Price, water and trade in agriculture: an alternative to the rain dance


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This paper represents a preliminary analysis providing evidence of the importance of trade for resilience to rainfall shocks. It tests two assumptions – firstly, it argues that relative rain scarcity, as a non-tradable production factor, will be passed on through to producer prices. Second, it tests the importance of trade in agricultural products as a tool contributing to resilience to shocks. The study analyses the resilience of agriculture to rainfall shocks looking at how patterns of trade and agricultural production are adapting to these.

Controlling for other factors, the analysis shows that a variation in average precipitation introduces variability in producer prices of agricultural products and that trade flows are reallocated following extreme climatic and water-related events. This suggests international trade can partially compensate for and possibly mitigate a shock to agricultural production capacities. The results shed light on potential implications with regard to the urgency of integrating considerations about water management into trade policy to avoid further transmission of shocks.

 

Image: NYK Remus at TraPac Terminal, Dames Point, by Jaxport, Creative Commons License