Reforming the European Common Agricultural Policy: From price & income support to risk management
Alexandre Gohin and
Journal of Policy Modeling, 2020, vol. 42, issue 3, 712-727
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.
Keywords: Common agricultural policy; Risk; Stochastic modeling; Risk contingent market (search for similar items in EconPapers)
JEL-codes: G10 Q14 Q17 Q18 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:42:y:2020:i:3:p:712-727
Access Statistics for this article
Journal of Policy Modeling is currently edited by A. M. Costa
More articles in Journal of Policy Modeling from Elsevier
Bibliographic data for series maintained by Haili He ().