International Marketing Margins for Agricultural Products: Effect of Some Nontariff Trade Barriers

Trade uncertainty occurs when quality changes or when Administrative Trade Barriers (ATBs) cause a chance that a commodity will not enter the import market. Trade uncertainty adversely affects marketing firms and commodity trade. But arbitrage still precludes the distribution of rents to middlemen. An exporter subsidy may correct price distortions and expand trade towards the highest world welfare. The case for intervention appears strongest in thin markets with a low number of trade transactions and perishable commodities. Nonetheless, promoting trade liberalization before other interventions may still make sense when ATBs are present because reduced trade uncertainty also improves world welfare. Key words: agricultural trade, margins, nontariff trade barriers, uncertainty. Marketing firms seek profits from commodity arbitrage by exploiting the margin, or differ-ence, between the exporter price and the im-porter price. Competitive marketing firms sometimes cause price alignment between countries by increasing shipments under free trade (Samuelson, Takayama and Judge). But several factors may preclude price alignment in agricultural markets. For instance, trade policies such as quotas or variable levies limit price adjustment in importing countries (McCalla). Also, local supply and demand conditions may sometimes be a barrier to trade (Sexton, Kling, and Carman). Third, oli-gopoly pricing occasionally restricts price equalization (Ohno and Gallagher). Uncertainty may also complicate marketing firm behavior and margins for internation-ally traded agricultural products. Some di-mensions of marketing firm uncertainty have been studied (Goodwin, Grennes, and Wohlgenant; Hennessy; Fraser). But trade (volume) uncertainty, which exists when ac-cess to the import market is not assured, has received less attention. Paul Gallagher is associate professor of agricultural economic