Effects of Sustainable Regulations at Agricultural International Market Failures: A Dynamic Approach

Abstract

Several policies have been proposed to reduce the environmental impact of agricultural trade. However, a number of these policies have low efficiency on a global scale due to side effects on third-competitor countries. The objective of this article is to assess the consequences of these policies under the existence of market failures that characterise the agricultural sector (i.e., ex ante price uncertainty and oligopoly in international markets). In particular, it is shown that some of these policies could cause instability in the agricultural trade system in the short/medium run, as well as permanent adverse side effects on competitor countries. Using a theoretical dynamic model that includes these failures, it was found that instability could be reduced by supplying information that could help producers to improve price forecasting. Likewise, the adverse side effects could be prevented by means of sustainable policies adopted co-ordinately by competitor countries. This latter result is consistent with the general strategies stated by the Climate Club.