US Seed Trade Model

posted on Wednesday, May 23, 2012

The United States is a large net exporter of corn seed for planting. Seed trade, including that of corn, has been expanding, but its determinants are not well understood. One of the essays of my doctoral dissertation, which was published in the American Journal of Agricultural Economics, focused on the role of trade costs associated with the U.S. commercial seed market. The basic question for this research was, "What actually determines the corn seed trade among a list of relevant factors such as seed price, corn output, tariff, transpiration cost, and Sanitary and Phytosanitary (SPS) policies?"

This study developed a seed export demand model based on intermediate demand rather than final demand, and relies on a sectoral gravity modeling framework. The empirical analysis was based on data from 48 countries from 1989 to 2004. I used a count of SPS regulations that are enforced by the U.S. seed importers and assumed that trade costs increase in the SPS count. I addressed the large number of zero-trade observations in the data using a sample selection model. The major finding of the study was that the trade costs have a statistically significant and negative effect on the U.S. corn seed exports. I find that bilateral ad-valorem tariffs matter most, followed by distance and SPS measures.

This analysis has relevant policy implications. Tariffs on agricultural goods remain important, although they have moderately decreased with the Uruguay round of the World Trade Organization and with regional trade agreements. Tariffs on seed trade have been moderate, averaging of 10 percent in our sample. Nevertheless, the high response of corn seed exports to tariffs suggests that tariffs remain an important barrier that could be further reduced. The importance of trade costs induced by SPS regulations raises the issue of sorting which of these regulations are legitimate, that is, science-based, and which are not and could be eliminated. Distance is irreducible of course, but costs associated with distance could be reduced, which could lead to new trade.

  1. corn
  2. sanitary and phytosanitary
  3. seed
  4. sps
  5. trade