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International Futures Help System

Trade

Consistent with the approaches within both the economic model and the energy model, trade of agricultural products in IFs uses a pooled approach rather than a bilateral one.   That is, we can see the total exports and imports of each country/region, but not the specific volume of trade between any two.  Offered exports and demanded imports from each country/region are responsive to the past shares of export and import bases and are summed globally.  The average of the totals is taken as the actual level of global trade and the country exports and imports are normalized to that level. 

Price differentials across countries do not influence agricultural trade. Although the IFs project has experimented over time with making such trade responsive to prices, there is an increasing tendency globally for food prices to be more closely aligned across countries than was true historically.  Moreover, the use within IFs of local relative food surpluses or deficits (as indicated by stock levels) to adjust trade patterns is an effective proxy for the use of prices.

The initial year values of the imports (AGM) and exports (AGX) of the three agricultural commodities in physical quantities are determined in the pre-processor. Since we only have historical data on the imports and exports of fish in monetary terms, these need to be converted to physical terms. This is done by multiplying the monetary values, which are in $billion, by 1000*/2200 to get physical values in million tons. In addition, exports of fish are limited to be less than 70 percent of total fish available and imports less than 1 percent of total fish available. For each of the three agricultural commodity groupings, if there is an imbalance between global imports and global exports in the preprocessor, the latter takes precedence and national imports are adjusted to bring global imports into line with global exports.

In the first year, seven variables are set related to trade for each commodity: XKAVE, MKAVE, XKAVMAX, MKAVMAX at the country level and  wxct=1, wmdt=1, and WAPt=1 at the global level.

XKAVE and MKAVE are moving average values of export and import propensity, respectively. They are specified as the ratio of agricultural exports and imports to a base value (xbase) for each commodity. For exports, this is basically the sum of production and demand for that commodity; for imports, it is just demand.

ag equation 56

XKAVMAX and MKAVMAX are maximum values of XKAVE and MKAVE. For crops and meat, XKAVMAX is set to 1.1 times XKAVE, but is not allowed to exceed a value of 0.7; MKAVMAX is set to 1.5 times XKAVE, but also is not allowed to exceed a value of 0.7. For fish, XKAVMAX is set to 1.1 times XKAVE, with a bound of 0.95; MKAVE is set to 1.5 times MKAVE, with a bound of 2. These values are held constant for all future years.

XPriceTermLag, and MPriceTermLag are set to 0 for all commodities. wxc and wmd are the total world agricultural exports and imports; these are set to a value of 1 in the first year. WAP is the initial world price index for each commodity, which is set to 100.

In the forecast years, the process for determining agricultural imports and exports involves the following steps:

  1. Estimating the agricultural export capacity and agricultural import demand for each country.
  2. Reconciling the differences between global agricultural export capacity and global agricultural import demand.
  3. Computing the actual levels of agricultural exports and agricultural imports for each country

The agricultural export capacity is estimated by multiplying the export propensity (XKAVE) by the current year’s production and demand. It is also limited by XKAVMAX:

ag equation 57

Similarly, the agricultural import demand is estimated by multiplying the import propensity (MKAVE) by the current year’s demand, with a limit set by MKAVMAX

ag equation 58

For each country, values are also estimated for its net surplus or deficit (surpdef) for each commodity. This is based on the following factors: 1) post-loss production, 2) domestic demand, 3) the difference between current and desired stocks, and 4) a trade term

ag equation 59

The first three factors are straightforward. Production minus demand reflects a basic net surplus, which is then adjusted by any net surplus in stocks. The TradeTerm is related the relative role a country plays in global imports and exports and is given as:

ag equation 60

The TradeTerm is positive (negative) when a country has a larger (smaller) share of the global imports than it does of the global exports of a particular commodity and vice versa. Since the TradeTerm is is added to surpdef, it acts as a balancing mechanism; countries that appear as relatively larger (smaller) importers get a positive (negative) boost to their estimated net surplus, which tends to reduce (increase) imports as shown below. 

At this point, the global sum of exports and imports across countries will likely differ. Therefore, a procedure is required to balance these. In preparation for this one more global variable and several country-level variables are calculated. The global variable is globalsurdefrate, which is the ratio of the sum across countries of net surplus divided by the sum across countries of demand and production, which is the stock base.

ag equation 61

The country-level variables are as follows:

The first term modifies the country’s net surplus, increasing (decreasing) it when the global net surplus is negative (positive).

ag equation 62

The second term modifies how rapidly the net surplus is closed.

ag equation 63

The third term is simply the ratio of exports to the sum of imports and exports.

ag equation 64

The next step is to calculate whether it is necessary to increase (decrease) imports and decrease (increase) exports for each country, and by how much. Whether a country needs to increase its initial estimates of imports and decrease its initial estimates of exports, or vice versa, is determined by the sign of countryextrasurdef. If this value is negative, i.e., the country has a net deficit, it will need to reduce exports and increase imports. The opposite holds for when countryextrasurdef is positive.

As for the amount by which imports and exports need to be increased or decreased, this is a function, in general, of the size of the necessary adjustment and the export share:

ag equation 65

Note that the sign of countryextrasurdef and the fact that exportshare is a value between 0 and 1 ensure that when exports increases, imports fall, and vice versa. [1] Finally, in this adjustment process, exports and imports are not allowed to fall by more than half or more than double.

This process may not fully reconcile global trade, so a final adjustment is made by setting world trade (WT) as the average of global exports and imports and then adjusting the country values accordingly:

ag equation 66

IFs can now update the moving average export (XKAVE) and import (MKAVE) propensities for the next time step. The weights given to history are set by the global parameters xhw and mhw . For small exporters, i.e., where exports are less than one tenth of the sum of production and demand, xhw is reduced by 40 percent, allowing for faster adjustment. XKAVE and MKAVE are updated as

ag equation 67

For crops, the import propensity is bound from below by a factor given by potential GDP (GDPPOT), demand (AGDEM), the conversion factor between agricultural imports in physical terms and dollar values (msf, see section on links to the economic model), and the initial world price for agriculture (WAP).

ag equation 68

Finally, XKAVE and MKAVE are bound from above by XKAVMAX and MKAVMAX, respectively.

 



[1] Two other variables, defadjmul and ImportBoost, are included in the calculations to make some finer adjustments to the changes in exports and imports; these relate to the observed behavior for specific countries and are not discussed in detail here.