Professional Documents
Culture Documents
International Trade
International Trade
Agriculture Commodities
The principle of comparative advantage
- compare the opportunity costs of producing
a commodity between the countries
- we consider the cost of producing additional
units of any one product in terms of reduction
necessary in the output of other good
- to produce additional units of crop x, the
country has to rearrange its resources in such
a way that it might have to relinquish the
opportunity to produce some unit of crop y.
International Trade in
Agriculture Commodities
- import goods for which the
international price is less than the
domestic opportunity cost of producing
an additional unit at home
- export products for which the
international price is higher than the
domestic opportunity cost of producing
an additional unit
International Trade in
Agriculture Commodities
International trade rests on possible
difference among countries in the rates
at which production of one item can be
replaced by another through internal
reallocation of resources
Principle of comparative advantage is
symmetrical.
International Trade of Ag.
Commodities - Indian context
Till 1990, international trade in agriculture
commodities was perceived as residual
phenomenon
- Based on difference between domestic
production and effective demand
It was controlled by Govt.
- quantitative restrictions: quotas, minimum
export price
- canalization: trade only through State
Trading Corporations (STCs)
International Trade of Ag.
Commodities - Indian context
Rationale for protected trade
- to maintain the domestic prices of
agriculture commodities at a level that
are commensurate with average income
- stability in domestic prices
- balance of payment constraint
New Agriculture Trade Policy
All Agriculture imports other than cereals,
oilseeds and edible oil have been decanalised
All agricultural exports, except onion have
been decanalised
Pulses, paddy and coconut: licensing
Sugar, cotton: quantitative ceilings
Groundnuts, tobacco: minimum export price
Measures of International Price
Competitiveness
Item Value of Output Value of Input
T NT T NT
--------------------------------------------------------------------------------------------
Domestic A B C D
Price
Economic Price
(a) Border price E - G -
(b) Opportunity - F - H
cost