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Reforming the European Common Agricultural Policy: From price & income support to risk management

Author

Listed:
  • Alexandre Gohin

    (SMART-LERECO - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - INSTITUT AGRO Agrocampus Ouest - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement)

  • Yu Zheng

    (NTU - Nanyang Technological University [Singapour])

Abstract

Over the last 30 years, the European Union has significantly reformed its Common Agricultural Policy by introducing direct payments to farmers and reducing price support levels. While the European agricultural prices become more volatile, all economic models assessing these reforms remain static and ignore the risk dimensions. This paper develops an original stochastic computable general equilibrium model capturing the different sources of risk, farmers' risk attitude and risk contingent markets. We find that the reduction of price support levels has modest market impacts but negative global welfare effects by exposing risk-averse European farmers to the world price volatility. This issue is not solved by the direct payments, which have negligible market and global welfare impacts through their wealth effects. On the other hand, we find that unbiased futures markets can solve this global welfare issue by allowing European farmers to transfer their price risks. Therefore, European policymakers should ensure well-functioning risk contingent markets rather than maintaining rigid intervention price levels. (C) 2020 The Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.

Suggested Citation

  • Alexandre Gohin & Yu Zheng, 2020. "Reforming the European Common Agricultural Policy: From price & income support to risk management," Post-Print hal-02911593, HAL.
    • Handle: RePEc:hal:journl:hal-02911593
    DOI: 10.1016/j.jpolmod.2020.02.008
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    Cited by:

    1. Dany Juhandi & Dwidjono Hadi Darwanto & Masyhuri Masyhuri & Jangkung Handoyo Mulyo & Nugroho Adi Sasongko & Martin Anda & Tri Martini, 2023. "Farm Sustainability Assessment and Model: Achieving Food Security through the Food Estate Program in North Sumatra," Land, MDPI, vol. 12(10), pages 1-13, September.
    2. Min Cui & Jizhou Zhang & Xianli Xia, 2022. "The Relationship between Child Rearing Burden and Farmers’ Adoption of Climate Adaptive Technology: Taking Water-Saving Irrigation Technology as an Example," Agriculture, MDPI, vol. 12(6), pages 1-22, June.

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