Transcript Modeling the efficiency of the agri-environmental payments to Czech

Modeling the efficiency of the agri-environmental
payments to Czech agriculture in a CGE framework
incorporating public goods approach
Zuzana Křístková - Czech University of Life Sciences, Department of Economics
Tomáš Ratinger - Institute of Agricultural Economics and Information (UZEI)
Presentation Outline




Introduction and the objective of the paper
Description of the methodological approach
Model application and results
Conclusion
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Introduction
 The effects of the agrarian policy simulations cannot be
captured fully without incorporation of multifunctional
aspects of agriculture such as the landscape provision.
 In the context of the Czech agriculture, the landscape function
is mainly supported by agri-environmental payments directed
to permanent grasslands with the extensive livestock
production.
 The objective of the paper is to incorporate the landscape
provision into the CGE model and to assess the efficiency of
the agri-environmental payments.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Presentation Outline




Introduction and the objective of the paper
Description of the methodological approach
Model application and results
Conclusion
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Methodological approaches in
modelling multifunctionality
 EU-based research focused on the integration of biophysical, land use and economic models:
– Uthes, Ittersum and Sieber (2010), Renting, Rossing and
Ittersum (2009), Rossing, Zander and Josiem (2009), ParraLopez, Groot, Torres et al. (2009)
 Incorporation of demand side of multifunctionality in
the CGE framework:
– Cretegny (2002) - Switzerland, and Rødseth (2008) –
Norway.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Applied methodology
 The CGE model is built for the economy of the Czech
Republic (base year 2006) and provides simulations
till 2020.
 SAM for the CGE model constructed with the use of
the National Accounts, Statistics of Household
Accounts and agricultural surveys provided by UZEI.
 Public goods in form of landscape provision
stemming from extensive beef production on
permanent grasslands is incorporated into the CGE
model.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Main features of the CGE model
 Recursively dynamic CGE model following standard IFPRI
structure.
 Supply of labour and land fixed; capital stock grows at the rate
of net investments (following Tobin q investment function).
 Two types of households – farmer and other households
maximizing utility modelled by the LES function.
 Standard macroeconomic balance of savings and investment.
 Government closure determined by a fixed share of
governmental budget to GDP.
 Both foreign sector closures (for the EU and the RoW) assume
fixed foreign savings and endogenously adjusting exchange
rates.
 Direct payments modelled partially as land subsidies, partially
as production subsidies.
Incorporation of landscape into the
CGE model
 Sector of extensive livestock farming is explicitly
included in the SAM.
 Following Cretegny, supply of landscape (public
commodity) is modelled in a joint production function
with beef meat (market commodity)
 The demand for landscape corresponds to the
households´ WTP and is incorporated into the LES
(instead of originally intended use of the contingent valuation
for CR, parameters for LES determined by certain assumptions)
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Production sectors included in the CGE
model
Sector
sec1
sec2
sec3
sec4
sec5
sec6
sec7
sec8
sec14
sec9
sec10
sec11
sec12
sec13
Land employment
Secland
Secnland
Description
cereals
fruits and vegetables
oilseeds
sugar beet
intensive livestock
pigs and poultry
milk
other agriculture
extensive livestock
forestry and fishing
food industry
other industry
R&D
other services
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Gross production i
Leontief
Nested production
structure in the CGE
model
Linear function of
capital
Value added i
Intermediate
Consumption i
Depretiation i
Value added of
secnland i
Value added of
secland i
CES I
Intensive
farming
(Sec 1-8)
Extensive farming
(Sec 14)
Leontief
CES I
Capital
$secland
Capital
$secland
CapitalLand
CapitalLand
Leontief
CES II
Capital
$secland
Capital
Land
Capital
$secland
Land
Labour
Optimal grassland area with
internalized demand for landscape
a)
b)
"Market" for PG
9000
8000
8000
7000
mWTP+BeefDem
Price per hectare
Grassl./beef
Supply
mWTP
5000
Price per hectare
7000
6000
4000
3000
2000
"Market" for PG
Income
growth
6000
5000
addit.
support
4000
3000
2000
S
1000
1000
Lm
0
0
0.2
L
0.4
0.6
0.8
1
1.2
L
0
Beef/GrassDem
0
0.2
1.4
0.4
L*
0.6
L**
0.8
1
1.2
1.4
Grassland Area (m illion ha)
Grassland Area (milion ha)
Supply PG
mWTP, Y
Demand for Beef
mWTP+DemBeef
Supply PG
Supply PG_addAEP
mWTP+DemBeef
mWTP, Y_+10% + BeefDem
Source: own illustration following Rødseth (2008)
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Presentation Outline




Introduction and the objective of the paper
Description of the methodological approach
Model application and results
Conclusion
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Scenario Description
Scenario
Purpose
Performed simulation
Scenario 1
Determine optimal landscape provision based on
households´ WTP, no additional agri-envi
payments to the extensive livestock sector
Additional agri-envi support
removed from 2007 on,
subsidies redistributed to hous
Scenario 2
Determine optimal landscape provision under
parallel existence of landscape market and
additional agri-environmental support
Subsidy rates according to
baseline
Scenario 3
Illustrate changes of landscape provision if
additional agri-envi subsidies are removed in 2014
Additional agri-envi support
removed from 2014 on,
subsidies redistributed to hous
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Results
 The impact of the considered scenarios is
evaluated with respect to:
– Evolution of grassland size
– Demand for landscape
– Production of extensive and intensive livestock
sector
– Total gross agricultural production and GDP
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Impact on the size of grasslands
Figure 1. Land employed in the extensive farming sector (‘000 ha)
1800
1719
1752
1529
1600
1749
1737
1673
1724
1662
1699
1678
1632
1649
1099
1108
1071
1093
2019
2020
1484
1400
1407
1200
1299
1000
878
781
924
964
992
1034
816
725
800
1023
913
953
1040
987
1067
1077
1018
600
400
2006
2007
2008
2009
2010
2011
Scenario 1
2012
2013
2014
Scenario 2
2015
2016
2017
2018
Scenario 3
Note: If the provision of landscape is determined purely by the households´ WTP,
the optimal landscape size converges to 1,100 mil. ha, which is about 30% less
than if the extensive livestock sector is also supported by additional agrienvironmental payments
Impact on the demand for landscape
Figure 2. Demand for landscape by households (bln. CZK)
3.50
3.00
2.83
2.83
2.83
2.83
2.14
2.18
2.16
2.11
2.83
2.83
2.20
2.17
2.83
2.83
2.83
2.83
2.83
2.09
2.15
2.12
2.06
2.09
2.51
2.50
2.22
2.05
2.00
1.74
1.50
1.74
1.00
1.92
1.19
1.16
1.14
1.13
1.18
1.21
2007
2008
2009
2010
2011
2012
1.32
1.35
1.37
1.39
1.41
1.43
1.44
1.26
1.29
1.30
1.31
1.34
1.36
1.39
1.40
2013
2014
2015
2016
2017
2018
2019
2020
0.50
0.00
2006
Scenario 1
Scenario 2
Scenario 3
Subsidy rates
Note: In the absence of additional agri-envi support, demand for landscape referring
to optimal subsidy rate would converge to 1.4 bln CZK, which is 50% lower
compared to actual subsidy rates. This is mainly attributed to growth of landscape
prices.
Impact on the livestock production
intensity
Figure 3. Gross production of beef in extensive and intensive livestock farming (bln. CZK, constant
prices of 2006)
9.3
10
9
8
7
6
5
4
3
2
1
0
5.8
6.2
6.1
6.2
6.4
6.7
7.0
7.3
5.2
1.3
1.3
5.5
8.2
8.5
8.3
5.2
5.9
7.6
7.9
8.9
6.2
6.4
6.8
7.2
7.4
8.7
7.8
5.4
5.4
5.3
1.5
1.5
1.4
1.6
1.6
1.6
1.6
1.6
1.6
1.6
1.6
1.6
1.5
1.6
0.9
0.9
0.8
0.8
0.9
0.9
0.9
1.0
1.0
1.0
1.0
1.0
1.0
1.0
5.1
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Scenario 1 intensive
Scenario 2 intensive
Scenario 3 intensiv
Scenario 1 extensive
Scenario 2 extensive
Scenario 3 Extensiv
Note: The longer term size of the extensive livestock sector would stabilize around 1
bln. CZK, which is 22% less than the initial period. With additional governmental
support, the size of extensive livestock would reach 1.6 bln CZK.
Impact on gross agricultural production
Figure 4: Gross value added in agriculture (CZK bln., constant prices 2006)
90
78.5
80
76.0
70
60
50
56.2
54.6
57.1
56.3
2008
2009
54.6
57.7
58.1
59.0
59.3
60.9
61.3
63.1
63.5
65.1
65.6
67.3
67.9
69.4
69.9
71.4
72.0
73.6
74.3
79.2
76.7
Scenario 1
Scenario 2
Scenario 3
51.4
40
30
2006
2007
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Impact on GDP
Figure 5: GDP components (average % growth between 2006-2020)
10.00%
9.00%
8.00%
7.1% 7.0% 7.1%
7.00%
6.00%
5.00%
Scenario 1
5.1% 5.2% 5.1%
4.5% 4.5% 4.5%
Scenario 2
Scenario 3
4.5% 4.5% 4.5%
4.00%
3.0% 3.0% 3.0%
3.00%
2.00%
1.00%
0.00%
GDP
Consumption
Government
Investment
Net Exports
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Conclusions
 Incorporating public goods in the CGE model has
important capacity to improve insight in the analysis
of agri-environmental policy.
 The results confirm the theoretical assumptions:
– landscape demand increases with growing households´
income
– Additional subsidy payments allow households to consume
more landscape
 It is hard to conclude which subsidy rate is the
socially optimal taking into account that under
additional governmental subsidies, the households
are willing to consume more landscape.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
Further research considerations
 It is necessary to obtain correct WTP
estimates that will significantly improve the
valuation of the non-commodity production of
agriculture.
 The research can be further extended with the
incorporation of other sectors with
multifunctional activities and the special
attributes of the bio-beef meet.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011
 Thank you for your attention.
Evidence-Based Agricultural and Rural Policy Making: Methodological and Empirical Challenges of Policy Evaluation
122nd EAAE Seminar, February 17 – 18, 2011