Price, Quality, and International Agricultural Trade

The average value of a particular class of agricultural exports varies widely across different destinations. This raises the question: in the event of a supply shock, such as the implementation of the Emissions Trading Scheme, can farmers offset higher costs by raising their average prices by contracting exports to lower value destinations? If the difference in value reflects different prices because producers have market power, the answer will be "yes". If the difference in value reflects differences in the quality of goods exported to different destinations, the answer is "no."

This paper uses a variety of trade data and techniques to examine which explanation is most likely to be relevant. While the answers are not definitive, there is little support for the hypothesis that exports are curtailed to lower value destinations when supply costs increase.