Food price volatility and farmers' production decisions under imperfect information

Anais Maillet

FOODSECURE Technical papers from LEI Wageningen UR

Abstract: Among other factors, food markets volatility has been explained by variations in production originating either in exogenous shocks affecting crops or in errors in anticipations due to non-rational expectations. We propose an alternative source of variations based on acreage decisions from rational farmers subject to imperfect information on shocks. Depending on the type of shock, more precise information does not necessarily reduce food price volatility. With a shock on input prices for example, the price is only indirectly affected by the shock through aggregate supply. In that case better information increases production and price volatility. However if the price is also directly affected by the shock then the effect of information can be reversed. With a global production or demand shock, we show that more information reduces price volatility, which implies that forecasts about climate, pests, diets, biofuel policies, etc. can help preventing excessive food price variations.

JEL-codes: F13 I38 Q11 Q17 Q18 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-agr and nep-net
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