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A new supermodel takes to the stage

Some of the Econometrics project team
Some of the Econometrics project team
So far, projections that examine the effects of changes in EU agricultural policy have been rather general in their approach and methodology. Now a consortium involving 14 Member States is constructing a modelling tool to forecast their detailed impact on each individual country - not just on the EU as a whole. The project is funded through the European Commission's Key Action Five programme. In it, teams in each country will work together to analyse and project farm product output, consumption, trade, prices and incomes. Policy makers in both private and public sectors of agriculture will be able to plan for the future with more confidence. This will also mean greater security for the farming and allied industries as the Community expands to accept new candidate countries.

Making sense

The AG-MEMOD project is co-ordinated by The Irish Agriculture and Food Development Authority, Teagasc. Although the full project began in March 2001, some of the project partners have been meeting since 1997. They realised that their econometric projections were highly dependent on the quality of the analyses made at the EU level. They saw that it was possible to gain a better appreciation of the effects of European agricultural policy on their own countries by having parallel analysis done in other Member States. In contrast to this linking of models across the EU, econometric models that have been utilised so far have largely been developed at a single institution.

"Several European colleagues agreed to work with me on this when we met informally at a gathering of the European Association of Agricultural Economics," says Brendan Riordan, project co-ordinator, based at the Rural Economy Research Centre in Ireland. "The price levels in Ireland - which are highly dependent on exports - are virtually dictated by the EU market as a whole. I saw for myself that there was considerable scope to mobilise analysis in other countries, both to improve our own analyses, and to show how any policy change might affect other countries too."

Model estimation

The partners are currently estimating suitable models to cope with the mass of complex data available within each of their respective countries. These are essentially detailed commodity models. For example, how does the market for wheat react in Denmark or France? If price goes down in one country, how far does production fall there and elsewhere? Then, what would be the rise in consumption and exports of wheat? Linking all the different econometric models together will give a comprehensive view of the effects of a price change for instance.

The project's composite model will reflect the diversity of the agri-food sector across the EU and its interactions. "Until now most of the estimations were done in those comparatively few countries with good information collecting resources and comprehensive models," explains Mr Riordan. "Indeed several countries are still developing their tools for information gathering and analysis. This project will help them do that. In fact, we are going to broaden the market models to include olive oil, citrus fruits, potatoes, sugar beet, tomato paste and cotton, in addition to the usual internationally traded commodities such as wheat, dairy products, and beef. By the end of 2002, we hope to have an integrated system that really works, with all the country models meshing together so we are up and running Europe-wide."

Recognisable benefits

"This is a very active partnership," continues Mr Riordan. "We have developed fruitful working relationships in the two meetings since getting the contract and are about to have a third. Around October 2003, we expect to produce the first analyses that fully explore policy scenarios - and the impact of external events - predicting probable outcomes. Just as important is to demonstrate what will happen if no action is taken in a particular set of circumstances. I think it is going to have a big influence on policy decisions. It will enable informed participation in policy formation by all interests in the agri-food sector in every EU member state."
One aim of this project is to produce a base-line forecast - a view of the future generally accepted as reasonable, but no more than that. Then the impact of an economic event is investigated. The difference between the baseline and the forecast scenario represents the impact of that event. An illustration of how this 'super' tool may be applied came in a recent assessment of a proposed reduction in export subsidisation. Two scenarios were considered. One was the gradual phasing-out of export subsidisation by 2010, the second its rapid total elimination by 2004. It was found that gradual phasing-out was much the more benign scenario - to a greater degree than initially suspected.

Involving Candidate Countries

In a new call for offer, which closed on 15 February this year, the European Commission requested proposals for an extension of the AG-MEMOD project to include the candidate countries.

"We found that in nearly all of the accession countries in Central and Eastern Europe that there were economic research institutes poised to join our partnership," says Mr Riordan. "However, their models would have to be largely synthesised as the time series data available are inadequate to estimate market responses. These historical series derive mainly from the command-control economy of former communist times. Nonetheless, their participation, alongside the current partners, will enhance everyone's analysis and appreciation of enlargement. In ways like this the project will smooth adjustment to a changing world.

Project Co-ordinator: Brendan Riordan
E-mail
Telephone: +353 1 6376103
Address: Rural Economy Research Centre, Dublin, Ireland
Website: http://tnet.teagasc.ie/agmemod/
See also for results from a precursor
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