A multi-scale analysis of transforming agricultural markets in the context of globalization: implications for natural resources, food prices and rural poverty in Latin America

Vivimos una época en la que el mundo se transforma aceleradamente. La globalización está siguiendo un curso imparable, la población mundial así como la población urbana siguen creciendo, y en los países emergentes los ingresos promedios aumentan, resultando en un cambio también acelerado de las dietas y hábitos alimentarios. En conjunto esos factores están causando un aumento fundamental de la demanda de alimentos. Junto con la apertura de los mercados agrícolas, estos procesos han provocado un crecimiento del comercio internacional de alimentos durante la última década. Dado que muchos países de América Latina están dotados de abundancia de recursos naturales, estas tendencias han producido un crecimiento rápido de las exportaciones de bienes primarios desde América Latina al resto del mundo. En sólo 30 años la participación en el mercado agrícola de América Latina casi se ha duplicado, desde 10% en 1980 a 18% en 2010. Este aumento del comercio agrícola ha dado lugar a un debate sobre una serie de cuestiones cruciales relacionadas con los impactos del comercio en la seguridad alimentaria mundial, en el medio ambiente o en la reducción de la pobreza rural en países en desarrollo. Esta tesis aplica un marco integrado para analizar varios impactos relacionados con la transformación de los mercados agrícolas y los mercados rurales debidos a la globalización y, en particular, al progresivo aumento del comercio internacional. En concreto, la tesis aborda los siguientes temas: En primer lugar, la producción mundial de alimentos tendrá que aumentar considerablemente para poder satisfacer la demanda de una población mundial de 9000 millones personas en 2050, lo cual plantea grandes desafíos sobre los sistemas de la producción de alimentos. Alcanzar este logro, sin comprometer la integridad del medio ambiente en regiones exportadoras, es un reto aún mayor. En este contexto, la tesis analiza los efectos de la liberalización del comercio mundial, considerando distintas tecnologías de producción agraria, sobre unos indicadores de seguridad alimentaria en diferentes regiones del mundo y sobre distintos indicadores ambientales, teniendo en cuenta escalas diferentes en América Latina y el Caribe. La tesis utiliza el modelo “International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT)” – un modelo dinámico de equilibrio parcial del sector agrícola a escala global – para modelar la apertura de los mercados agrícolas así como diferentes escenarios de la producción hasta el año 2050. Los resultados del modelo están vinculados a modelos biofísicos para poder evaluar los cambios en la huella hídrica y la calidad del agua, así como para cuantificar los impactos del cambio en el uso del suelo sobre la biodiversidad y los stocks de carbono en 2050. Los resultados indican que la apertura de los mercados agrícolas es muy importante para mejorar la seguridad alimentaria a nivel mundial, sin embargo, produce también presiones ambientales indeseables en algunas regiones de América Latina. Contrastando dos escenarios que consideran distintas modos de producción, la expansión de la tierra agrícola frente a un escenario de la producción más intensiva, se demuestra que las mejoras de productividad son generalmente superiores a la expansión de las tierras agrícolas, desde un punto de vista económico e ambiental. En cambio, los escenarios de intensificación sostenible no sólo hacen posible una mayor producción de alimentos, sino que también generan menos impactos medioambientales que los otros escenarios futuros en todas sus dimensiones: biodiversidad, carbono, emisiones de nitratos y uso del agua. El análisis muestra que hay un “trade-off” entre el objetivo de alcanzar la sostenibilidad ambiental y el objetivo de la seguridad alimentaria, independiente del manejo agrícola en el futuro. En segundo lugar, a la luz de la reciente crisis de los precios de alimentos en los años 2007/08, la tesis analiza los impactos de la apertura de los mercados agrícolas en la transmisión de precios de los alimentos en seis países de América Latina: Argentina, Brasil, Chile, Colombia, México y el Perú. Para identificar las posibles relaciones de cointegración entre los índices de precios al consumidor de alimentos y los índices de precios de agrarios internacionales, sujetos a diferentes grados de apertura de mercados agrícolas en los seis países de América Latina, se utiliza un modelo simple de corrección de error (single equation error correction). Los resultados indican que la integración global de los mercados agrícolas ha dado lugar a diferentes tasas de transmisión de precios en los países investigados. Sobre todo en el corto plazo, las tasas de transmisión dependen del grado de apertura comercial, mientras que en el largo plazo las tasas de transmisión son elevadas, pero en gran medida independientes del régimen de comercio. Por lo tanto, durante un período de shocks de precios mundiales una mayor apertura del comercio trae consigo más inestabilidad de los precios domésticos a corto plazo y la resultante persistencia en el largo plazo. Sin embargo, estos resultados no verifican necesariamente la utilidad de las políticas comerciales, aplicadas frecuentemente por los gobiernos para amortiguar los shocks de precios. Primero, porque existe un riesgo considerable de volatilidad de los precios debido a cambios bruscos de la oferta nacional si se promueve la autosuficiencia en el país; y segundo, la política de proteccionismo asume el riesgo de excluir el país de participar en las cadenas de suministro de alto valor del sector agrícola, y por lo tanto esa política podría obstaculizar el desarrollo económico. Sin embargo, es indispensable establecer políticas efectivas para reducir la vulnerabilidad de los hogares a los aumentos repentinos de precios de alimentos, lo cual requiere una planificación gubernamental precisa con el presupuesto requerido disponible. En tercer lugar, la globalización afecta a la estructura de una economía y, por medios distintos, la distribución de los ingreso en un país. Perú sirve como ejemplo para investigar más profundamente las cuestiones relacionadas con los cambios en la distribución de los ingresos en zonas rurales. Perú, que es un país que está cada vez más integrado en los mercados mundiales, consiguió importantes descensos en la pobreza extrema en sus zonas rurales, pero a la vez adolece de alta incidencia de pobreza moderada y de desigualdad de los ingresos en zonas rural al menos durante el periodo comprendido entre 2004 y 2012. Esta parte de la tesis tiene como objetivo identificar las fuerzas impulsoras detrás de estas dinámicas en el Perú mediante el uso de un modelo de microsimulación basado en modelos de generación de ingresos aplicado a nivel los hogares rurales. Los resultados indican que la fuerza principal detrás de la reducción de la pobreza ha sido el crecimiento económico general de la economía, debido a las condiciones macroeconómicas favorables durante el periodo de estudio. Estos efectos de crecimiento beneficiaron a casi todos los sectores rurales, y dieron lugar a la disminución de la pobreza rural extrema, especialmente entre los agricultores de papas y de maíz. En parte, estos agricultores probablemente se beneficiaron de la apertura de los mercados agrícolas, que es lo que podría haber provocado un aumento de los precios al productor en tiempos de altos precios mundiales de los alimentos. Sin embargo, los resultados también sugieren que para una gran parte de la población más pobre existían barreras de entrada a la hora de poder participar en el empleo asalariado fuera de la agricultura o en la producción de cultivos de alto valor. Esto podría explicarse por la falta de acceso a unos activos importantes: por ejemplo, el nivel de educación de los pobres era apenas mejor en 2012 que en 2004; y también las dotaciones de tierra y de mano de obra, sobre todo de los productores pobres de maíz y patata, disminuyeron entre 2004 y 2012. Esto lleva a la conclusión de que aún hay margen para aplicar políticas para facilitar el acceso a estos activos, que podría contribuir a la erradicación de la pobreza rural. La tesis concluye que el comercio agrícola puede ser un importante medio para abastecer una población mundial creciente y más rica con una cantidad suficiente de calorías. Para evitar adversos efectos ambientales e impactos negativos para los consumidores y de los productores pobres, el enfoque debe centrarse en las mejoras de la productividad agrícola, teniendo en cuenta los límites ambientales y ser socialmente inclusivo. En este sentido, será indispensable seguir desarrollando soluciones tecnológicas que garanticen prácticas de producción agrícola minimizando el uso de recursos naturales. Además, para los pequeños pobres agricultores será fundamental eliminar las barreras de entrada a los mercados de exportación que podría tener efectos indirectos favorables a través de la adopción de nuevas tecnologías alcanzables a través de mercados internacionales. ABSTRACT The world is in a state of rapid transition. Ongoing globalization, population growth, rising living standards and increasing urbanization, accompanied by changing dietary patterns throughout the world, are increasing the demand for food. Together with more open trade regimes, this has triggered growing international agricultural trade during the last decade. For many Latin American countries, which are gifted with relative natural resource abundance, these trends have fueled rapid export growth of primary goods. In just 30 years, the Latin American agricultural market share has almost doubled from 10% in 1980 to 18% in 2010. These market developments have given rise to a debate around a number of crucial issues related to the role of agricultural trade for global food security, for the environment or for poverty reduction in developing countries. This thesis uses an integrated framework to analyze a broad array of possible impacts related to transforming agricultural and rural markets in light of globalization, and in particular of increasing trade activity. Specifically, the following issues are approached: First, global food production will have to rise substantially by the year 2050 to meet effective demand of a nine billion people world population which poses major challenges to food production systems. Doing so without compromising environmental integrity in exporting regions is an even greater challenge. In this context, the thesis explores the effects of future global trade liberalization on food security indicators in different world regions and on a variety of environmental indicators at different scales in Latin America and the Caribbean, in due consideration of different future agricultural production practices. The International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT) –a global dynamic partial equilibrium model of the agricultural sector developed by the International Food Policy Research Institute (IFPRI)– is applied to run different future production scenarios, and agricultural trade regimes out to 2050. Model results are linked to biophysical models, used to assess changes in water footprints and water quality, as well as impacts on biodiversity and carbon stocks from land use change by 2050. Results indicate that further trade liberalization is crucial for improving food security globally, but that it would also lead to more environmental pressures in some regions across Latin America. Contrasting land expansion versus more intensified agriculture shows that productivity improvements are generally superior to agricultural land expansion, from an economic and environmental point of view. Most promising for achieving food security and environmental goals, in equal measure, is the sustainable intensification scenario. However, the analysis shows that there are trade-offs between environmental and food security goals for all agricultural development paths. Second, in light of the recent food price crisis of 2007/08, the thesis looks at the impacts of increasing agricultural market integration on food price transmission from global to domestic markets in six Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico and Peru. To identify possible cointegrating relationships between the domestic food consumer price indices and world food price levels, subject to different degrees of agricultural market integration in the six Latin American countries, a single equation error correction model is used. Results suggest that global agricultural market integration has led to different levels of price path-through in the studied countries. Especially in the short-run, transmission rates depend on the degree of trade openness, while in the long-run transmission rates are high, but largely independent of the country-specific trade regime. Hence, under world price shocks more trade openness brings with it more price instability in the short-term and the resulting persistence in the long-term. However, these findings do not necessarily verify the usefulness of trade policies, often applied by governments to buffer such price shocks. First, because there is a considerable risk of price volatility due to domestic supply shocks if self-sufficiency is promoted. Second, protectionism bears the risk of excluding a country from participating in beneficial high-value agricultural supply chains, thereby hampering economic development. Nevertheless, to reduce households’ vulnerability to sudden and large increases of food prices, effective policies to buffer food price shocks should be put in place, but must be carefully planned with the required budget readily available. Third, globalization affects the structure of an economy and, by different means, the distribution of income in a country. Peru serves as an example to dive deeper into questions related to changes in the income distribution in rural areas. Peru, a country being increasingly integrated into global food markets, experienced large drops in extreme rural poverty, but persistently high rates of moderate rural poverty and rural income inequality between 2004 and 2012. The thesis aims at disentangling the driving forces behind these dynamics by using a microsimulation model based on rural household income generation models. Results provide evidence that the main force behind poverty reduction was overall economic growth of the economy due to generally favorable macroeconomic market conditions. These growth effects benefited almost all rural sectors, and led to declines in extreme rural poverty, especially among potato and maize farmers. In part, these farmers probably benefited from policy changes towards more open trade regimes and the resulting higher producer prices in times of elevated global food price levels. However, the results also suggest that entry barriers existed for the poorer part of the population to participate in well-paid wage-employment outside of agriculture or in high-value crop production. This could be explained by a lack of sufficient access to important rural assets. For example, poor people’s educational attainment was hardly better in 2012 than in 2004. Also land and labor endowments, especially of (poor) maize and potato growers, rather decreased than increased over time. This leads to the conclusion that there is still scope for policy action to facilitate access to these assets, which could contribute to the eradication of rural poverty. The thesis concludes that agricultural trade can be one important means to provide a growing and richer world population with sufficient amounts of calories. To avoid adverse environmental effects and negative impacts for poor food consumers and producers, the focus should lie on agricultural productivity improvements, considering environmental limits and be socially inclusive. In this sense, it will be crucial to further develop technological solutions that guarantee resource-sparing agricultural production practices, and to remove entry barriers for small poor farmers to export markets which might allow for technological spill-over effects from high-value global agricultural supply chains.

Globalization, Eden and the Myth of Original Markets

Peer reviewed

Frontiers of finance: Evolution and efficient markets

In this review article, we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions of research, some focusing on more elaborate mathematical models that are capable of rationalizing the empirical facts, others taking a completely different tack in rejecting rationality altogether. One of the most promising directions is to view financial markets from a biological perspective and, specifically, within an evolutionary framework in which markets, instruments, institutions, and investors interact and evolve dynamically according to the “law” of economic selection. Under this view, financial agents compete and adapt, but they do not necessarily do so in an optimal fashion. Evolutionary and ecological models of financial markets is truly a new frontier whose exploration has just begun.

Volatility spillovers in EMU sovereign bond markets

We analyse volatility spillovers in EMU sovereign bond markets. First, we examine the unconditional patterns during the full sample (April 1999-January 2014) using a measure recently proposed by Diebold and Yılmaz (2012). Second, we make use of a dynamic analysis to evaluate net directional volatility spillovers for each of the eleven countries under study, and to determine whether core and peripheral markets present differences. Finally, we apply a panel analysis to empirically investigate the determinants of net directional spillovers of this kind.

Modelling and testing volatility spillovers in oil and financial markets for USA, UK and China

The primary purpose of the paper is to analyze the conditional correlations, conditional covariances, and co-volatility spillovers between international crude oil and associated financial markets. The paper investigates co-volatility spillovers (namely, the delayed effect of a returns shock in one physical or financial asset on the subsequent volatility or co-volatility in another physical or financial asset) between the oil and financial markets. The oil industry has four major regions, namely North Sea, USA, Middle East, and South-East Asia. Associated with these regions are two major financial centers, namely UK and USA. For these reasons, the data to be used are the returns on alternative crude oil markets, returns on crude oil derivatives, specifically futures, and stock index returns in UK and USA. The paper will also analyze the Chinese financial markets, where the data are more recent. The empirical analysis will be based on the diagonal BEKK model, from which the conditional covariances will be used for testing co-volatility spillovers, and policy recommendations. Based on these results, dynamic hedging strategies will be suggested to analyze market fluctuations in crude oil prices and associated financial markets.

An econometric analysis of ETF and ETF futures in financial and energy markets using generated regressors

It is well known that that there is an intrinsic link between the financial and energy sectors, which can be analyzed through their spillover effects, which are measures of how the shocks to returns in different assets affect each other’s subsequent volatility in both spot and futures markets. Financial derivatives, which are not only highly representative of the underlying indices but can also be traded on both the spot and futures markets, include Exchange Traded Funds (ETFs), which is a tradable spot index whose aim is to replicate the return of an underlying benchmark index. When ETF futures are not available to examine spillover effects, “generated regressors” may be used to construct both Financial ETF futures and Energy ETF futures. The purpose of the paper is to investigate the covolatility spillovers within and across the US energy and financial sectors in both spot and futures markets, by using “generated regressors” and a multivariate conditional volatility model, namely Diagonal BEKK. The daily data used are from 1998/12/23 to 2016/4/22. The data set is analyzed in its entirety, and also subdivided into three subset time periods. The empirical results show there is a significant relationship between the Financial ETF and Energy ETF in the spot and futures markets. Therefore, financial and energy ETFs are suitable for constructing a financial portfolio from an optimal risk management perspective, and also for dynamic hedging purposes.

Legislative Proposals to Modernize Business Development Companies and Expand Investment Opportunities, Testimony Before the House Subcommittee on Capital Markets and Government Sponsored Enterprises

This testimony discusses proposed legislation to amend the definition of accredited investor. It also discusses proposed legislation designed to reform the regulatory framework for business development companies. Among other things, the regulatory regime for BDCs would change to allow these companies to invest a greater portion of their assets in financial companies, potentially reducing the percentage of assets invested in operating companies.

Secularism, Sharia, and the Turkish Financial Markets

The financial markets in Turkey provide a laboratory to help resolve these competing views. Islamic law or Sharia contains a number of proscriptions that directly affect financial practices. The payment and receipt of interest is prohibited; so are most kinds of commercial insurance. These interpretations provided the impetus in the Islamic world for the creation of a class of banks that sought to offer Sharia compliant services. The first Islamic Banks in Turkey began operations in the 1980s. Their entry was initially tepid, in no small part because of secularist principles. Islamic financial institutions could not overtly advertise their religious orientation. The country had no “Islamic” banks, only finance houses. They were not Sharia compliant but “interest-free.” Moreover, the government left them in an uncertain regulatory status and subjected them to restrictions on growth. In this environment, the Islamic banks remained a peripheral part of the financial system. With the election of the AKP in 2002, however, the environment for Islamic banks in Turkey changed. Limitations on branch networks and capital raising were lifted. The government removed restrictions on the issuance of Sharia compliant bonds. Officials from the Islamic banks were appointed to the highest levels of government. This Article does several things. First, it examines principles of Islam that affect banking practices, with a particular emphasis on deposit insurance and credit cards. Second, the Article discusses the emergence of secularism in Turkey and the introduction of Islamic banks into the Turkish financial markets. The Article then examine their evolution, with particular emphasis on the changes implemented by the AKP. Finally, the Article examines the impact of these reforms, and what that impact says about Islamic influence in Turkey.

An evolutive approach for the delineation of local labour markets

This paper presents a new approach to the delineation of local labour markets based on evolutionary computation. The main objective is the regionalisation of a given territory into functional regions based on commuting flows. According to the relevant literature, such regions are defined so that (a) their boundaries are rarely crossed in daily journeys to work, and (b) a high degree of intra-area movement exists. This proposal merges municipalities into functional regions by maximizing a fitness function that measures aggregate intra-region interaction under constraints of inter-region separation and minimum size. Real results are presented based on the latest database from the Census of Population in the Region of Valencia. Comparison between the results obtained through the official method which currently is most widely used (that of British Travel-to-Work Areas) and those from our approach is also presented, showing important improvements in terms of both the number of different market areas identified that meet the statistical criteria and the degree of aggregate intra-market interaction.

A memetic algorithm for the delineation of local labour markets

Given a territory composed of basic geographical units, the delineation of local labour market areas (LLMAs) can be seen as a problem in which those units are grouped subject to multiple constraints. In previous research, standard genetic algorithms were not able to find valid solutions, and a specific evolutionary algorithm was developed. The inclusion of multiple ad hoc operators allowed the algorithm to find better solutions than those of a widely-used greedy method. However, the percentage of invalid solutions was still very high. In this paper we improve that evolutionary algorithm through the inclusion of (i) a reparation process, that allows every invalid individual to fulfil the constraints and contribute to the evolution, and (ii) a hillclimbing optimisation procedure for each generated individual by means of an appropriate reassignment of some of its constituent units. We compare the results of both techniques against the previous results and a greedy method.

The European Union's promotion of regional economic integration in Southeast Asia: Norms, markets or both? Bruges Political Research Paper No. 25/May 2012

The EU‘s external action includes a preference for regional interlocutors and a tendency to promote regionalism. This work concentrates on the southeast Asian area and it aims at investigating the nature of EU‘s promotion of ASEAN regional integration. The EU‘s ideas and practices of regionalism as well as the single market experience influence the EU‘s international action. The power deriving from the EU‘s institutionalized market is used by the Union in a normative way to diffuse the EU‘s ideas and principles, advance the EU‘s interests and spread its model of economic integration through political dialogue, development cooperation and preferential trade arrangements. This action seems to result in a certain diffusion of the EU‘s ideas and practices in southeast Asia as well as in a subsequent reappropriation and redefinition of external inputs by ASEAN.