African trade of mangoes to OECD countries: disentangling the effects of compliance with maximum residue limits on production, export supply and import demand

Abstract

Abstract This article theoretically and empirically disentangles the effects of maximum residue limits (MRLs) for pesticides on production, export supply and import demand. We adopt a modelling approach based on the costs and benefits associated with food safety standards and use our theoretical framework to assess the empirical net effects of MRLs for pesticides on African mango production and trade with Organisation for Economic Co-operation and Development (OECD) member countries. On the one hand, we theoretically highlight that for a given production technology and a level of elasticity of production costs with respect to the MRL gap, producers will likely (probability and quantity) produce standard-compliant products if they are able to completely pass through the standard-compliance costs to the unit price they receive from exporters; otherwise, they will exit standard-compliant products market. On the other hand, we theoretically show that the net effects of the MRL gap on bilateral trade can be positive, zero or negative depending on the effects of consumers’ perceived quality (positive), trade costs (negative) and standard-compliant production cost (negative). We use a cross-sectional data set for 12 African countries that produced and exported MRL-compliant mangoes to 31 OECD countries in 2016. On the one hand, we find that the net effect of MRLs is positive for the level of standard-compliant mango production and negative for the probability of producing. On the other hand, they are positive in mango trade between African and OECD member countries. Our results highlight that the tightening or imposition of strict MRLs for pesticides in developed countries may be trade promoting, while they severely impede production in African countries.