RICHARD C. K. BURDEKIN, Claremont McKenna College - Robert Day School
Email: RBURDEKIN@CMC.EDU
RAN TAO, Claremont Graduate University
Email: nancy.tao@cgu.edu

Disaggregated province-by-province analysis appears to confirm the importance of ongoing redistributive lending by the big four Chinese banks together with lending to state-owned enterprises that is especially pronounced amongst the poorer provinces. Agricultural Bank of China's own allocation of loans to the weaker provinces surges after 2000. This may well reflect its greater presence in the poorer areas of the country and the potential damage exerted if its lending there were cut back. On the other hand, such lending patterns also make it unsurprising that Agricultural Bank of China has not yet followed the other big banks into public ownership.

NAVA ASHRAF, Harvard Business School
Email: nashraf@hbs.edu
XAVIER GINE, World Bank - Development Economics Research Group and Bureau for Research and Economic Analysis of Development (BREAD)
Email: xgine@worldbank.org
DEAN S. KARLAN, Yale University - Economic Growth Center, Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab, Center for Global Development
Email: dean.karlan@yale.edu

In much of the developing world, many farmers grow crops for local or personal consumption despite export options which appear to be more profitable. Thus many conjecture that one or several markets are missing. We report here on a randomized controlled trial conducted by DrumNet in Kenya that attempts to help farmers adopt and market export crops. DrumNet provides smallholder farmers with information about how to switch to export crops, makes in-kind loans for the purchase of the agricultural inputs, and provides marketing services by facilitating the transaction with exporters. The experimental evaluation design randomly assigns pre-existing farmer self-help groups to one of three groups: (1) a treatment group that receives all DrumNet services, (2) a treatment group that receives all DrumNet services except credit, or (3) a control group. After one year, DrumNet services led to an increase in production of export oriented crops and lower marketing costs; this translated into household income gains for new adopters. However, one year after the study ended, the exporter refused to continue buying the cash crops from the farmers because the conditions of the farms did not satisfy European export requirements. DrumNet collapsed in this region as farmers were forced to sell to middlemen and defaulted on their loans. The risk of such events may explain, at least partly, why many seemingly more profitable export crops are not adopted.

CLARENCE TSIMPO, World Bank
Email: ctsimponkengne@worldbank.org
QUENTIN T. WODON, World Bank
Email: QWODON@WORLDBANK.ORG

When assessing the impact of changes in food prices on poverty, it is important to consider food producers (who may benefit from an increase in prices) as well as consumers (who loose out when the price increases), with a focus on poor consumers and producers. In the case of rice in Liberia however, the impact of a change in price is not ambiguous because a large share of the rice consumed is imported, while the rice locally produced is used mostly for auto-consumption. An increase in the price of rice will result in higher poverty in the country as a whole (even if some local producers will gain from this increase), while a reduction in price will reduce poverty. Furthermore, because rice represents a large share of food consumption, any change in its price is likely to have a large impact on poverty. Using data from the 2007 CWIQ survey, the paper finds that an increase or decrease of 20 percent in the price of rice could lead to an increase or decrease of three to four percentage points in the share of the population in poverty.

RALF PETERS, U.N. Conference on Trade and Development (UNCTAD)
Email: ralf.peters@unctad.org

Agricultural export subsidies are one of the most distorting of the numerous distortions affecting agricultural trade, and the reluctance of users to make clear commitments for their elimination was a key factor contributing to the deadlock of the WTO negotiations on agriculture. In August 2004 the WTO General Council decided to eliminate export subsidies by a specific yet undetermined date. Export subsidies amount to around $6 billion each year, depending on world price movements. Some countries pay export subsidies in order to dispose of their surplus agricultural production on world markets. These payments impose substantial costs on taxpayers in the subsidizing countries and reduce the world prices of several temperate and competing products to the detriment of producers in developing and least developed countries. However, they also benefit consumers in food-importing countries, many of which are developing.

Quantitative analysis using the UNCTAD/FAO ATPSM model suggests that the removal of export subsidies would raise world prices. The major beneficiaries would be EU taxpayers and developing country producers. Since consumers in developing countries probably face higher prices the welfare effects are ambiguous, but most likely only during an initial period until domestic supply capacities can catch up in many of these developing countries. This is because many of them are net importers of wheat, dairy products and beef, and the cheap subsidies imports hinder the production of these products and of substitutes. Although the benefits to some of preferential access to the EU sugar market would also likely be reduced if export subsidy reform led to the reduction of EU domestic sugar prices, increasing world market prices are likely to more than offset the losses. The analysis also points to diverse results regarding specific products for producers and consumers in most countries. This suggests that while longer-term reforms of export subsidies are desirable, the immediate removal of export subsidies is likely to cause some hardships for some developing country consumers, which will need to be addressed with appropriate support mechanisms.

KYM ANDERSON, University of Adelaide - Centre for International Economic Studies (CIES), Centre for Economic Policy Research (CEPR), World Bank Group - International Trade Unit
Email: kym.anderson@adelaide.edu.au

The current WTO negotiations have a strong focus on development, but a number of developing countries are uncertain as to how to approach these negotiations. Trade liberalization tends to boost economic growth and contribute to the reduction of poverty in the longer term, but it may also impose important short-term adjustment costs. This paper explores the poverty implications of the current post-Doha multilateral trade reform agenda of the WTO for developing countries, so those benefits can be weighed against perceived adjustment costs. It addresses the effects of trade reform on poverty at three levels: first on developing countries as a group; then on different types of developing countries; and finally on different types of households within developing countries. The modelling results point to both opportunities and challenges provided by the WTO negotiations for developing countries seeking to trade their way out of poverty. While important gains are to be made from liberalization in the OECD countries, the paper also highlights gains to be made from policy changes in the developing countries that would help to reduce the anti-agriculture, anti-export and anti-poor bias of current policies. The paper addresses such questions as whether food-importing countries would suffer from higher food prices in international markets, and what impact reform could have on food security and poverty alleviation. The paper concludes with lessons of relevance for the domestic and trade policies of developing countries.

FRANK SCHILLER, affiliation not provided to SSRN
Email: fschiller@munichre.com
GEROLD SEIDLER, affiliation not provided to SSRN
Email: gseidler@munichre.com
MAXIMILIAN WIMMER, University of Regensburg
Email: maximilian.wimmer@wiwi.uni-regensburg.de

We present four models for predicting temperatures that can be used for pricing weather derivatives. Three of the models have been suggested in prior literature, and we suggest another model which uses splines to remove trend and seasonality effects from temperature time series in a flexible way. Using historical temperature data from 35 weather stations across the United States, we test the performance of the models by evaluating virtual heating degree days (HDD) and cooling degree days (CDD) contracts. We find that all models perform better when predicting HDD indices than predicting CDD indices. However, all models based on a daily simulation approach significantly underestimate the variance of the errors.