CAPRI CAPRI

Restrictions and Input Coefficientsin the regional supply models

CAPRICommon Agricultural Policy Regional Impact

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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)

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CAPRI Training Session, Warsaw, June 26-30 2005

3

Blocks of Restrictions

Crop Activities

Animal Activities

Feed Use

Net Trade Constraints

Objective function

+ Premium – Acc.Costs – PMPACT

+ Premium – Acc.Costs – PMPACT – PMPFeed

+ Price

Output + + - - = 0

Area - <= UAAR Set aside +/- = 0 Quotas - - <= Ref. Quantity Fertilizer needs - + + = 0 Feed require. - + + = 0

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CAPRI Training Session, Warsaw, June 26-30 2005

4

Restrictions - Land + Policy

grasgrsact

grsact

arabarbact

arbact

GRASlevl

GRASUAARlevlts

..

Fixed resources (Area_, Grasa_)

Policy restrictions: set aside (Mxseta_, Seta_)

3/

0*01.01

*01.0..

grcugrcunonfseta

setanonfsetaarbact

arbact

levllevllevl

levllevlSETRSETRlevlts

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CAPRI Training Session, Warsaw, June 26-30 2005

5

N-, P-, K-balances

Herd sizes

Manure per Head

Supply to crop

production

Losses

Mineralfertilizerpurchase

N, P, K production by

animals

Export with harvest

Over-fertilization

?“availability” factor

Biologicalfixation

“overfertilization” factor

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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

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CAPRI Training Session, Warsaw, June 26-30 2005

7

Ammonia module

Nitrogenfrom animals

Total cropN Need

NH3Mineral N

N losses ongrazings

N losses in stableNH3

NH3

N losses instorage systemsNH3

N losses in manure application

NH3

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CAPRI Training Session, Warsaw, June 26-30 2005

8

Calibration step fertilization

Herd sizes

Manure per Head

Supply to crop

production

Losses

Mineralfertilizerpurchase

N, P, K production by

animals

Export with harvest

Over-fertilization

?“availability” factor

Biologicalfixation

“overfertilization” factor

Given from statistics or engineering knowledgeCalibrated to base year situation

CAPRI CAPRI

CAPRI Training Session, Warsaw, June 26-30 2005

9

Counterfactual scenarios

Herd sizes

Manure per Head

Supply to crop

production

Losses

Mineralfertilizerpurchase

N, P, K production by

animals

Export with harvest

Over-fertilization

?“availability” factor

Biologicalfixation

“overfertilization” factor

Given from calibration step / engineering knowledgeEndogen in model run

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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.

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CAPRI Training Session, Warsaw, June 26-30 2005

11

Restrictions - Feed I

Balance for feeding stuff (Feduse_)

feedfeedmaact

maactmaactfeed feduselevlfedng ,

reqsfeed

feedfeedmaact

maactmaact

reqfedng

daysareqts

0

..

,

Requirements for animals (Reqs_)

Prices for feeding

stuff

CAPRI CAPRI

CAPRI Training Session, Warsaw, June 26-30 2005

12

Restrictions - Feed II

minshrfeedfeedmaact

minsmaactfeedmaactmaact

drmamaact

drmafedng

areqminxshrdaysareq

0

***

,

,

Minimum dry matter intake (MinShr_)

maxshrfeedfeedmaact

maxsmaactfeedmaactmaact

drmamaact

drmafedng

areqmaxshrdaysareq

0,

,

Maximum dry matter intake (MaxShr_)

CAPRI CAPRI

CAPRI Training Session, Warsaw, June 26-30 2005

13

Restrictions - Young animals

iyanimaact

iyanimaactmaact

omyaniomyani IOlevlyanusets ..

Balance for young animals (Inpani_)

Prices for young animals

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CAPRI Training Session, Warsaw, June 26-30 2005

14

Restrictions - Supply balance

omsmpact

omsmpactmpact

feedfeedomsoms

IOlevl

fedusefeduseyanusenettrdts

..Supply balance (Supbal_)

Prices of products

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CAPRI Training Session, Warsaw, June 26-30 2005

15

Production Quotas

Introduce a new restriction:

nettrdom Q

– Works for milk

– Sugar regime requires more complex approach

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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

CAPRI CAPRI

CAPRI Training Session, Warsaw, June 26-30 2005

17

Sugar production in the EU15 (A398)

0

2000000

4000000

FR DE IT UK ES NL BL DK AT SE EL IR FI

t total sugar quotas

production of sugar(A398)

52%

71%88%

+25%

+20%

+5%+33%

+4% +6% +16%+28%+26%+9%-17% +7% +4%

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CAPRI Training Session, Warsaw, June 26-30 2005

18

The quota/levy mechanism

A quota ~ domestic demand B quota

Intervention price for sugar PI

Sugar world market price

Prices

Exportcosts

Levy

C sugar

Sugar quantities

A beet price PA

B beet price PB

C beet price PC

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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 = pC ?

qA qA+B

pC

pB

pA

x0

pA,B,C

= A,B,C beet pricesqA,A+B = A and A+B quotax0 = observed supply

Sugar beet production

Sugar beetprices

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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

qA qA+B

pC

pB

pA

x0 Sugar beet production

Sugar beetprices

Marginal production costs = expected marginal revenue ?

x1

pA,B,C

= A,B,C beet pricesqA,A+B = A and A+B quotax0 x1 = observed supply

EMR depends on:• Prices• Quotas• Yield variance

Expected marginal revenue

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CAPRI Training Session, Warsaw, June 26-30 2005

21

Shifting expected marginal revenues

PA,B,C = A,B,C beet pricesMCest = marginal cost (estimates)EMR = expected marginal revenuesX = sugar beet supply Assumption: Yield underestimation

PA

PB

PC

Beet prices

X0QA QA+B

EMR0

MC1

Beet supply

MCest

XP

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CAPRI Training Session, Warsaw, June 26-30 2005

22

Can expected profit maximisation explainobserved C sugar quantities (1)

Assume each EU Member State is a single farm faced with

the national quota endowmentnational average prices national average yield variation (FADN)national average marginal costs (Estimates)

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CAPRI Training Session, Warsaw, June 26-30 2005

23

Change in regional sugar beet production