C t “Fift YComments on “Fifty Years of Distortions in World

Food Markets”Eugenio Diaz Bonilla

Executive Director for Argentina and HaitigInter-American Development Bank

OverviewCongratulations

Methodology

Applications

Only economists care about “distortions” ?distortions ...?

…. or some random thoughts about communicating with interestedcommunicating with interested audiences…

MethodologyPartial equilibrium versus generalPartial equilibrium versus general equilibrium of distortions

Sherman Robinson et al (1998 and 2002)Sherman Robinson et al (1998 and 2002) TMD publications 25 and 105Criticized Krueger, Schiff, and Valdés, 1988; Schiff and Valdés 1992; Bautista andSchiff and Valdés, 1992; Bautista and Valdés, 1993 Issues: exchange rates, inputs, tradability, g , p , y,marketing margins, among others

d l ( il )Anderson et al (WBWP 4612, April 2008) correct approach in ER, tradability; the other issues more difficult to deal inother issues more difficult to deal in partial equilibrium measures

ApplicationsCGE i l tiCGE simulations

Can be utilized in welfare simulations… b t f l ith th ER t f th…but careful with the ER component of the

distortion measures (they are not being negotiated in the WTO, even though therenegotiated in the WTO, even though there are IMF and WTO links; more on this below)

Econometric analysis of growth and trade

Cross-section and panel regressions…controlling for macroeconomic and developmental policies, and other factors

NRA and Growth for Africa

0 2133 4 53265

y = 0,2133x + 4,5326R2 = 0,4568

4

4,5

3

3,5

2,5

3

1,5

2

0,5

1

0-16 -14 -12 -10 -8 -6 -4 -2 0

Africa Growth Linear (Africa Growth)

LAC: Growth, NRA and RRA

1960/70s 1980/2000sLAC Agricultural Growth 3.1 2.9NRA -13.5 -1.8RRA -33.8 -13.6

NRA and Agricultural Growth in Developing Countriesin Developing Countries

6

y = 0.0144x + 3.21R2 = 0.02735

3

4

2

0

1

0-30 -25 -20 -15 -10 -5 0 5 10 15

Series1 Linear (Series1)

RRA and Agricultural Growth in Developing Countriesin Developing Countries

y = 0 0029x + 3 14576

y = 0,0029x + 3,1457R2 = 0,0028 5

3

4

2

0

1

-70 -60 -50 -40 -30 -20 -10 0 10

Series1 Linear (Series1)

US: REER and Net Agricultural Trade

30000000 130

25000000120

20000000100

110

15000000 90

10000000

70

80

0

5000000

50

60

0

19731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004

50

Net Agricultural Trade US REER

Indicators of Production and Trade

12.00% 66.00%

10.00%64.00%

8.00%60.00%

62.00%

6.00% 58.00%

4.00%

54.00%

56.00%

2.00%52.00%

0.00%Average 1990s Average 2003-2007 Last campaign 2006/7

50.00%

Production Argentina/World Exports Argentina/World Exports/Production Argentina

Argentina: Production Grains and Oilseeds

(000 MT)

100000

120000

80000

60000

40000

0

20000

1960

/1961

1962

/1963

1964

/1965

1966

/1967

1968

/1969

1970

/1971

1972

/1973

1974

/1975

1976

/1977

1978

/1979

1980

/1981

1982

/1983

1984

/1985

1986

/1987

1988

/1989

1990

/1991

1992

/1993

1994

/1995

1996

/1997

1998

/1999

2000

/2001

2002

/2003

2004

/2005

2006

/2007

GRAINS+OILSEEDS Expon. (GRAINS+OILSEEDS)

Indices of world prices, REER and Domestic Relative Prices (2001 Q1=1)

2.5

3

2

1

1.5

0.5

0

I 96III 9

6 I 97III 9

7 I 98III 9

8 I 99III 9

9 I 00III 0

0 I 01III 0

1 I 02III 0

2 I 03III 0

3 I 04III 0

4 I 05III 0

5 I 06III 0

6 I 07III 0

7 I 08

REER index (CPI based; against US$) Relative prices agriculture/non agricultureWorld Agricultural Prices (Real; deflated by CPI-US)

Legal Issues in ER PoliciesGATT se e al efe ences to IMF and e change atesGATT several references to IMF and exchange rates. Particularly, Article XV. Exchange Arrangements. “4. Contracting parties shall not, by exchange action, f t t th i t t f th i i f thi A tfrustrate the intent of the provisions of this Agreement, nor, by trade action, the intent of the provisions of the Articles of Agreement of the International Monetary F d ”Fund.”

IMF: Article IV of the IMF's Articles of AgreementIMF: Article IV of the IMF s Articles of Agreement “Obligations Regarding Exchange Arrangements.” The Decision on Bilateral Surveillance, approved by IMF Board June 15, 2007, which complements the IMF'sBoard June 15, 2007, which complements the IMF s multilateral surveillance. Replaces the 1977 Decision. (only covered surveillance over exchange rate policies; the new Decision is broader).the new Decision is broader).

Calculations of fundamental misalignment

CommunicationW i t t d t t lk i t fWe economists tend to talk in terms of distortions and gains in welfare…L b tt tt ti ttLosses are better attention getter

“Tell me where it hurts” paperN d t d b t th “ l ”Need to debate the same “values”

Food security (paper with cluster analysis)analysis)Poverty (microsimulations; careful with labor market modeling)labor market modeling)Multifunctionality (“That was then and this is now” paper)Livelihood or survival strategies (“Thinking Inside the Boxes” paper)

ConclusionsG t j b t t ti f lGreat job at constructing useful indicators with large coverage (time, country, products)country, products)Need to better understand links to agricultural growth and trade…Consider price effects but also income effects; broader framework with other macroeconomic and growth policiesmacroeconomic and growth policies…For trade negotiations, ER issues are separate (although they may eventuallyseparate (although they may eventually converge…)As economists our research program and

ffcommunication efforts must also consider “values” being debated…

Thanks....

350

180

200

250

300

140

160

200120

15080

100

50

100

40

60

0

50

0 1 2 3 4 5 6 7 8 9 0 1 3 4 5 6 7 8 9 0 1 2 3 4 6 7 8 9 0 1 2 3 4 5 6 7 9 0 1 2 3 4 5

0

20

M1

196

M2

196

M3

196

M4

196

M5

1964

M6

196

M7

196

M8

196

M9

196

M10

196

M11

197

M12

197

M1

197

M2

1974

M3

197

M4

197

M5

197

M6

197

M7

197

M8

198

M9

198

M10

198

M11

198

M12

198

4M

1 19

8M

2 19

8M

3 19

8M

4 19

8M

5 19

9M

6 19

9M

7 19

9M

8 19

9M

9 19

94M

10 1

99M

11 1

99M

12 1

99M

1 19

9M

2 20

0M

3 20

0M

4 20

0M

5 20

0M

6 20

04M

7 20

0

Real Agricultural Prices Metals Crude Oil

AFRICA: Agricultural Growth and NRA

0

1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-045

-4

-2

4

4.5

-63

3.5

-10

-8

1 5

2

2.5

-14

-12

0.5

1

1.5

-16 0

Africa NRA Africa Growth

LAC: Agricultural Growth and NRA

10 3.6

5

3.2

3.4

-5

0

1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-043

-10

2.6

2.8

-20

-15

2.2

2.4

-25 2

LAC NRA LAC Growth

ASIA: Agricultural Growth and NRA

10

15

5

5.5

0

5

4.5

5

-10

-5

1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04

3 5

4

-20

-15

3

3.5

30

-25

20

2

2.5

-30 2

Asia NRA Asia Growth

Aggregate Net Resources and Transfers (% GDP)

6

5

4

2

3

1

2

0

970971972973974975976977978979980981982983984985986987988989990991992993994995996997998999200020012002200320042005

-1

197197197197197197197197197197198198198198198198198198198198199199199199199199199199199199200200200200200200

Aggregate Net Resources (% GDP) Aggregate Net Transfers (% GDP)

Net Private Capital Flows

8

7

5

6

3

4

2

0

1

0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2

-1

1970

1971

197219

73197

4197519

76197

719

78197

9198019

81198

2198319

84198

519

86198

7198819

89199

0199119

92199

319

94199

5199619

97199

8199920

00200

120

02

East Asia & Pacific Latin America & Caribbean South Asia Sub-Saharan Africa

REER US Dollar (FedRes)

140

130

110

120

90

100

80

90

60

70

Jan-

73Ja

n-74

Jan-

75Ja

n-76

Jan-

77Ja

n-78

Jan-

79Ja

n-80

Jan-

81Ja

n-82

Jan-

83Ja

n-84

Jan-

85Ja

n-86

Jan-

87Ja

n-88

Jan-

89Ja

n-90

Jan-

91Ja

n-92

Jan-

93Ja

n-94

Jan-

95Ja

n-96

Jan-

97Ja

n-98

Jan-

99Ja

n-00

Jan-

01Ja

n-02

Jan-

03Ja

n-04

Jan-

05Ja

n-06

REER US Dollar (FedRes)

Tema 2: Sobreinversión Exceso de liquidez mundial generó sobreExceso de liquidez mundial generó sobre-inversión en casas y propiedad inmueble en EEUU y otros paísesy pAltos precios generaron efecto riqueza entre las familias norteamericanas (y otros países) y han permitido tomar prestado contray han permitido tomar prestado contra inmuebles, manteniendo el consumoCaída actual de propiedades impacta al revés:Caída actual de propiedades impacta al revés: efecto “pobreza”, no ingreso disponible y efecto multiplicador negativo de la caída de la i ió i bili iinversión inmobiliariaPosible impacto sobre el sistema financiero norteamericano (similaridades con crisis denorteamericano (similaridades con crisis de fines de 1980s)

Food Prices and World Growth

25

30

15

20

0

5

10

-10

-5

00 1 2 3 4 5 6

-20

-15

-10

-25

20

Series1 Linear (Series1)

Metal Prices and World Growth

50

60

30

40

20

0

10

0 1 2 3 4 5 6 7 8

-20

-10

-30

Series1 Linear (Series1)

Oil Prices and World Growth

60

80

40

20

-20

00 1 2 3 4 5 6 7 8

-40

-60

Series1 Linear (Series1)

Change in NRA and Agricultural Growth in Developing Countries

y = 0.0368x + 2.9904R2 = 0.0525

6

4

5

3

2

1

0-20 -15 -10 -5 0 5 10 15 20

change NRA and growth Linear (change NRA and growth)

World and US Growth 8

7

5

6

4

2

3

1

0-4 -2 0 2 4 6 8

World and US growth Linear (World and US growth)

Real Interest Rate

8

6

4

0

2

-2

0

197019711972197319741975197619771978197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005

-4

-6

Real Interest Rate

¿Posibles contrapesos (2) ?Pueden China o Japón mantenerPueden China o Japón mantener crecimiento mundial? No...

P j d l PBI M di lPorcentaje del PBI Mundial

0 3

0,35

0,25

0,3

0,15

0,2

0,05

0,1

0China Japan European Union United States

PBI en dolares PPP PBI en dolares corrientes