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MEDFROL meeting

MEDFROL meeting. Paris, March 15 2007. WP5 Trade Policy Modelling. P. Michael Schmitz and Katerina Kavallari. Layout of presentation. Overview of the model Overview of the simulation scenarios Summary of key findings-concluding remarks. AGRIcultural SImulation Model.

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MEDFROL meeting

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  1. MEDFROL meeting Paris, March 15 2007 WP5 Trade Policy Modelling P. Michael Schmitz and Katerina Kavallari

  2. Layout of presentation • Overview of the model • Overview of the simulation scenarios • Summary of key findings-concluding remarks

  3. AGRIcultural SImulation Model • Multi-market-multi-region world trade model • Partial equilibrium, comparative static and deterministic • Synthetic simulation model with iso-elastic supply and demand functions, calibrated on base year 2001 • Trade modelled as net trade • 9 markets and 16 regions in the basic version • Implementation of agricultural and trade policies: e.g. through nominal protections rates, production quotas, producer subsidies

  4. Apples* Coarse grains (barley, maize, millet, oats, rye, sorghum, triticale, other cereals) Beef Cotton* Milk Rice Oilseeds (rape and mustard seed, soybeans, sunflower seed) Sugar Olive oil* Oranges* Pig meat Poultry meat (chicken, duck, goose, turkey meat, other poultry) Tobacco* Tomatoes* Wheat New Commodity List of AGRISIM Source: AGRISIM database * new commodities added in AGRISIM for the purposes of the MEDFROL Project

  5. Australia Algeria* Brazil Belarus Bulgaria Canada China Cuba Cyprus* Czech Republic Egypt* Estonia EU-15 (data for each country) Hungary Iceland India Israel* Japan Jordan* Korea, Republic of Latvia Lebanon* Libya* Lithuania Malta* Mexico Morocco* New Zealand Norway Poland Romania Russian Federation Slovakia Slovenia South Africa Switzerland Syria* Thailand Tunisia* Turkey Ukraine USA Rest of World New Country List of AGRISIM Source: AGRISIM database * new countries added in AGRISIM for the purposes of the MEDFROL Project

  6. AGRISIM – simulation scenarios – Base Run Agenda 2000, EU-East enlargement, Luxembourg Agreement SC1 base run + CAP Reform on Mediterranean products SC2 SC1 + EU enlargement with Bulgaria & Romania SC3 SC2 + Free Trade Area between EU-MPCs+customs union between EU-MPCs SC4 SC2 + 50% multilateral liberalisation (worldwide) SC5 SC2 + 100% multilateral liberalisation (worldwide) (BA)

  7. Summary of findings – Concluding remarks (1) – SC1 & SC2 – • The CAP reform for the Mediterranean commodities affects only the Med. EU Member States and not the MPCs

  8. Net trade effects on EU Mediterranean Member States due to CAP Reform for Mediterranean commodities

  9. Summary of findings – Concluding remarks (1) – SC1 & SC2 – • The CAP reform for the Mediterranean commodities affects only the Med. EU Member States and not the MPCs • The Enlargement with Bulgaria and Romania seems to affect only these two countries

  10. Summary of findings – Concluding remarks (2) – SC4 & SC5 – • The supply in the EU changes (drops) mainly for high protected commodities e.g. beef, the demand increases • The prices adjust to the world market prices e.g. farm gate prices drop & farmer’s income decreases • The decline of income of the southern EU farmers is not higher than that of the northern EU farmers (!)

  11. Summary of findings – Concluding remarks (3) – SC3 – • All Mediterranean countries maintain their Base Run positions in the world supply

  12. Change of supply shares for Mediterranean commodities (% deviation from BA)

  13. Summary of findings – Concluding remarks (3) – SC3 – • All Mediterranean countries maintain their Base Run positions in the world supply • The full entry into force of the Euro-Med Agreements seem to affect marginally the net trade of Greece, Italy and Spain regarding main export and import commodities

  14. Net trade effects on Mediterranean EU due to SC2 and SC3 (deviations from BA)

  15. Summary of findings – Concluding remarks (3) – SC3 – • All Mediterranean countries maintain their Base Run positions in the world supply • The full entry into force of the Euro-Med Agreements seem to affect marginally the net trade of Greece, Italy and Spain regarding main export and import commodities • The MPCs due to the Euro-Med Agreements seem to export less from their main export commodities and to import more northern commodities

  16. Net trade effects on MPCs due to SC2 and SC3 (deviations from BA)

  17. Summary of findings – Concluding remarks (4) – SC3 & SC4 – • The producers are negatively affected by trade liberalisation (reduction of producer’s surplus) • The consumers on the other hand benefit the most • Budget effects particularly beneficial for the southern EU Member States but not for the northern and the new EU Member States and for the MPCs

  18. Budget effects on the EU (deviations from BA)

  19. National vs. Intra-community financing system of the budget effects (deviations from BA in mio US $)

  20. Summary of findings – Concluding remarks (4) – SC3 & SC4 – • The producers are negatively affected by trade liberalisation (reduction of producer’s surplus) • The consumers on the other hand benefit the most • Budget effects particularly beneficial for the southern EU Member States but not for the northern and the new EU Member States and for the MPCs • Overall positive welfare effects • Through a more efficient allocation policy compensation for the losses of producers?

  21. Welfare effects on Turkey (deviations from BA)

  22. MEDFROL meeting Paris, March 15 2007 WP5 Trade Policy Modelling P. Michael Schmitz and Katerina Kavallari

  23. Thank you for your attention!

  24. Key facts on trade relationships in the Mediterranean • Trade between EU-MPCs important • Progress towards liberalisation rather limited • Dispute on market access: MPCs versus EU Mediterranean Member States • Other issues to be taken into account such as water, infrastructure, etc. Is full liberalisation possible? (Alvarez Coque, 2002)

  25. Trade protection from MPCs • No preferential applied duties granted by MPCs • High import tariffs for cereals, milk, sugar and meat by Morocco, Tunisia and partly Turkey Wheat: 30% by Morocco in 1997-2002 but 60% in 2003, 70% in Tunisia Milk: 100% by Morocco in 2003, 150% by Turkey in 2003 Beef: 275% by Morocco in 2003, 27% by Tunisia in 2002 but 80% in 2003 Sugar: 135% by Turkey in 2003, 30% by Morocco • Export subsidies between 1997-2003 for fruits & vegetables reported by Cyprus, Israel, Morocco, Tunisia and Turkey

  26. Value of Preference Margins for Oranges resulted by the Euro-Med Agreements Source: own calculations based on reported import duties derived from TRAINS and bilateral trade flows derived from COMTRADE

  27. Region 1 Region 2 Domestic Price Domestic price World market price World market 1 Supply Demand Supply Demand Market clearing mechanism Net trade Net trade Domestic Price Domestic Price World market price World market 2 Supply Demand Supply Demand Market clearing mechanism Net trade Net trade Simulations-routine in AGRISIM; example of 2 markets – 2 regions Source: Own illustration based on Roningen (1997)

  28. Regional representation in models / / 176 Source: own illustration based on model documentations

  29. AGRISIM – database extensions – Volumes: FAOSTAT Bilateral trade flows: COMTRADE Policy data: world market prices, NPR PSEs of OECD bilateral import tariffs TRAINS export subsidies WTO notifications non-tariff barriers study from world bank Elasticities: SWOPSIM USDA FAPRI

  30. agridata.mdb Q_*.xls agridata.gms data_*.xls elast0.xls agricals.gms agricald.gms elast1.xls data_*.xls Technical organisation of AGRISIM 1. Data preparation 2. Calibration of elasticities 3. Formulation of scenarios: scen.xls 4. Running simulations data_*.xls elast1.xls agrisim.gms sout.xls scen.xls

  31. Basic equations/supply Supply function = Domestic Supply of product i in region r = Calibration parameter of supply function = Producer incentive price = Difference between producer incentive price and quota equivalent price = Own and cross price elasticity of supply = Supply shifter (yield and other shifts)

  32. Basic equations/demand Food consumption = Domestic non agricultural demand of product i in region r = Calibration parameter of domestic non agricultural demand function = Own and cross price elasticity of non agricultural demand = Non agricultural demand shifter (e.g. change in income, population) Other components of demand: seed and feed demand, waste, stock

  33. Basic equations/prices Border price = Border price of product i in region r = Reference border price of product i (USA border price) = Border price in base year for product i in region r = Reference border price in base year of product I = Domestic price of product i in region r = Nominal protection coefficient = Price transmission elasticity = Production-effectiveness = Subsidy per ton Domestic price Producer incentive price

  34. = Net trade of product s in region r = Change in stocks of product s in region r in base year (constant) Basic equations/Net trade Net trade Market clearing

  35. Objectives of WP5 „… The main objective of this workpackage is to develop an International Agricultural Trade Model with which one can simulate and evaluate the effects of various trade and market policies on Mediterranean Countries…” Source: Medfrol Technical Annex

  36. Impacts in Spain (deviations from BA in %)

  37. Empirical Studies

  38. Empirical Studies

  39. Comments on empirical studies • Most of the studies: CGEs / results for the whole economy • Simulations of liberalisation between EU-MPCs mostly on non-agricultural sectors • Agriculture often aggregated into one sector or through limited number of commodities • 3-country regional aggregation: EU, Partner country, Rest of World What are the impacts of policy reforms on the Mediterranean Agriculture?

  40. Net trade effects on the MPCs

  41. Producers’ surplus effects on the EU (deviations from BA)

  42. Consumers’ surplus effects on the EU (deviations from BA)

  43. Change of overall welfare in the EU-25 (deviations from BA)

  44. Welfare effects on Morocco (deviations from BA)

  45. Welfare effects on the rest of MPCs (deviations from BA)

  46. Objectives of WP5 To quantify the impacts of trade and agricultural policies on production, prices, net trade, budget and welfare on the Mediterranean basin of: • New CAP reform • Enlargement of the EU • Barcelona Agreement • WTO liberalisation Source: Medfrol Technical Annex

  47. Objectives of WP5 • Regional effects within the EU (northern vs. southern EU Member States) • Regional effects within the Mediterranean basin (EU Med. Member States vs. Mediterranean countries) market shares and competitiveness

  48. Deliverables D25: Description of the Trade Model AGRISIM D27: Synthetic Report: Trade Model Analysis

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