Commodity Programs, Distorted Markets and Economic Consequences of Invasive Species Policy

1
Commodity Programs, Distorted Markets and
Economic Consequences of Invasive Species Policy

• Daniel Sumner, Julian Alston, Hyunok Lee and
  Albert Acquaye
• University of California, Davis
• August 20, 2004

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Broad Objectives of the Project

• Improve evaluation of economic consequences of
  invasive species and related policies by
  considering more fully the interactions with farm
  commodity policies.
• Conduct three case studies to illustrate
  conceptually and assess empirically the
  implications of commodity policies for welfare
  effects of invasive species and related policies.
  

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Background

• Elaborate and complex government programs and
  policies pervade agriculture and apply to
  commodities where invasive species issues are
  also important.
• We consider such policies as commodity payment
  programs, price supports, crop insurance,
  marketing orders and trade barriers.
• The welfare incidence of invasive species events
  and policies to deal with them must therefore be
  analyzed in the context of other policies.

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Approaches

• Our models will include the commodity policies as
  part of the framework of the industry and ask how
  an invasive species event or policy affects the
  equilibrium. Welfare consequences will be drawn
  from these models.
• Policy for invasive species and policy for
  agricultural RD have much in common.
• The RD literature provides specific insights
  that can guide the evaluation of invasive species
  policy in the presence of various commodity
  policies.

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Case Studies

• Three case studies
• Karnal bunt in wheat.
• Foot and Mouth Disease (FMD) in dairy.
• Citrus canker in citrus.

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Justification for Case Studies

• We picked case studies such that we have the
  opportunity to study the interactions between
  invasive species policies and the major
  agricultural commodity policies used in the
  United States.
• Have been picked for empirical results on the
  economic impacts of invasive species policy in
  distorted markets.
• Citrus canker and karnal bunt are currently
  present in the United States, and FMD is a
  potential serious threat.

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Karnal Bunt (1)

• Healthy wheat seed.
• "Tip" infection.
• More advanced tip infection.
• Advanced infection.
• 5. "Canoe" symptom hollowing out interior of
  seed

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Karnal Bunt (2)

• Effects of an outbreak include
• Varying degrees of bunted kernels.
• Fishy-smelling wheat grain and flour.
• No harm to human life but unpalatable in
  infestation levels of 3 percent or more.
• Minor change to production quantities.
• Reduction in the quality of flour.
• Trade embargo placed on wheat from infestation
  area
• Increased cost of production. Wheat grain and
  wheat need to be treated before they can be
  processed even for livestock feed within
  quarantine area.

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Karnal Bunt (3)

• Commodity policies for wheat
• Direct payments.
• Counter-cyclical income support payments.
• Marketing loan programs.
• Crop yield and revenue insurance.
• Export credit guarantees.
• Irrigation subsidy in the southwest desert.

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Foot and Mouth Disease (1)
Ruptured blisters on the nose and mouth of a cow,
with excessive salivation.
A ruptured vesicle with blanching of tissue in
the interdigital space.
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Foot and Mouth Disease (2)

• Effects of an outbreak include
• Causes pyrexia, anorexia, and shivering in
  animals.
• Characterized by blister-like lesions followed by
  erosions on the tongue and lips, in the mouth, on
  the teats, and between the hooves.
• Reduction in milk production for 2-3 days in
  cattle, and after recovery pre-infection
  production rates are hardly ever matched.
• Mortality is very low in adults but higher in
  calves.
• Beef cattle do not regain lost weight for many
  months.
• Loss of markets (as a result of embargoes on
  meat).

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Foot and Mouth Disease (3)

• Commodity policies for dairy
• Import barriers and export subsidies.
• Federal milk marketing orders.
• Milk price support program.
• Milk income loss contract payments.

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Citrus Canker (1)
Fruit symptoms of Citrus Canker on sweet orange
Lesions on orange leaves and twigs
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Citrus Canker (2)

• Effects of an outbreak include
• Lesions on fruits.
• Increased use of chemicals to treat groves for
  prevention of attack and treatment of compromised
  trees.
• Use of chemicals to clean fruits before they get
  to the market.
• 5 percent to 10 percent increase in fruit drop,
  results in reduction in frozen concentrated
  orange juice (FCOJ) production.
• Quality of FCOJ is not affected.
• Trade restrictions are placed on U.S. exports of
  fruits, peels, and leaves (but not FCOJ).

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Citrus Canker (3)

• Commodity policies for Florida citrus
• Federal crop insurance for oranges.
• In 2002, 69 of eligible Florida orange acreage
  was under CAT insurance.
• About 88 of eligible Florida acreage was covered
  under federal crop insurance.
• Import tariffs on FCOJ.
• Tariff of 0.0785/liter for 2004 (about 40).
• Imports accounted for about 12 (227 million) of
  domestic FCOJ consumption in 2003.

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Invasive Species Policy and Import Tariffs
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Benefits from the Eradication of Invasive Species
in the Presence of Import Tariffs
U.S. price
B
World price
A
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Work Plan

• Documentation of commodity policies.
• Documentation of three diseases.
• Models for wheat, dairy, and citrus.
• Supply response/demand response.
• Models of commodity policies (especially, crop
  insurance).
• Citrus canker to be completed for January 2005
  ASSA meetings.