Premium
Modeling differentiated quality standards in the agri‐food sector: the case of meat trade in the enlarged EU
Author(s) -
Rau MarieLuise,
Van Tongeren Frank
Publication year - 2007
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.2007.00276.x
Subject(s) - stylized fact , quality (philosophy) , subsidy , oligopoly , international economics , business , international trade , industrial organization , economics , trade barrier , technical barriers to trade , microeconomics , market economy , macroeconomics , philosophy , epistemology , cournot competition
Quality standards play an increasingly important role in international agri‐food trade, and their functioning as nontariff barriers to trade is widely discussed. We argue that food quality standards imposed by importing countries are more than just border measures and can have profound effects on the market structure of the exporting industry, thereby significantly influencing the supply response. We develop a stylized oligopoly model that accounts for compliance costs (fixed and variable) and investigate alternative policy options to explore different mechanisms an importing county may use to enhance the quality of its imports. The model explicitly recognizes the coexistence of complying and noncomplying firms, which is a situation often found in low‐income countries where a small modern export‐oriented segment invests in meeting foreign quality standards. We use the adjustment of the Polish meat sector to the tight EU food quality standards as an empirical example. The simulations show that a subsidy scheme can promote compliance with standards and can contribute to an upgrade of the industry in the exporting country, but its marginal effectiveness is diminishing.