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The dynamic effects of price support policy on price volatility: The case of the rice market in China

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  • Jian Li
  • Jean‐Paul Chavas
  • Chongguang Li

Abstract

This study examines the economic and welfare effects of a commodity price support policy. It conceptually and empirically evaluates the effects of the domestic pricing policy on the distribution of commodity prices, with an application to the price support program in the Chinese rice market. The empirical analysis relies on a Censored Quantile Autoregression (CQAR) model, which provides a refined and flexible representation of the evolving distribution of prices under a price support program. Based on monthly data over the period 2000–2018, we develop and estimate an econometric model documenting the price effects of policy interventions. We study how a price support program affects price distribution both in the short term and long term. We find that such a program has reduced the domestic rice price volatility, evidenced by lowered variation and increased right‐skewness of the price distribution. We also show how China's rice programs' high price support level during the period 2008–2015 caused significant censoring effects and price enhancement with adverse impacts on consumer welfare across all income levels. We further examine alternative situations where a moderate price support level can reduce the long‐term mean price without generating consumer welfare losses. Our analysis and findings have implications for the implementation of agricultural price support policies in many developing countries.

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  • Jian Li & Jean‐Paul Chavas & Chongguang Li, 2022. "The dynamic effects of price support policy on price volatility: The case of the rice market in China," Agricultural Economics, International Association of Agricultural Economists, vol. 53(2), pages 307-320, March.
    • Handle: RePEc:bla:agecon:v:53:y:2022:i:2:p:307-320
    DOI: 10.1111/agec.12681
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    4. Yan Jin & Cornelis Gardebroek & Nico Heerink, 2024. "The impact of Chinese rice support policies on rice acreages," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 16(3), pages 705-719, June.
    5. Linjie Wang & Jean‐Paul Chavas & Jian Li, 2024. "Dynamic linkages in agricultural and energy markets: A quantile impulse response approach," Agricultural Economics, International Association of Agricultural Economists, vol. 55(4), pages 639-676, July.
    6. Chang, Qing & Ma, Wanglin & Vatsa, Puneet & Li, Jian, 2022. "Has the Targeted Poverty Alleviation program improved household welfare in rural China?," Journal of Policy Modeling, Elsevier, vol. 44(5), pages 1041-1056.

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