Estimation of impact of EU agricultural policies on the world market prices

Abstract

Abstract According to world market studies, the influence of policy measures on the world market price in one or in a limited number of countries is, in general, much less significant than the influence of multilateral policy changes. To investigate the impact of EU agricultural policies on world market prices, we attempt to model the transmission between EU policy and world prices directly via world market price equations, as part of the AGMEMOD model. Keywords: EU commodity markets, price transmission, partial equilibrium 1. Introduction Agricultural policy changes can have significant impacts on world market prices. According to world market studies, the influence of policy measures on the world market price in one or in a limited number of countries is, in general, much less significant than the influence of multilateral policy changes (see van Meijl at al. 2003, section 5.3.). For example, the OECD (2004) predicted a very limited impact of the 2003 CAP reform on world prices. They are expected to increase from 0.6% on average for crops to about 3% on average for butter. However, some EU policy changes are expected to raise the world market prices significantly. The EU sugar sector reform (complete elimination of export subsidies) resulting from a WTO restriction would imply an increase of the world sugar price by 9% - 12% on the long term (see Poonyth et al, 2000) and the implementation of the Bio fuel Directive with 11.5% obligatory blending rate is predicted to increase the real oilseed and sugar prices by almost 10% (see Banse et al, 2007). To investigate the impact of EU agricultural policies on world market prices, we attempt to model the transmission between EU policy and world prices directly via world market price equations, as part of the AGMEMOD