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Policy Changes in the Crops Sector and Projections for Incomes and Costs in Agriculture
McQuinn, Kieran Behan, Jasmina
McQuinn, Kieran
Behan, Jasmina
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2002-12-01
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McQuinn, K., Behan, J., Policy Changes in the Crops Sector and Projections for Incomes and Costs in Agriculture, End of Project Reports, Teagasc, 2002.
Abstract
The research conducted under the projects 4821 and 4823 represents a
continuation of project 4345, which has developed economic models of the Irish
crops sector, agricultural inputs and incomes. These models are integrated within
the FAPRI-Ireland model of the agricultural sector which is a joint undertaking
between the Food and Agricultural Policy Research Institute (FAPRI)1 and
Teagasc. The crops model links to other Irish commodity models and an Irish
inputs model to generate an income figure for Irish agriculture which is then
projected forward on a 10 year basis.
In this research, the models were used to produce projections for the Irish crop
sector, inputs and incomes for the period 2000-2010. These projections were
generated under three policy scenarios. First, the models were run assuming that
agricultural policy would remain unchanged throughout the projection period.
Subsequently, these “baseline” projections were compared with projections
generated assuming alternative policy scenarios. In 2001, the baseline was
compared with the policy scenario of reduced or eliminated export subsidies.
This scenario was designed to reflect possible changes in trade policy resulting
from the World Trade Organisation (WTO) Millennium Round negotiations. In
2002, the baseline projections (now modified to include the policy changes that
occurred in 2001) were compared with projections under a policy scenario which
included further extensification of livestock production. This scenario was
designed as a second guess to the policy reform proposals under the Mid-Term
review (MTR) of the EU Common Agricultural Policy (CAP), which became
available in July 20022. The general objective is to generate projections for the Irish:
1. crop sector
2. agricultural inputs
3. agricultural incomes.
The projections are generated under the existing policy framework as well as
under alternative policy scenarios. Subsequently, the quantitative effect of each
scenario is then gauged. The crops, inputs and incomes models are components of the FAPRI-Ireland
modelling system developed to generate projections and conduct policy analysis
for the Irish agricultural sector. The modelling framework consists of a system of
econometrically estimated equations and linkages between agricultural variables
across commodity sectors. Through the collaboration with FAPRI, models are also linked with their EU and world agricultural models. Therefore, in generating
projections the following is ensured:
• the projections of agricultural outputs in Ireland are generated taking
formal account of international market developments, and
• the most relevant policy levers associated with the CAP are fully
incorporated within the projections. In 2001, the projections for Irish crops, inputs and incomes were generated under
two policy scenarios. First, it was assumed that there would be no change in
agricultural policy over the projection period. Second, the analysis included the
effect of both a reduction in export refund limits and an elimination of export
refunds. Under the 2001 baseline, Irish grain prices are projected to decrease in
nominal terms over the period 2000-2010. The value of wheat output is projected
to increase, while the value of barley output is set to decrease. The demand for
inputs is projected to decline reflecting the reduced intensity of agricultural
production. In aggregate terms it is projected that there would be little change in
overall agricultural income.
An export subsidy reduction would lead to a decline in grain prices relative to the
baseline. This reduction would be more pronounced if export refunds were
eliminated. While, agricultural income is not largely affected by the reduction in
export subsidies, the elimination of refunds, leads to the reduction of 20 percent
in income relative to the baseline projections.
In 2002, projections, covering the period 2001-2010, were generated for a
revised baseline and a policy scenario which included further extensification of
livestock production. In general, the revised baseline projections are not
significantly different from the baseline 2001. The extensification of livestock
production is projected to lead to a reduction in inputs consumed, including feed,
energy and fertiliser application. Under this scenario the Irish agricultural income
in 2010 increases relative to the baseline projection, primarily due to the increase
in the extensification payments.