Non-tariff barriers removal in the Brazilian coffee industry

• Pages: 139-157
• Published date: 30 October 2020
• Date: 30 October 2020
• DOI: https://doi.org/10.1108/JITLP-04-2020-0027
• Author: Krisley Mendes,André Luchine
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade

Non-tarif‌fbarriers removal in the

Brazilian cof‌fee industry

Krisley Mendes

Department of Accounting and Actuarial Sciences,

Universidade de Brasilia, Brasilia, Brazil, and

André Luchine

Department of International Studies, Political and Economic Relations,

Institute of Applied Economic Research, Brasilia, Brazil

Abstract

Purpose –This study aims to identify and classif‌ied non-tariffmeasures (NTMs) on Brazilian imports of

robusta coffee beans, calculated a tariff-equivalent of non-tariff barriers (NTBs) and assessed the effects of

removingNTBs from upstream and downstream domesticinstant coffee supply chain.

Design/methodology/approach –The analysis uses documentary researchto identify NTMs and the

price-wedge method is appliedto estimate a tariff-equivalent. The effects of suppressing the tariff-equivalent

were evaluated using a partialequilibrium model with constant elasticity of substitution(Armington, 1969)

and by incorporatingvertical integration and uncertainty(Hallren and Opanasets, 2018).

Findings –The results show that NTMs seemingly hinder the entrance of coffee beans into the domestic

market. The tariff-equivalent was estimated at 13.61%. Suppressing it reveals that the share of domestic

coffee beans used to producedomestic instant coffee falls 0.21 p.p. while the share of domestic instantcoffee

consumedby the international trade rises 8.60 p.p.

Originality/value –What makes this paper original is that this paper investigated the effects of NTMs in a

developing country, namely, Brazil. Although Brazil is one of the largest agriculturalproducers in the world, it

has not appeared in literature in this type of analysis until now. Furthermore,it contributes to the literature on

using existing techniques to investigatethe impact of NTM removal on individual products in a specif‌iccountry,

in contrast to more recent papers that discuss using multi-country and multi-product data sets at the HTS-6 level.

Thus, this paper demonstrateshow a case study approach can be useful in quantifying policy changes.

Keywords Brazil, Developing countries, Vertical integration, Partial equilibrium,

Instant coffee supply chain, Non-tariff barriers

Paper type Research paper

1. Introduction

Between 2012 and 2016, the coffee production chain in Brazil experienced an expressive

drop in robusta coffee (coffea canephora) production, the main input for the instant coffee

JEL classif‌ication –F13, F14

This paper is part of the research project entitled “Non-tarif‌fbarriers in the Brazilian Agribusiness”

of the Department of International Studies, Political and Economic Relations (Dinte) of the Brazilian

Institute for Applied Economic Research (Ipea). We thank the Ipea for f‌inancial support. We also

thank Ross Hallren, from US International Trade Commission (USITC), Hon

orio Kume, from the Rio

de Janeiro State University (UERJ), for the methodological support kindly provided, Fernando José da

Silva Paiva Ribeiro and Ivan Tiago Machado Oliveira, from Dinte and Uallace Moreira Lima, from

the Federal University of Bahia (UFBA), for the comments and suggestions. Useful comments from

the anonymous reviewers and from participants at the Inter-Conference Symposium of IAAE-2019 in

Nanjing, China are gratefully acknowledged. All remaining errors are our own.

Non-tarif‌f

barriers

removal

139

Received13 April 2020

Revised3 August 2020

Accepted15 September 2020

Journalof International Trade

Lawand Policy

Vol.19 No. 3, 2020

pp. 139-157

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-04-2020-0027

The current issue and full text archive of this journal is available on Emerald Insight at:

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industry. Consequently, the Brazilian instant coffee industry fell by 10% in the global

market. In 2017, the Brazilian Government and differentproducers began discussing ways

to facilitate importing robusta greencoffee beans as a solution to the problems faced by the

domestic market supply[1].

In addition to being the world’s main green coffee producers and exporters, Brazil was

also the largest exporter of instant coffee until 2014, when it started to fall behind Asian

countries. Indonesia and Vietnam’sglobal market share jumped from 3% and 0% in 2010 to

20% and 11% in 2016, respectively, whereas Brazil’s decreased from 22% to 13% in the

same period. Additionally, international instant coffee prices went from being historically

around 37% higher than Braziliandomestic prices to only 8% higher. The domestic instant

coffee industry partially blamed this loss of world market share on domestic input supply

shortage and its high price.

The international trade of agribusiness products in Brazil is heavily regulated by non-

tariff measures (NTMs) (Li and Beghin, 2014;de Melo and Nicita, 2018). Although these

measures are established in international agreements, they seem to be used to hinder the

entrance of foreign coffee beans in Brazil. A unique situation occurred in November-

December 2017 when discussions on tradeliberalization to meet the demands of the instant

coffee industry resultedin the unprecedented importation of Vietnamese green coffee beans.

This provided a window of opportunity that allowed us to estimate the tariff-equivalent

attributed to non-tariff barriers in the Brazilian instant coffee production chain and to

analyze the impact of itssuppression.

The objective of this study is to assess the effects of more lenient sanitary and

phytosanitary measures(SPS) and technical barriers to trade (TBT) beingapplied to robusta

green coffee imports to supplythe Brazilian instant coffee production chain. This leniency is

understood as the removal of non-tariff barriers, which are then evaluated as a tariff

equivalent. This removal affectsan imported input that has a “like product”inthe domestic

market and the f‌inal manufactured goods. Thus, our analysis centres on the domestic links

of input and f‌inal product markets, and on the substitution of a domestic input with a

foreign one. This removal tends to have ambiguous effects on the links and analyzing it is

important for determiningplayers who gain or lose market shares.

This case study exemplif‌ies the importance of considering the interdependence at play

between agricultural production and industry in the context of assessing trade opening

measures. This is especially true in a developing, predominantly agricultural country like

Brazil that is trying to advance its industrialization process. Our work seeks to collaborate

on the discussion about the effects of liberalizing robustacoffee bean trade in the upstream

and downstream instant coffee supply in Brazil and to contributeto the trade policymaking

that adequately addresses the concerns of the different links in the supply chain. It also

contributes to the literature on using existing techniques to investigate the impact of NTM

removal on individual products. Mostliterature uses multi-country, multi-product data sets

at the HTS-6 level. Therefore, thesetypes of disaggregate-level policy changes that form the

core of new trade agreements arenot addressed in recent papers. Agreement texts typically

address tariff line levels (HTS-8) or f‌iner and their methods would not be applicable here.

This paper demonstrates how a case study approach can be useful in quantifying these

types of policy changes.

Our research question is: whatare the effects of eliminating non-tariff barriers to robusta

coffee bean imports on both the demand and the competitivity of the links in the Brazilian

instant coffee productionchain? Our specif‌ic goals are to:

map and classify the technical measures in effect that govern commodity imports;

present a strategy to evaluate a tariff-equivalent of non-tariff barriers (NTBs); and

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