Wages fall by only 0.5% in El Salvador but nearly 3% in Guatemala, 8.5% in Nicaragua and 26% in Honduras. Because of these wage decreases and an imperfect transmission of output price changes across households, subsistence grain production increases by 1.8% and 2.1% in Guatemala and Nicaragua, respectively, while remaining almost unchanged in El Salvador and Honduras. This finding is reminiscent of what occurred in Mexico after NAFTA: a decrease in the market price of maize was associated with an increase in maize production on rainfed farms . Dyer, Boucher, and Taylor refer to this as a “retreat into subsistence.”In response to decreased profitability in the previously protected importables sectors, rural producers channel their resources into other crop and non-crop activities and migration. The cross-effect of tariff elimination on other activities varies across households and countries. All groups with a significant participation in traditional-crop production prior to reforms increase their production of these goods. In El Salvador, small and medium commercial households increase their production of traditional crops by 3.3% and 0.9%, respectively. In Guatemala,plastic pots 30 liters production of traditional crops increases between 7% and 45% ; in Honduras, between 0.6% and 17% , and in Nicaragua between 31% and 51% .
Output of non-traditional crops increases more, although from a smaller base. Total rural out-migration increases by 7.6% in El Salvador, 1.1% in Guatemala, 0.3% in Honduras and 0.6% in Nicaragua. The major difference between the extreme and intermediate scenarios is that the latter maintains tariffs for maize in Honduras, for rice in Guatemala and Nicaragua, and for milk products in all four countries. As a result, commercial production of grains in Honduras falls less under the intermediate than the extreme scenario. In Nicaragua, grain production now falls by 4.7% in small commercial households and by 9.7% and 3.3%, respectively, in medium and large commercial households . In Guatemala, where maize trade is liberalized under both scenarios, there is little difference between the two. However, there are substantial differences between scenarios in El Salvador, where livestock production is relatively important. Grain output now falls in large commercial households, and it decreases more than under the extreme scenario in medium households. This result illustrates the way in which non-uniform implementation of trade reforms can create new distortions on the production side, as the newly liberalized activity becomes less profitable relative to the protected activity .
A similar result is evident in Honduras, where under the intermediate scenario the tariff on maize imports persists while that on beans is eliminated; maize production increases, while bean production by all commercial households contracts sharply. Rice production by all commercial households in Honduras also decreases more sharply here than under the extreme scenario. Under the low scenario, tariffs are maintained for maize, rice and small livestock but eliminated for beans and large livestock. This mutes the negative production effects in all four countries. Basic grain production is almost unchanged in El Salvador. There is little difference in production effects between the intermediate and low scenarios in Honduras, where maize tariffs are maintained under both. Negative grain production effects become positive for medium commercial households in Guatemala and for subsistence and large commercial households in Nicaragua, once again highlighting the complexity of effects when trade reforms are not uniform.Income effects are summarized in the left-hand panel of table 6. Under the extreme scenario, nominal income falls for all household groups in all four countries. In three of the countries , large commercial producers are hardest hit by agricultural trade reforms. This group’s income falls by 4.9% in Nicaragua, 8% in Guatemala, 8.7% in Honduras and 24.1% in El Salvador. The sharp drop in nominal income for large commercial households in El Salvador reflects these households’ production concentration in livestock and livestock products prior to reforms.
Medium commercial producers also suffer relatively large nominal income losses in El Salvador, Guatemala y Nicaragua . In Honduras, the biggest losers are landless households, which rely heavily on agricultural employment , followed by medium , small and large commercial farms. Nominal incomes of subsistence households do not change in El Salvador and decrease by only 0.5% in Honduras and 1.0% in Guatemala and Nicaragua. These households lose primarily because of the decrease in rural wages. Lower wages, however, partially counteract a negative income effect on subsistence production. As a result, the supply of basic grains either does not change or else increases slightly . In Honduras, under the intermediate scenario the income of subsistence households changes little and that of commercial households decreases far less than under the extreme scenario. Small commercial households lose 4.6%, compared with 10.1% under the extreme scenario. Medium commercial households lose 2.7% , and large commercial households lose only 1% . Clearly, the maintenance of tariffs on maize imports protects Honduran commercial household incomes but has little effect on subsistence households. In the other countries, where the intermediate scenario includes liberalization of maize trade, the income effects are similar to those under the extreme scenario. Minimal impacts of trade reforms on production are mirrored in the household income results under the low scenario. Decreases in nominal incomes do not exceed 1% for any rural Salvadoran household group or any subsistence household group in the four countries.
Among commercial producers, decreases in nominal income under the low scenario range from 0.5% to 2.5% in Guatemala, from 0.9% to 4.4% in Honduras, and from 1.1% to 3.6% in Nicaragua.A decrease in food prices has an ambiguous effect on welfare in an agricultural household model, as positive effects of decreases in consumption prices may counteract the negative income effects described above. Which effect dominates is an empirical question. Assessing rural welfare effects of agricultural trade reforms is particularly complex in a general equilibrium setting, because both quantities and prices are changing. We employ a general-equilibrium version of the compensating variation to estimate the rural welfare effects of CAFTA’s agricultural provisions. By introducing a GEVC slack variable into each household’s budget constraint and holding utility constant before and after the simulated reforms, one obtains the transfer required to compensate households taking into account all quantity and price adjustments captured by the DREM. A positive value of the GECV implies that welfare decreases as a result of the reforms—that is, the negative income effect dominates the positive consumption-price effect. A negative GECV implies the opposite. Estimated GECVs are reported in the right-hand panel of table 6. Despite a decrease in nominal income for all rural groups under the extreme scenario,round plastic pots in the majority of cases the GECV is negative, implying that rural household welfare increases. This reflects the fact that income decreases are much smaller in percentage terms than the decreases in prices that result from tariff removal. For example, in El Salvador small commercial households reap a benefit from agricultural trade reforms equivalent to 10.3% of their income prior to the reform. Effects on medium and large commercial households and on landless laborer households are smaller but nonetheless positive. In all countries except Honduras, the total GECV is negative under the extreme scenario, ranging from 1.5% to 5.7% of base income. In Honduras, lower consumption prices are not sufficient to compensate for a sharp decrease in wages for rural worker households, and the GECV is positive .The compensating transfer is small and positive for large commercial producers in Guatemala, nil for subsistence households in El Salvador, but negative for all other rural household groups. Under the intermediate scenario, the GECV is negative for all groups except small and medium commercial households in Honduras and large commercial households in Guatemala. Under the low scenario, GECVs are zero or negative for all groups. In some cases the estimated transfer is negative and largest in absolute value under the extreme scenario, due to the decrease in consumption costs that result from immediate tariff removal. These results might appear surprising in the light of the negative effects of agricultural trade liberalization on agricultural production. However, they are not surprising when viewed from the consumption side of the rural household, which typically spends a significant share of its budget on food items protected by pre-CAFTA tariffs ranging from 10-154%.
The results of our welfare simulations suggest that the majority of rural households, in particular smaller producers, do not benefit from pre-CAFTA agricultural import tariffs.As in any simulation model, modeling assumptions and data limitations influence the results of our simulations and welfare analysis. The model assumes that rural households can reallocate resources among activities in which they participate prior to the reform. Constraints on rural households’ capacity to adjust, due for example to rural credit market imperfections, would tend to magnify the negative effects of trade reforms. Indeed, in the majority of cases, positive cross-sector effects presented in table 5 are smaller in subsistence and small-commercial households than in larger commercial households, even though liquidity constraints are not explicitly incorporated into the model. For example,in Honduras, small commercial households change their production of traditional and nontraditional agricultural goods only slightly in response to the removal of import tariffs on grains and other sensitive items, and the nontraditional agricultural supply response is more than six times greater for large than small commercial households. These considerations highlight the need for transition policies to facilitate rural adjustments to trade reforms, particularly for small-producer households in which adjustment constraints are likely to be most severe. Long-term exposure to ambient fine particulate matter is associated with elevated health risks such as respiratory and cardiovascular diseases, resulting in more than four million premature deaths globally each year . Of these, 10–25% are estimated to occur in India . One source of direct PM2.5 emissions responsible for Indian public health impacts is crop residue burning. As the second largest worldwide crop producer , India generates ~500 million metric tonnes of crop residue annually, of which 100 MT is burned . The practice of residue burning primarily occurs following the wheat harvest in April-May and the rice harvest in October–November , and mostly in northwestern India . Densely populated areas located downwind of agricultural fires in the Indo-Gangetic Plain , such as New Delhi, typically experience an annual mean of ambient PM2.5 concentration of 50–200 μg m−3 and episodic spikes reaching 200–1200 μg m−3 during burning seasons, exceeding the World Health Organization PM2.5 guidelines by an order of magnitude. Ambient PM2.5 exposure due to crop residue burning is specifically associated with a three-fold greater risk of acute respiratory infection in the general Indian population. Recent studies at local, urban and regional scales have shown that PM2.5 emitted from crop residue burning affects air quality not only in India but also across South Asia, including Pakistan, Nepal and Bangladesh, due to the transport by the predominantly northwesterly winds. Current regulations by the Indian government intended to reduce agricultural fires, including crop residue management, burning bans, and fines, have had limited efficacy. Unlike other crop residue, the low protein content and poor digestibility of rice and wheat residue have limited their potential for use in bio-fuel, animal fodder, fertilizer and paper production . In addition, the tight schedule of the harvest-to-sowing transition under the predominant rice-wheat rotation cropping system in northwestern India have limited the rate of adoption of alternatives. Crop residue burning allows cheap and fast disposal of crop residue and therefore remains a recurring issue, as revealed by a ~60% increase in the number of agricultural fires detected by NASA’s Aqua satellite from 2002 to 2016. Studies which can attribute air quality impacts to specific burning instances therefore help to inform targeted mitigation strategies and optimize resources for effective action on burning with minimal disruption to farmers. Substantial work has been done on air pollution from fire emissions in individual, heavily polluted locations such as Delhi. However, no work to date has related burning in each individual district to the eventual premature mortality risk and associated cost across India, where a large population experiences increased levels of pollution from fires. In addition, efforts to identify alternatives to burning have typically been qualitative or focused on national or regional measures such as adopting mechanized approaches and alternative crops. This neglects the possibility that targeted changes in the timing and location of residue burning may be able to yield significant improvements, and that there might be large differences in the downwind health impacts resulting from the same amount of residue burning from specific locations.