Regulatory Heterogeneity, Trade, and Global Agricultural Value Chains (with Bernhard Dalheimer and Gabriele Mack)
Regulations on the production and consumption of goods are very heterogeneous across countries. While the effects of regulations on trade are well known for exports, the responses of importers to heterogeneous and frequently changing country-specific regulations are not well understood. We investigate the effect of regulatory heterogeneity on firm-level imports and decompose the effect by firm size and global value chain (GVC) participation. We combine Swiss customs transaction data with country-product-year-specific maximum residue limits (MRLs). We estimate the effect of MRLs on firm-level imports using a structural gravity model. We find that regulation reduces imports, but less so in larger and multi-product and multi-origin firms. Participation in GVCs also improves firms’ flexibility towards heterogeneous regulation. Business diversification — while reducing the gains from trade and scale — could help firms to cope with heterogeneous international regulations.
Specific Tariffs, Transport Mode and Agricultural Export Prices (with Dalheimer, B., Curzi, D., Hoffmeister, O., and Brümmer, B.)
Free-on-board (FOB) export prices for identical products from the same origin differ across destinations, even when accounting for trade costs and attributes of the destination country. One explanation for this observed price difference is per-unit trade costs and the ability of exporters to vary their markups and/or product quality differences. Using a novel dataset that details trade flows between countries by mode of transport, we estimate the transport mode-specific effect of a per-unit trade cost, specifically specific tariffs, on FOB export prices of agricultural products. We find an overall elasticity of specific tariffs to export prices of 1.8%. However, the estimates are heterogeneous across modes of transport. The elasticity of specific tariffs to export prices is 2% for air transport, 5% for road transport and 0.3% for sea cargo. Since the observed positive export price effect can reflect product quality differences or markups, we account for the quality element and find that for a given product quality, markups increase with increasing specific tariffs. However, this form of price discrimination is less pronounced for higher-quality products that are predominantly shipped by air.
Food Production Shocks and Agricultural Supply Elasticities in Sub-Saharan Africa (with Bernhard Dalheimer)
This paper estimates the food supply elasticity in SSA. Building up on commodity storage theory, we empirically estimate food supply functions for SSA. Our identifications strategy relies on exogenous weather shocks as instruments. This approach further allows to quantify the exposure of SSA food markets to weather events. We use data from FAO, USDA, WFP and public climate data to model 3 commodities in 173 food markets in 34 countries in SSA. Results suggest that (i) food supply in SSA is more elastic than global food supply, and (ii) prices are much more subject to exogenous weather events than global prices are. Moreover, we find substantial heterogeneity of food market responses to weather shocks and price developments by crops. These results are in line with commodity storage theory as in absence of opportunities to build inventories, producers will not shift supplies across time periods. Promoting storage activity — also through imports — and investing in storage facility can smoothen consumption, stabilize markets and reduce long term production uncertainty in the region.
Wheat market shocks to the export price of pasta are Not all alike (with Daniele Curzi and Daniele Valenti)
The unfolding Russia-Ukraine war has fed food prices that were already high in the aftermath of the COVID-19 pandemic. For instance, the Food Price Index of the Food and Agriculture Organisation (FAO) peaked at about 160% in March 2022. The wheat production sector was severely hit given the importance of both Russia and Ukraine in global wheat output. This led to a drastic increase in global wheat prices, which in May 2022 exceeded 500 US$/mt. Different factors contributed to this price increase inter alia rising global demand for wheat, poor grain and oil-seed harvests in crucial production regions due to adverse weather conditions or disease outbreaks (e.g., the swine flu outbreak in China), tight stock levels, and a considerable increase in the cost of energy which drove prices of agricultural inputs (e.g., fertilizer and pesticides) to unprecedented heights. Shocks of this nature to global wheat prices are not new. Which begs the question, how resilient are firms that depend on wheat as a major intermediate input in their production process to such threats? For instance, in response to a shock firms could lower their output, cut wages or reduce labour. We ask how the pricing behaviour of food-producing firms responds to the fluctuations in global grain markets. In this paper, we shed some new light on this issue by analysing how shocks to the determinants of global wheat prices affect the export prices of firms producing pasta and pasta derivatives. Unravelling such a complex relationship is relevant to further comprehending how firms set prices in reaction to changes in commodity prices.