The European Union wheat market and Agenda 2000 farm reform: Policies, decision support tools and impact multipliers

Under this study a structural econometric model for the European Union (EU) wheat sector and a PC-based software were developed as decision-support tools for policy makers and agribusiness-managers in order to facilitate a continued evaluation of the impact of alternative policy changes on the EU wheat market for the 1998-2008 period.;A chronological account of the evolving institutional framework of the EU agricultural sector with emphasis on the key decisions-makers, policy instruments and rules of interaction governing the CAP of the EU was provided in order to create a common understanding for the EU wheat price policy environment. Building heavily upon this background, a system of equations of the EU wheat sector was specified, estimated and validated with the world wheat price and barley prices endogenized using Two-Stage Least Square (2SLS) techniques, historical and dynamic simulation, and multiplier analysis techniques. The model was then used to generate baseline projections for the EU wheat sector over the outlook period of 1998-2008. Assumptions and the input values for the exogenous variables over this period were obtained from FAPRI and from macroeconomic forecasts of the WEFA group. To quantify the preliminary consequences of alternative policies relative to the baseline results, a set of selected policy measures from the Agenda 2000 package were formulated and examined. The effects of these policy options were assessed through the comparison of the results obtained under the Agenda 2000 scenario with the baseline projections.;Under the EU Agenda 2000 Scenario, EU wheat area harvested and wheat production would increase by about 9 percent, on the average, during 1998-2008. The EU wheat market price would be driven down by about 11 percent in the first year and by 5 percent towards the end of the evaluation period. EU wheat feed use would increase by 2 percent on the average during the period considered. The package would have a negligible impact on wheat food use compared to the baseline level. EU wheat exports would be significantly effected beyond the year 2000/01 and onwards. The scheme would result in 11 percent, 6 percent and 4 percent drop in the world wheat price compared to the baseline results in the year 2000, the year 2001, the year 2002, respectively. The EU is projected to export as much as 60 percent more wheat than the level projected under the baseline by the end of the evaluation period. Finally, EU wheat stock holdings would be reduced by 45 percent resulting in benefits in EU budgetary costs associated with the prospect of wheat stock accumulation under the baseline scenario.