Comparative Advantage or Competitive Advantage in Explaining Agricultural Trade?

Comparative advantage is perhaps one of the most celebrated concept/theory in the history of economics since its birth in the late 18th century. It has dominated the field of international trade not only in academics but also in economic/development policy circles. International trade in agriculture, however, has been a notable exception. Agricultural protectionism disallowed the theory of comparative advantage to be valid in explaining agricultural trade. This paper attempts to shed light on the role of the state in determining international competitiveness of agricultural commodities. Farmers are neither the ones who make decisions whether or not to enter international markets nor are the ones who invest in R&D and develop new technologies with the goal of enhancing international competitiveness. Liberalizing trade is likely to send signals first to trading corporations, grain handlers, and governments and transmitted to farmers indirectly. Freer trade would initiate the process of specialization of production across the world, generating benefits in terms of greater production and lower prices, but offering little additional incentive for individual farm producers to reduce costs or adopt new technologies for the purpose of enhancing export opportunities (hence, lacking the creative destruction processes like in the manufacturing sector in which firm level strategies would determine international competitiveness). However, states may compete with each other to expand their exports or to decrease their dependence on food imports with strategic investments in agricultural infrastructure. The point is that state level strategies are likely to determine the pattern of agricultural trade in the long run.