Model based economic analysis of Irish
agriculture using CSO data
Kevin Hanrahan and Trevor Donnellan (Teagasc)
4th Business Statistics Seminar (Agriculture)
22 November 2012
Chester Beatty Library
Dublin Castle
Overview
 FAPRI-Ireland Model and CSO data
 Baseline and scenario analysis using the FAPRI-Ireland Model
 FAPRI-Ireland Baseline 2012-2021
 Agricultural output value and distance to FH2020 targets
 Operating surplus and subsidy dependence
 Baseline GHG emissions
 Agricultural economics modelling and policy issues for the future
 Restructuring, Productivity and Factor Markets
 Agricultural price volatility
 Conclusions
Background and Objectives
 Dynamic partial equilibrium economic model of the Irish agricultural sector
 Linked to
 FAPRI EU & global modelling systems
 Teagasc FAPRI-Ireland farm level microeconomic models
 Objective of FAPRI-Ireland model based analysis
 “… timely and relevant analysis of policy”
 Annual Baseline and scenario analyses used in evaluating policy changes over the
last 14 years
 Traditional focus of analysis is on sector & market level impacts of policy change
 Increasing emphasis on environmental impacts of agricultural sector developments
Commodity Market and EAA Modelling
At the firm level we are all familiar with
the profit equation

 g are decoupled income subsidies
At the sector level we have a similar
equation for Operating Surplus (sector
profit or income)
The FAPRI-Ireland model seeks to
analyse the effect of changes in policy
and markets on these aggregates and
their sub-components
 Prices (Input and output)
 Output and input volumes (and
associated agricultural activity levels)
 Government subsidies
 

p  q  w x 
p  Q  w X
g
 G
Commodity Market and EAA Modelling
Output
 Price
 Volume
Input
 Price
 Volume
Subsidies
Sectoral Income
p.Q
w.X
G
∏
FAPRI-Ireland aggregate sector model
 Dynamic, structural partial equilibrium model of Irish agriculture
 Based on a series of sectoral sub-models and a model of input demands and
expenditure
 Generates full economic accounts for the Irish agricultural sector
 Irish model nested within larger models of EU and global agricultural markets
 Models estimated using time series data and methods
 Model parameters re-estimated on an ongoing basis
 Models simulated within a MS Excel environment to a ten year horizon
Models and Data: FAPRI-Ireland
FAPRI World
Model
FAPRI EU
model
CSO &
Eurostat
databases
NFS
Database
DAFM,
EC,
OECD
FAPRI-Ireland
Aggregate Sector Model
ESRI Hermes
Model
FAPRI-Ireland
Farm Level Model
FAPRI-Ireland aggregate sector model
 Models for land allocation, dairy, pigs, cattle, sheep, poultry, cereals, other crops
and input use
 Modelling economic activity levels
 Animal numbers, areas harvested, yields
 Modelling commodity supply and use balances
 Production, imports, domestic use, exports and ending stocks
 Fundamental supply & use identity
 Beginning Stock + Production + Imports ≡ Domestic Use + Exports + Ending Stock
 Holds for all activities and all commodities at all points in time
 Modelling price formation
 Prices formed at EU level but supply and use in Ireland affect EU prices
 Prices adjust until EU net export supply equal EU net export demand
CCSMTIE
CCUDLIE
CCUXTIE
Cattle
Imports
Cattle Death
Loss
Cattle
Exports
CCOCAIE
CCKOTIE
Other
Cattle
Other Cattle
Slaughter
Calf
Crop
EU
Price
CCKTTIE
Total
Cattle
Slaughter
BVSPRIE
Beef
Production
CCPFHIE
Domestic
Price
DCCCTIE
Beef
Cows
Ending
Dairy
Cows
Ending
BCITTIE
DCITTIE
Beef
Cows
Beg.
Dairy
Cows
Beg.
Ending
Beef
Stocks
Change
Beef
Stocks
Calf
Slaughter
BCCCTIE
BVCCTIE
Beg.
Beef
Stocks
BVCCIIE
CVKTTIE
CCSPRIE
BVITTIE
CCPFHE5
BVUDCIE
Domestic
Use
BVUPCIE
Per Cap.
Domestic
Use
CSKTTIE
Cow
Slaughter
CCSLWIE
Cattle
Slaughter
Weight
BVSMTIE
CCPFHE5
Beef
Imports
European
Price
BVSMTE5
Total
EU Beef
Imports
BCEGMIE
Suckler Cow Returns
Beef Flow Diagram
BVUXNE5
EU Beef
Net-Exports
BVUXTIE
Beef
Exports
BVUXTE5
Total
EU Beef
Exports
FAPRI-Ireland aggregate sector model
 Modelling input demand central to the analysis using the FAPRI-Ireland model
 Provides projections of input demands (X) and input prices (w) and ultimately
input expenditure (w∙X)
 Allows us to project the EAA table
 Provides links between commodity sub-models and between land allocation
model and livestock models
 Effect of output prices & output levels on input demands
 Effect of input prices on input use & ultimately supply
 Effect of land availability on input use
Data requirements:
Or what do the CSO do for us!
Output prices
Input prices
Activity levels
Input demands
Commodity S&U balances
EAA elements
 CSO
 European Commission (DG Agriculture
and Rural Development)
 Eurostat
 Department of Agriculture, Food
and the Marine
Macroeconomic variables
Agricultural and trade policy data
Technical information on input use
Technical info on biological constraints
 ESRI
 Department of Agriculture, Food and
the Marine
 OECD
 European Commission
 Teagasc colleagues
Baseline and Scenario Analysis
 Annual Baseline analysis
 Ten year projection of agricultural activity levels, agricultural commodity
supply and uses and EAA assuming policy remains unchanged from current
“law”
 An Alice in Wonderland world – we know policy will change
 Counter-factual simulation with which to assess the
impact of a policy change (scenario)
 Scenario analyses




CAP reforms (A2000, Fischler, CAP Health Check)
WTO
National Policy Targets (Food Harvest 2020, AgriVision 2015)
National Climate Change policy
FAPRI-Ireland Baseline 2012-2021
 Current FAPRI-Ireland Baseline just completed
 Assumes that the CAP as currently structured continues until
2021
 Milk Quotas are abolished in 2015
 No change in sugar policy
 National policy measures lapse as currently planned
 Suckler Cow Welfare Scheme & Sheep Grassland Scheme
 No agreement in WTO or new bilateral trade deals
 International agricultural trade continues to be governed by URAA
 National Climate Change Policy
 No allocation of sectoral GHG emission caps
FAPRI-Ireland Baseline 2012-2021
 Output growth post 2015 (Volume)




Milk output grows strongly following abolition of quota in 2015
Beef output value increases due to increase in bovine numbers
Sheep & pig sector output declining slightly relative to 2011
Cereal sector output value strongly up due to higher prices
 Input expenditure grows strongly (Price and Volume)
 Higher energy, fertiliser and feed prices
 Higher feed use due to increasing animal numbers and yields per animal
 Sectoral income projected to decline relative to 2011
 Small decline in net subsidies due to ending of nationally financed measures
 Importance of subsidies in total subsidies continues
FAPRI-Ireland Baseline 2012-2021
 Not realistic to expect costless growth in output volume
 Even increases in productivity such as higher milk output per cow will
require use of additional resources
 E.g. additional cows required to grow milk output will require use of
additional input volume
 More output will require more inputs
 If growth in prices of inputs outstrips output price growth market based
component of operating surplus will decline
 Policy based component of sectoral income will remain important
 By construction under the baseline policy remain unchanged
 Maybe nice to imagine policy providing increases in sectoral income but in
current and likely future economic climate this is unlikely
Baseline 2021vs 2011:
Goods Output Value at Producer Prices
2,500
million euro
2,000
1,500
1,000
500
0
Beef
Sheep
Pigs
2011
2021
Dairy
Baseline 2021: Output vs. FH2020 Targets
% change vs 2007-2009
60%
50%
40%
30%
20%
10%
0%
Beef
Sheep
2021
Pigs
FH2020 Target
Dairy*
Operating Surplus
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
million euro
Operating Surplus 2012-2021
3,000
2,500
2,000
1,500
1,000
500
0
Operating Surplus 2012-2021
2009 Total net subsidies
>
Operating Surplus
3,000
2,000
1,500
1,000
500
Operating Surplus
Net Subsidies on Products and Production
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
2001
million euro
2,500
FAPRI-Ireland Baseline 2012-2021:
GHG Emissions from Agriculture
million of tonnes of CO2 Eq.
22
21
20
19
18
17
16
15
14
1990
2000
History
2010
2012
Baseline
2014
2016
2018
2020
20% GHG Reduction Target
Modelling and policy issues for the future
 Volatility
 Likely that we will see another year like 2009 in the next 10 years
 Deterministic projections if misinterpreted as forecasts will almost certainly
will be “wrong” ex post
 Research underway with colleagues from FAPRI-MU on developing a
stochastic FAPRI-Ireland baseline
 Stagnant to declining sectoral income despite growing output
value
 Projected continuing decline in sectoral terms of trade
 Growth in input prices and expenditure outstripping growth in output
prices and value
 Growth in Irish agricultural productivity and restructuring of Irish
agriculture required to maintain incomes of those working in agriculture
Modelling and policy issues for the future:
The importance of good data
 Mitigating the impact of agricultural output price volatility on
farming and the agri-food sector
 Need for more timely data on production and prices in the EU (from public
sources) so as to enable the development of markets for risk related to
agricultural commodities
 More developed markets for agricultural commodity risk in the US (CBOT, CME) depend
on relatively high frequency, publicly created data
 CSO as part of the European Statistical “family” could have an important
role to play in the production of such data
 Development of market based risk mitigation tools (futures, options,
derivatives etc.) will require this information in order to develop into
tangible options for the European agri-food industry
Modelling and policy issues for the future:
The importance of good data
 Restructuring, Productivity and Factor Markets
 Essential that the CSO renew publication of data on agricultural land prices
and extends series back to the end of the current data set (Q1-2005)
 One of the most important factors of agricultural production is land
 Current agriculture structures and the cost of accessing land for purchase
or rental (as well as agricultural policy) are likely to be important in
explaining Irish agriculture’s productivity performance
 Deeper understanding of productivity and barriers to restructuring and
empirical research on this area requires information on this key agricultural
factor market
 Not appropriate that such price information is unavailable
Conclusions
 CSO data central to Teagasc’s agricultural economics research
programme and current and future policy analysis capacity
 Large role still played by public policy in Irish and EU agriculture
 Taxpayers money being spent (market price support, direct income support,
research and development, extension services, education)
 We should have the means to assess whether it is being spent wisely or
could be spent better
 The mantra of “informed decision making” means work of agencies such as
the CSO is critical
 Important gaps in our information about Irish agriculture need to
be filled
Thank you
More information at www.teagasc.ie