A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
Focus on issues

Angus Deaton, the 2015 Nobelist for Economics, is also known for his work on agricultural commodity storage

Frédéric Courleux, French Center for Studies and Strategic Foresight

Princeton University Professor Angus Deaton was awarded the 2015 Nobel Prize for Economics for his work on consumption, poverty and welfare. His research encouraged the field of economics to take a better look at how the poor spend in order to to measure and better understand the reality of poverty.

In an article in the latest intelligence newsletter from the French Center for Studies and Strategic Foresignt (CEP) we are publishing below
1, Frédéric Courleux specifically focuses on the Nobelist’s work on storage methods and their role in stabilizing markets. Must public storage be used as a way to protect against price volatility? The very existence of Deaton’s work confirms that the debate on the comprehension of agricultural markets and their fluctuations remains open, as schools of thought and opinions are quite divided.

Drawing on this conclusion, momagri is developing a new storage and clearing model that will understand better the impact of reserves on volatility and, conversely, the regulation measures to be considered to limit this impact on producers, such as counter-cyclical tools and market interventions.

momagri Editorial Board

The 2015 Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel was awarded to Angust Deaton “for his work on consumption, poverty and welfare”. The professor has also conducted research with Guy Laroque on the formation of agricultural prices and storage systems in the early 1990s.

Widely mentioned in agronomics, the study wanted to test the validity of the assumption of rational expectations by seeking to reproduce a price dynamics trend, and compare it to the prices noted on 13 commodities over a long period of time. The special feature of the model applied sought to represent an economic agent that is able to anticipate all behaviors from other stakeholders, and thus benefit from price fluctuations by stockpiling in cases of low prices and selling in cases of high prices, thus stabilizing markets. The results from the econometric analysis of the price studies issued by the model are deemed satisfactory regarding the representation of volatility and the occurence of crises explained by the fact that storage cannot “become negative.” However, the autocorrelation of recorded prices is not observed, which leads the authors into remaining skeptical on the validity of the competitive storage model.

The implication of this study was not unequivocal. For some, the vailidity of competitive storage is not affected, and the Deaton and Laroque work was continued to represent the autocorrelation of prices through a supply autocorrelation. The policy implication is instantaneous: Public authorities must not intervene since they prevent economic agents from stabilizing markets through storage.

For others, price volatility can be explained by expectation errors from agents, and not only because of exogenous shocks (the endogenous volatility theory). They feel that the Deaton and Laroque research deserves the credit for highlighting the significance of storage to stabilize prices (the price variance declines by 30 to 60 percent), but they deem as unrealistic the fact that private stakeholders can achieve such stabilization: In times of price strains, economic agents tend to preserve reserves to benefit from high prices. And here again, the policy implication is direct: Markets do not self-regulate and require clever regulation.

1 The entire article is available from CEP blog:
and all contents of the October newsletter from http://veillecep.fr/

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Paris, 19 June 2019