A Critical Assessment of Supply-Demand Models of Agricultural Trade

Everett Peterson, Thomas Hertel and James V. Stout

American Journal of Agricultural Economics, 1994, vol. 76, issue 4, 709-721

Abstract: We offer a critical assessment of static, deterministic, reduced form, supply-demand (SD) models of agricultural trade. A commonly used and well-documented model has significant limitations: no explicit treatment of factor mobility between farm and nonfarm sectors, nonzero profits in some sectors, no substitutability among feedstuffs in livestock sectors, violation of the law of one price, small marketing margins for some commodities, and incomplete coverage of the agricultural sector. Such limitations have significant impacts on the magnitude and direction of projected world price and welfare changes. We believe agricultural policy analysis should first focus on the remediation of these limitations before proceeding to more complex issues like dynamics and uncertainty.

Date: 1994
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