Income variability and agricultural policy

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Miguel A Martinez
Juan Hernández-Ortiz
Ramon Valdivia-Alcalá

Keywords

Support prices, PROCAMPO, lognormal distribution, trend, cycle.

Resumen

Objective: To compare producer income volatility under two types of policies (support prices and direct payments).


Design/Methodology/Approach: Producer income is understood as the result of multiplying price by yield; therefore, income is the product of two random variables modeled with a lognormal distribution, accounting for the covariance. After the subtracting trend, the cyclical component is subjected to a volatile analysis under each policy studied.


Results: Income volatility is systematically higher for support price programs than for the direct payment policy.


Study Limitations/Implications: Government programs have recently taken up support prices again; therefore, income variability should be reviewed.


Findings/Conclusions: Government programs aim to increase producer income by different means. However, they overlook possible volatility implications. By taking up support price programs again, producer income may be at risk of rebounding.

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