Economic Analysis Assignment: Dumping In US Agricultural Sector

Question

Task:
You are required to prepare a report on economic analysis assignment exploring the significance of dumping in US agricultural sector.

Answer

Executive Summary
The term dumping in business refers to the operation where products are sold at a lower price in foreign markets than domestic markets. It is one of the most crucial factors for the company that stimulate the economies of both the originating and foreign country. In this paper, dumping of agricultural commodities produced in the United States, with a key concern on the fresh food industry, has been discussed and after a thorough evaluation of the entire report, a recommendation has been given for the businesses and countries to manage various issues emerging from dumping. In this process, brief conceptualisation has been done on the US agricultural sector, the significance of dumping in this sector, factors that mainly drives a business towards dumping and impact of dumping on industry and country economy. The report is mainly focused on evaluating how dumping influences the fresh food industry of US and how the agricultural export in international markets from this country is affected by it.

Introduction
Dumping is the activity of international price discrimination, due to which, the exporter organisation or firm sells some part of its outputs in the international market within a low cost, and the remaining part of its output sells in the domestic market within the high cost. During reverse dumping, the selling of a product at a lower price than its price of production in the domestic market that effectively helps to turn out the international rivalries from the internal market. Whereas, the multinational trade agreement has a low level of tariffs and quantitative restrictions for trade throughout the world; therefore, the other legislative tools or techniques have enhanced to accomplish the protection void. In this aspect, the new form of this protection void is the antidumping act, which has the potential influence to create the barrier on international trade during dumping movement (ZHOU and PERCIVAL, 2016). Forty-one members of the World Trade Organisation (WTO) has filed the over 2000 antidumping cases in between the year of 1995 and 2003. Even, only US have filed 330 antidumping petitions in against of other countries and as subject to 139 cases of antidumping have been filed by 20 different countries during the period. Therefore, most of the countries are now operating their service of import and export, through maintaining all the law and act for dumping. Due to more prominently pursue the laws; WTO set some percentages on antidumping activities of all countries (NIKOLAEV and MAMADAMONOV, 2017). For instance, in the year of 2000, Mexico has filed a case of antidumping, which eventually had driven to the imposition of 10.18 per-cent tariffs on all US exports of rice items. In this way, nowadays, all the agriculture: fast food industries potentially pursue the global antidumping rules and regulations during the organisational importing and exporting practices.

Analysis of Country and Industry
The Agriculture Fresh Foods Industry has accounted for 6% of investigations for antidumping between the year of 1987 and 1997, however over 10% of new users like Colombia and Brazil. Mostly US are prominently involved within the dumping activity in the international platform; therefore, the antidumping regulations are potentially set on the entire activity of US agriculture industry. At the initial stage, USA producers and industrialists got the risks on their importing of fresh food items. For instance, due to the imposition of antidumping activities, the World Trade Organisation has set a vast range of percentage of 50% on all the export activity of US like the exports of tomatoes, corn, rice, refined sugar, etc. Through this way, the other countries have benefited for the protection of antidumping regulation from US market (CHOI, 2017). However, now the industrialist and fresh food producer of US have successfully requested through the antidumping protection from imports and exports of a wide range of variation within the food products like wheat, honey, apple, mushrooms, etc. Therefore, the Agriculture: Fresh Foods Industry of the USA currently has been able to import and export their fresh food products in the international market within a low cost as much as possible.

Identification and Description of the Significance of Dumping in International Trade
There are various types of dumping in international trade like, predatory dumping, intermittent dumping and persistent dumping, which occurred through different kinds of business procedures. All the types of dumping have been practised by the US industry of Agriculture and Fresh food to expand and operate the business in the international and domestic market efficiently. The fundamental advantage of dumping is this activity helps to sell the product in the international market with low cost that helps to gather more consumers within the industrial operations (De Jong, 1968). Moreover, the dumping has been used by the US industries as an attacker that dominates its trading partner's industry to become an industry leader.

Evaluation, Findings and Discussion
Overview of Dumping in the Agriculture Industry
Dumping is the activity of price discrimination that helps the agriculture fresh food industry to export their some of the portion of its food products in the international market and sells them within a low cost, and the remaining portion in the domestic market with a high cost. Therefore, in this aspect, dumping helps the US agriculture and fresh food industry to get a high amount of profit from the international market. However, in the domestic market, this activity of dumping provides few of losses to the industry. For instance, in case the Agriculture: Fresh Food Industry of USA dumps its foreign commodity for a short period, then the importing industry of USA is negatively affected for a short while due to the low prices of its selling products in the domestic market (WILSON and COUNTRYMAN, 2019). Through this way, the industry of Agriculture and Fresh Food of USA efficiently pursues the dumping activity during their import and export process.

Case Analysis of Dumping in Agriculture: Fresh Foods Industry of US
In the Agriculture: Fresh Food Industry, the apple production companies have claimed that they got the success to grow around 100 kinds of apples including the 27% of Red apple and 13% of golden apple in the year of 2005. At the initial stage, likely in the year of 1990 the industry, the US sells its apple maximum in the domestic market, and some of the rest they export in the international market. However, from 1996 and 1997, the industry has developed its firming process, which was helped the industry to grow apple as the amount of 55% than the late 1980 and 1990. Also, in the period of 2002-2003, the sector of apple has growth its production around 62% in the market of US.

Figure 1: Apple Production in the US
(Source: Reynolds, 2005)

An industrial business overview of Agriculture: Fresh Foods Industry from the United States in 2005, the Apple Association argued the apple growers had got the losses around$1.7 billion between the year of 2000 and 2005, damages of approximately $700 million alone during 2001. The committee impugned the government of US due to the vast amount of losses. Whereas, the dumping extends the cost of product in the domestic market; therefore, the agriculturalists got the potent losses on their outturn (ELSASSER, 2018). Thus, the antidumping law had been implemented potentially on the import and export system of US to mitigate and take under control the price of product in the domestic market.

Figure 2: Apple Prices in the Domestic Market of U.S
(Source: Reynolds, 2005)

On 6th March in 1997, at first Mexico files the antidumping case against the United States due to its ignorance of the rules in antidumping law. Throughout the antidumping act, Mexico get the products of fresh apples from US by 16% less import and export charge in between the year of 1995 and 1997. Moreover, due to constraint of reducing the cost of fresh apple product in the domestic market of U.S, the country had obliged to enhance the cost of its exporting products. In this way, the expected profits from the international market for fresh apple product got reduction by 12.5% between the year of 1994 and 1996. Also, the profits from exporting products had remained lower than 55% during the year of 1994 (MAJED et al., 2016). In addition, due to the antidumping act, the United States had obliged to exports its fresh apple product within a low cost to Mexico around 30% to 35% of its export items in the world.

Figure 3: Exports of Apple by U.S
(Source: Reynolds, 2005)

Not only in Mexico, US exports its most valuable product of fresh apples throughout the world like, in Spain, China, Argentina, etc. places. During their exporting, the US government earns a vast amount of profits through which it has been able to back up its domestic market and the farmers to keep far the effect of losses. Fundamentally, US is the leading country in the world due to its economic growth and financial stability. Therefore, the government of US prominently efforts on its development of industrial growth, and in this aspect, the Agriculture: Fresh Foods Industry improves its business management process of import and export procedure (Reynolds, 2005). However, due to the effectiveness of dumping, in some cases, the agriculturalists faces numerous hindrances within their daily lives due to losses. Thus, the industry started to manage both the domestic and the international platform through sharing little portion of profits among the domestic market.

Stemilt Grower’s Monopoly Market in Washington Apple Sector and Effect of Dumping on Its Global Business
Stemilt Growers is the leading brand in United States, which fundamentally produce the fresh apple product in an extensive manner. In all of the apple production mostly the Washington city contribute around 90% of apple production, and in this aspect, the Stemilt Growers contributes its maximum production of fresh apples. However, due to dumping, the organisation get low amount of profit from the domestic market (KOO and UHM, 2007). Therefore, its production also gets involved within the exporting system of the apple industry. This helps to provide a vast amount of profits to country to stable the economy system.

Analyse the Factors that Drive Dumping in Agriculture: Fresh Foods Industry
The situation of dumping occurs where the price that a company charges for its products in the international market is less than that either the production cost or the price charged in the domestic market. This indicates the fact that dumping is basically an exceptional case of discrimination in price. It is illegal under the WTO international trade agreements, and a country is capable of imposing antidumping duties on production being dumped (KOO and UHM, 2007). Dumping is actually the sale of surplus outputs of a company on overseas markets at below cost-price. It also takes place when an organisation sells goods at a higher price in the domestic market and lower price in the markets of foreign countries it operates the business in. Following this concept, a company may adopt dumping for many reasons which are briefly detailed below:

• Discrimination in the price: The first and the foremost factor that causes dumping is the aforesaid discrimination in the product price. A business may have a monopoly market in originating country while at the same time is probable of facing strong competition in overseas markets. In this situation, the company naturally charges a higher price in the domestic market and comparatively lower price in markets of foreign countries.

As stated in the case study, during 1997, red and golden apple-producers of US were claimed to be selling apples in Mexico market at a value that is less than fair price, because of higher production. This hampered the domestic apple growers of Mexico and led the country to file antidumping case against US.

• Surplus stock: If a business has a reasonable amount of surplus stock, it may choose for dumping. As per Agricultural Policy Monitoring and Evaluation 2019, agricultural surpluses in nutrients have reduced, and deficits have declined in recent time, though the pressure remains high in some of the OECD countries.
• Economies with production at large-scale: Large enterprises have fixed capital in huge amount which is required for manufacturing the products, and this may lead to dumping being available of the economies that include large-scale production.
• Predatory pricing: This is another factor of the most significant reasons that cause dumping of a business. Predatory pricing refers to practising the cutting price of products while attempting to drive competitor companies leaving the market or exit their businesses.

The factors driving agricultural dumping to occur are probable for change for various foods and are affected by various nations’ particular socio-economic conditions:

• Subsidies: Non-governmental organisations are the most influential denouncers of agricultural subsidies as a significant cause for fresh food dumping. Subsidies promote over-supply of agricultural goods, resulting in imbalance of foreign markets and deprivation of income. As per distorted Monticone (2018), rivalry often hampers exports from developed countries because they lose market share and they cannot cope with dumped product prices.
• Lower price for production: Another factor of dumping is the comparatively lower cost of food production in various countries. The issue of dumping is nearly absent in this situation when the source is established with an essentially rational disparity in the food sector.
• Market failure: The oligopoly of a few food corporations, eliminating competition and resulting in over-production and low prices, is the cause of consumer failure. Subsidies are often a symptom of wider consumer weakness and liable for deflating price oversupplies.

Rationalising the Impact of Dumping on Industry and Country Economy
In the context of antidumping operations, the occurrence of injuries to domestic production must be detected; if dumping takes place, domestic production is subsequently recognised as impaired. Domestic production damages are, therefore, one of the results of dumping and severe food security risks. The threats of dumping are short-term while celebrating its long-term gains. Although known by these effects, the opinions are split into short-term or long-term dumping impacts. The availability of cheaper products in the short term will improve the wellbeing of the importing nation through dumping. However, they acknowledge in the long term that growth of domestic food production is more successful than the preservation of cheap food imports for stabilising the food safety of developed countries in the normal course of economic progress.

On the contrary, several NGOs and scholars claim that dumping, in turn, threatens the domestic industries of importing nations as well as its food security. This is capable of inviting devastating outcome on both short and long terms. Dumping can be blamed to be threatening for the human rights for food since it is probable of stopping at any time, which leaves consumers among high insecurity regarding food. Dumping often affects revenues of small farmers and they can be driven out of production.

Conceptualise the Effects of Dumping in US Agriculture: Fresh Foods Industry
The USA is a major farming superpower. It is, after China and India, the third largest producer of agricultural products including a reasonable production of apples and the largest agricultural exporter worldwide. Its agro-companies operate on global markets with dominance. However, costs at export point from US ports are less than the cost of produced fruits for a variety of agricultural goods where the US is a major supplying provider of apple to global markets (Murphy and Hansen-Kuhn, 2017). Economic viability of competing farmers, whether farmers cultivate in importing countries for their domestic markets or sell apples to traders in competition with US production, is undermined by dumping. For the predominantly developed countries in agriculture, this is particularly a concern which depends on agriculture for economic lucidity. As a part of the international trading agreements, dumping generated considerable uncertainty and tension.

Dumping is also a danger to several manufacturers who sell their commodity in markets dominated by only a few agricultural goods trading companies.US farmers are relying both on off-farm profits and grants from the government to remain in operation. These apple producers and their families, their workers and agricultural areas in which they work and communities deprived of resources that could foster healthy community life, suffer the economic consequences of a scheme that reinforces dumping. Agriculture and trade policies in the United States that promote overproduction use export markets, as the exit valve for declining prices and revenue, are the logical consequences of dumping. It is obvious that as KOO and UHM (2007) have opined, while the terms of dumping and antidumping are somewhat different from one another, the economic consequences of dumping appear similar to those of antidumping measure. The apple-farmer in the US is unable to benefit living from the market because of the continuation of over-production and dumping and is relying both on government subsidies and off-farm income to maintain the household financially sustainably.

Conclusion
Throughout the evaluation of the entire study, it is concluded that dumping is the activity that helps to export the products in the international market at a low cost; however, it triggers the product cost in the domestic market. In this aspect, on the one hand, it has a positive impact on the international market, and on the other hand, it also has a negative impact on the domestic market. Therefore, the US focused on its exporting procedures by appropriately following the antidumping rules and regulations, which help the country to legally operate their importing and exporting duties. The World Trade Organisation (WTO) set some genuine percentages on the importing and exporting activities of all countries in the world. Through this way, all the countries, who are potentially involved with the import and export practices, get the same legal advantages for the petition. Throughout the evaluation of the study, the Agriculture: Fresh Food Industry of the US predominantly connected with Mexico, China, Turkey, Argentina, etc. countries with importing and exporting. Since 1990, the US becomes the leading country for exporting food grains to the world and importing fresh food products from the world. Thus, the study has evaluated the entire factors that driven dumping in import and export system of the industry.

Recommendation
Through noting all the factors within the above study, it is cleared that in most of the cases the activity of dumping provides profits to the industry and the country. However, in the matter of the domestic market, it impacts negatively, which reduce the profits from the domestic market. Due to the inappropriate persuasion of antidumping rules and regulations, some of the industries and the organisation will face the economic tax-related act. Through which, the industries could go in danger through getting paused within their business. Therefore, the Agriculture: Fresh Food Industry of US needs to develop its management process of importing and exporting. Moreover, the industry needs to reduce its production cost for the domestic market to get more profit from the domestic market. On the other hand, the fresh food industry has to maintain more prominent relation with the external market like, Argentina, China, Turkey, etc. with which, the US potentially operate their business. The industry has to provide some facilities to the external market to sell their products. In this way, the US could develop its economic growth across the world. In addition, the Agriculture: Fresh Foods Industry also needs to develop its procedure of importing through maintaining its external relation to get the product in a low cost, due to fetch some development within its domestic market.

References
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