CHINAGRO-model: theoretical framework

Transcription

1 CHINAGRO-model: theoretical framework Michiel A. Keyzer Wim van Veen Peter J.A. Albersen Presentation at the Workshop on Policy Decision Support Tools fro sustainable Agriculture: The CHINAGRO model Beijing, January 14,

2 Overview of presentation 1. Introduction 2. Spatially explicit partial equilibrium model 3. Full economy welfare model 4. Methodological results

3 1. Introduction: CHINAGRO Goals To inform the policy dialogue on food related issues between China and the EU in the wake of China s WTO accession. To formulate environmentally sustainable and feasible adaptation paths over the period , with special reference to disparities between rural and urban, inland and coastal areas. To organize dialogue around scenario simulations with a regionalized economy-environment model. To provide extensive training in subjects such as trade policy analysis, agro-ecological assessments, and applied modeling with novel decision support tools.

4 Typical policy issues in CHINAGRO-project How do China s WTO accession and WTO s Doha round influence the agricultural economy and its policy? How to address income distribution given fast changes in income, ongoing urbanization and income disparities between urban and rural regions? How to deal with natural resource management, changes in land use, scope for expanding irrigation and improving rangelands?

5 Approach of CHINAGRO Project To answer these questions a multidisciplinary research approach is followed Natural scientists provide technological information about natural processes that are incorporated into dedicated decision support systems (DSS) with support by economists

6 Chinese specificity to be accounted for China is not Singapore or Luxembourg The scale of China and the extensive set of features must be accounted for Standard Applied General Equilibrium (AGE) approaches not applicable, CGE-models even less, because: the spatial and social diversity should appear in the structure of the model, not only in numbers on population and surface

7 Methodological challenges for CHINAGRO-project 1. Maximum geographic detail: spatially, socially, agro-ecologically 2. Incorporate changing food consumption, income changes and urbanization 3. Incorporate China s technological relationships and resource base This requires refinement and extension of existing methodology

8 Research Strategy (1) Develop and implement two models: 1. Spatially explicit partial equilibrium model 1 commodity, 94,000 cells of 10 by 10 km, endogenous world market prices, trade flows 2. AGE model 8 regions, 6 income groups, agricultural supply at 2432-county level, 14 land use types, 28 aggregate outputs: over truly endogenous variables in welfare program => Invest in algorithms to solve these models

9 Research Strategy (2) Why two models? 1. Spatially explicit partial equilibrium model cannot accommodate for multi-commodities, multi-agents, nontradable inputs and substitutability of goods on demand side 2. AGE model for China at fine spatial grid is computationally too large to handle making aggregation necessary at loss of information Combining results gives superior insight

10 2. Spatially explicit partial model Transparent representation per commodity of Supply and demand at the local level Tracing commodity flows between production locations and centers of final demand Visualizing price transmission through delivery chain Accounting for border measures (tariffs and quota) and subsidies (producers and consumers) Providing density distributions over quantities and prices for every county and average transport costs for subsequent use in CHINAGRO s full economy welfare Model

11 Spatially explicit partial model: main features World markets represented by supply and demand functions at ports and border crossings Policies: tariffs, quotas Exogenous variables production map rice & wheat population map tariffs and quotas freight costs per ton Study world market price penetration

12 Spatially explicit partial model (3): Transport costs in Yuan/TonKm

13 Spatially explicit partial model (4) Equilibrium solution:price and major flows for rice

14 Spatially explicit partial model (5) Equilibrium solution:price and major flows for rice

15 Spatially explicit partial model (6) Zooming in on the Southeast

16 Spatially explicit partial model (7) Showing both major and minor flows of rice

17 Spatially explicit partial model (8) Price densities over the territory Important differences between producer and consumer prices Due to distance between farmer and consumer Consumption Production Price (Yuan/Kg)

18 3. The full economy welfare model Full economy representation needed for analyzing Multi-commodity and multi-agent representation Substitutability of agricultural inputs and labor affecting prices Substitutability between food products demand side Non-tradability of some feed, nutrients Technological interaction between livestock and crop sector (feed requirements and manure output) within limits of agroecological conditions

19 Welfare optimization Welfare optimization framework offers transparency Maximization of social welfare related to consumption of various income groups (distorted by taxes, tariffs, quotas) Under the restrictions of Prevailing technological relations Commodity balances National balance of payments Regional and world trade Market clearing prices are endogenous

20 CHINAGRO s Full economy welfare model Static model Run for path scenario parameters in 1997, 2003, 2010, 2020 and 2030 Need for fast and accurate algorithm to solve model Decomposition into consumer problems (at regional level) and local profit maximization problems (at county level) Subproblems are connected via commodity balances Price adjustment process Remainder of this presentation sketches the methodology of this model emphasizing the CHINAGRO-tailormade elements

21 The economic agents: 2432 farm models at county level Every county maximizes revenue in irrigated and rain-fed cropping, traditional versus intensified ruminant and non-ruminant farming types (in part reflecting social diversity), by optimal purchase of feed and fertilizer inputs and allocation of labor (with equipment) between activities for (scenario)given areas of irrigated and rainfed land and assumed stable capacities in livestock (traditional, intensive non-ruminant, dairy, ruminants) for (technically) given household feed residuals, waste and manure given (scenario) surfaces under perennials while grazing output is based on (scenario) trends in herds and land available for pastures

22 Other economic agents: consumers, traders and Government In each of the 8 regions, 3 rural and 3 urban consumer groups purchase consumer goods including food so as to maximize their consumer surplus, at given prices. Traders maximize their profits by optimal routing of commodities between regions, and by trading with foreign markets, subject to transportation costs, and the tariffs and Non-tariff barriers maintained by government Government also imposes producer and consumer taxes/subsidies and redistributes income through direct taxes

23 4. Main methodological results Partial equilibrium model Dedicated algorithm that applies a new decomposition method based ideas from hydrology Linkage to maps and GIS

24 Methodological results in full economy model (a) New calibration method A fully modular calibration procedure that (almost) exactly replicates base year 1997 for every observed variable, including input and output at county (2432)-level, and also for (8-)regional prices Advantages: Interdisciplinarity: Elaborate data set is replicated fully, including the contributions by technical experts (agronomy, geography) Reliability: Full check on programming errors Maintenance of model in future: as long as base-year database is unchanged, model components can be replaced one-by-one without affecting the base year solution

25 methodological results full economy model (b) A proof that the equilibrium is unique and stable (c ) A fast algorithm with proven global convergence that relies on decomposition: 1. Given production decisions, 8-region exchange component maximizes social welfare at given level of ag output and input 2. Given (smoothed) shadow prices from 1., profit maximization farm models are solved at county level, terminating at exact solution within a known finite number of iterations 3. Return to 1. until convergence

26 The equations of the full economy model + u v + rr' r r r r r r r r r r r v 0;e,e,m,m,q,q,x,x 0;z, z 0,g u u u v v v + + rαr r r rαr r r r ξr r ξr r V* = max u (x ) + u (x ) ( 'm + 'm ) subject to g i n ir ir + r' rr' + rδ + r + r + r x n v g m e e 1 + u r = r' vr' r + mr + ωr + q r + ωr + qr + ωr 1 + ρr' r = r' θrr' ' vrr' + τr 'z r + τr 'z r + ζr 'm r + ζr 'mr + gr + + r r r r r ρ v + r r + r = r + ωr + r r v Γr r + r + r = r + ωr r (p ' m p ' m ) B ( ) Γ x e q z (p ) (I )x e z q (p ) F ( q,e ) 0 for all c c c c + + mr m r mr mr mr r = c C c r = c C c e e, e e r r = c C c r = c C c q q q q r r r (p )

27 Further methodological results Welfare program offers (c) compact and transparent representation of full model (of over 50,000 dependent variables) (d) easy joint implementation of efficiency (liberalization) and Equity (redistributive) policy measures: to change taxes, impose constraints on trade flows or to trigger income transfer or to design welfare improving reforms

28 5. A policy analysis tool Welfare program is solved for 1997, 2003, 2010, 2020, 2030 under scenario assumptions with respect to trends in Population and migration Growth outside agriculture World prices Availability of farmland, orchard land, grassland Irrigation development Technical progress in agriculture Trade and taxation policies Fully integrated software from basic data to report writing Each run is solved less than 30 minutes on regular PC In addition, tailor-made software includes an automatic report writing and run comparison facility an automatic production of maps, for easy communication with geographers and policy makers, comparing runs, and showing changes over time

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