Search

The current price support policies in China have positive impacts on grain prices and production costs. These policies mediate the impacts on grain supply and demand, and, in turn, affect food security and farmer income. This paper simulates and empirically establishes the effect of price support policies on food security and farmers’ net incomes through a partial equilibrium model that considers the policy impact mechanism. The results indicate that a 10 per cent support price increase in 2012 may result in (1) an increase of 1.38 and 6.19 percentage points in self‐sufficiency rates for rice and wheat, respectively, in the current year and (2) a respective increase of 28.6 and − 18.5 yuan/mu in net income for rice and wheat production in the year. Given the significant growth in grain support prices since 2008, the price support policies have produced a tremendous impact in terms of enhancing grain self‐sufficiency, while playing a crucial role in China’s food security strategies. However, due to the increased production costs associated with policy implementation, the income effect of the price support policies is rather small and even negative for wheat production. Hence, increasing farmers’ incomes should rely on other effective measures, such as providing income subsidies. more...

PurposeThe purpose of this paper is to develop a partial equilibrium model for the Tunisian dairy sector according to “quantity formulation” and “price formulation” and to show their equivalence under the assumption of perfect competition.Design/methodology/approachThis model incorporates domestic policies, that is, producers' price support and subsidies to milk collection centres and trade policies, that is, TRQ and ad valorem tariffs. The authors illustrate theoretically and numerically how to incorporate the minimum price policy at the farm level for the Tunisian dairy sector according to the price formulation approach.FindingsTwo scenarios for the removal of a minimum price policy are analysed and show that producers' surplus loss varies between 78.6 and 127.8 million dinars. The overall welfare implications of removing a minimum price policy are negative and range between 13.3 and 18.2 million dinars.Research limitations/implicationsThis study could not include all of the detailed factors in the Tunisian dairy sector.Originality/valueBased on the numerical results obtained in the study, the authors recommend that public authorities maintain the minimum price policy because it prevents a decrease in raw milk producers' surplus. Moreover, this policy is effective because it generates excess raw milk production, estimated at 28.23% in 2010, that can be used for various homemade dairy products. Under an effective minimum price policy, the formal processing sector absorbs all the excess raw milk only if the public authorities allocate grants to encourage investment in new milk collection centres and in milk drying equipment, especially in disadvantaged rural regions. The latter economic policy coupled with a minimum price policy not only guarantees a higher income for raw milk producers but also may represent a development factor for underprivileged rural areas. more...

This article introduces the Bennet-Lowe Total Factor Productivity (TFP) indicator. The proposed measure is difference-based, additively complete, and transitive. We also develop a general nonparametric framework to exhaustively decompose all Bennet-Type TFP indicators, including the one introduced here, into technical change, technical efficiency change, scale efficiency change, and mix efficiency change. This decomposition provides a powerful tool for policy makers to guide financial decisions on research and development, extension, subsidies, and price support. The empirical application focuses on the Welsh sheep sector for the years 2001-2014. The results show that in this 14-year period, Welsh sheep farms increased their TFP by 30.28% on average (2.33% p.a.). However, the exhaustive decomposition shows that TFP growth is not distributed equally across all farms, with an increasing divergence between front-runners and laggards. The negative values of scale efficiency change and mix efficiency change cast doubt on the current subsidy policies. more...

Using wheat market support data from 55 countries for 1961–2011 from the World Bank Agricultural Distortion database, we develop a fixed effect model that shows a more complicated, nonlinear relationship between income and wheat support and its components than previously realised. We find that income generally has a greater effect on border market price support than on domestic price support. Moreover, the difference between these types of support is greater for net importers than for net exporters and has increased with the URAA or WTO accession. Holding other variables constant, the wheat support level of China, driven mainly by border market price support, is projected to rise with future income growth. Meanwhile, Japan is projected to maintain its high level of support, while the US and EU are projected to maintain their lower levels of support. These results are relevant in the context of multilateral trade negotiations, arguing against a narrow focus on past or current policy profiles and for long-run analyses that might mistakenly rest on the inconsistent assumptions of constant agricultural policies against the backdrop of rising incomes. more...

Agricultural markets and marketing policies in Australia have changed markedly in recent years. In part, this has occurred because of conscious deregulation of previous price support and stabilisation schemes. Occasionally, the changes occurred because of poor administration and spectacular default. Previous price and marketing policies schemes provided differential rates of assistance with adverse consequences for resource allocation. Pricing arrangements affected marketing institutions and marketing costs beyond the farm gate, domestically and internationally. The conceptual basis of agricultural marketing analysis was contested. Private and public roles were confused, including between Commonwealth and state governments. Key principles of agricultural marketing and policy development in Australia are illustrated in the paper by reference to commodities with different histories and economic characteristics: wool, wheat, dairying and meat. Special emphasis is given to market information and price discovery. In line with continuing urbanisation and modern logistics, retail marketing of agricultural products has also been transformed. This has become controversial as a policy issue. Competition issues, the economic behaviour and performance of supermarkets, and their effects on farmers and consumers are also introduced in the paper. more...

The original CAP’s high levels of border protection on many products involved a variable import levy bridging the gap between world prices and the EU’s much higher minimum import price. The Uruguay Round ended this, but tarif cation also meant that subsequent CAP reforms reducing EU levels of domestic market price support would no longer trigger lower tariffs. Moreover the Doha Round’s plans for tariff cuts are in abeyance. The consequences are: i) for these products, only preferential sup- pliers penetrate the EU’s protected market; ii) negotiation of Free Trade Areas is made more complicated; and iii) “Brexit” is problematic. more...

Purpose – China and India have to provide food security to 1.36 billion and 1.25 billion populations, respectively. The purpose of this paper is to address the roles of trade and stock management in achieving food security in these countries, such as the impacts of trade on consumer and producer prices and incomes of farmers and others and implications for food security, and the impact of stock management on price stability, availability, access and nutrition. Design/methodology/approach – The paper is based on secondary data and literature on these issues. It compares the policy tools of trade and stock management used in India and China for food security purpose, in terms of long-term efficiency, in order to provide better understanding on how to achieve food security through public interventions. Findings – Although stock is an important tool for food security, it is likely to be costly if used for price support and redistribution purposes. Trade might provide cheap food to enhance access to food, the impact on domestic producers and the volatility in world market may lead to serious problems. A carefully designed policy combining stock management and trade may help achieving food security. Research limitations/implications – This paper relies on existing literature of current issues and policies, and tries to conduct comparative study on India and China, the two largest countries in the world. The scale and depth of the study are restricted by authors’ knowledge, hence may not be adequate in addressing those important issues. Practical implications – Both India and China are undergoing policy review regarding food security, under pressures in domestic market and from multi-nation negotiations. This study may provide better understandings of the issues related to policy reform and trade negotiation. Originality/value – Though a large portion of factual materials are adopted from existing literature and statistics, the analyses are those of authors. more...

International audience; The paper determines how the value-added created by an organic label is shared in a vertical chain among manufacturers and retailers. Using purchase data on the French fluid milk sector, we develop a structural econometric model of demand and supply that takes into account the bargaining power between manufacturers and retailers. Our results suggest that the organic label segment is more profitable, as it permits the existence of higher margins. Moreover, an organic label allows manufacturers to achieve more bargaining power relative to retailers, and hence to obtain a higher share of total margins. The econometric model is then used to assess the impact of an environmental policy in favor of the organic segment based on a mechanism of price support. Our results suggest that while a subsidy policy towards organic products benefits both manufacturers and retailers, a tax policy toward conventional products benefits manufacturers of national brands at the expense of retailers and manufacturers that provide the private labels. The benefits of such policies on the environment is relatively small. All such policies tend to increase the impact on global warming and land use, but reduce the impact on eutrophication, acidification, and energy use. more...

Agricultural subsidy has attracted more and more attention. Th is paper captures the eff ects of subsidy (including area subsidy and price subsidy) on the total sown areas of crops based on the assumption that subsidy has both stimulating eff ects and inhibiting eff ects. Diff erent from the prior studies, this paper considers the impacts of the farmland constraint and demand elasticity and some interesting conclusions are achieved. Firstly, a stimulating eff ect increases crop sown areas while an inhibiting eff ect reduces them. Secondly, the output effi ciency of farmland as well as the demand elasticity has a major impact on the government subsidy. Besides, the capacity constraint makes thing diff erence and the government should choose between the areas subsidy and price subsidy under diff erent conditions. Finally, this paper off ers an empiri- cal test on the conclusions by adopting the Chinese agricultural statistical data. more...

It is known from the Czech practice that a very actual problem of economic policy is created by the subsidies on the prices of agricultural products. A price subsidy of agricultural product causes the price to be kept above its equilibrium level. We will use the microeconomic knowledge about the behaviour of average and marginal costs curves in the shortrun and long-run. We assume two agricultural fi rms in a perfect competition market. Th e agricultural large-scale company reaches a normal profi t, but the small family fi rm has higher costs, therefore it runs at a loss. Using the subsidy can ensure that the prices of agricultural products are set at a level, at which the farmers have appropriate incomes. However, a loss of effi ciency can occur because of the subsidy as the surplus, which is purchased by the government, and actually stays unused. more...

PurposeThe purpose of this paper is to focus on labor movement in the agricultural sector of Taiwan to clarify the relationship between agricultural policy and the agricultural adjustment problem by estimating the labor movement function.Design/methodology/approachThe relationship between agricultural policy and the adjustment process of agricultural labor in Taiwan was analyzed by modeling labor movement between the agricultural sector and other sectors. Through empirical analysis of labor migration function, it is clear that the following policy factors, affect the incentive for labor migration, and obstruct off‐farm labor migration: the price support policy; the incomplete farmland conversion regulations, which increase farmers' farmland possession motive; and government agricultural expenditure, which includes direct transfers to the agricultural sector.FindingsThe study confirms that after the late 1980s the factors that obstruct agricultural adjustment much more than the price support policy are the incomplete farmland conversion regulations and increasing government agricultural payments, from the result of the simulation with the influence of the policy eliminated.Research limitations/implicationsThe implication of this paper is that even though Taiwan has been participating in World Trade Organization from 2002 and consented to cut the tariff on agricultural products and reduce agriculture support policies not linked to production, a delay in labor adjustment between the agricultural sector and other sectors may not necessarily be eliminated if there are other policy factors that affect the incentive for off‐farm migration by farmers.Originality/valueMany studies use the labor migration function for empirical analysis, but most of them estimated the function by a simple single regression which shows that the labor movement from the agricultural sector to the other sectors increases as a result of an expanding wage gap. However, off‐farm labor movement reduces the wage gap between sectors adversely. Therefore, a reverse causal relation exists between labor movement and the wage gap between sectors. The endogeneity problem was considered as analyzing the measurement of the labor migration function. more...

PurposeThe purpose of the study is to test how land owners respond to the appreciation of land values in the presence of speculation. This paper introduces the concept of “land hoarding,” which is land owners' response to higher land prices by selling more land up to a point beyond which accelerated land price appreciation would lead to land hoarding. Specifically, this paper examines the effect of land value appreciation higher than the opportunity cost of selling the land (measured by treasury‐bill (T‐bill) rate) on land sale and land hoarding.Design/methodology/approachA theoretical framework is developed to understand the demand for agricultural land retention with and without speculation, the former informing land hoarding behavior. A linear regression model was introduced and estimated using ordinary least square (OLS) method. A panel data model and analysis is also introduced, and following appropriate model selection tests, a fixed effect panel data estimation method is implemented. Data from 48 states, spanning from 1950 to 2004, are utilized.FindingsAn inverse relationship is found between the rate of land value appreciation and the demand for land by farmers, suggesting that the standard direct relationship between appreciation and land supplied to development holds. However, the additional finding of an inverse relationship between the rate of land value appreciation in excess of the risk‐free rate of return and agricultural land development confirms the existence of an identifiable speculative demand component that involves land hoarding.Practical implicationsTo the extent to which the findings are broadly applicable, one policy implication is that enhanced land retention can be achieved through market mechanisms. For example, the notion that reduced T‐bill rates can actually result in market triggered land preservation is an interesting policy related finding. Equally interesting is the notion that policies that can trigger increases in the rate of appreciation of farmland may also potentially result in the agricultural hoarding of land. Obviously, enhanced profitability in agriculture due to programs targeting viability, commodity price support, reduction of regulation or market expansion programs can potentially affect land retention.Originality/valueThis paper introduces the “land hoarding hypothesis.” High rates of land appreciation can be expected to signal that holding the land may yield better returns than selling it, suggesting that if rates of land appreciation become significantly high enough, farmers may begin to hoard land, not sell it, to maximize long‐term returns. This concept can be valuable to market‐based agricultural land retention programs at the urban fringe. By linking speculative behavior, land demand and existence of a hoarding behavior under some conditions, this paper adds value and originality to the literature. more...

The study of international trade in agricultural products has developed rapidly over the past fifty years. In the 1960s the disarray in world agriculture caused by domestic price support policies became the focus of analytical studies. There followed attempts to measure the distortions caused by policies also in developing countries and to model their impact on world agricultural markets. Tools were advanced to explain the trends and variations in world prices and the implications of market imperfections. Challenges for the future include analyzing trade based on consumer preferences for certain production methods and understanding the impact of climate change mitigation and adaptation on trade. Copyright 2010, Oxford University Press. more...

This note takes the view that existing studies of the impact of the Agenda 2000 cereal reform package have mis-specified the impact of this package on a producer's price distribution. It is argued that an accurate assessment of this package requires use of the methodology outlined in Fraser (1991), and that use of this methodology highlights the central role of expected world prices in determining whether producer perceptions of this impact are favourable or unfavourable. A numerical analysis in the context of wheat producers generates an estimate for expected world prices of 111–112 Euros/tonne above which producers will perceive the package favourably. This estimate is found to be robust with respect to the key parameters of the analysis. more...

Agricultural subsidy policies in several devel oped countries are moving from price support to "decoupled payments"-subsidies that are not linked to production and instead are enti tlements based on, for example, historical land use. Since these entitlements are tradable and can only be used in connection with land, es pecially in EU countries, this shift in policies basically generates a new good traded in new markets: retiring farmers have an incentive to sell their entitlements, while farmers with expanding land but without the correspond ing entitlements have an incentive to buy. The determination of market prices, however, is complicated by uncertainties about the future legal status of entitlements and therefore their values, by their different forms and sizes, the uncertainty about whether entitlements are in excess supply or in excess demand, and the lack of existing market forms. How, and how well, the markets for enti tlements will work is of interest to farmers and policy makers who are dealing with chal lenges to traditional agricultural policies and must consider the effects of alternative poli cies. Since policies changed only recently, and the first attempts of trading have just started, real-world market evidence is spurious and anecdotal. Thus, controlled laboratory experi ments can give a first insight into potential mar ket outcomes and how they are influenced by the institutional rules. In two previous projects (Bahrs, Kroll, and Sutter 2008a, 2008b) we designed experimen tal markets that were based on institutional changes of agricultural entitlement policies in Germany. In Bahrs, Kroll, and Sutter (2008a), we studied modified posted-bid and posted ask markets, while in the second study (2008b) we focused on eBay-like markets. In all of our treatments, including those in the current paper, market participants did not know the true value of the entitlements but received in dependent private signals of the value; there were two different kinds of entitlements high-value and low-value, and there was ei ther an excess supply or an excess demand of entitlements. Results from the previous projects indicate that the institutional effect from posted-bid or -ask markets seems to outweigh the effect of the excess-supply or -demand condition (2008a). The eBay-like market institution, however, generated signif icantly higher prices and lower efficiency un der excess demand compared to excess supply (2008b). In this paper we study another real world market institution-decentralized bi lateral negotiations. The previous projects assumed that all participants had the op portunity to trade with everybody else in a centralized market. There is a good chance, however, that most trades, at least in early stages, will be conducted in a more private and therefore decentralized setting-for example, people in the same village trying to sell and buy entitlements to and from their neighbors. Our experiment reflects this situation by allowing subjects to trade with only one other subject at a time. The interesting efficiency problem with such an institution is, of course, based on a matching predicament-what if potential buy ers have problems finding potential sellers and vice versa? How large will the efficiency loss be compared to the previously examined in stitutions and will the negotiated prices reflect more...

In this paper, we present an econometric analysis of the effects of a price floor on price dynamics and price volatility. A price floor (implemented as a part of government pricing policy) provides a censoring mechanism for price determination. We specify and estimate a dynamic Tobit model under time-varying volatility. The model is applied to analyze the effects of a price support program on price dynamics and price volatility in the U.S. American cheese market. The econometric analysis provides useful insights on price dynamics in the presence of a government-determined price floor. more...

A partial equilibrium four-region world trade model for the soybean complex is developed in which Roundup Ready (RR) products are weakly inferior substitutes to conventional ones, RR seeds are priced at a premium, and costly segregation is necessary to separate conventional and biotech products. Solution of the calibrated model illustrates how incomplete adoption of RR technology arises in equilibrium. The United States, Argentina, Brazil, and the Rest of the World (ROW) all gain from the introduction of RR soybeans, although some groups may lose. The impacts of RR production or import bans by the ROW or Brazil are analyzed. U.S. price support helps U.S. farmers, despite hurting the United States and has the potential to improve world efficiency. Copyright 2005, Oxford University Press. more...

Motivated by the policy trend of exposing European Union farmers to more market risk by reducing price support, this paper evaluates the compensation required by EU cereal growers to accept the complete removal of price support. Additional considerations are whether this policy change also includes the removal of set-aside, or features only a partial removal of price support. A model is developed which captures the main on- and off-farm factors influencing grower perceptions of the impact of this policy change. This model is subjected to a numerical analysis which shows that divergent assessments of the expected profitability of releasing to production land previously set-aside mean growers are unlikely to agree whether compensation is even required. It is concluded that the retention of set-aside for environmental purposes is likely to mean growers are more united in their perception of the need for, and amount of, compensation to accept the removal of price support. more...

We use a nonlinear commodity market model to assess, theoretically and empirically, the impacts of recent reforms of the CAP on prices and economic welfare in the EU. The empirical analysis is based on an aggregate structural econometric model of the EU wheat economy and its links to the rest of the world. Instability issues are also investigated. Impacts of CAP reforms on the variance of domestic and world prices are analysed and a Monte Carlo simulation is used to evaluate uncertainty in the model's welfare computations. Recent reforms led to a net welfare gain within the EU during the period 1993–2000. Additional budgetary costs are less than the welfare gains of consumers and producers. Producers gained as lower price support was overcompensated by additional direct payments. more...

The U.S. dairy sector has experienced several reforms in both government price support and classified pricing under state and federal milk marketing orders. An interregional spatial market equilibrium model of the U.S. dairy sector is used to provide quantitative measures of the aggregate and regional impacts of alternative domestic deregulation scenarios. The model simulates the allocation of farm milk used in the production of nine dairy products in a way consistent with milk component balances for milk fat, protein, and carbohydrate both within and across regions. Results suggest current policies induce substantive aggregate and regional distortions relative to an unregulated policy more...

If the main justification for agricultural export subsidies is that they reduce government costs of deficiency payments, then the 1996 farm legislation would make U.S. export subsidies largely unnecessary. An additional argument advanced in favor of export subsidies is that their aggressive use by one country will cause competing countries to reduce or discontinue their own subsidies. This argument is explored by means of a Nash equilibrium in which countries choose both a base subsidy level and a response to competitors, and by a consistent conjectures equilibrium. Little support is found for the argument. During the period of the mid 1980s to the mid 1990s, export subsidies became an increasingly important part of U.S. farm policy. In fact, expenditures on the Export Enhancement Program (EEP) exceeded $1 billion in FY 1993. The enduring popularity of export subsidies has been a source of puzzlement to economists (see R. Paarlberg, for example). Economists argue that governments could provide more assistance to farmers at the same cost to consumers if the money spent on export subsidies were spent instead on direct subsidies to farmers. Anania, Bohman, and Carter present a strong argument along these lines. Several papers have found circumstances under which export subsidies might be justified. Abbott, Paarlberg, and Sharples show that export subsidies can improve welfare in the exporting country if they are implemented in a discriminatory way, reducing prices in countries with relatively elastic demands. Abbott and Kallio show how export subsidies may complement other policies intended to support producers when the exporting country has market power in the world market. Another possible explanation for the popularity of export subsidies is advanced by Alston, Carter, and Smith (1993, 1995). They show that export subsidies may be justified because they reduce the budgetary costs of the price support program. There is an additional argument which is frequently heard in debates about agricultural export subsidies, but which has not been fully analyzed by economists. Supporters of the EEP program argue that to discontinue its use would be tantamount to "unilateral disarmament" in the war for international market share in agricultural trade. In other words, export subsidies are a useful tool of more...

Are the agricultural policy reforms embodied in the Uruguay Round consistent with meeting domestic policy objectives such as providing adequate food security, environmental protection and viability of rural areas? This article examines the claim that agriculture deserves more price support and import protection than other sectors because of the non-marketed externalities and public goods it produces jointly with marketable food and fibre (agriculture’s so-called ‘multifunctionality’). Do these unrewarded positive externalities exceed the negative externalities from farming by more than the net positive externalities produced by other sectors? To what extent are those farmer-produced spillovers under-supplied, and what are the most efficient ways to boost their production to the socially optimal levels? The article concludes that there is little trade-off required to meet domestic policy objectives on the one hand and agricultural protection reform objectives as embodied in WTO rules on the other. more...

This paper assesses the impact of the partial switch from price support towards compensatory payments of the May 1992 CAP cereal reform in the context of heterogeneous land quality. Two characteristics of land quality are identified: expected yield per hectare and the variability of yield per hectare. It is shown that the impact of the CAP reform on expected cereal income and the variability of cereal income is positive or negative depending on the level of each of these characteristics respectively. In particular, farmers with land which is both relatively low and unreliably yielding benefit from the CAP reform, while those with land which is both relatively high and reliably yielding lose from the CAP reform. The implications of these findings for the allocation of land between crops and livestock and the selling price of agricultural land are discussed. more...

This study examines the effects of both farm price support programs and federally subsidized crop insurance programs upon the profitability, capital structure, and financial survival rates of High Plains wheat producers. The alternative farm programs are analyzed in an intertemporal dynamic setting. Results indicate that the producer's first response to risk is to restrict the use of debt. Price support programs and crop insurance are substitutes in reducing producer risk. The availability of crop insurance in a setting with price supports allows producers to service higher levels of debt with no increase in risk. Copyright 1996, Oxford University Press. more...

In this paper I consider the environmental quality gains that may be achieved by reducing agricultural income supports. A new methodology is developed to estimate land use shares. In an application to Wisconsin, milk price support reductions result in shifts of marginal agricultural land to forest, reducing soil erosion and providing off-site water quality improvements. The environmental benefits are estimated to be at least as large as the decreased welfare burden on consumers and taxpayers, indicating a central role for environmental quality considerations in motivating policy reforms and a more efficient means of achieving the environmental quality goals of land retirement programs. Copyright 1996, Oxford University Press. more...

The U.S. government deficiency payment program supplements farm income by transferring income from taxpayers to farmers. When revenue lost due to the acreage restriction exceeds revenue gained from participating in the program, farmers lose money by participating. Therefore, measuring expected revenue from the government program is important so that farmers can decide whether to participate in the program. This study uses a GARCH average-option pricing model and the Black average-option pricing model to predict the implicit premium of the U.S. government deficiency payment program. The average-option pricing model considers the average price of the underlying asset over a fixed period. A regression model based on the simulation results is provided so that the average-option models can be easily used to project deficiency payments. The results can be used by extension economists to help producers decide whether to participate in the program. more...

WOS: 000307992600003, The issue of price disparities in the EU commodity markets has given rise to a fair amount of empirical and theoretical research. Price convergence studies were generally on the aggregate level, and investigated the convergence of inflation among countries. This study aims to investigate the convergence of agricultural price disparities among the EU member states, based on different individual agricultural products. The analysis shows the existence of agricultural price convergence among the EU member states since 1991, even including some countries were not members of the EU. Furthermore, the speed of convergence differs among agricultural products and also between the sub-periods as 1991-2000 and 2000-2008. more...

This note shows, using a general equilibrium framework, that the level of utility attainable under a quota-cum-tariff policy is higher than in the tariff-alone case but, as should be expected, lower than without any price distortion. Copyright 1994 by Oxford University Press. more...

This paper examines the impact of increased price uncertainty on the decision to set aside croppable land. It is shown that the standard response of increased set-aside may not occur if the commodity in question is also subject to a price-support policy. In this situation, conflicting effects on the set-aside decision arise because an increase in underlying price uncertainty may increase not just the variability but also the expected level of producer prices. Copyright 1994 by Oxford University Press. more...

Most agricultural policy analysis assumes that markets are perfectly competitive, despite increasing evidence to the contrary. We demonstrate that the interaction of market power and government intervention may lead to outcomes that are counter to key results of policy analysis for perfectly competitive markets. We show that market power may reduce or eliminate entirely the net welfare benefits from removing two traditional support mechanisms, price floors and deficiency payments, and may increase considerably the government's cost of implementing either of them. Accordingly, optimally designed price support measures may improve welfare in the presence of downstream oligopoly and/or oligopsony power. Copyright 2011, Oxford University Press. more...

This paper considers the linking of participation in the set-aside programme to the receipt of a compensatory payment for proposed reductions in European Community price support announced in May 1992. It is shown that in this situation set-aside premiums should lie between a lower bound sufficient to deter opting-out in favour of full cropping, and an upper bound approximately equal to a level sufficient to induce voluntary participation in the programme. The initial level of Community price support and the extent of reductions from this level are shown to be the main factors determining the gap between the upper- and lower-bound premiums. The impact of removing the compensatory payment system is also examined. more...

The purpose of this paper is to test for price integration in the British-French markets for lamb in the period after the introduction of the EC sheepmeat regime in 1980. A Holmes-Hutton rank order procedure is used to determine if price changes in one market cause price changes in the other market and thus define an integrated market. Using weekly price data for the period 1983-86, the results indicate that the British-French lamb markets are integrated in that a price change in one market is fully reflected in price changes in the other. However, there is considerable lag time in response to price changes. This may be attributed to less than perfect substitution between the British and French product, to the ex post nature of the clawback provision that existed in the British price support system during the period of analysis, and to informal trade barriers. more...

in agricultural pollution. Even moderate reduction, however, could have large effects on agricultural production, prices, producer rents, and other politically sensitive variables. These effects are likely to depend strongly on the agricultural price support policies in the U.S., EC, and other regions. Although some initial efforts have been made (e.g., Abler and Shortle 1992), there is a need for research on linkages between environmental and price support policies for agriculture. more...

A method is presented for examining producer welfare impacts of a range of deregulation proposals, including a reduction in price support. Welfare impacts take account not just of expected transfer effects but of changes in the uncertain conditions facing producers. The method is applied to deregulation proposals for the Australian wheat industry. Results suggest producers would benefit under some proposals but be made worse off under others. Supply responses also are estimated and shown to be generally smaller in percentage terms than are short-run welfare effects. It is argued that short-run and long-run welfare effects are similar. more...

The contingent valuation method has been used to estimate the Swedes' willingness-to-pay to preserve the agricultural landscape. They seem willing to pay about 541 SEK/person [each] year (78 ECU) or 975 SEK/hectare [each] year (140 ECU) (May 1986). The results are judged to be reliable but with a low degree of precision. It is shown that willingness to pay is significantly correlated to income, age (negatively), level of education, and to positive attitudes towards preservation of the agricultural landscape. Willingness to pay per hectare differs due to land use and regional location. Subsidies based on acreage instead of price support may be an adequate political solution. Copyright 1992 by Oxford University Press. more...

If a land price is to be observed, there must be trades of land. If the aggregate quantity of land in agriculture is fixed, those trades must be among farmers. This paper presents a model in which farmers of differing "ability" trade land among themselves. The model is used to evaluate the impact of farm programs (a demand enhancement program; a price support program; a land retirement program; an income subsidy program) on output price, land price, and number of farmers. Effects of these programs depend on conditions that require empirical evaluation. Preliminary evidence suggests that some standard tools of farm policy have the effect of reducing farm numbers. more...

The bounded prices model under rational expectations is extended to a multimarket setting. Because the resulting rational expectations model is highly nonlinear, Fair and Taylor's iterative procedure is employed in conjunction with the multimarket framework to obtain maximum likelihood estimates of a supply-demand model for corn and soybeans. The estimated model is then used to simulate the market equilibrium effects associated with removing price support and acreage set-aside programs over the sample period. Among other things, the results reveal that acreage set-asides have dominated the induced supply effects of price support programs for corn. more...

The purpose of this paper is to examine empirically the effects of a shift from price support to direct income policy on agricultural factor markets and aggregate output. By utilising an econometric model for the Austrian agricultural sector, it is argued that the main purpose of this policy change, which is to move producers away from making production decisions in response to income support policies and to facilitate their response to market signals (‘decoupling’), is only partially realised. Switching from price to direct income support would result in little reduction in output, but some positive secondary effects can be observed. Ecological goals could be realised by lessening the degree of industrialisation due to lowering the capital-labour and intermediate input-labour ratios. more...

This paper presents a dynamic econometric model of the U.S. beekeeping industry for policy analysis and economic projections. Data from 1952 to 1984 were used to estimate the model by three-stage least squares. The model indicates that, when the federal price support for honey exceeded the market price, the federal program had a significant impact on several sectors of the industry. A comparison of beekeeper revenue, consumer expenditures, and federal government expenditures suggests the honey support program was an ineffective means of supporting honey prices from 1982 through 1984. more...

This paper presents a new approach to assessing the impact of price-support policies on producer behaviour. This approach takes explicit account of the impact of such policies on a producer's uncertain production environment and includes a numerical procedure for calculating ex ante price variability from ex post producer price data. The method is applied to European Community agricultural industries in which intervention purchasing schemes operate. The results show the extent to which price support-policies distort the signals producers receive from world markets. more...

Recent research and debate in sustainable agriculture has focused on the role of commodity programs in shaping rotation decisions. The commodity programs are often cited as obstacles to establishing long-term, diversified rotations. However, predicting which rotations would be practiced in the absence of commodity programs is difficult. How strongly commodity programs influence the rotation decision depends on the size of the economic incentive to participate and the percentage of cropland enrolled in the program. Data from the Agricultural Stabilization and Conservation Service (ASCS) were used to calculate the distribution of the percentage of cropland in corn base for each farm record at ASCS in the Corn Belt and Lake States in 1988. The distribution shows that the level of corn program enrollment varies widely. Many corn base acres are found on farms with high corn base enrollment levels, which potentially constrains the rotation choice. However, enrollment levels in the corn program do appear to allow the option of diversified rotations for many corn base acres in the Corn Belt and Lake States, even during the high corn price support years of the mid to late 1980s. more...

This paper estimates a policy preference function that explains the government's choices of target prices, government held wheat stocks, and public wheat research funding. The policy preference function depends on producers' surplus, consumers' surplus, and budget expenditures. An important innovation in this paper is the inclusion of interactions between public research expenditures and other public policy variables. Results indicate that the government places a premium of 25% to 45% on the welfare of wheat producers of relative to budget expenditures, while wheat consumers' welfare is discounted as much as 50% relative to budget expenditures. The purpose of this paper is to provide an explanation of government commodity programs, stock accumulations, and research expenditures in the U.S. wheat sector. The explanation is based on a policy preference function (PPF) that depends on producers' surplus, consumers' surplus, and budget expenditures. It is assumed that target prices, reductions in (or additions to) government stocks, and public research expenditures are chosen to maximize the policy preference function. The central contribution of the paper is the estimation of a function that is consistent with the observed government interventions in the U.S. wheat market. That is, the paper explains the observed target prices, government sales, and public research expenditures as rational behavior by a government which seeks to maximize the estimated policy preference function. The approach in this paper is based on the political interest group theories of Peltzman and Becker. Applications of these ideas to agriculture include Rausser and Freebairn's description of the beef industry, Gardner's (1985) analysis more...

The benefits from Common Agricultural Policy price support to farms of different type, size, income class, and region are identified. Benefits are shown to concentrate on the large, higher income farms and to be unevenly distributed among farm types and regions. The variation is substantial, with most of the variation in benefits across farms and regions due to the different farm sizes and not the disparate levels of commodity price support. Copyright 1990 by Oxford University Press. more...

An economically relevant aggregate production function and an aggregate profit function are used to decompose milk supply response into technology and price effects. Decomposing milk supply response in this way provides insights into dairy industry efficiency and its impact on the effectiveness of price support programs as well as the extent to which aggregate milk production will expand despite prices motivating supply curtailment. An empirical analysis of supply response decomposition for the state of Washington is presented. Expected market price effects were obtained but were overwhelmed by technology effects resulting in milk output expansion when price signals motivated supply reduction. The U.S. dairy industry has experienced a chronic oversupply of raw milk. Contributing factors include technological advances ranging over bulk milk tanks, automatic detachers, modern wastehandling equipment, automated feeding systems, and better management of the milk cow through DHI (dairy herd improvement) programs and closer monitoring of feeding. Changing levels of input and output prices also are involved. In this paper an economically relevant aggregate production function (ERAPF) for an industry is applied to decompose milk supply re more...

RESUMEN: La evolución de la Política Agrícola Común (PAC) desde una política de apoyo a los precios hacia unos pagos más desconectados de la producción se enmarca en un contexto internacional más amplio, en el que otros países de la OCDE también reforman sus políticas en la misma dirección. El presente trabajo explica el significado del "desacoplamiento" de las políticas desde el punto de vista legal de la Organización Mundial de Comercio (OMC), y desde una perspectiva empírica como la adoptada por los trabajos de la OCDE. Se presentan los principales argumentos de eficiencia y distribución en favor del desacoplamiento y se analiza el alcance de las reformas en distintos países de la OCDE. Finalmente se argumenta en favor de la definición de unos objetivos nítidos que permitan diseñar de manera eficiente las política más apropiadas para alcanzarlos. PALABRAS CLAVE: desacoplamiento, Política Agrícola Común (PAC), países de la OCDE SUMMARY: The evolution of the Common Agricultural Policy (CAP) from price support to payments that are more decoupled from production is part of a broader international context in which other OECD countries have also reformed in a similar direction. This paper explains the meaning of "decoupling" from the legal perspective of the World Trade Organization (WTO), and from a more empirical approach as the one adopted by the OECD work on decoupling. The main arguments in favour of decoupling -both from efficiency and distribution considerations- are discussed and the scope of the reforms in different OECD countries is analyzed. Finally it is argued that a good definition of the objectives is needed in order to design the most appropriate policies. more...

Agricultural sales cooperative unions (ASCUs) in Turkey are heavily influenced by both domestic and international government policies. Both export taxes and import tariffs are used as policy tools to regulate cotton markets. Domestic price support programs, water subsidies, fertilizer subsidies, and credit subsidies have also been used as domestic policy tools. These types of subsidies are not uncommon among developing countries. This paper provides empirical estimates of the degree of economic inefficiency associated with government intervention in Turkish cotton markets. A two-region partial equilibrium model of cotton exports and imports is developed under the “small country assumption” to obtain empirical estimates of the deadweight welfare loss associated with these government subsidies. Although government intervention results in significant income distribution among the various cotton sectors within Turkey, the overall economic inefficiency of the redistribution is very low. more...

A linear programming model of a dairy farm was used to explore the future for different types of Dutch dairy farms under different scenarios. The scenarios are consistent sets of changing factors that are considered external at farm level. The factors included are technical, such as efficiency of milk production and feed production, or institutional, such as national environmental legislation and EU market and price policy. Income and nutrient losses for farms differing in intensity and size are generated for the base year 1992 and for the year 2005. The results show that technical change up to the year 2005 has a positive influence on labour income as well as on nutrient losses. The increase of labour income is higher for farms with a higher total milk production in the basis situation. The influence of environmental policy on labour income and environmental results is bigger for farms with a higher intensity, as these farms have to take more measures to comply with governmental policy. Replacement of the price support policy for milk by a 2-price system with a high price for a restricted amount of milk and a low price for an unrestricted amount of milk has negative consequences for labour income, especially for intensive farms. more...

In a recent article in this Journal, De Gorter and Meilke (DGM) compare the redistributive efficiency of agricultural price support policies under alternative assumptions about accompanying supply control measures. Using a long-run supply curve which is assumed invariant with respect to policy choice, DGM assess the consumer/taxpayer cost per ECU of total producer surplus under different policies and conclude that individual production quotas followed closely by a two-tier price policy are preferable to price reductions or a coresponsibility levy. The main substance of this note is that DGM's failure to recognize the underlying structural problems of EC agriculture and to identify the true political target of income support measures renders their approach incapable of yielding a determinate ranking of these measures in terms of their medium-term efficiency and invalidates their policy recommenda more...

In this paper, a multicommodity price-endogenous spatial equilibrium model of the EC-9 feed-grain sector is presented. Nonintegrable (asymmetric) feed-grain demand functions are estimated for each EC member country using a pseudo data approach based on a set of representative least-cost feedmix models. The price and quantity impacts of three "harmonizing" EC policies are investigated within a comparative statics framework: the abolition of monetary compensatory amounts, a 10 percent cut in EC grain support prices, and a 10 percent tax on the use of major imported "cereal substitutes." Copyright 1990 by Oxford University Press. more...

government programs. In figure 1 we use an even simpler analysis than previously. The excess supply schedule is ES, and ED is the excess demand schedule. For the exporter, the gain from trade is the crosshatched area Pabc. Suppose the government introduces a price support of PS with the result that exports increase from Q1 to Q2. Producers become better off by PAdbPa. Importers become better off by Pabef, but there is a government cost of Psdef. The price support program generates a net cost of Pabdef. Our disagreement appears to be over semantics. We called the above situation one of negative gains from trade because the cost to the treasury of Psdef far exceeds the standard gains from trade area of cdPs (given a price support of Ps). The so-called "gains from trade" are less than the government costs. We do not mean from our statement of zero gains from trade or negative gains from trade that the area above the excess supply curve does not exist (our original article makes this very clear), but rather that the area above the excess supply curve measured at the price support level is less than or equal to the government treasury cost. We do not confuse the overall welfare of a policy with the welfare effect of free trade. In figure 1, in a distortionary free world, there is a gain from free trade of Pabc. Introduce into the market a price support of P, and the gains from trade become less than the cost of the price support which was used to both increase producer price and expand exports. We choose to call this situation a negative gains from trade situation (despite the positive area above ES) since it P more...