Monday, December 10, 2012

International Trade in Lamb Facilitates Adapting to Domestic Drought

In this piece, the NY Times tries to count sheep in the U.S West and to blame drought (and hence climate change) for the challenges this industry faces.  But, the article highlights the solution to this challenge. While the U.S West may be suffering from drought and this has hurt domestic sheep farms, international sheep farms such as those in New Zealand are doing fine and are happy to export lamb to the U.S at a low price.  The net result is that U.S consumers can enjoy this tasty dish even though the drought continues.  International trade insulates consumers from idiosyncratic weather shocks.  Thus, in this climate change era we need more free trade!  I discuss this at length in Climatopolis.   Free market environmentalism will become a dominant theme in the decades moving forward!  Do I feel sorry for the domestic producers?  No, sink or swim!   Competition makes us stronger.

Returning the sheep article, the NY Times points out an interesting piece of industrial organization.    It hints that the processors of sheep have some monopoly power.  What is the barrier to entry?

"But some ranchers and officials in Washington believe that the deck was stacked against the sheep ranchers by the small and powerful number of feed lots that buy lambs, slaughter them and sell them to grocery stores and restaurants. Even as prices farmers received fell to 85 cents a pound, consumers at supermarkets were paying $7 or more a pound for the same meat. "

I would suggest that more structural IO economists should start to work on agricultural economics issues. There are gains to trade within the profession!  For those of you who need a picture to stimulate your brains, the NY Times supplies this: