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APR: Winter 2019 Articles

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Has Specialization Put a Limit on How Far Cattle Contracting Can Go?

John M. Crespi and Tina L. Saitone
In 1776 Scottish philosopher Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations, or as it is better known, The Wealth of Nations. In many mundane ways, Smith merely chronicled the burgeoning European industries he was observing; but, in doing so, he helped spread a revolutionary thinking about how factories could take advantage of specialization. Smith’s discussion of a visit to a pin factory has been re-told so often that many people probably know the story without knowing the source. The story goes like this: If you were to make a pin, how would you do it? Well, you need to cut some steel, pound and twist it into a wire, cut the wire, straighten it, sharpen one end, affix a tiny ball to the other, and once, say, 100 were ready, box them up for delivery. Smith records 18 distinct tasks involved in making a pin and opines that an untrained 18th century worker could at best fashion one pin per day. Specialized training increases the output to a dozen per worker so that a factory of 100 workers might produce 1200 pins. However, in the modern pin factory he visited, instead of training one person to do everything, workers were each trained for just one of the 18 distinct tasks, and the factory produced 48,000 pins per day. From automobiles to computers to packinghouses, specialization increases output while lowering cost per unit. This revolution in specialization also leads to increased demand for inputs. As output increases, more and more inputs must be secured, whether those inputs are steel or soybeans, plastic or pigs. But what happens in industries that compete for those inputs? They often become concentrated.

African Swine Fever in China: An Update

Minghao Li, Tao Xiong, Yongjie Ji, Dermot Hayes, and Wendong Zhang
Last November, we wrote an article documenting the development of African Swine Fever in China and its impacts on regional hog and pork prices. Since then, ASF has continued to ravage China’s hog industry with 62 new cases from November 1, 2018 to March 27, 2019, resulting in a total of 114 cases. The total inventory of hog factories with ASF outbreaks has increased from 61,214 to 319,726. The pace of the outbreaks has somewhat slowed down from more than 20 cases per month in November and December last year to less than 10 cases per month this year. It is possible that the number of cases is greater than that reported, in part because provinces and producers do not have the economic incentive to report. In this article, we update the impacts of ASF on China’s hog inventory, pork imports, and future soybean imports.

The Yin and Yang of Agricultural Trade

Lee Schulz and Chad Hart
It’s a fascinating, but uncertain, time in the agricultural markets. Global and US supplies of agricultural products are at or near record levels. At the same time, global demand for agricultural products continues to grow, pressured by both population and income growth. Markets work to distribute the products across the globe, and government policies can definitely shape that distribution. Myriad new trade agreements, trade disputes, and tariffs introduced over the last 15 months are reshaping global agricultural trade flows. Some of that reshaping has been beneficial to US producers, while some of it has been harmful. Trade policy does not exist in a vacuum—while a tariff may be targeted at one specific country, the tariff’s impact can (and often does) spread beyond the borders of the two countries involved, which is true of trade agreements as well. The impacts of the trade agreements are not limited to only those countries within the agreement.

International Trade Policy: Insights from a General-equilibrium Approach

Edward J. Balistreri
It is easy to convince Iowa farmers that the trade war with China has substantial costs, as current agricultural commodity prices reflect reduced export demand. Rather than bear the burden of retaliatory tariffs, China moved toward other sources and substitutes for soybeans. The adverse export-demand shock is absorbed within the US market by inventory (and eventually production) adjustments and price reductions, and farm revenues fall as a result. This narrative might well outline the primary mechanism by which many Iowa farmers feel the pain of the trade war, but it is woefully incomplete.