Abstract
This paper specifies and estimates an econometric model of the soybean market (grain, oil and meal) to assess the effects of U.S. domestic support to soybeans on world soybean prices, production and exports. The model divides the world into five regions (modules): Argentina, Brazil, the European Union, the United States (US) and the Rest of the World (ROW). There are interactions between the modules through the international prices and the net exports of each soybean product. The international prices of grain, oil and meal are endogenous and are determined equating net exports of the first four modules (Argentina, Brazil, European Union and the U.S.) to net imports of the ROW. The analysis is conducted eliminating the U.S. domestic support to soybeans and simulating the impacts on the variables of interest. The simulations show a significant impact of the US subsidy to soybeans on world prices and net exports of the four selected regions.
Highlights
The Farm Bill of 1996, the Federal Agriculture Improvement and Reform (Fair) Act, introduced significant changes in U.S agricultural policy
The Farm Security and Rural Investment Act (FSRIA) of 2002 did not change principles embedded in the earlier policy and introduced counter cyclical payments that provide a guarantee against low prices
For the sake of completeness, we indicate below the methodology established by the FSRIA to determine acreage and yields for both direct and counter cyclical payments
Summary
The Farm Bill of 1996, the Federal Agriculture Improvement and Reform (Fair) Act, introduced significant changes in U.S agricultural policy. These payments were introduced after marketing loss assistance was granted to other crops and they are based on past areas and yields These payments have effects that are similar to the PFCs and are likely to raise current production in the U.S, raise U.S exports and further reduce world prices of soybeans. The Farm Security and Rural Investment Act (FSRIA) of 2002 did not change principles embedded in the earlier policy and introduced counter cyclical payments that provide a guarantee against low prices These payments are based on past acreage and yield, but through expectations they will increase U.S production and exports and will depress world prices in the present. The paper is organized as follows: section 2 presents stylized facts about the production of soybeans in the U.S and Brazil; section 3 describes the U.S Marketing Assistance Loan Program and other policies that have distorting effects on production, trade and world prices; section 4 lays down the principal characteristics of the econometric model used to estimate the impact of domestic support in the U.S on world prices and Brazilian production and exports; section 5 contains the principal results and section 6 concludes the paper
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