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Increasing volatility of input costs in the EU agriculture

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  • Himics, Mihaly
  • Van Doorslaer, Benjamin
  • Ciaian, Pavel
  • Shrestha, Shailesh

Abstract

In this paper the impact of possible input cost developments on the EU agriculture is analysed under ceteris paribus conditions. Two scenarios are developed with the partial equilibrium model CAPRI. The scenarios assume symmetric input price changes in positive and negative directions around a projected baseline in year 2020. The magnitude of the input price changes are based on observed volatility. To measure the volatility, the annual time-series of the CoCo database were analysed, which contains input cost estimates for a multitude of agricultural activities and cost categories at the geographical level of the EU countries. Our results suggest that the uncertainty in input cost development has a strong potential to affect commodity market balances and farm incomes. There is an ongoing discussion about possible policy measures to mitigate the negative impacts of price volatility on farm incomes. This study contributes to this discussion by estimating a share of 17 billion euros of EU agricultural income being put on risk every year. The analysis also identifies vulnerable regions and production technologies that are particularly affected by input price instability. It remains for further research to perform a systematic sensitivity analysis in order to explore the impact of input cost volatility fully on the model outcomes.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 123rd Seminar, February 23-24, 2012, Dublin, Ireland with number 122531.

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Date of creation: 23 Feb 2012
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Handle: RePEc:ags:eaa123:122531

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Keywords: input costs; volatility; CAPRI; farm income; Risk and Uncertainty; Q13;

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  1. Heckelei, Thomas & Mittelhammer, Ronald C. & Jansson, Torbjorn, 2008. "A Bayesian Alternative To Generalized Cross Entropy Solutions For Underdetermined Econometric Models," Discussion Papers 56973, University of Bonn, Institute for Food and Resource Economics.
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