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GTAP Resource #3840

"Should private storage be subsidized to stabilize agricultural markets once price support schemes are removed? A General Equilibrium analysis applied to European reforms"
by Femenia, Fabienne

In this paper, we focus on the volatility of agricultural markets generated by a reform of the CAP, and examine the effect of a subsidization of private storage at world level on this volatility. Storage, is based on inter temporal arbitrages of stockholders who buy stocks when prices are low to sell them when price increase, thus limiting price fluctuations. However, some economic studies still question its efficiency as a risk managing instrument, showing that the market stabilization induced by stockholding behaviors is sensitive to storage costs, or advocating the possible destabilizing role of speculators. This raises the question of the potential for a public intervention on this instrument, like the subsidization of storage costs to enhance the storage activity. But the effects of such subsidies on producers’ decisions have to be taken into account. Furthermore, one can question their effects on speculative behaviors, especially if stockholders don’t have perfect expectations. To take these elements into account, we use a Dynamic CGE model. Indeed, this framework allows to consider the behaviors of all economic agents, the possible transfer and sharing of risk between agents, sectors or regions, and to simulate the evolution of markets under different policy scenario. The originalities of this model are that: it is fully dynamic in the sense that the inter temporal dimension of economic decisions is taken into account:, storage and private stockholding behaviors are endogenous; and we rely on an imperfect expectation assumption, so as to represent the endogenous aspect of market volatility that can be generated by expectation errors and to acknowledge the possible destabilizing role of speculators in that case. Concerning the dynamics of the model, first, as commonly done in dynamic CGE models, the accumulation of capital stocks and foreign debt from one period to the other debt creates a link between...

Resource Details (Export Citation) GTAP Keywords
Category: 2012 Conference Paper
Status: Published
By/In: Presented at the 15th Annual Conference on Global Economic Analysis, Geneva, Switzerland
Date: 2012
Created: Femenia, F. (4/27/2012)
Updated: Femenia, F. (5/10/2012)
Visits: 1,435
- Agricultural policies
- Dynamic modeling

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