Restrictions and Input Coefficients in the regional supply models

1. CAPRICommon Agricultural Policy Regional Impact Restrictions and Input Coefficientsin the regional supply models

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. Blocks of Restrictions

4. Restrictions - Land + Policy Fixed resources (Area_, Grasa_) Policy restrictions: set aside (Mxseta_, Seta_)

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

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. Ammonia module Nitrogenfrom animals NH3 N losses on grazings N losses in stable NH3 N losses in storage systems NH3 Mineral N NH3 NH3 Total cropN Need N losses in manure application

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

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

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. Restrictions - Feed I Requirements for animals (Reqs_) Balance for feeding stuff (Feduse_) Prices for feeding stuff

12. Restrictions - Feed II Maximum dry matter intake (MaxShr_) Minimum dry matter intake (MinShr_)

13. Restrictions - Young animals Balance for young animals (Inpani_) Prices for young animals

14. Restrictions - Supply balance Supply balance (Supbal_) Prices of products

15. Introduce a new restriction: nettrdom  Q – Works for milk – Sugar regime requires more complex approach Production Quotas

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. 52% 71% 88% Sugar production in the EU15 (A398) +25% +20% +5% +33% +4% +16% +6% +28% +26% -17% +7% +9% +4%

18. Levy The quota/levy mechanism Prices Intervention price for sugar PI A quota ~ domestic demand B quota Export costs A beet price PA B beet price PB C beet price PC C sugar Sugar world market price Sugar quantities

19. pA pB pC qA qA+B x0 Profit maximisation Sugar beet prices Marginal production costs = pC ? Sugar beet production General agreement: marginal production costs exceed C beet prices Profit maximising behaviour insufficient to explain observed production quantities in most EU countries pA,B,C = A,B,C beet prices qA,A+B = A and A+B quotax0 = observed supply

20. Expected marginal revenue pA pB pC qA qA+B x0 x1 Expected Profit maximisation Sugar beet prices • EMR depends on: • Prices • Quotas • Yield variance Marginal production costs = expected marginal revenue? Sugar beet production Possibility to reconcile higher marginal cost with observed production but High C sugar shares still unexplained pA,B,C = A,B,C beet prices qA,A+B = A and A+B quotax0x1= observed supply

21. MCest Shifting expected marginal revenues Beet prices EMR0 PA PB MC1 PC PA,B,C = A,B,C beet prices MCest = marginal cost (estimates)EMR = expected marginal revenues X = sugar beet supply XP X0 Beet supply QA QA+B Assumption: Yield underestimation

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. Change in regional sugar beet production