You are here: ILREconomic and Agricultural PolicyResearch CAPRI-Dynaspat project (2004-2007)

CAPRI-Dynaspat Project:
Task 2: Methodological Improvements of the existing modelling system

    1. Improvement of CAPRIs economic core model
    by development and validation of a recursive-dynamic version

    The current comparative static version of CAPRI is well designed for medium run simulations (5‑10 years) which have proven to be useful for CAP impact assessments. However, a number of issues cannot be tackled in this framework:

    • Adjustments on meat markets are typically occurring in delayed form because increases in herd size take time, thus providing classical examples for dynamics of market behaviour. Similar lags may be expected in the crop sector if adjustment involves investments, changes in internal farm organisation and learning on the part of farmers.

    • Due to these adjustment lags it is not a trivial task to decide on appropriate transitory regimes in case of policy changes, if a momentary disequilibrium on a particular market may have serious budgetary consequences in a given year. This analysis of the transition period is clearly beyond the current comparative static framework.

    • The treatment of perennials and, in the future, forestry would certainly benefit if adjustment lags can be acknowledged explicitly.

    • As several other organisations are publishing baselines based on time series for their projections comparability with CAPRI projections would increase.

    To address the above issues it is proposed to develop dynamic versions both of the CAPRI programming component for the EU as well as for the market component covering the rest of the world. A preliminary review of the available literature shows that a feasible approach will summarise the adjustment lags in a parsimonious set of parameters. However the differences between programming and market component suggest to split this task in two components.

    The first will be a dynamic version of the programming model which will involve a dynamic structure for the non-linear cost function in the CAPRI supply module. Furthermore it will benefit from the explicit description of raising activities in the animal sector of CAPRI which is capturing a relevant part of the dynamics originating there. This work package includes a comparative review of available solutions for programming models going beyond questionable flexibility constraints. The next step will be the empirical implementation using some form of econometric estimation or calibration technique, depending on the data situation for the respective items.

    The second component complementary to the programming model will be a dynamic version of the market model. Technically it is foreseen to implement a vector partial adjustment process for the supply functions of other world regions, together with some consideration for the formation of expectations. As the data situation is somewhat different and the market model is relying on behavioural functions, the technical solution will be more direct than in the programming context. Microeconomic consistency will be imposed for the long run equilibrium responses but not during the adjustment process. Available experience with explicit optimisation frameworks suggests that their implementation can be quite cumbersome and that they may yield very similar results as a multivariate partial adjustment process with the same number of parameters (Witzke, Heckelei 1996).

    2. Development of a employment module for CAPRI

    Direct regional employment effects of changes in agriculural policy are a key issue in the ongoing development of CAP. Furthermore, apart from being of direct interest in themselves, regional trends in labour deployment over time are also essential for income per head calculations in both reference and scenario runs of the CAPRI model. To address the first question, the development of an econometrically based model is needed. This will generate a set of regional activity labour requirement coefficients which can be fed into the CAPRI database. These can then be used to help gauge the direct employment effects of different policy scenarios. The issue of regional agricultural employment trends, on the other hand, necessitates the development of a set of projection models, using mainly cohort analysis, as well as information  about other economy-wide variables, in order to forecast regional employment trends over the period of interest for CAPRI projections - as well as other related trends e.g. average age of holders within regions, or average age for different sized or different types of farms.

    In the first CAPRI framework project NUI, Galway initiated an investigation into both regional input requirements for the main regional activities and into longer term employment projections using cohort analysis. The results of these initial initial studies were reported in CAPRI Working Papers 98-05 and 20-01. In the second CAPRI project, using FADN data for the whole EU, NUI,Galway developed an econometric model for estimating national and regional input coefficients for all activities in the CAPRI model. The purpose of this work was to generate an improved set of input coefficients for the CARI database.

    Using this experience, NUI, Galway proposes both to improve on the initial studies of the first framework project, and to widen the scope of the second. Along with possible results from a search of other data sources, the availability of the FADN data and the experience, NUI, Galway has gained the necessary experience to handle FADN data in econometric estimations which will enable far more reliable labour needs coefficients to be generated at both national and regional levels. Moreover, the better quality of both the structural and personal data will enable a far deeper development of the projections compared to the first Framework project. The results of both sets of tasks will feed directly into the CAPRI model and help increase its relevance and the level of interest in its results.

Last updated: Thursday, September 04, 2014