modeling the efficiency of the agri-environmental payments to czech agriculture in a cge framework...
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Modeling the efficiency of the agri-environmental payments to Czech agriculture in a CGE framework
incorporating public goods approach
Zuzana Křístková - Czech University of Life Sciences, Department of Economics
Tomáš Ratinger - Institute of Agricultural Economics and Information (UZEI)
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Presentation Outline
Introduction and the objective of the paper Description of the methodological approach Model application and results Conclusion
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Introduction
The effects of the agrarian policy simulations cannot be captured fully without incorporation of multifunctional aspects of agriculture such as the landscape provision.
In the context of the Czech agriculture, the landscape function is mainly supported by agri-environmental payments directed to permanent grasslands with the extensive livestock production.
The objective of the paper is to incorporate the landscape provision into the CGE model and to assess the efficiency of the agri-environmental payments.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Presentation Outline
Introduction and the objective of the paper Description of the methodological approach Model application and results Conclusion
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Methodological approaches in modelling multifunctionality
EU-based research focused on the integration of bio-physical, land use and economic models:– Uthes, Ittersum and Sieber (2010), Renting, Rossing and
Ittersum (2009), Rossing, Zander and Josiem (2009), Parra-Lopez, Groot, Torres et al. (2009)
Incorporation of demand side of multifunctionality in the CGE framework:– Cretegny (2002) - Switzerland, and Rødseth (2008) –
Norway.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Applied methodology The CGE model is built for the economy of the Czech
Republic (base year 2006) and provides simulations till 2020.
SAM for the CGE model constructed with the use of the National Accounts, Statistics of Household Accounts and agricultural surveys provided by UZEI.
Public goods in form of landscape provision stemming from extensive beef production on permanent grasslands is incorporated into the CGE model.
Main features of the CGE model Recursively dynamic CGE model following standard IFPRI
structure. Supply of labour and land fixed; capital stock grows at the
rate of net investments (following Tobin q investment function).
Two types of households – farmer and other households maximizing utility modelled by the LES function.
Standard macroeconomic balance of savings and investment. Government closure determined by a fixed share of
governmental budget to GDP. Both foreign sector closures (for the EU and the RoW) assume
fixed foreign savings and endogenously adjusting exchange rates.
Direct payments modelled partially as land subsidies, partially as production subsidies.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Incorporation of landscape into the CGE model
Sector of extensive livestock farming is explicitly included in the SAM.
Following Cretegny, supply of landscape (public commodity) is modelled in a joint production function with beef meat (market commodity)
The demand for landscape corresponds to the households´ WTP and is incorporated into the LES (instead of originally intended use of the contingent valuation for CR, parameters for LES determined by certain assumptions)
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Production sectors included in the CGE model
Sector Land employment Descriptionsec1
Secland
cerealssec2 fruits and vegetablessec3 oilseedssec4 sugar beetsec5 intensive livestocksec6 pigs and poultrysec7 milksec8 other agriculture
sec14 extensive livestocksec9
Secnland
forestry and fishingsec10 food industrysec11 other industrysec12 R&Dsec13 other services
Nested production structure in the CGE
model
Linear function of capital
Value added i Intermediate Consumption i
Leontief
Gross production i
Depretiation i
Value added of secnland i
CES I
Capital Labour
Value added of secland i
CES II
Capital$secland
Land
Intensive farming(Sec 1-8)
CES I
Capital$secland
Capital-Land
Extensive farming (Sec 14)
Leontief
Capital$secland
Capital-Land
Leontief
Capital$secland
Land
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Optimal grassland area with internalized demand for landscape
"Market" for PG
0
1000
2000
3000
4000
5000
6000
7000
8000
0 0.2 0.4 0.6 0.8 1 1.2 1.4
Grassland Area (milion ha)
Pri
ce p
er h
ecta
re
Supply PG mWTP, Y Demand for Beef mWTP+DemBeef
L
S
Lm
mWTP
mWTP+BeefDem
Grassl./beef Supply
Beef/GrassDem
"Market" for PG
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
0 0.2 0.4 0.6 0.8 1 1.2 1.4
Grassland Area (million ha)P
rice
per
hec
tare
Supply PG Supply PG_addAEP
mWTP+DemBeef mWTP, Y_+10% + BeefDem
L L* L**
Income growth
addit. support
a) b)
Source: own illustration following Rødseth (2008)
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Presentation Outline
Introduction and the objective of the paper Description of the methodological approach Model application and results Conclusion
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Scenario Description
Scenario Purpose Performed simulation
Scenario 1Determine optimal landscape provision based on households´ WTP, no additional agri-envi payments to the extensive livestock sector
Additional agri-envi support removed from 2007 on, subsidies redistributed to hous
Scenario 2Determine optimal landscape provision under parallel existence of landscape market and additional agri-environmental support
Subsidy rates according to baseline
Scenario 3 Illustrate changes of landscape provision if additional agri-envi subsidies are removed in 2014
Additional agri-envi support removed from 2014 on, subsidies redistributed to hous
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Results
The impact of the considered scenarios is evaluated with respect to:– Evolution of grassland size– Demand for landscape– Production of extensive and intensive livestock
sector– Total gross agricultural production and GDP
Impact on the size of grasslands
725781 816
878924
964 992 1023 1034 1040 1067 1077 1099 1108
1407
17491673
1737 17241662
1699 16781632 1649
1407
17491673
913953 987 1018
1071 1093
1299
17191529
1484
1752
400
600
800
1000
1200
1400
1600
1800
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Scenario 1 Scenario 2 Scenario 3
Figure 1. Land employed in the extensive farming sector (‘000 ha)
Note: If the provision of landscape is determined purely by the households´ WTP, the optimal landscape size converges to 1,100 mil. ha, which is about 30% less than if the extensive livestock sector is also supported by additional agri-environmental payments
Impact on the demand for landscape
1.19 1.16 1.14 1.13 1.18 1.21 1.26 1.29 1.30 1.31 1.34 1.36 1.39 1.40
2.051.92
2.14 2.18 2.16 2.112.20 2.17
2.09 2.15 2.12 2.06 2.09
1.74
2.51
2.83 2.83 2.83 2.83 2.83 2.83 2.83 2.83 2.83 2.83 2.83
1.74 1.441.431.411.391.371.351.32
2.22
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Scenario 1 Scenario 2 Scenario 3 Subsidy rates
Figure 2. Demand for landscape by households (bln. CZK)
Note: In the absence of additional agri-envi support, demand for landscape referring to optimal subsidy rate would converge to 1.4 bln CZK, which is 50% lower compared to actual subsidy rates. This is mainly attributed to growth of landscape prices.
Impact on the livestock production intensity
5.2
5.86.2 6.1 6.2
6.46.7
7.07.3
7.67.9
8.28.5
8.99.3
5.2 5.15.4 5.4 5.3
5.55.9
6.2 6.46.8
7.27.4
7.88.3
8.7
1.30.9 0.9 0.8 0.8 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.0 1.0
1.31.5 1.5 1.4 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.5 1.6
0
1
2
3
4
5
6
7
8
9
10
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Scenario 1 intensive Scenario 2 intensive Scenario 3 intensive
Scenario 1 extensive Scenario 2 extensive Scenario 3 Extensive
Figure 3. Gross production of beef in extensive and intensive livestock farming (bln. CZK, constant prices of 2006)
Note: The longer term size of the extensive livestock sector would stabilize around 1 bln. CZK, which is 22% less than the initial period. With additional governmental support, the size of extensive livestock would reach 1.6 bln CZK.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Impact on gross agricultural production
Figure 4: Gross value added in agriculture (CZK bln., constant prices 2006)
54.657.1 56.3
58.1 59.361.3
63.565.6
67.969.9
72.074.3
76.779.2
54.656.2
57.7 59.060.9
63.165.1
67.369.4
71.473.6
76.078.5
51.4
30
40
50
60
70
80
90
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Scenario 1
Scenario 2
Scenario 3
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Impact on GDP
4.5% 4.5%
5.2%
7.0%
4.5% 4.5%
3.0%
5.1%
7.1%
3.0%
4.5% 4.5%
3.0%
5.1%
7.1%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
GDP Consumption Government Investment Net Exports
Scenario 1
Scenario 2
Scenario 3
Figure 5: GDP components (average % growth between 2006-2020)
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Conclusions Incorporating public goods in the CGE model has
important capacity to improve insight in the analysis of agri-environmental policy.
The results confirm the theoretical assumptions:– landscape demand increases with growing households´
income– Additional subsidy payments allow households to consume
more landscape It is hard to conclude which subsidy rate is the
socially optimal taking into account that under additional governmental subsidies, the households are willing to consume more landscape.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation122nd EAAE Seminar, February 17 – 18, 2011
Further research considerations
It is necessary to obtain correct WTP estimates that will significantly improve the valuation of the non-commodity production of agriculture.
The research can be further extended with the incorporation of other sectors with multifunctional activities and the special attributes of the bio-beef meet.
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