The Impacts of Monetization on Host‐Country Agriculture: The Case of Peru

This research analyzes with statistical evidence and complete economic specifications the effects of the U. S. Department of Agriculture’s (USDA’s) monetization of a U. S. commodity to support its Food for Progress projects. Since the beginning of the monetization program, its possible effects on agricultural producers in the receiving countries has been a concern. In this case, the country is Peru and the commodity is crude degummed soybean oil (CDSO). Effects were measured statistically on domestic prices and production in Peru, including effects on substitute commodities. The first stage of the research involved the identification of data needed and subsequent data collection, and model formulation. A 25-year time series was used for the statistical analysis. A sequence of progressively more complete models was used to capture the impact of monetization based on available price information on the monetized commodity and related products in domestic production and consumption. Our model specifications are based on the time series nature of our data and the classical demand and supply models in economic analysis. To account for potential lagged impacts, we employ a distributed lags specification in our time series analysis. The statistical analysis here modifies in important ways the approach of Appendix II of the GAO’s 2017 report on monetization [11]. Differences include: 1) Incorporating quantities and prices of substitutes into price equations in addition to testing the role of time trends in explaining prices. Attempting to explaining price movements only with time trends, as the GAO report did, does not have support in economic theory, and statistically time trends did not prove to have a significant explanatory effect when the other variables were included. 2) Analyzing a wider set of commodities potentially affected by the monetization program. The existence of substitution effects in both production and consumption calls for analysis of monetization effects on a number of locally produced commodities.