Traoré, O. Z. et Tamini, L. D. (2020). Disentangle the Effects of Compliance with Maximum Residue Limits for Pesticides on Production, Export supply and Import Demand: An application using African Trade of Mangoes to OECD Countries. CREATE-2020-11_WP_3
The stringent technical non-tariff measures (TNTMs) such as maximum residue limits for pesticides (MRLs) may potentially reduce the propensity to produce and the volume of production and create uncertainty on the volume available for exporting as well as the probability to export. This article disentangles theoretically and empirically the effects of the MRLs for pesticides on the production, export supply and import demand. We adopt a modelling approach based on the costs and benefits associated with food safety standards and use our theoretical framework to assess the empirical net effects of the MRLs for pesticides on African mango production and trade with OECD member countries. On one hand, we theoretically highlight that, for a given production technology and a level of elasticity of production costs with respect to the MRLs gap, the producers will likely produce the high-quality or standards-compliant product if they are able to strongly translate the standards-compliance costs to the unit price they received with exporters, otherwise they will exit the high-quality product markets. The producers will increase the level of standards-compliant production if there is at least a perfect pass-through or a strong upward price transmission, otherwise the production level will decrease. On the other hand, we theoretically show that the net effects of MRLs gap on bilateral trade can be positive, zero or negative depending on whether the consumers' perceived quality effect on import demand is greater than, equal to or less than the compliance cost effect on export supply through the unconditional expected standard-compliant production. We use a cross-sectional data set for 12 African countries that produced and exported MRL-compliant mangoes to 31 OECD countries in 2016, and find that, on the one hand, the net effects of MRLs on the production of standards-compliant mangoes are negative. On the other hand, they are positive on mango trade between African and OECD member countries. Our results highlight that the tightening or imposition of strict MRLs for pesticides in developed countries may be trade promoting while they severely impede production in African countries.