The interaction between agricultural policy and trade policy on price transmission in noncompetitive industries with scale economies
2007
Kojima, Y.(Japan. Ministry of Foreign Affairs, Tokyo)
Japan has been expected to improve agriculture efficiency in response to the demand for tariff reduction in the agri-food sector in the WTO system. The purpose of this paper is to analyze theoretically the interaction between tariff reduction and agricultural efficiency improvement on price transmission in non-competitive food industries with increasing return to scale and to identify its effect on farmers and consumers with the static model presented by Gardner and McCorriston et al. The degree of price transmission is high in industries with increasing return to scale when the price of domestic and imported agricultural product is reduced by agricultural efficiency improvement and its tariff reduction. This promotional effect of increasing return to scale on price transmission brings benefits to consumers. As long as the level of tariff reduction of imported agricultural products is adjusted at a certain level in response to agricultural efficiency improvement to prevent its negative impact on farmers, the promotional effect increases the derived demand of domestic agricultural product and mitigates its price decline. Therefore, the high degree of price transmission is highly important to bring benefits to farmers as well.
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