest changes in trade promotion expenditures coupled with a corresponding increase in domestic promotion efforts have the capacity to influence domestic market conditions, nutrient consumption (most notably for dietary fiber and selected micronutrients), and caloric intake. This research is expected to contribute towards a better understanding of likely economic and nutritional effects induced by changes in public funding for export promotions on domestic markets across two food categories, horticultural and nonhorticultural products. We extend previous work in this arena by examining how trade promotions would have influenced domestic food consumption, and moreover consider how alternative promotion strategies might have affected markets and consumption patterns across two food categories in the United States. Overall, our research develops a bridge between economic evaluations of agricultural export promotion programs and relevant policy analyses that look at the impacts of consumer food choices and consequent health effects. i