An Examination of Animal Husbandry Development in Northwest China from Environment Perspective

Tingjun Peng

Content An Introduction of Livestock Development in

North-West China Environment Protection in North-West China An Theoretical Model to Examine Comparative

Advantage in North-West China from Environment Perspective

The Compacts of China’s Accession into WTO on Livestock Development in North-West China from Environment Perspective

Simulation Results Conclusion

Farm Economy

Land Capital Food Manufacture Labor

Pastoral economy

Land Labor Farm land Grassland Food Animal Husbandry

LaborMarket

MarginalProductValue

A Theoretical Model to Study Comparative Advantage

According to Bruno (1967), Chenery (1972) and Pearson (1974), under free trade the input demand of domestic resource cost (DRC) for j production to earn one unit of foreign currency is:

DRCj = domestic resource costs input for j production / net foreign currency earning

Domestic Resource Cost (DRC) DRCj = s=2FsjVs j / (Uj – Mj - rj) DRCj is the domestic resource costs input for j production, Fsj is the quantity of sth input factor for j production, Vs is the opportunity cost of sth input factor, Uj is the output value of j production calculated by border price, Mj is the value of tradable input factors for j production, calculated by C.I.F price, Rj is the factor costs of direct foreign investments, calculated by opportunity costs, S is the number of input factors, as foreign currency is taken

as the first one, then S is numbered from 2 to m,

Adjusted Domestic Resource Cost (A_DRC)

But if we take environment into account, DRC can be calculated as:A_DRCj = (s=2FsjVs j -Ej) / (Uj – Mj - rj) where Ej is the Externality, if the externality is positive then Ej ›

0; if the externality is negative then Ej ‹ 0; if there is no externality then Ej = 0.

If we divide DRCj by the shadow foreign exchange rate (Vj), then we get Domestic Resource Costs Coefficient of j production (DRCCj), i.e, DRCCj = DRCj/ Vj

As DRCCj is a coefficient without units, we can use it to evaluate the comparative advantage of j production. If DRCCj ‹ 1, then there is comparative advantage in the production of j products, the smaller DRCCj is, the larger comparative advantage; if DRCCj › 1, then the production of j products is disadvantaged, the larger the worse; if DRCCj = 0, then it is indifferent to produce j or not.

Comparative Static Analysis DRCC=DRC/ （ NV*EX ） LN(DRCC)=LN(DRC)-LN(NV)-LN(EX) dDRCC(t)/dt/DRCC(t)=dDRC(t)/dt/

DRC(t) - dNV(t)/dt/dNV(t) -dEX(t)/dt/EX(t)

Net Social Profitability (NSP) NSPj = (Uj – mj – rj)*vj - s=2fsjvs Uj is the output value of j production, calculated by border

price mj is the value of all tradable intermediate inputs,

calculated by CIF price, Rj is the costs from direct foreign investments, calculated

by opportunity costs,  vj is the shadow foreign exchange Therefore, NSP means then benefit from one production when

factor allocation is efficient. If NSP>0, then production is efficient; if NSP<0, then production is not efficient.

Adjusted Net Social Profitability (A_NSP) NSPj = (Uj – mj – rj)*vj - s=2fsjvs + Ej

where Ej is the Externality, if the externality is positive then Ej › 0; if the externality is negative then Ej ‹ 0; if there is no externality then Ej = 0.

China's WTO Accession Negotiations on Agriculture On July 1986, China formally submitted an application

to the GATT for resumption of its contracting status. On January 1st, 1995, the WTO was established, replacing the GATT. Starting from November 1995, China's GATT-resumption negotiations are now taken up as WTO accession negotiations. The negotiations have now reached its final stage. It is expected that China will be admitted into the organization eminently. China's WTO talks on agriculture mainly concern market access affairs, such as tariff reduction and tariff quota of agricultural products. As negotiated, China is expected to partially open the agricultural products market after becoming a member of WTO.

Tariff Reduction of Agricultural Products In 1992 and 1993, China introduced a voluntary

reduction of import tariff. On October 1st, 1997, the country further reduced the tariff by 26% on 4878 tariff lines. The arithmetic level of tariffs was subsequently adjusted to 17%. The arithmetic average of tariff was also reduced from 46.6% to 21.2%. In the WTO negotiations, China was given a five-year transitional period, within which the tariff will be progressively reduced. China's tariff on agricultural products will decrease from the current level of 21.25% to 17% in year 2004.

TRQ Administration in China The negotiations allow China to apply Tariff Rate Quota

administration on key agricultural products such as wheat, rice, corn, cotton, soybean, and sugar.

In essence, China's WTO-negotiations on agriculture are concentrated on market access of agricultural products, i.e., issues such as tariff and tariff quota of agricultural products; or the opening of the agricultural products market. The latter concerns the interest of the people and the state, as well as the economic development of the country The reform of China's agriculture and trade policy is expected to take place concurrently with the rest of the economic reform. It is however not likely that trade in agricultural products will be fully liberalized within a short period of time.

A Partial Equilibrium Model

Reference priceC.I.FImport price

Retail Price

Producer Price

Shipment feeTax& Exchange Rate

Population

Total Demand

Consumption of Grain and Other CropsDirect Consumption

Feeding

Other Demand

Consumption of Husbandry productPer Capita Demand Major import country

supply

Total Crop Output

Animal products

Yield

Area

Heads

Yield Pproduction per Head

Science & Technology

Climate

Price of Input Price

Farmland Area

Difference of Demand & Supply

Import & Export Demand

Beginning/Ending inventory

Refarm index

Food Demand Model The model assumes that people's

income will be spent on the consumption of husbandry products (beef, pork, mutton, poultry and milk), grain (wheat and rice), other food and non-food products. The model assumes that consumption differs in cities urban and rural areas

Demand Equations CR=p1

Rq1R+p2

Rq2R+……+pi

RqiR

logQ1R=a10+E11

R*logP1R+E12

R*logP2R……E1j

R*logPjR+E1c

R*logCR logQ2

R=a20+E21R*logP1

R+E22R*logP2

R……E2jR*logPj

R+E2cR*logCR

………………………………………… logQi

R=ai0+Ei1R*logP1

R+Ei2R*logP2

R……EijR*logPj

R+EicR*logCR

( i =1, 2, 3, ……,n; j= 1,2, ……m) CU=p1

Uq1U+p2

Uq2u+……+pi

UqiU

logQ1U=a10+E11

U*logP1U+E12

U*logP2U……E1j

U*logPjU+E1c

U*logCU logQ2

U=a20+E21U*logP1

U+E22U*logP2

U……E2jU*logPj

U+E2cU*logCU

logQiU=ai0+Ei1

U*logP1U+Ei2

U*logP2U……Eij

U*logPjU+Eic

U*logCU

Demand equations CR is per capita expenditure on consumption in rural areas Q I

R is per capita demand of commodity i in rural areas Pi

R is consumer price of commodity i in rural areas Eij

R( i=j) is own-consumption elasticity of commodity i in rural areas Eij

R（ ij ） is cross price elasticity of commodity i and j in rural areas Eic

R is income price elasticity of commodity i in rural areas CU is per capita consumption expenditure of urban residencehousehold Qi

U is per capita demand of commodity i in urban areas Pi

U is consumer price of commodity i in urban areas Eij

U( i=j) is own-consumption elasticity of commodity i in urban areas Eij

U（ ij ） is cross price elasticity of commodity i and j in urban areas. Eic

is income price elasticity of commodity i in urban areas

Restrictions1. Budget Restraint: W1+W2+……Wi=1 W1=P1Q1/C, W2=P2Q2/C, Wi=PiQi/C2. Homogeneity Eii+ijEij+Eic=03. Engel Aggregation WiEic=14.Cournot Aggregation Condition WiEij= - Wj

Feeding Grain Demand Model Estimation on Total Demand of Feeding Grain Qt=q1,t x1,t y1,t+ q2,t x2,t y2,t+……+ qI,t xI,t yI,t

xi,t=xi,t-1 (1+gi)

yi,t=yi,t-1 (1+fi)

Qt is total demand for feeding grain in year t;qi,t is production in year t of product i, such as beef, milk, pork, mutton,

poultry (head);xi,t is the proportion of feeding grain in the total production of i in year t;

gI is the annual growth rate of xi,t;

yi,t is the kilograms of feeding grain amount needed by per head of husbandry.ft is the annual growth rate of yi,t.

Feeding Grain Demand Model of Grain ProductQi,t

feed=Qi,t-1feed+Qicorn,t

feed+ Qidm,tfeed

Qicorn,tfeed= Qicorn,t-1

feed Eicorn PRicornt,t-1(1+gi)^n QIdm,t

feed= Qidrn,t-1feed EIdrn DMt,t-1(1+fi)^n

Where Qi,tfeed is the amount for feed demand s of grain i in year t;

Qicorn,tfeed is the change of feed demand change of proportion of grain i,

caused by the change in corn price; Qidm,t

feed is the change of feed demand change proportion of grain i, caused by the change of total feed total demand;Eicorn is the substitute elasticity of product i and corn;

PRicornt,t-1 is the change of the price ratio between the prices of product i and corn; Eidrn is the feeding demand elasticity of product i;

DMt,t-1 is the change of feeding demand; gi is annual change of feeding demand of product i, caused by the change of

corn price; fi is the annual change of feeding demand of product i caused by the change

of total feeding demand, compared with that of the base period in the model.

Supply Model Sown area:

AHi,t=Ahi,t-1(1+(%△ER1,t EAHi1+%△ER2,t EAH

i2+……%△ERk,tEAHik))

Where, AHi,t is the areas sown for product i in period t;

%△ERk,t is the percentage change of the expected return of product k in period t ;EAH

ik is the elasticity of area harvested of crop i with respect to a change in the expected return of crop

Supply Model Wheat, rice and corn YieldYLi,t=YLi,t-1(1+ （ %△Pi,tEp

i+%△Pinputi,t Einput

i+%△AWGi,tEAWGi+%△Ri,tER

I+%△IRi,tEIRI+Ti / 10) ）

YLit is the yield of crop i in period t;%△Pi,t is the percentage change of producer price of crop i in period t;Ep

I is the price elasticity of crop i;%△Pinput

i,t is the percentage change in the input price of crop i in period t;Einput

I is the elasticity of the input price of crop i;%△AWGi,t is the percentage change of per capita labor wage of crop i in period t;EAWG

I is the labor wage elasticity of crop i;%△Ri,t is percentage change of agricultural science and technology reserve;ER

I is the elasticity of agricultural science and technology reserve;%△IRi,t is the percentage change in water irrigation reserve;EIR

I is the elasticity of water irrigation reserve;TI is the trend growth rate derived from changes in yields during the previous 10 years.

Supply ModelLivestock production Qi,t=Qi,t-1(1+(%△Pi,tEp

I,t+%△Pi,t-1EpI,t-1+%△Pi,t-2Ep

I,t-

2+%△Pi,t-3 EpI,t-3+%△Pfeed

i,t Efeedi))

Where, Qi,t is the production in year t of product i ； △P is the change rate of price; Ep is the price elasticity; Efeed is the elasticity of feed price.

Environmental effects △Pit =(pit-pi,t-1)/pit

Pit=pit’+Ci(E) Pit’ is the market price Ci(E) is the environmental cost

Trade ModelQexport

i,t= Qexporti,t-1(1+(%△Pexport

i,t Eexporti+%△qcons

i,t Econsi)

Qimporti,t is the import of product i in the period t;

%△Pimporti,t is the percent change of import price of product i period

t ；Eimport

I is the elasticity of import price of product i ；Qexport

i,t is the export of product i in period t;%△Pexport

i,t is the percentage change of export price of product i in period t ；

EexportI is the elasticity of export price of product i ；

%△qconsi,t is the percentage change of consumption of product i in

period t;Econs

I is the elasticity of consumption price of product i.

Equilibrium ModelQimport

i,t+ Qproductioni,t + Qbstock

i,t= Qexporti,t+

Qconsumptioni,t+ Qestock

i,t

Qproductioni,t is the domestic production of product

i ；Qbstock

i,t is the beginning stocks of product i ；Qconsumption

i,t is the consumption of product i in period t ；

Qestocki,t is the ending stocks of product

Simulation Scenarios Baseline: simulates the future development

of China's dairy industry if the current policy remains unchanged.

WTO: simulate the development prospect of China's dairy industry based on China's WTO commitment on agricultural.

Environment: simulate the development prospect of China's dairy industry based on China's WTO commitment on agricultural taking into environmental cost into account.

Interests of Study Calculating producer and

consumer welfare under WTO and Environment scenario

Using updated price, calculate A_DRC and A_NSP