Modeling and Extrapolating Wheat Producer Support Using Income and Other Factors

Abstract

Using wheat market support data from 55 countries for 1961-2011 from the World Bank Agricultural Distortion database, we develop a fixed effect model that shows a more complicated, nonlinear relationship between income and wheat support and its components than previously realised. We find that income generally has a greater effect on border market price support than on domestic price support. Moreover, the difference between these types of support is greater for net importers than for net exporters and has increased with the URAA or WTO accession. Holding other variables constant, the wheat support level of China, driven mainly by border market price support, is projected to rise with future income growth. Meanwhile, Japan is projected to maintain its high level of support, while the US and EU are projected to maintain their lower levels of support. These results are relevant in the context of multilateral trade negotiations, arguing against a narrow focus on past or current policy profiles and for long-run analyses that might mistakenly rest on the inconsistent assumptions of constant agricultural policies against the backdrop of rising incomes.

The effect of price support policies on food security and farmers’ income in China

“…Zhao et al . (2017) develop a more complex non‐linear model to examine the relationship between income and wheat price support in developing countries, including China. In addition, there are many relevant international studies in this area.…”

“…They find that the price support policy plays a most important role in determining grain market prices relative to other factors, including production costs, international prices and production. Zhao et al (2017) develop a more complex non-linear model to examine the relationship between income and wheat price support in developing countries, including China. In addition, there are many relevant international studies in this area.…”

Price support policy and market price dynamics: The case of Indian wheat

“…The comprehensive effect of the price support policies has attracted extensive attention from academics and policymakers. Many studies have investigated the impacts of price support policies on farm income and welfare (Beghin et al, 2003;Jayne et al, 2008;Lichtenberg & Zilberman, 1986;Li et al, 2021;Miranda & Helmberger, 1988;Mu & Koike, 2009;Otsuka & Hayami, 1985;Qian et al, 2020;Zhao et al, 2017); food security (Qian et al, 2020); and output and productivity (Lu, 2002;Mu & Koike, 2009). The price stabilization and enhancement effects of the price support policy have drawn the attention of economists and policymakers as well (Gouel, 2013;Li et al, 2021).…”