An Examination of Animal Husbandry
Development in Northwest China
from Environment Perspective
Tingjun Peng
Content
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An Introduction of Livestock Development in NorthWest China
Environment Protection in North-West China
An Theoretical Model to Examine Comparative
Advantage in North-West China from Environment
Perspective
The Compacts of China’s Accession into WTO on
Livestock Development in North-West China from
Environment Perspective
Simulation Results
Conclusion
Pastoral economy
Land
Labor
Farm land
Food
Grassland
Animal Husbandry
Marginal
Product
Value
Labor
Market
Farm Economy
Land
Capital
Food
Manufacture
Labor
A Theoretical Model to Study
Comparative Advantage
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According to Bruno (1967), Chenery (1972)
and Pearson (1974), under free trade the
input demand of domestic resource cost (DRC)
for j production to earn one unit of foreign
currency is:
DRCj = domestic resource costs input for j
production / net foreign currency earning
Domestic Resource Cost (DRC)
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DRCj = s=2FsjVs j / (Uj – Mj - rj)
DRCj is the domestic resource costs input for j production,
Fsj is the quantity of sth input factor for j production,
Vs is the opportunity cost of sth input factor,
Uj is the output value of j production calculated by border price,
Mj is the value of tradable input factors for j production,
calculated by C.I.F price,
Rj is the factor costs of direct foreign investments, calculated
by opportunity costs,
S is the number of input factors, as foreign currency is taken as
the first one, then S is numbered from 2 to m,
Adjusted Domestic Resource
Cost (A_DRC)
But if we take environment into account, DRC can be calculated as:
A_DRCj = (s=2FsjVs j -Ej) / (Uj – Mj - rj)
where Ej is the Externality, if the externality is positive then Ej ›
0; if the externality is negative then Ej ‹ 0; if there is no
externality then Ej = 0.
If we divide DRCj by the shadow foreign exchange rate (Vj),
then we get Domestic Resource Costs Coefficient of j production
(DRCCj), i.e, DRCCj = DRCj/ Vj
As DRCCj is a coefficient without units, we can use it to evaluate
the comparative advantage of j production. If DRCCj ‹ 1, then
there is comparative advantage in the production of j products,
the smaller DRCCj is, the larger comparative advantage; if
DRCCj › 1, then the production of j products is disadvantaged,
the larger the worse; if DRCCj = 0, then it is indifferent to
produce j or not.
Comparative Static Analysis
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DRCC=DRC/（NV*EX）
LN(DRCC)=LN(DRC)-LN(NV)-LN(EX)
dDRCC(t)/dt/DRCC(t)=dDRC(t)/dt/DRC(
t) - dNV(t)/dt/dNV(t) -dEX(t)/dt/EX(t)
Net Social Profitability (NSP)
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NSPj = (Uj – mj – rj)*vj - s=2fsjvs
Uj is the output value of j production, calculated by border price
mj is the value of all tradable intermediate inputs, calculated by
CIF price,
Rj is the costs from direct foreign investments, calculated by
opportunity costs,
vj is the shadow foreign exchange
Therefore, NSP means then benefit from one production when
factor allocation is efficient. If NSP>0, then production is
efficient; if NSP<0, then production is not efficient.
Adjusted Net Social
Profitability (A_NSP)
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NSPj = (Uj – mj – rj)*vj - s=2fsjvs + Ej
where Ej is the Externality, if the externality is positive
then Ej › 0; if the externality is negative then Ej ‹ 0; if
there is no externality then Ej = 0.
China's WTO Accession
Negotiations on Agriculture
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On July 1986, China formally submitted an application to
the GATT for resumption of its contracting status. On
January 1st, 1995, the WTO was established, replacing
the GATT. Starting from November 1995, China's GATTresumption negotiations are now taken up as WTO
accession negotiations. The negotiations have now
reached its final stage. It is expected that China will be
admitted into the organization eminently. China's WTO
talks on agriculture mainly concern market access affairs,
such as tariff reduction and tariff quota of agricultural
products. As negotiated, China is expected to partially
open the agricultural products market after becoming a
member of WTO.
Tariff Reduction of Agricultural
Products
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In 1992 and 1993, China introduced a voluntary
reduction of import tariff. On October 1st, 1997, the
country further reduced the tariff by 26% on 4878
tariff lines.
The arithmetic level of tariffs was
subsequently adjusted to 17%.
The arithmetic
average of tariff was also reduced from 46.6% to
21.2%. In the WTO negotiations, China was given a
five-year transitional period, within which the tariff
will be progressively reduced.
China's tariff on
agricultural products will decrease from the current
level of 21.25% to 17% in year 2004.
TRQ Administration in China
The negotiations allow China to apply Tariff Rate Quota
administration on key agricultural products such as wheat,
rice, corn, cotton, soybean, and sugar.
In essence, China's WTO-negotiations on agriculture are
concentrated on market access of agricultural products,
i.e., issues such as tariff and tariff quota of agricultural
products; or the opening of the agricultural products
market. The latter concerns the interest of the people
and the state, as well as the economic development of the
country The reform of China's agriculture and trade policy
is expected to take place concurrently with the rest of the
economic reform. It is however not likely that trade in
agricultural products will be fully liberalized within a short
period of time.
A Partial Equilibrium Model
Science & Technology
Climate
Beginning/Ending inventory
Yield
Total Crop
Output
Price of Input Price
Farmland Area
Area
Refarm index
Heads
Animal products
supply
Yield Pproduction per Head
Difference of
Demand & Supply
Direct Consumption
Import & Export
Demand
Consumption of Grain and Other Crops
Feeding
Total Demand
Other Demand
Per Capita Demand
Consumption of Husbandry
product
Major import country
Population
Producer Price
Retail Price
Tax& Exchange Rate
Import price
Shipment fee
C.I.F
Reference price
Food Demand Model
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The model assumes that people's
income will be spent on the
consumption of husbandry products
(beef, pork, mutton, poultry and milk),
grain (wheat and rice), other food and
non-food products. The model assumes
that consumption differs in cities urban
and rural areas
Demand Equations
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CR=p1Rq1R+p2Rq2R+……+piRqiR
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logQ1R=a10+E11R*logP1R+E12R*logP2R……E1jR*logPjR+E1cR*logCR
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logQ2R=a20+E21R*logP1R+E22R*logP2R……E2jR*logPjR+E2cR*logCR
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…………………………………………
logQiR=ai0+Ei1R*logP1R+Ei2R*logP2R……EijR*logPjR+EicR*logCR
( i =1, 2, 3, ……,n; j= 1,2, ……m)
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CU=p1Uq1U+p2Uq2u+……+piUqiU
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logQ1U=a10+E11U*logP1U+E12U*logP2U……E1jU*logPjU+E1cU*logCU
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logQ2U=a20+E21U*logP1U+E22U*logP2U……E2jU*logPjU+E2cU*logCU
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logQiU=ai0+Ei1U*logP1U+Ei2U*logP2U……EijU*logPjU+EicU*logCU
Demand equations
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CR is per capita expenditure on consumption in rural areas
Q I R is per capita demand of commodity i in rural areas
PiR is consumer price of commodity i in rural areas
EijR( i=j) is own-consumption elasticity of commodity i in rural areas
EijR（ij）is cross price elasticity of commodity i and j in rural areas
EicR is income price elasticity of commodity i in rural areas
CU
is per capita consumption expenditure of urban
residencehousehold
QiU is per capita demand of commodity i in urban areas
PiU is consumer price of commodity i in urban areas
EijU( i=j) is own-consumption elasticity of commodity i in urban areas
EijU（ij）is cross price elasticity of commodity i and j in urban areas.
Eic is income price elasticity of commodity i in urban areas
Restrictions
1. Budget Restraint:
W1+W2+……Wi=1
W1=P1Q1/C, W2=P2Q2/C, Wi=PiQi/C
2. Homogeneity
Eii+ijEij+Eic=0
3. Engel Aggregation
WiEic=1
4.Cournot Aggregation Condition
WiEij= - Wj
Feeding Grain Demand Model
Estimation on Total Demand of Feeding Grain
Qt=q1,t x1,t y1,t+ q2,t x2,t y2,t+……+ qI,t xI,t yI,t
xi,t=xi,t-1 (1+gi)
yi,t=yi,t-1 (1+fi)
Qt is total demand for feeding grain in year t;
qi,t is production in year t of product i, such as beef, milk, pork, mutton,
poultry (head);
xi,t is the proportion of feeding grain in the total production of i in year
t;
gI is the annual growth rate of xi,t;
yi,t is the kilograms of feeding grain amount needed by per head of
husbandry.
ft is the annual growth rate of yi,t.
Feeding Grain Demand Model of Grain Product
Qi,tfeed=Qi,t-1feed+Qicorn,tfeed+ Qidm,tfeed
Qicorn,tfeed= Qicorn,t-1feed Eicorn PRicornt,t-1(1+gi)^n
QIdm,tfeed= Qidrn,t-1feed EIdrn DMt,t-1(1+fi)^n
Where Qi,tfeed is the amount for feed demand s of grain i in year t;
Qicorn,tfeed is the change of feed demand change of proportion of grain i,
caused by the change in corn price;
Qidm,tfeed is the change of feed demand change proportion of grain i, caused
by the change of total feed total demand;
Eicorn is the substitute elasticity of product i and corn;
 PRicornt,t-1 is the change of the price ratio between the prices of product i
and corn;
Eidrn is the feeding demand elasticity of product i;
DMt,t-1 is the change of feeding demand;
gi is annual change of feeding demand of product i, caused by the change of
corn price;
fi is the annual change of feeding demand of product i caused by the change
of total feeding demand, compared with that of the base period in the
model.
Supply Model
Sown area:
AHi,t=Ahi,t-1(1+(%△ER1,t EAHi1+%△ER2,t EAHi2+……%△ERk,tEAHik))
Where, AHi,t is the areas sown for product i in period t;
%△ERk,t is the percentage change of the expected
return of product k in period t ;
EAHik is the elasticity of area harvested of crop i with
respect to a change in the expected return of crop
Supply Model
Wheat, rice and corn Yield
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YLi,t=YLi,t-1(1+（%△Pi,tEpi+%△Pinputi,t
Einputi+%△AWGi,tEAWGi+%△Ri,tERI+%△IRi,tEIRI+Ti / 10)）
YLit is the yield of crop i in period t;
%△Pi,t is the percentage change of producer price of crop i in period t;
EpI is the price elasticity of crop i;
%△Pinputi,t is the percentage change in the input price of crop i in period t;
EinputI is the elasticity of the input price of crop i;
%△AWGi,t is the percentage change of per capita labor wage of crop i in period t;
EAWGI is the labor wage elasticity of crop i;
%△Ri,t is percentage change of agricultural science and technology reserve;
ERI is the elasticity of agricultural science and technology reserve;
%△IRi,t is the percentage change in water irrigation reserve;
EIRI is the elasticity of water irrigation reserve;
TI is the trend growth rate derived from changes in yields during the previous 10
years.
Supply Model
Livestock production
Qi,t=Qi,t-1(1+(%△Pi,tEpI,t+%△Pi,t-1EpI,t-1+%△Pi,t-2EpI,tp
feed Efeed ))
+%△P
E
+%△P
2
i,t-3
I,t-3
i,t
i
Where,
Qi,t is the production in year t of product i；
△P is the change rate of price;
Ep is the price elasticity;
Efeed is the elasticity of feed price.
Environmental effects
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△Pit =(pit-pi,t-1)/pit
Pit=pit’+Ci(E)
Pit’ is the market price
Ci(E) is the environmental cost
Trade Model
Qexporti,t= Qexporti,t-1(1+(%△Pexporti,t Eexporti+%△qconsi,t Econsi)
Qimporti,t is the import of product i in the period t;
%△Pimporti,t is the percent change of import price of product i
period t；
EimportI is the elasticity of import price of product i；
Qexporti,t is the export of product i in period t;
%△Pexporti,t is the percentage change of export price of product i in
period t；
EexportI is the elasticity of export price of product i；
%△qconsi,t is the percentage change of consumption of product i in
period t;
EconsI is the elasticity of consumption price of product i.
Equilibrium Model
Qimporti,t+ Qproductioni,t + Qbstocki,t= Qexporti,t+ Qconsumptioni,t+
Qestocki,t
Qproductioni,t is the domestic production of product i；
Qbstocki,t is the beginning stocks of product i；
Qconsumptioni,t is the consumption of product i in period t；
Qestocki,t is the ending stocks of product
Simulation Scenarios
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Baseline: simulates the future development of
China's dairy industry if the current policy
remains unchanged.
WTO: simulate the development prospect of
China's dairy industry based on China's WTO
commitment on agricultural.
Environment: simulate the development
prospect of China's dairy industry based on
China's WTO commitment on agricultural
taking into environmental cost into account.
Interests of Study
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Calculating producer and consumer
welfare under WTO and Environment
scenario
Using updated price, calculate A_DRC
and A_NSP