Agricultural Trade, Biodiversity Effects and Food Price Volatility.

Summary Production risks in agriculture due to biotic elements such as pests create biodiversity effects that impede productivity. Pesticides reduce these effects but are damaging for the environment and human health. When regulating farming practices, governments weigh these side-effects against the competitiveness of their agriculture. In a Ricardian two-country setup, we show that free trade results in an incomplete production specialization, that restrictions on pesticides are generally more stringent than under autarky and that trade increases the price volatility of crops produced by both countries and some of the specialized crops. If biodiversity effects are large, the price volatility of all crops is larger than under autarky.