Economic analysis of phytosanitary barriers in the Australian apple market

Abstract

The most common non tariff barriers that affect New Zealand (NZ) trade in apples are phytosanitary ones. This research focused on the economic analysis of this type of barrier. It especially refers to the potential apple trade between Australia (importer) and NZ (exporter) which is currently prohibited due to the existence of Fire Blight disease in NZ.

A partial equilibrium model of eight simultaneous equations was developed. It was simulated under four alternative policies as a means of determining the effects of a reduction in the Fire Blight phytosanitary barrier. The policies involved changes in the exogenous variables: the non tariff barrier, the cost of the Fire Blight control in NZ and the cost of Fire Blight in Australia. Policy one involved a reduction in the ban without cost requirements for either country. Policy two involved a reduction in the ban and an imposition of requirements for Fire Blight control in NZ in order to minimize the risk of the disease entering Australia. Policy three involved a reduction in the import ban and disease control costs in Australia. Policy four involved a reduction of the import ban and shared disease control costs in both countries. The effects of a reduction in the import ban was evaluated by considering the changes in economic welfare with respect to the base line (current situation) in both countries.

The model predicted that the change in the consumer surplus in NZ was negative in all cases, but this was compensated by positive changes in the NZ producer surplus which was almost four times higher. Therefore, in NZ, the changes in total economic welfare were positive for all policy changes.

For the Australian market, the model predicted ambiguous welfare effects. The Australian producer surplus was negative but the total consumer surplus was positive and its value varied depending on the particular policy. A rent to the non tariff barrier was established once NZ apple imports were permitted. The rent represented the difference between the import price and the Australian price of apples. The existence of this rent is a part of the distorting effect of this barrier in the Australian market. This research identified that with a reduction of ten percent of the tariff equivalent of the non tariff barrier, the best alternative policy for both countries was the reduction in the non tariff barrier with shared costs of Fire Blight disease control (policy four).