Price elasticities in international food trade: synthetic estimates from a global model

Abstract

Government intervention, particularly in agricultural commodity markets, is frequently justified on the grounds that it favorably affects the terms of trade. In this paper an established dynamic simulation model of seven food commodity markets is used to provide synthetic estimates of the elasticities of net export demand and import supply on which such justifications rest. Estimates are presented for both the short and long runs, and the effects of market-insulating agricultural policies on these elasticities are investigated. The results cast doubt on the proposition that any individual economy has strong monopoly or monopsony power in international food markets in anything other than the very short run. But effective cooperation by groups of exporting countries, such as the Cairns Group of “nonsubsidizing” agricultural exporters, along with the United States or even the EC, could yield substantial market power to those groups in both the short and long runs. Nevertheless, the major part of the power such groups might wield stems from self-imposed domestic-market-insulating agricultural policies in the rest of the world.