1. CAPRI Restrictions and Input Coefficients in the regional supply models CAPRI Common Agricultural Policy Regional Impact

2. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 2 Blocks of Restrictions Fixed Resources: arable land, grass land Feed Fertilizer Young animal balance Supply balance Policy restrictions: set aside Production quotas (milk, sugar)

3. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 3 Blocks of Restrictions

4. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 4 Restrictions - Land + Policy Fixed resources (Area_, Grasa_) Policy restrictions: set aside (Mxseta_, Seta_)

5. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 5 N-, P-, K-balances Herd sizes Manure per Head Supply to crop production Losses Mineral fertilizer purchase N, P, K production by animals Export with harvest Over- fertilization ? “availability” factor Biological fixation “overfertilization” factor

6. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 6 Fertilization module Crop activities demand nutrients which are partially supplied by animal activities (manure): crops enter the equation as ‘consumers’, which need to cover their nitrogen needs through the application of fertiliser Nutrient correction and nutrient availability factors are included and specified in order to calibrate observed data on national mineral fertiliser consumption and regional manure production All sources and sinks of nitrogen in agriculture are introduced into the model (atmospheric deposition, biological fixation, …)  exports and imports of nutrients are considered

7. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 7 Ammonia module Nitrogen from animals Total crop N Need NH 3 Mineral N N losses on grazings N losses in stable NH 3 N losses in storage systems NH 3 N losses in manure application NH 3

8. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 8 Calibration step fertilization Herd sizes Manure per Head Supply to crop production Losses Mineral fertilizer purchase N, P, K production by animals Export with harvest Over- fertilization ? “availability” factor Biological fixation “overfertilization” factor Given from statistics or engineering knowledge Calibrated to base year situation

9. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 9 Counterfactual scenarios Herd sizes Manure per Head Supply to crop production Losses Mineral fertilizer purchase N, P, K production by animals Export with harvest Over- fertilization ? “availability” factor Biological fixation “overfertilization” factor Given from calibration step / engineering knowledge Endogen in model run

10. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 10 Restrictions – Feed module Animal activities demand nutrients which are supplied by crop feeding activities Energy, protein, fiber and dry matter requirements are calculated for 16 animal activities based on bio-physical equations Two parts: -Need of nutrients by animals and availability of them on feeding aggregates defined: requirement functions for each animal category are estimated depending on the ingestion capacity, live weight, days of production and yields -Fodder prices are estimated for non tradable feeding compounds in the model.

11. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 11 Restrictions - Feed I Balance for feeding stuff (Feduse_) Requirements for animals (Reqs_) Prices for feeding stuff

12. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 12 Restrictions - Feed II Minimum dry matter intake (MinShr_) Maximum dry matter intake (MaxShr_)

13. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 13 Restrictions - Young animals Balance for young animals (Inpani_) Prices for young animals

14. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 14 Restrictions - Supply balance Supply balance (Supbal_) Prices of products

15. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 15 Production Quotas Introduce a new restriction: nettrd om  Q – Works for milk – Sugar regime requires more complex approach

16. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 16 Main components of the CMO 2 Quota system (A and B) 3 prices for sugar beets (A,B and C) prohibitive tariffs to avoid sugar imports Preferential imports from certain countries (ACP countries, India, Western Balkans, Brazil) Intervention combined with subsidised exports

17. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 17 Sugar production in the EU15 (A398) 52% 71% 88% +25% +20% +5% +33% +4% +6% +16% +28% +26% +9% -17% +7% +4%

18. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 18 The quota/levy mechanism A quota ~ domestic demandB quota Intervention price for sugar P I Sugar world market price Prices Export costs Levy C sugar Sugar quantities A beet price P A B beet price P B C beet price P C

19. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 19 Profit maximisation General agreement: marginal production costs exceed C beet prices Profit maximising behaviour insufficient to explain observed production quantities in most EU countries Marginal production costs = p C ? qAqA q A+B pCpC pBpB pApA x0x0 p A,B,C = A,B,C beet prices q A,A+B = A and A+B quota x 0 = observed supply Sugar beet production Sugar beet prices

20. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 20 Expected Profit maximisation Possibility to reconcile higher marginal cost with observed production but High C sugar shares still unexplained qAqA q A+B pCpC pBpB pApA x0x0 Sugar beet production Sugar beet prices Marginal production costs = expected marginal revenue ? x1x1 p A,B,C = A,B,C beet prices q A,A+B = A and A+B quota x 0 x 1 = observed supply EMR depends on: Prices Quotas Yield variance Expected marginal revenue

21. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 21 Shifting expected marginal revenues P A,B,C = A,B,C beet prices MC est = marginal cost (estimates) EMR = expected marginal revenues X = sugar beet supply Assumption: Yield underestimation PAPA PBPB PCPC Beet prices X0X0 QAQA Q A+B EMR 0 MC 1 Beet supply MC est XPXP

22. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 22 Can expected profit maximisation explain observed C sugar quantities (1) Assume each EU Member State is a single farm faced with the national quota endowment national average prices national average yield variation (FADN) national average marginal costs (Estimates)

23. CAPRI CAPRI Training Session, Warsaw, June 26-30 2005 23 Change in regional sugar beet production