Making the market: How U.S. Policy influences near term agriculture and biofuel industry production and profitability under technology adoption

The beneficiaries of technology adoption in agriculture and biofuels markets in the United States are heavily influenced by domestic biofuel policies and market context. Biofuel mandates, one of the key pillars of domestic biofuel policies, may significantly alter the elasticity of demand for biofuels as well as the derived demand for maize used to produce a significant share of ethanol in the United States. Using a stochastic agriculture and biofuels model, we assess how the introduction of technology may affect the crops and biofuel markets under binding and non-binding biofuel mandates and discuss the implications for analysis of EU biofuel policies.biofuels, policy, technology adoption, mandates, Agricultural and Food Policy, Farm Management, Land Economics/Use,

INCORPORATING BIOFUELS INTO A PARTIAL EQUILIBRIUM MODEL OF THE EU AGRICULTURAL SECTOR

The impact of increased consumption of biofuels on agricultural markets has already been substantial, and will increase further as countries around the world seek to expand the proportion of their energy that they get from renewable sources. Models of the agricultural sector must therefore include some consideration of the demand for agricultural products for biofuels and the byproducts that are produced as part of the production process that are returned to the agricultural sector. In this paper the method of introducing biofuels into the FAPRI GOLD (grains, oilseeds, livestock and dairy) model is discussed. A scenario is run whereby the EU is assumed to introduce a binding 10% target by 2020 and the results are discussed in order to illustrate the workings of the model. The modelling effort is ongoing and planned work is discussed. The aim of the paper is to highlight major issues in building a model of this type.Biofuels, partial equilibrium model, agricultural sector, EU policy, Agricultural and Food Policy, Crop Production/Industries, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy,

Model Closure and Price Formation Under Switching Grain Market Regimes in South Africa

This paper develops the structure and closure of an econometric regime-switching model within a partial equilibrium framework that has the ability to generate reliable estimates and projections of endogenous variables under market switching regimes. Models used in policy evaluation usually either ignore the possibility of regime switching using just a single method of price determination based on average effects, or incorporate highly stylised components that may not reflect the complexities of a particular market. This paper proposes an approach that the authors believe allows the incorporation of features of regime switching in a multisector commodity level model that capture salient features of the South African market and therefore are able to produce more reliable projections of the evolution of the sector under alternative shocks.Agricultural and Food Policy, Crop Production/Industries,

Model closure and price formation under switching grain market regimes in South Africa

This paper develops the structure and closure of an econometric regime-switching model within a partial equilibrium framework that has the ability to generate reliable estimates and projections of endogenous variables under market switching regimes. Models used in policy evaluation usually either ignore the possibility of regime switching using just a single method of price determination based on average effects, or incorporate highly stylised components that may not reflect the complexities of a particular market. This paper proposes an approach that the authors believe allows the incorporation of features of regime switching in a multisector commodity level model that capture salient features of the South African market and therefore are able to produce more reliable projections of the evolution of the sector under alternative shocks.Crop Production/Industries, Marketing,

A Stochastic Analysis of Proposals for the New US Farm Bill

Most of the large scale modeling systems used in the analysis of agricultural policies produce deterministic projections. In reality, however, the agricultural sector is subject to a high degree of uncertainty as a result of fluctuations in exogenous factors such as the weather or macroeconomic variation. A stochastic approach can provide additional information to policy makers regarding the implications of this uncertainty, through the use of stochastically generated projections. This paper also shows how deterministic analysis may result in systematic errors in the projection of some variables. As an applied example, the FAPRI model of the US agricultural sector is simulated stochastically to analyse the impact of proposals for the new US farm bill.Stochastic simulation, US Farm Bill, policy analysis, Agricultural and Food Policy,

Impact of the abolition of EU Milk quotas on Agriculture in the UK

In recent years the CAP has undergone significant reforms, but the dairy sector has largely avoided wholesale changes. The sector, however, is now faced with a significant effort by the Commission to instigate reform. In this study the FAPRI-UK modelling system is simulated to identify the impact of abolishing or phasing out EU milk quotas on the dairy sector in the UK and the results are compared against a 2007 Baseline projection (2007--2016). The results demonstrate that although the impact of the abolition of dairy quotas is fairly modest at the EU-25 level, significant impacts are apparent at the individual country level.Milk Quotas, CAP Reform, Commodity Modelling, Agricultural and Food Policy, International Relations/Trade, Livestock Production/Industries,

Global Markets for Agricultural Products 2003 - 2012

Further information may be found at http://www.tnet.teagasc.ie/fapri/pubandrep2003.htmThe 2003 global baseline reflects a variety of the short-term issues that have and will continue to affect the sector. These range from crop short-falls in the northern and southern hemisphere to the continued economic weakness, from the continuing sanitary and phytosanitary (SPS) difficulties in a number of countries around the world, to the unfolding agricultural policy and trade reform process. There are three major macroeconomic drivers of this baseline projection. They are (i) continued weakness in Latin American economies, (ii) recovery in most of the rest of the world -- particularly central Europe and several members of the Former Soviet Union, and (iii) a significant devaluation of the United States dollar relative to many of the other major currencies including the euro

Reforming the CAP: A Partial Equilibrium Analysis of the MTR Proposals

Contributed paper selected for presentation at the 25th International Conference of Agricultural Economists, August 16-22, 2003, Durban, South Africa.In the Mid-Term Review (MTR), the European Commission proposed a series of changes to the Common Agricultural Policy (CAP). An important part of these changes was significant decoupling of support payments from production. In this paper, a partial equilibrium model of the EU agricultural sector is used to estimate the potential impacts of the MTR proposals on EU and world agricultural markets over the period 2004-2009. Effects of the MTR proposals are evaluated by comparing estimated outcomes under the proposals to those that would result under a current-policy baseline. The changes that are made in the MTR have the effect of reducing the production of the major commodities by varying amounts based on the importance of payments in production and the degree to which these payments are currently production inducing. For example, total area harvested for nine major crops falls by about 2 percent under the MTR proposals. In the livestock sector, however, where current payments are strongly coupled and form a large part of producers' income, the reductions in production are projected to be more significant

Challenges of incorporating EU enlargement and CAP reform in the GOLD model framework

Published as part of the 89th Parma European Association of Agricultural Economists seminar “Modelling agricultural policies: state of the art and new challenges” proceedings. Further information may be found at http://www.lei.dlo.nl/EAAE/index.php3?page=en/content/past_seminars/past_seminars.htmThere cannot have been many circumstances that have challenged the modeller of agricultural markets to the extent that the developments in the EU in recent years have. The enlargement of the EU involving a large number of countries, with important agricultural sectors, many emerging from a volatile transition from centrally planning, raises many issues. Moreover this is occurring at a time of radical reform of the CAP, with the substantial decoupling of payments, an area that has attracted some research but provides little concrete guidance for sector level modellers. In this paper the challenges of each of these developments are outlined and their importance to the sector addressed. Some strategies in dealing with the issues and the impact on the model results are evaluated

MTR and the EU Commission Proposal for the WTO: - An analysis of their effect on the EU and Irish agricultural sector

Further information may be found at http://www.tnet.teagasc.ie/fapri/pubandrep2003.htmIn the short history of the FAPRI-Ireland Partnership there has been no shortage of policy proposals to analyse. As part of the Agenda 2000 process the CAP is undergoing significant reform following the agreement made at the European Council in Berlin in 1999. This agreement had widespread implications for agriculture in Ireland, particularly for the beef sector. The changes that were agreed at that time have not even been fully implemented and there is already another reform document on the table, containing even more radical proposals for reform