• Attributes of the quality of the products (origin, know-how, practices and manufacturing process) and the way in which markets are able to recognize the qualification process of quality;
• Institutional arrangements necessary for the remuneration of the positive externalities and for an adequate level of public goods production leaving transaction costs between potential beneficiaries sufficiently low and
• Public policies able to generate a fair and equitable global trade system.
AKST could also investigate whether and how comparative advantage from specialization coupled with trade really favors smaller economies more then larger economies (Anderson, 2004).
(2) To improve the representation of complex agricultural systems in the models
Agricultural trade has been one of the most contentious issues in multilateral trade negotiations in recent years due to the effects it could have on developed and developing countries. The trend has been towards more open markets, suggesting that worldwide agricultural production is likely to become more competitive. Analyses suggest that the impact of trade on developing countries will be very uneven. Some simulations even go so far as to suggest that the effects of agricultural trade liberalization will be small, overall and are likely to be negative for a significant number of developing countries (Bureau et al., 2005; Polaski, 2006). Policy recommendations derive too often from static, perfect competitive simulation models. More emphasis could be laid on technological change-induced inequalities, missing market effects on inequalities, dynamic adjustments impact assessment (Chabe-Ferret et al., 2005).
In order to improve the representation of the models (Box 6-3) it is important to distinguish between the various groups of developing countries (net food exporters vs. net food importers, least developed countries benefiting from huge trade preferences, least developed countries with main exports severely penalized by tariff peaks). It is essential to take into account the complex effects of the various types of domestic support, trade preferences (which are presently well utilized in the agricultural sector), regional agreements and the effect of trade liberalization on them (Loyat, 2004).
A larger discussion of the specification of the trade models used for the simulations of market liberalization and policy consequences might be required. This discussion could include representation of labor markets; imperfect information; price instability; uncertainty and risk; dynamics; and environmental externalities.
6.2.5 Promoting food quality and safety in diverse food and farming systems
Research and development in the last 50 years focused mainly on a unique model of development based on an increase of productivity. This trend is changing as recent evolution of agriculture shows that more than ever consumers are emphasizing on food quality, food safety and the relationship between diet and health to combat malnutrition and obesity (WHO, 2003; EC, 2005; USHHS and USD A, |
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Box 6-3. A specific need for agricultural research in economic modeling: The case of CGE models
The computable general equilibrium (CGE) models have become major instruments supporting trade negotiations. These models provide quantitative estimates of benefit, as well as how benefits are shared among stakeholders. Agriculture is not treated differently than any other economic activity. The validity of this approach can be questioned.
There are three main criticisms to CGE models:
• The most liberalized situations depicted through these models are theoretically efficient and Pareto optimal.1 But they rely on a particular income distribution, resulting from rewards to factors of production such as land, labor and capital which reflect their relatively scarcity (i.e., economic rents)2 which are themselves not necessarily socially optimal. Other Pareto efficient situations, with different income distributions, could be deemed more socially desirable;
• Only those commodities which are subject to market exchanges are accounted for externalities, such as water pollution, factors that are ignored by the market are also ignored in the CGE benefit/cost balances analyses; and
• A CGE model assumes markets are functioning efficiently, i.e., marginal costs are equal to marginal returns everywhere, producers and consumer adjust their plans immediately in response to observable equilibrium prices (hence the reference to "equilibrium") (Boussard et al., 2005).
The existence of price instability confounds the price signal and renders it economically inefficient. Thus it appears that these models have no connection with reality. Furthermore, agricultural markets often operate imperfectly because of restrictive practices by dominant players and high levels of risks and uncertainty, especially associated with variation in supply (Boussard et al., 2005).
It follows from the previous considerations that there are gaps in research on the ways to manage supply and demand for agricultural products, knowing that, regardless of the scale: prices on agricultural markets are unstable and volatile, the supply of agricultural products is unstable, sometimes chaotic and subject to uncertainty and risks, especially for the poorest decision makers lacking in resources who are more risk averse than others. Such research may lead to specific policy considerations to improve modeling of agricultural markets and correct for market imperfections (Box 6-2).
1 Pareto optimality is an important notion in neoclasical economics. Named after Italian sociologist and economist Vilfredo Pareto (1848-1923), Pareto optimality is a situation which exists when economic resources and output have been allocated in such a way that no-one can be made better off without sacrificing the well-being of at least one person.
2 David Ricardo's Concept of Economic Rent on land is the value of the difference in productivity between a given piece of land and the poorest (and/or most distant), most costly piece of land producing the same goods under the same conditions (of labour, capital, technology, etc.).
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