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Volatility in the international food markets: implications for global agricultural supply and for market and price policy

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  • Haile, Mekbib Gebretsadik
  • Kalkhul, Matthias

Abstract

Agricultural countries usually produce multiple crops, but a particular area of land is allocated to the production of a certain crop. Understanding how producers make decision to allot acreage among crops and how decisions about land use are affected by changes in prices and their volatility is fundamental for both policy design and for estimation models of the behavior of agricultural producers. The profitability of a land allocated to a certain crop is affected by the volatility of the crop’s price that in turn affects the acreage allocation decision of the producer. To address this, the present paper estimates global acreage response equations for major agricultural commodities (wheat, maize, soybeans and rice) using two related databases: globally aggregated time series and cross-country panel databases. The paper addresses the debate of agricultural market regulation from the perspective of agricultural producers. The findings of this study reveal that, while higher output prices are incentives to improvements in the global crop supply, output price volatility, on the other hand, discourages agricultural investment in terms of cropland expansion. Depending on respective crop, short-run acreage elasticities range between 0.05 and 0.25 whereas price volatility tends to reduce acreage response of all crops except of soybeans. Thus, price volatility management tools, which could include market regulation but also other market based tools like futures contracts or contract farming, need to be customized to specific crops and countries.

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Bibliographic Info

Paper provided by German Association of Agricultural Economists (GEWISOLA) in its series 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 with number 156097.

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Date of creation: 2013
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Handle: RePEc:ags:gewi13:156097

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Keywords: Agricultural and Food Policy; Land Economics/Use; Risk and Uncertainty; O11; O13; Q11; Q13; Q18; Q24;

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  1. Davison, Cecil W. & Crowder, Bradley M., 1991. "Northeast Soybean Acreage Response Using Expected Net Returns," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 20(1), April.
  2. Timilsina, Govinda & Beghin, John C. & van der Mensbrugghe, Dominique & Mevel, Simon, 2010. "The Impacts of Biofuels Targets on Land-Use Change and Food Supply: A Global Cge Assessment," Staff General Research Papers 32206, Iowa State University, Department of Economics.
  3. Samira Bakhshi & Richard S. Gray, 2012. "Acreage Response to Whole Farm Income Stabilisation Programmes," Journal of Agricultural Economics, Wiley Blackwell, vol. 63(2), pages 385-407, 06.
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  8. Coyle, Barry T., 1993. "On Modeling Systems Of Crop Acreage Demands," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), July.
  9. Braulke, Michael, 1982. "A Note on the Nerlove Model of Agricultural Supply Response," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(1), pages 241-44, February.
  10. Miranda, Mario J & Helmberger, Peter G, 1988. "The Effects of Commodity Price Stabilization Programs," American Economic Review, American Economic Association, vol. 78(1), pages 46-58, March.
  11. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
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