Global agricultural supply chains under tariff-rate quotas

Abstract

Copyright © 2023 The Authors. The tariff rate quota (TRQ) is a widely utilized market access instrument in global agricultural trade that allows a predetermined quantity of a product to be imported at a lower tariff rate than the usual rate. This study examines the design and administration of TRQ systems from an operations management perspective and analyzes their impact on market access, fill rates, and revenue for policymakers. We investigate the two most common TRQ administration methods, namely, licensing and first-come, first-served (FCFS) systems. We characterize the Nash equilibria (NE) of importers' strategies and observe how information delays and lead times can result in under-utilization (i.e., imports being less than the quota limit) in licensing and over-utilization (i.e., imports exceeding the quota limit) in FCFS TRQ systems. We introduce a dual TRQ system and demonstrate its superiority over licensing and FCFS systems. We study the effects of stock-keeping options through customs-bonded warehouses and the choice of logistics channels on arrival patterns and fill rates. We conduct a case study of the United Kingdom and the European Union imported beef market using customs data. Our numerical study provides an explanation for the suboptimality of the current TRQ systems and proposes modifications to transform the existing systems. Our findings offer practical directions for agricultural traders to reassess their supply chain strategies by considering the logistical implications of TRQ systems and understanding their competition. This study also urges policymakers to adopt an integrative approach in (re)designing TRQ systems, recognizing the pivotal role of supply chains in global agricultural trade.