idara policy simulation model (i-sim)

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i-simCZ

i-simPL

i-simHUi-sim

Simulating Policy Effects of EU Accession on Hungarian Agriculture

Idara Policy Simulation Model (i-sim)Idara Policy Simulation Model (i-sim)

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i-simCZ

i-simPL

i-simHU

i-sim- Sector Model

-Partial Equilibrium-Comparative-Static

- Elasticity driven

Model CharacteristicsModel Characteristics

3

• Consistent Data Base

• Base Year Reproduction

• Reference Run (Base Line)

• Scenario Runs

Modelling ProcedureModelling Procedure

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Activity Level

Output Generation

Output Use

Input Generation

Input Use

Production Activities Use Activities

Inputs

Outputs

Activity Based Table of Accounts

Activity Level

Output Generation

Output Use

Input Generation

Input Use

Activity Level

Output Generation

Output Use

Input Generation

Input Use


Inputs

Outputs


i-simi-sim Reference Run Reference Run

Base Year 1998

i-sim Data BaseA3 1998

Elasticity Matrixei,j

ResultsReference Run

2006

Gross Production

Activity Revenue

Consumption

Net Trade

Activity Level

Political Variables Base Year

Yield Estimates for 2006

World Market Prices for 2006

Inflation Rate 98-06

Exogenous Parameters

Exchange Rate Estimate 2006

Behavioural Equations

),,( XPACTPACTPACT PIPOLAREVfLVL

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Activity Level

Output Generation

Output Use

Input Generation

Input Use


Inputs

Outputs


Activity Level

Output Generation

Output Use

Input Generation

Input Use

Activity Level

Output Generation

Output Use

Input Generation

Input Use


Inputs

Outputs


i-simi-sim Simulation Run Simulation Run

Base Year 1998

i-sim Data BaseA3 1998

Behavioural Equations

),,( XPACTPACTPACT PIPOLAREVfLVL

Elasticity Matrixei,j

ResultsScenario Run

2006

Gross Production

Activity Revenue

Consumption

Net Trade

Activity Level

Political Variables Base Year

Yield Estimates for 2006

World Market Prices for 2006

Inflation Rate 98-06

Exogenous Parameters

Exchange Rate Estimate 2006

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i-simi-sim Scenario Analysis Scenario Analysis

ResultsScenario Run

2006

Gross Production

Activity Revenue

Consumption

Net Trade

Activity Level

ResultsReference Run

2006

Gross Production

Activity Revenue

Consumption

Net Trade

Activity Level X%

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i-simi-sim Scenario Scenario ResultsResults

Sectoral Income Sectoral Income

1. Production Value and Gross Value Added increased after accession2. Model shows not much differences in plant and general inputs, but higher

fodder input in CEEC scenario3. Highest GVAM in CEEC scenario mainly caused by quota level (milk,sugb)

Composition of Production Value

-

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

BAS RRHU 1SHU 2SHU

Mio

EU

R

Gross Value Added at Market PricesFodderPlant InputsGeneral Inputs

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Production Structure IProduction Structure I

Share of animal production on Agricultural Production Value will increase in 1SHU most, because of restrictive milk quotas and lower premia for cattle

Share of Animal and Plant Production

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BAS RRHU 1SHU 2SHU

Value of PlantProduction

Value of AnimalProduction

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Production Structure IIProduction Structure II

Only very limited changes in Land allocation between Scenarios: Slight increase in Cereals and

Oilseeds due to Direct Payments

Drastic Changes in Animal Production:

- CAP favours Beef and Milk Production- Higher price level and quotas set

incentives for Dairy Production- High market pressure on Pork and

Poultry Production (lower EU price level) and removal of national subsidies

Land use

0%

20%

40%

60%

80%

100%

BAS RRHU 1SHU 2SHU

Fodder Crops

Vegetables/Fruits/Prennials

Other Arable Crops

Oilseeds

Cereals

Share of Animal Products

0%

10%

20%30%

40%

50%

60%

70%80%

90%

100%

BAS RRHU 1SHU 2SHU

Other AnimalProducts

Milk

Poultry

Pork

Beef

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Quota Effects: MILKQuota Effects: MILK

Gross Production is determined by Quota, binding restriction!

Rising yields in combination with Quota restriction leads to lower Activity Level than without quotas

Activity Level DCOW

-

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

500.00

BAS RRHU 1SHU 2SHU

1000

hd

s

Gross Production DCOW

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

BAS RRHU 1SHU 2SHU

1000

t

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Quota Effects: MILKQuota Effects: MILK

Revenues (EURO/hd) rise in both scenarios relative to the reference situation (no accession), but due to quota restriction, activity levels and gross production go down in 1SHU (EU proposal)

Effects of different Policy Scenarios

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

DEV EU/REF DEV CEEC/REF

Revenues

Activity Level

Production Value

Gross Production /Domestic Supply

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Direct Payments: Soft WheatDirect Payments: Soft Wheat

•Revenues and Production value rise due to Premia and higher EU price level•Revenues are higher than in reference situation for all scenarios•Activity levels remain almost unchanged due to higher revenue increases in other crop activites (Oilseeds)


0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%


Revenues

Activity Level

Production Value


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EU Market Pressure: PorkEU Market Pressure: Pork

Pork production is reduced due to internal market pressure (low EU-15Prices)No differences between the scenarios

Activity Level PORK

-

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

BAS RRHU 1SHU 2SHU

1000

hd

s


-50.0%

-45.0%

-40.0%

-35.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%


Revenues

Activity Level

Production Value


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EU Market Pressure: PoultryEU Market Pressure: Poultry

Market pressure on poultry production not as drastic as on pork

Activity level increases around 5% compared with reference

Activity Level POUL

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

BAS RRHU 1SHU 2SHU

1000

hd

s


-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%


Revenues

Activity Level

Production Value


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ConclusionsConclusions from a Hungarian from a Hungarian PerspectivePerspective

• Sectoral income is rising after accession• Production structure changes mostly for the animal activities

away from pork and poultry to milk and beef• Production Activities that gain from accession: Beef, milk

(revenues only), cereals, oil seeds, potatoes, sugar beet (revenues only)

• Production Activities that get under pressure after accession: Pork, (poultry)

• Quotas significantly hinder competitiveness and necessary structural changes

• For the products with the sharpest market pressure there are no direct payments (Pork, poultry)

• Compromise proposal achieves similar level of production with lower costs to EU Budget => advantage for negotiations

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Policy Policy ImplicationsImplications

• Form political alliance to abandon quotas• Use national envelopes for policies that support structural

changes• Use rural development measures to increase alternative

employment opportunities• Pressure on agriculture will rise with quality competition from

EU-15• Further investigate regional effects

• Quotas and ceilings are more important than Direct Payments• Maximise flexibility in measures so that competitiveness and

structural change can be improved/supported• Think cross-sectoral, since serious welfare effects on other

sectors if allocation is misdirected.

Short Term (Negotiations)

Mid Term (Post-Accession)

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Core EquationsCore Equations

),( POLPPWfPTEX

),( MPTEfPPX

),,,( YLDPOLPPOLAPPfREVPACT

),1,,,( PACTFEEDINDPACTPACT APOPIPIREVfLVL

),( ,XPACTPACTX YLDLVLfPRD

XXX PRCPRDSUP

XXXXXXX INDPRCLNKSTCCNSINPDEM

XXXX ITSNETTRDDEMSUP

REV = RevenuesYLD = Yields

PP = Producer PriceM = Fixed Processing Margin

PW = World Market PricePTE = Domestic Market PricePOLP = Political Variables per Product

LVL = Activity LevelsPOLA = Pol. Var / ActivtiyPI = Input Prices

PRD = Gross Production

INP = Demand for Inputs (Feed and non Feed)LNK = Uses linked to production

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Input Demand (non feed)Input Demand (non feed)

PACT

PACTXPACTXX IREVREVSLOGSPIINPLOG )*()( ,

X

XXX IPPPLOG )*( ,

INP = Input DemandSPI = Input demand shifterREVS = RevenuesIREV = Input elasticities wrt Activity RevenuesPP =Producer PricesIP = Input elasticities wrt own pricesPP = Producer PricePACT = Production Activity

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Input Demand (feed)Input Demand (feed)

PACT

PACTXPACTXX FLVLLVLLOGSPIINPLOG )*()( ,

X

XXX FPPPLOG )*( ,

INP = Input DemandSPI = Input demand shifterREVS = RevenuesFLVL = Feed elasticities wrt Activity RevenuesPP =Producer PricesFP = feed elasticities wrt own pricesPP = Producer PricePACT = Production Activity

idara policy simulation model (i-sim)

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