The United States' Export Enhancement Program for wheat: A simulation model employing Nash's bargaining solution

Ann Marie Hillberg, Purdue University

Abstract

The U.S. Export Enhancement Program (EEP) was introduced in May of 1985 with the goal of alleviating the agricultural sector's financial stress through a restoration of U.S. export volume of the early 1980s. Payment in-kind for export subsidies from government-owned stocks was authorized for select, or "targeted," import markets. The EEP sales were to be flows additional to commercial sales which would displace subsidized European Community exports. The subsidy level on each sale would result from a bidding process between Commodity Credit Corporation and the exporting firm handling U.S. commodities. In this research, game theoretic Nash bargaining models integrated with a quarterly spatial price equilibrium model are employed to determine the program's impact on world wheat markets. For the periods studied--October to December 1985 and January to March 1986--the following conclusions concerning sales of wheat under the EEP were reached. First, the U.S. achieved only very slight increases in export volume and export revenues under the EEP due to the displacement of commercial exports by subsidized sales. Second, payment in-kind of subsidies from government stocks may not be less expensive than cash payment of subsidies even in the presence of burdensome stocks. During the periods studied, the Commodity Credit Corporation was forced to reacquire the commodities released in the form of EEP bonuses as CCC loan forfeitures. Third, the exporting firms were able to influence the program's outcomes in their own interests, and not necessarily to the benefit of the U.S. producer, in negotiations over the EEP bonus level. Fourth, an attempt by the E.C. to protect its market share in the presence of the EEP causes U.S. export revenues to fall below levels achieved assuming an absence of the program. The E.C. response also causes export revenues of Canada, Australia, and Argentina to fall below levels recorded for an EEP without such a response. Finally, a lowering of the U.S. loan rate in combination with the EEP has a greater positive impact on U.S. export volume and export revenue than the EEP alone. However, the high cost of increased deficiency payments must also be considered when determining the benefits or losses of this policy.

Degree

Ph.D.

Advisors

Paarlberg, Purdue University.

Subject Area

Agricultural economics

COinS