The Brazilian soybean industry: An econometric framework for policy impact analysis

Agricultural policy makers need guiding information in making decisions that affect production, consumption, price and trade patterns in their countries or regions. Analytical tools are crucial in providing such information on various policy options that may be under consideration. The purpose of the research in this dissertation was to develop such a tool to analyze the impacts of alternative policy scenarios on the Brazilian soybean sector, both in the short-run and in the long-run.;The first step involved the structural development of an econometric model for the Brazilian soybean sector. Single equations were first estimated and evaluated for different components of the three soybean markets: soybeans, soymeal and soyoil. The second step involved estimating the equations simultaneously, with world prices endogenized, and key policy variables incorporated. Full model simulation through static and dynamic testing resulted in satisfactory performance as reflected by reasonable root mean square percentage errors. The third step involved generation of impact and dynamic multipliers for key exogenous variables reflecting policy and market variable impacts. The final step involved using the model to generate a 10-year forecast of the endogenous variables.;Two scenarios were of particular interest in this research: (i) elimination of ICMS taxes (differential export taxes) on soybeans, soymeal and soyoil exports; and (ii) reduction in transportation cost of moving soybeans from production points to exports points. Elimination of ICMS taxes, which took effect in late 1996, will result in higher domestic prices and more soybean production. Most significantly, raw soybean exports will increase steadily from about 8 percent in the short-run and stabilize at about 58 percent in the long-run, above what they would have been with the ICMS taxes in place. Soymeal and soyoil markets will not be affected much by the elimination of ICMS taxes. There will be a slight fall in domestic consumption, and a slight increase in exports of the two commodities.;A reduction in transportation cost by 50 percent in the Centerwest and Northeast regions would lead to a rise in producer prices by about 9 and 8 percent in the short-run, stabilizing at about 8 and 7 percent in the long-run, respectively. Similarly, soybean exports would increase from about 0.34 percent in the short-run, steadily increasing each year with final stability averaging about 5.4 percent in the long-run.