capri eaa workshop on agricultural projection for rains, 8.10.2002, brussels capri background...

CAPRI

EAA workshop on agricultural projection for RAINS, 8.10.2002, Brussels

CAPRIOutline

• What is CAPRI ?

• Drivers in agricultural markets

• Drivers at farm level

• Effects of the new CAP reform (July 2003)

• Conclusions

CAPRI


CAPRIWhat is CAPRI ?

• Common Agricultural Policy Regionalised Impact analysis

• on regionalised level (NUTS II)

• on whole agricultural sector:

all outputs/inputs covered

• based on a quantitative economic modelling system

• developed and maintained

by an independent network of research institutions

• mainly funded by DG-RSRCH framework programs

CAPRI


CAPRI.. what is CAPRI ?

• Modelling system consists of

• Regionalised data base

• Supply Module

• Market Module

• Exploitation and Reporting tools

CAPRI



Market Module

SpatialMulti-Commodity Model11 regional aggregatesplus all EU MS States

Young AnimalMarket Module

Linked MSProgramming Models

Supply Module

200 Regional or1050 Farm Type

Programming Models

Perennial Sub-Module

Policy Modules

CAP Premiums(base areas, ...)

AggregatedSupply &

Feed demand

AggregationHerds

Acreages

PricesPremiums

Exploitation

Env. IndicatorsWelfare analysisFEOGA budget

CAPRI



• Recent impact analysis (2002/2003) of:

• MTR/July 2003 reform package

• Sugar market reform options

• Tradable permits for GWPs

• Further trade liberalisation steps

CAPRI


CAPRI

Microequilibrium

Marketequilibrium

Two fundamentals

Supply Demand=

Prices

Earnings Costs=

CAPRI


CAPRIWhat drives the markets ?

• Final demand:

• development of consumption pattern

• population and income growth

Willingnessto pay

MarginalCosts

• Supply:

• development of technology

• prices of inputs

Prices

CAPRI


CAPRIWhat drives the markets ?

• Final demand trends lined up with DG-AGRI

outlooks/FAPRI/FAO (currently no own projections)

• Comprise effect of population/income growth

and consumption trends

• .. But price/income dependent in counterfactual scenarios

• Price framework depends on long-term trends in

agricultural world markets

plus effect of domestic and trade policy

• … interplay between these trends and supply model

CAPRI


CAPRIWhat drives the meat markets ?

• Total meat demand per capita projected to increase by

+3.5% (1998-2009) to 90 kg pc, beef drops (-5%),

pig (+5%) and poultry (+9%) increase

• In combination with population growth:

+6% higher meat consumption

• Less market interventions in beef markets

(lower administrative prices) => price pressure

• Border protection prevents sizeable imports

CAPRI


CAPRIWhat drives the dairy markets ?

• Past consumption trends continue: less butter and cream

consumption, more cheese

• High border protection, but reduced policy intervention

let internal prices drop

• .. But supply still determined by milk quota regime

(quota expansion by 2.4 %)

CAPRI


CAPRIWhat drives cereals markets ?

• Cereals yield continue to increase (+15% or 1.2% p.a.),

but price pressure let areas drop (-5%)

• Similar developments in oilseeds

• Food demand for cereals increase by +8%, feed by +5%

=> net exports increase

• Cereal prices drop by 21%

(in real terms, about constant in nominal terms)

due to reduced administrative prices

and long-term trends in world markets

CAPRI


CAPRI

Microequilibrium

Marketequilibrium

Remember: Two fundamentals

Supply Demand=

Prices

Earnings Costs=

CAPRI


CAPRIWhat drives herds and areas ?

Market revenues

Premiums

Fixedfactorscosts

Variable input costs

Earnings

Costs

CAPRI


CAPRIDevelopment of earningsOutputs

Meat/Milk Young animal Manure

Prices

Market revenues

Earnings

Premiums

• Milk yield increase by 1.8% p.a. (technical progress)

• Beef slaughter weights increase slightly (less calves)

• More piglets per sow (+14% or 1.1% pa)

• Manure output per head depends on live weight/milk yield

Outputs


CAPRI




Market revenues

Earnings

Premiums

• Milk (-12%) and meat prices (-20%) drop in real terms

following cuts in administrative prices (dairy, beef)

• ... But milk quotas remain binding

• Young animal prices follow meat price trends

PricesPrices

CAPRI




Market revenues

Earnings

Premiums

• New dairy premiums help to keep quota bindings

• Premiums are devaluated by inflation

• Especially important for suckler cows

=> past herd expansion for suckler cow trends flattened

Prices Premiums

CAPRI


CAPRIDevelopment of costs

Inputs

Feed Remonte Other inputs

Prices

Fixedfactorscosts

Costs


Inputs


• Lower feed costs: cereals prices drop, smaller herds

reduce fodder input (grass, silage) per unit of output

• Piglet prices drop (-20%), young cattle price constant

• Input saving technical progress for other inputs

CAPRI


CAPRIDevelopment of fixed factor costs

Inputs


Prices

Fixedfactorscosts

Costs


• Only implicitly in the model

(econometric dual cost function approach)

• “shadows” structural change and part of technical progress

• sizeable t.p. in pig and poultry (1,5 % p.a.)

Fixedfactorscosts

CAPRI


CAPRIWhat drives a herd size ?Outputs

Inputs


Prices

Market revenues

Earnings

Premiums


Prices

Fixedfactorscosts

Costs


CAPRI


CAPRIFertilisers

• Supply models comprise N/P/K balance

• Crop need derived from export of nutrient

by harvested material

• ... covered by

• Anorganic fertiliser, can be bought at fixed prices

• and/or manure

• Losses of ammonia handled according to IPCC standards

• .. “availability” factors for N,P,K

lined up with fertiliser use expost

CAPRI


CAPRIThe new CAP (July 2003)

• „Decoupled income support“ by farm premium

• Before: premiums linked to production

(per slaughtered head, per ha ..)

• Now: premiums paid (almost) independent of production,

as long as sufficient hectares are kept in „good agricultural

conditions“ (farmed or correctly idled)

• However:

• Member States can keep part of the coupled schemes

• Not all crops are “eligible”

CAPRI


CAPRIImpact of July reform package I

• Assumption: Member State use full decoupling

• Main effect: farmers who had to use coupled premiums to

cover variable costs will now produce less, but earn more

• Activities most affected: Suckler cows, beef fattening,

durum wheat

• Reduced supply raises market prices (cereals, beef)

• Higher beef price increases demand for pig and poultry

• Higher feed prices increase prices for pig and poultry

• More idling land, extensification of crop production

CAPRI


CAPRIImpact of July reform package II

• Reduced fertiliser input <= lower yields, idling land

• lower GWP from fertiliser production

• lower background emission from soils

• Lower herd size of beef cattle and suckler cow,

somewhat higher milk yield (pressure from calves markets)

• methane output drops

• Estimated impact on agricultural GWP (direct and indirect)

-2.1 %

• But remember: exact implementation not yet known ..

CAPRI


CAPRISummary

• High border protection in meat markets

links consumption and supply trends

• For cattle, milk quota regime and young animal availability

are other important drivers

• Revision of base line will become necessary

to capture the effect of CAP reform package

• ... But implementation strategy of Member States

yet unknown, but probably decisive

CAPRI


CAPRI

Thanks for your attention !

CAPRI


CAPRIMain drivers beef

Calvesborn

Dairy cowsMilk yields

Milk quotasSuckler cows

Premiums

Heifers fattening

Oxs & Bulls

Calves fattening

Calves raisingYoung

heifers/bulls

Heifers raising

capri eaa workshop on agricultural projection for rains, 8.10.2002, brussels capri background...

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