Highlights :

• Inducing agricultural specialisation, trade reduces crop biodiversity and therefore increases agricultural production risks due to biotic factors (pests) and decreases productivity. Farmers use pesticides to limit these effects.
• We formally analyse the interactions between crop biodiversity effects, trade and environmental policies that regulate the use of pesticides. Then, the implications on the volatility of food production and prices are derived.
• Contrary to the race-to-bottom tenet in environmental policies, at the symmetric equilibrium, restrictions on pesticides are more stringent under free trade than under autarky, even if their strigency diminishes when governments take into account their effect on the terms of trade.
• Because of the increase in the environmental tax, agricultural prices are generally higher and more volatile under trade, depending on the intensity of biodiversity effects.

 Abstract :
Biotic factors such as pests create biodiversity effects that increase food production risks and decrease productivity when agriculture specializes. Under free trade, they reduce the specialization in food production that otherwise prevails in a Ricardian two-country setup. Pesticides allow farmers to reduce biodiversity effects, but they are damaging for the environment and for human health. When regulating farming practices under free trade, governments face a tradeoff: they are tempted to restrict the use of pesticides compared to under autarky because domestic consumption partly relies on imports and thus depends less on them, but they also want to preserve the competitiveness of their agricultural sector on international markets. Contrary to the environmental race-to-the-bottom tenet, we show that at the symmetric equilibrium under free trade restrictions on pesticides are generally more stringent than under autarky. As a result, trade increases the price volatility of crops produced by both countries, and, depending on the intensity of the biodiversity effects, of some or all of the crops that are country-specific.

 Keywords : Agricultural Trade | Food Prices | Agrobiodiversity | Pesticides

 JEL : F18, Q17, Q18, Q56