Pesticide regulation and pesticide prices

Abstract

Pesticides are an increasingly important input in crop production. In North America there has been a longstanding concern by farmers in close proximity to the Canada-U.S. border that either differences in access to compounds or price differentials adversely affect competitive positions. Past analysis of this issue has tended to assume a simple arbitrage process, if borders are opened, that leads to prices falling to the lower price. By contrast, we examine the possibility for systematic price discrimination by pesticide manufacturers. Under this model an open border may lead to price arbitrage, but not at the lower price. Further, we show that while aggregate social welfare gains from removing price discrimination are possible, they may be small. Further, component welfare changes to manufacturers and farmers in each country are large and conflicting, which suggests there will likely be opposition from some groups to more open borders.