CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Contributions to EU-Med Agpol Based on the CAPRI modeling System overview, progress in the first year and outlook Wolfgang Britz Institute for Agricultural Policy, Bonn CAPRI Common Agricultural Policy Regional Impact

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Outline The team in Bonn Short overview on WP6 What is CAPRI ? Contributions of the Bonn team Necessary changes in CAPRI Progress in the first year

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul The team in Bonn Institute of Agricultural Policy, University Bonn: Wolfgang Britz, team leader Franziska Junker, phD student –Specializing in policy impact analysis based on quantitative models –Long-standing relations to DG-AGRI –Co-ordinates the activities around the CAPRI modeling systems

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul What is WP6 Quantify possible changes in European and Mediterranean production, imports, and exports of important commodities –Using models CAPRI for the EU (combination of regionalised models for EU27 with global trade model) TASM for Turkey => Errol’s presentation to follow (regionalised sector model for Turkey) CGE for Morocco => Rachid‘s presentation to follow (all sectors, endogenous prices for primary factors) –Deliverables are three reports analyzing results of the models => WP7 & WP8: e.g. D24 Quantitative Assessment of EU-Mediterranean Trade Liberalization Using the CAPRI Modeling System (month, 30, Report, Public)

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul A reminder on modeling... Modeling is about abstraction and aggregation: –Defining what facts and relation matter –Getting number to describe these facts and relations –... And, most important, do a careful interpretation in the light of the assumptions and the model structure! What does it mean specifically: –Aggregation over a complex „family“ of products –Aggregation over a complex set of policies –Aggregation over the supply chain!

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul What is CAPRI ? Common Agricultural Policy Regionalised Impact Model, a model for European (EU27) and global agriculture Developed by a network of European researchers Main funds: EU-Research framework programs Recent impact analysis ( ) of: MTR/July 2003 reform package Sugar market reform options Tradable permits for GWPs Further trade liberalisation steps CAPRI is installed at and used by DG-AGRI Part of several FP VI projects (3 Streps, 2 IPs) direct projects for DG-AGRI, DG-ENV, DG-JRC and EAA, industry contacts

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul What is CAPRI ctd. ? Closed and consistent expost data base Regionalized for EU27 + Norway at NUTS II (about 200 regions, farm type module in development) : Activity based supply side (herds & areas, yields, nutrient balances, animal requirements, area balances, premiums, quotas, set-aside … for about 50 activities and 80 inputs and outputs) Covers all inputs/outputs according to the definition of Economic Accounts Comprises a global spatial trade model for main agricultural products with explicit market EU policy Welfare analysis, Feoga budget, env. indicators

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul What matters in our simulations? How react producers and consumers, especially in EU and MED, to price changes: –Price elasticities, functional forms –Starting point  reference run What kind of price changes are triggered by lowering border protection and domestic supports: –Adequate description of border protection/dom. support –Correct price system (production cost...)

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Work necessary Split up „Mediterranean country block“ in CAPRI market model into several regions... And find suitable data and parameters to do so Integrate supply, demand and trade data at least for olive oils, fruits, vegs and potatoes Run trade policy scenarios... And analyze the results

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Work done in the first year Mediterranean extensions –Market model now features individual Mediterranean countries –Mediterranean products are now endogenous in supply and market part –CMOs for Mediterranean products included in model Tariff data base completely rehauled Test run regarding complete EU-Med liberalization

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Split up „Med country block“ Own behavioral equations in trade model for: Morocco Tunisia Algeria Egypt Turkey Israel but all these countries are treated as one aggregated trade block (“uniform” import and export tariffs)  dimensionality of the model

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Split up „Med country block“ Data expost and exante: –Supply Utilization Accounts from FAO as market information  base data used in country specific models? –Trade flow data from FAO, aggregated by product and country –Long-term trends from  reference run of country specific models Parameters: –either borrowed model or set by simple rules, will they be later based on simulation experiments with country specific models e.g. TASM? –Calibration to ensure regularity

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Mediterranean products Supply and market model now features additionally as endogenous products: –Olive oil –Apples, pears and peaches –Citrus fruits –Table grapes –Other fruits –Potatoes –Tomatoes –Other vegetables –Wine In total some 40 products

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Policy data for Mediterranean products Partly deliverable from WP3 –EU protection of Mediterranean products for fruits, vegetables and olive oil (D13, month 15) –Mediterranean country protection for cereals, meats and dairy (D14, month 15) Additionally, “flat” approach based on AMAD data base: –WTO bindings and applied rate are aggregated by product and country, combining 50% import values as weights and 50% unweighted averages (starting with about tariff lines …) –not only for EU and Med, but for all countries and all products in the model (40x40 matrix) And own data mining in CMOs

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul CMO for Olives Policy MeasureImplementation Production Aid 1322 €/tonConverted into monetary expense (aid/t*NGQ (t)), then introduced as national ceiling value. Decoupling60% in Spain, 100% in all other Member States Import quotas for Lebanon and Tunisia Duty free import quota for ROW (1.000t) and MED (56.000t) Tariffs1346 €/t (Olive Oil) 3,2 % (Table Olives)

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul CMO for fruits and vegetables Policy MeasureImplementation Processing Aid for CitrusProcessing Aid acts like a per unit subsidy for processing. Subsidy defined by dividing Feoga expenses by processed quantity in base year Processing Aid for tomatoes Processing Aid for Pears & Peaches Support to producer organisationsPremium paid per ton produced until value ceiling TariffsCitrus: 10,27% Tomatoes: 11,6 % Pears and peaches: 7,77 %

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul CMO for Wine Policy MeasureImplementation No new plantings allowed until 2010 Limit on area for wine (base year area + national planting rights) in reference run Distillation of wine Compulsory distillation of the by-products of wine Taking over of alcohol from compulsory distillation Aid for the use of must Processing Aid acts like a per unit subsidy for processing. Subsidy defined by dividing Feoga expenses by processed quantity in base year Remaining instrumentsConverted into premium paid per ton produced under value ceiling

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul A test simulation with the new model Simulation year is 2010 Reference run for Mediterranean countries is based on results EU 25 Member States have implemented the June 2003 MTR package („most probable implementation strategy“, comparison point) All import tariffs plus export subsidies between the EU and the Mediterranean countries are wiped out (bilateral duty and quota free access; but limited tariff information)

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul First simulation results What do we expect? –Welfare gains –Increasing EU-imports of fruits and vegetables olive oil –Increasing MED-imports of cereals dairy products Meat

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Welfare

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Trade effects

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Trade effects

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Which improvements do we expect? Short term: –Better specification of trade policies: add information on tariffs... –Verification of market balance and trade flow data Medium term: –Better specification of parameters determining model behavior: price elasticities Production costs Substitution elasticities Armington?

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Possible link to country models Perform sensitivity analysis with country models (i.e. Iteratively all prices changed by 1% => run model => report results) Store resulting matrix of own and cross prices point elasticities for supply/feed/demand Calibrate behavioral equations in CAPRI market model for e.g. Turkey to the point elasticities from TASM

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Questions How to organize the possible sensitivity analysis Comparison of data sources How to line up reference run across models ? Parameter sources How to organize data exchange ?

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Thank you for your attention!

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Work packages for Bonn Quantify possible changes in European and Mediterranean production, imports, and exports of important commodities (WP6, task leader, 9 Person months) Interaction with world markets and international negotiations (WP 7, 3 Person months) Estimate the changes in European production, incomes, ag budgets, social changes, and other impacts (WP 8, 2 Person months) Diffuse results (WP 9, 1 Person month)

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Characteristics of the trade model I Globally closed Spatial model (bilateral trade flows) based on the Armington assumption –18 trade blocks –EU27, Mediterranean and Mersosur countries at single country level inside trade blocks (in total ~40 countries) 40 primary and secondary agr.products Direct modelisation of intervention stock changes, subsidized exports and bi-lateral tariffs and preferential trade agreements (TRQs)

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Characteristics of the trade model II Regular well-behaved functions (supply, feed, processing: normalized quadratic, human consumption: Generalized Leontief Expenditure System) => welfare analysis Comprises first stage processing (oil seeds, dairy) Fat and protein balances/prices for EU dairy industry Synthetic model: behavioral parameters are taken from literature, not estimated About equations and variables

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Major results Welfare gains for EU (+0.7 Bio €) and MED (+1.4 Bio €) Distributional effects: –Gains for agricultural producers –Consumer loose somewhat –Loss of tariff revenues Major impacts: –Higher cereal prices in EU (+2%) –Lower olive oil price in EU (+7%) –Lower cereal prices in MED (-x%) –Higher prices for olive oil, xxxx

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul What remains to be done? Partially curious results due to –Too high substitution effects, too massive production responses  parameterization of model –Possibly wrong data in the base year (e.g. bi-lateral trade flows) –Possible unfortunate projection in reference run –Specific tariffs are still missing Remedies: –Parameterization based on country models and expert input –Check of data base and reference run for MED countries with country experts –During the course of the project: refined methodology to model bi-lateral trade

CAPRI WP 6: CAPRI, Eu-Med Agpol 2nd meeting, 11th-13th May 2005 Istanbul Thanks for your attention !