Lecture 4

1. Lecture 4 • Chinagro model structure and classificationsW.C.M. van Veen Presentation available: www.sow.vu.nl/downloadables.htm www.ccap.org.cn

2. Current status of the welfare model • Chinagro model presented in 4 lectures • Lecture 4 Structure and classifications • Lecture 5 Consumer demand • Lecture 6 Farm supply • Lecture 7 Feed accounting methodology

3. Contents of lecture 4 • Recapitulation of yesterday's lectures • aggregation messages • structure Chinagro welfare model • Classifications Chinagro • consumers • producers • markets: sites, commodities

4. Recapitulation aggregation (1) • Two types of aggregation from individual 'nano' (spatial • or social continuum) to operational 'micro' level: • exact • optimal (best approximation)

5. Recapitulation aggregation (2) • Is exact aggregation feasible? • for profit maximizing farmers: yes • for consumers maximizing utility subject to a budget constraint (demand system): yes, provided marginal utility of income is fixed (true in welfare programme since transfers adjust) • for markets and commodities: no (compromise unavoidable in applications)

6. Recapitulation aggregation (3) • Is optimal aggregation feasible? • for profit maximizing farmers: yes • for consumers maximizing utility subject to a budget constraint (demand system): yes • for markets and commodities: no (compromise unavoidable in applications)

7. Recapitulation aggregation (4) • Importance of aggregation messages for Chinagro welfare model: • provides underpinning of operational specification of representative farmers and consumers (in terms of both exact and optimal aggregation) • possibility to use 'nano'-level information in estimation procedure

8. Structure of Chinagro welfare model (1) • profit maximizing farmers at detailed spatial level • utility maximizing consumers at detailed spatial level • spatially aggregated markets for commodities traded outside the own site, possibly also from/to abroad • local markets for sources at detailed spatial level • detailed level: county • aggregated level: region

9. Structure of Chinagro welfare model (2) • Full static version:

10. Regions of Chinagro welfare model

11. Classification of consumers • Consumers: • rural population by county (2300) • urban population by region (8) • In fact, model has • with the population size of class s • Hence, • - utility depends on per capita consumption • - detailed scenarios of migration possible

12. Classification of producers • In each county: • two crop farmers: rainfed, irrigated • number of livestock farmers: under discussion • one fisherman (exogenous output) • In each region: • one non-agricultural producer (exogenous output) • (each producer characterized by own transformation function and own optimal behaviour)

13. Relative importance livestock activities 1997 • (in million of RSLU) • Cattle Buffalo Goat Sheep Pigs Poultry • Grazing 21.9 - 5.2 8.8 - - • Trad. mixed 51.3 22.1 10.5 4.2 32.2 20.5 • Specialized 2.0 0.1 2.0 1.6 3.1 10.5 • Industrial 1.5 - 0.5 1.5 1.8 1.9 • Source: CCAP/IIASA

14. Possible classification livestock farmers • By system: • meat/milk ruminants, grazing • meat/milk ruminants, mixed • draught animals • pigs/poultry, mixed • pigs, intensified • poultry, intensified

15. Model specification intensified livestock • production adjusts, within bounds, to demand • spatial distribution of production adjustment specified exogenously • In model formula, for instance: • with • instead of

16. Classification of markets • For tradable commodities • spatial aggregation into 8 regions • commodity aggregation into 14 commodities: • food (12) • non-agriculture (1) • marketed feed (1) • Furthermore, 3 types of local sources (county markets) • feeds • operating capacity • plant nutrients

17. Relative importance of food commodities (in % of total food expenditures, 1997) • Rural Urban • Rice 18.8 9.6 • Wheat 12.8 5.1 • Maize 2.9 0.5 • Other staple 6.4 1.4 • Veget.oil 6.2 4.6 • Sugar 1.2 1.7 • Fruit 4.1 8.7 • Vegetables 16.5 14.8 • Rumin.meat 3.0 7.4 • Pork 16.8 14.6 • Poultry 7.5 19.6 • Fish 4.0 11.9 • Source: CCAP/IIASA

18. Relative importance of feed types, 1997 • Supply in million Gcal • Local feed Marketed feed • North 89 124 • Northeast 78 68 • East 50 40 • Central 71 35 • South 55 23 • Southwest 101 55 • Northwest 147 49 • Source: CCAP/IIASA/SOW-VU

19. NE NW N E C SW S Interregional and foreign trade flows

20. Net import flows by region, 1997, 1000 Mton • Milled rice Pork • North 3273 -115 • Northeast 1362 330 • East -360 760 • Central -5181 -1084 • South 4969 1239 • Southwest -5830 -1214 • Northwest 1218 -337 • China -549 -421 • Source: calculated from baseyear data set of the project

21. Market region r (centre of gravity) Urban consumer Rural consumer county 1 Rural consumer county S(r) Farmgate county 1 Farmgate county S(r) Trade flows inside the regions

22. Difference farmgate - rural consumer • Price milled rice in Yuan/kg, 1997 • Farmgate Rural consumer • North 2.40 2.69 • Northeast 2.04 2.21 • East 2.09 2.12 • Central 1.79 1.94 • South 2.09 2.43 • Southwest 2.61 2.47 • Northwest 2.22 2.35 • --> can the model neglect the differences?

23. Solving the welfare model • solution algorithm in GAMS • dimensions large (2300 counties!) • therefore, decomposition of welfare model: • - regional variables and markets in main programme • - county variables in feedback loop • - iteration between main programme and feedback • specification of farm supply and rural consumption should allow solution in closed form (at given regional prices)