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Simulation Models for Long-Term Scenario Analysis

Sherman RobinsonInternational Food Policy Research Institute (IFPRI)

FAO Workshop, Rome, February 2016

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FAO: Long-Term Issues

Population growth, migration, and limits to natural resources

Income distribution Investment and finance Structural change and global value chains Climate change and the energy-agriculture-climate

change nexus

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FAO Agenda: “A global overall model”

A work program to develop a single, overarching model for long-run scenario analysis is not a good idea

Instead, the goal is to start with issues, as the FAO has done, and then design a “suite” of models to address the issues at different levels of economy coverage (local, country, globe) and commodity detail; different economic/technology specifications; and different disciplinary roots (inter-disciplinary modelling)

The challenge is to “link” and/or “integrate” multi-disciplinary models to address long-run issues

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Issues, Models, and Data

Long-run simulation models should be “issue driven”• Institutionally, model development and use should be with, or

“close” to, units that use the models in policy analysis Simulation models are “data driven”—models require up-

to-date estimated parameters and data• Model code should be data driven—designed to allow change of

data aggregation and new data with minimal effect on model specification and code

Data estimation and management “system” should be institutionally “close” to model development and use

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FAO: Linked Issues

Two sets of FAO issues are strongly linked:• Climate change and the energy-agriculture-climate change

nexus• Population growth, migration, and limits to natural resources

Difficult to think of them separately• “Natural resources”: land and water are a major focus• Population growth is not generally modeled endogenously, but

treated in scenarios (e.g., IPCC SSP scenarios)• Migration is very difficult (e.g., World Bank work did scenarios

with a global CGE model—essentially LINKAGE)

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The IFPRI IMPACT 3 Model

International Model for Policy Analysis of Agricultural Commodities and Trade• Close cousin to FAO GAPS model• Related to GLOBIOM and MAgPIE

Need for a multi-disciplinary approach:• Core economic model linked to other

disciplinary models• CGIAR and other institutional collaborators

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IMPACT version 3

159• Countries

154• Water

Basins

320• Food

Production Units

• 58 Agricultural commodities

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IMPACT 3: A Suite of Models

Multimarket model• Core global PE model

SPAM:• Spatial Production

Allocation Model Land-Use

• Land types, crop allocation DSSAT Crop Models Linked to global CGE

model

Water models• Hydrology• Water Basin Management• Water Stress on yields

Value chains• Sugar, oil seeds• Livestock/meat/dairy

Nutrition/health/welfare• Post solution

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Natural Resources: Water Models Global hydrological module (GHM) assesses water

availability IMPACT Water Simulation Module (IWSM) optimizes

water supply according to demands• Monthly time step• Domestic, industrial (linked to GDP/population)• Livestock, environmental, and irrigation demands• Optimizing model for irrigation demand/supply

Water stress module • Optimizing model: allocation of water to crops• Deliver crop yields to the IMPACT multimarket model

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Natural Resources: Land Use

Land: forest, pasture, irrigated and rainfed crop land Demand for land by crop is a function of commodity price

and shadow price of land Total supplies of irrigated and rainfed land are fixed in

each region (FPU) within periods, updated with a land use model

Shadow price of land varies to equate supply and demand for land by type and region• Solution determines allocation of land to crops and equilibrium

shadow price

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Value Chains: Activity-Commodity

Commodities are:• Produced (activities)• Traded (commodities)• Consumed• Can be endogenous

or exogenous– Maize has endogenous production and demand– Oilseeds have endogenous production and both endogenous

and exogenous demand (biofuels)– Fertilizers is an exogenous commodity with fixed price

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Example: Oilseed Activity-Commodity Value Chain

Activity• Soybean

Farm(jsoyb)

• Demands land, fertilizer, labor

Activity Output• Soybean

Commodity(csoyb)

Activity• Soybean

Processing (jsbol)

• Demands soybeans (csoyb) at market price

Processed Commodities• Soybean Oil

(csbol)• Soybean

Meal (csbml)

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IMPACT 3: Potential Improvements

New livestock module: under development with ILRI Fish module: joint work with World Fish

• Two stage work program underway Linked global CGE model: joint work with IDS

• Welfare analysis, economywide direct/indirect links Links to environmental models

• Biodiversity: IFPRI and Bioversity• GHG emissions, nitrogen use efficiency: IFPRI

Water model improvements:• Ground water, water quality, hydropower

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IMPACT 3: Potential Improvements

New crop modules: fruits/vegetables, other crops Nutrition module: IFPRI, PHND, A4NH, CIMSANS, Oxford,

and others Health module: with Oxford (Martin Centre) Improved land-use module: land supply/demand by type Variability and extreme events

• Work with UK/US collaborators• Covariate climate shocks• Pest/disease scenarios

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Linked Global CGE Model

Link IMPACT 3 with the GLOBE CGE model• GLOBE is based on GTAP data and written in GAMS• Includes activity/commodity distinction, as in IMPACT 3

One-way links: IMPACT to GLOBE• Crop/livestock production from IMPACT 3 passed to GLOBE,

which then is run assuming those outputs are fixed• GLOBE solves for economywide impacts (direct and indirect

links): production, employment, and prices• All welfare analysis is done in GLOBE (EV/CV, total absorption)• Links to labor markets, wages, and poverty done in GLOBE

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Linked Global CGE Model Two-way links: IMPACT to/from GLOBE

• Agricultural output from IMPACT: GLOBE generates GDP originating in agriculture, and changes in total GDP

• GDP from GLOBE sent back to IMPACT, so GDP in IMPACT reflects changes in agricultural productivity– Currently, GDP is exogenous in IMPACT

• Energy interactions: biofuels and other energy sources GLOBE and IMPACT need not run on the same time step

• Both can be annual, but can run on different multiyear time steps (e.g., annual for IMPACT, every 5 years for GLOBE)

GLOBE linked via a standalone module that takes input from IMPACT and runs GLOBE

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Modularity: Linking Modules Modularity; “a la carte” model system

• Use the models you need, turn off those you do not need• Separate models can be run independently• Modules can run with different time steps

Standardize data transfer• Information flows• Dynamic or iterative interaction

“Data driven” model specification• IMPACT 3 multimarket model can be run at any level of

aggregation without changing the model code• Change input data and sets only: user need not even see the

GAMS code

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Advantages of Modularity

“Standalone” modules can be run independently of IMPACT, but use inputs from IMPACT scenarios• Can be developed, calibrated, and tested by specialists (e.g,

from various CGIAR centers). • Designed to be used in Center research programs

Design: separate modules can reflect their disciplines• No need to compromise to “fit” one model into another• E.g. water in economic models or economics in water models—

always unsatisfactory Model development, testing, and debugging is greatly

facilitated if the modules can be run separately

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Desiderata for Modular Model Systems

“Modules” should be designed to: Operate in “standalone” mode Read its own parameters Initialize its own variables Accept variables/parameters passed to it from

other modules and the environment; Pass variables that are computed within the

module to other modules or the main model Own its set of state variables

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Modularity: Linking Modules

Three ways to link modules:• Exogenous: Information flows in one direction

– To IMPACT: hydrology, DSSAT, GCMs, SPAM– From IMPACT: welfare, nutrition/health, GLOBE/CGE

• Linked dynamically: Two-way information flow between years– Water basin management, water stress on crops– Land use by type– GDP/economywide links: GLOBE

• Endogenous: Module equations are solved simultaneously– Livestock, sugar processing, oilseeds/oils– Land allocation to crops

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IMPACT 3 Modules

Standalone modules, one-way links:• Welfare, nutrition, GLOBE (e.g., welfare, economywide impacts),

hydrology, DSSAT, GCMs Standalone modules, inter-period links:

• Water models (IWSM, water stress), land use (by land type), livestock (herds), GLOBE (e.g., GDP, non-ag prices)

Standalone modules, intra-period links:• Land use (cropping, irrigated/rainfed), Livestock

Value chains, within IMPACT: sugar, oilseeds, livestock

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Standalone IMPACT Module: Template GAMS IMPACT-compatible standalone module

• Include file with definition of relevant IMPACT parameters• Include GDX file(s) of scenario output of IMPACT results• Load IMPACT data needed by the module

Data estimation and management• Module has its own data base, in addition to IMPACT data

Model specification and parameterization• If module is to be integrated with IMPACT, must avoid name

collisions for parameters, variables, and equations Linking to IMPACT 3

• Communication: exogenous, intra-period, within-period

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Global Computable General Equilibrium and Partial

Equilibrium Models: CGE/PE

Sherman RobinsonInternational Food Policy Research Institute (IFPRI)

FAO WorkshopFebruary 2016

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Simulation Models & Scenario Analysis

Given the uncertainties of climate change, researchers have used simulation models to explore the effects of different CC scenarios• Integrated Assessment Models (IAM), early work• Steady advances in the reach, size, and sophistication of CC-

scenario simulation models– Geographic disaggregation– Impact chains (e.g., temp, precip, extreme events)– Economic coverage (global, national, sub-regional)

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CC Simulation Models

Need for an interdisciplinary approach• Climate change (GCMs)• Civil engineering: infrastructure• Energy (fossil fuels, renewables, hydropower)• Hydrology, water management• Agriculture (crop models)• Economic models: markets matter

– Two major families of economic simulation models: CGE (computable general equilibrium) and PE (partial equilibrium

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Relative strengths of different global models with an agricultural focus: CGE and PE models• Relevance for issues of biodiversity and ecosystem services

in Foresight Models Exploiting comparative advantages of different model

systems• Modularity within and between model families• “Soft” and “hard” linking different models

Data base estimation and management

Global CGE and PE Model Families

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Global CGE Models at IFPRI: GLOBE, MIRAGE

Global CGE models simulate the interaction of national economies across world markets• Determine national and world market prices

CGE models are “complete”: they incorporate all economic activity in the economies simulated• Production (supply), income to “agents” (households, govt.,

enterprises), demand (C, I, G), exports/imports, prices, wages, land rents, exchange rates

• Markets “clear”: supply/demand equilibrium conditions determine prices, wages, profits, land rents

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Producers

Product Markets

Factor Markets

Rest of the World

Households Government Saving/INV

FactorCosts

Wages&

Rents Demand for Intermediate

Inputs

SalesRevenues

PrivateConsumption

Taxes

Domestic Private Savings

GovernmentExpenditure

Gov. Savings

Investment Demand

Imports

ExportsForeign Savings

Demand for Final Goods

Transfers

CGE: Circular Flow of Income

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CGE: Deep Structural Models

Includes “representative” economic agents:• Utility-maximizing consumers (households)

– Expenditure functions, given budget constraints• Profit-maximizing producers

– Maximize profits given technology and prices– Yields factor demands, given wages and prices

Wages/prices are “signals” on all markets Market “institutions”: competitive markets with agents

who cannot manipulate prices• Supply = demand determines prices

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CGE: Completeness

CGE models are “closed” in the sense that they account for all economic activity: no “leakages”

SAM accounting framework: describes the economic “universe” of the models• Double-entry bookkeeping: expenditure/receipt accounts of all

economic agents must balance General equilibrium theory/practice: powerful discipline

for modelers Welfare analysis

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CGE: Direct and Indirect Effects

PE models (GLOBIOM, MAgPIE, IMPACT, GAPS) are “partial” and do not include links between agricultural and non-agricultural sectors

CGE models include all direct/indirect links across the economy: PE models miss them• Indirect effects (forward and backward linkages) are empirically

important Shocks to agriculture “leak” to the rest of the economy:

prices and factor flows

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PE Models: Agricultural Detail

The PE models provide much more disaggregated description of agriculture than the CGE models• Regional, land, and crop disaggregation• Focus on crop inputs and biology: seeds, water, light, heat,

nutrients: process technologies Better host for analysis of issues of biodiversity and

ecosystem services• Links to land use and crop simulation models

Potentially PE a better host for a modular system of models, but also feasible with CGE models

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