EU wheat producer's area response to prices, climate and price risk

This thesis examines how changes in the wheat price, price risk and climate risk affect wheat producers’ area decisions in the EU. Numerous studies have estimated the wheat area response in the US and in developing countries, but few have focused on the EU. The attention to risk in previous studies has also been limited. Greatly influenced by the Common Agricultural Policy, it is likely that producers in the EU respond differently to prices and risk than producers in the rest of the world. Understanding how these factors affect area allocation in the EU is important to be able to predict global food supply, as the EU is one of the world’s main wheat producing regions. The study follows the Nerlovian partial adjustment approach and is conducted on panel data covering the period 2003 to 2022. The findings suggest that the wheat area response to wheat price is inelastic in both the short-run and the long-run. The estimated short-run elasticities vary from 0,09 to 0,15 and the estimated long-run elasticities vary from 0,57 to 0,82. The effect of climate risk on wheat area is negative, while the effect of price risk on wheat area is statistically insignificant. This suggests that risk mitigating measures in the EU are effective in terms of reducing price risk. However, with more frequent extreme weather events in the future due to climate change, different measures may be needed to reduce climate risk for wheat producers