A CRITICAL-ASSESSMENT OF SUPPLY-DEMAND MODELS OF AGRICULTURAL TRADE

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 treatme nt of factor mobility between farm and nonfarm sectors, nonzero profit s in some sectors, no no substitutability among feedstuffs in livestoc k sectors, violation of the law of one price, small marketing margins for some commodities, and incomplete coverage of the agricultural sect or. Such limitations have significant impacts on the magnitude and dir ection of projected world price and welfare changes. We believe agricu ltural policy analysis should first focus on the remediation of these limitations before proceeding to more complex issues like dynamics and uncertainty.