WP 3 Simulation modeling of farm level impact of future CAP/WTO scenarios Lead: P5 Particip: P2, P3, P6, P7

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WP 3 Simulation modeling of farm level impact
of future CAP/WTO scenarios Lead P5Particip
P2, P3, P6, P7
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Objectives

1. To define likely future CAP and WTO scenarios
   with their implications for price, production,
   farm income, risk management strategies and
   allowed forms of income stabilizing tools.
2. To analyze the impact of future CAP and WTO
   scenarios on the price, production and income
   probability distributions of farmers in the
   European Union.
3. To analyze the impact of future CAP and WTO
   scenarios on the chance of catastrophically low
   incomes.

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Description of work

• Scenarios
• Update on latest CAP and WTO agreements
• Update on allowed forms of income support
• Define likely and extreme future scenarios and
  describe qualitatively their impact
• Conversion of qualitative future scenarios into
  quantitative implications

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Description of work
Models Set-up of farm-level Monte-Carlo
simulation model Conversion of qualitative future
scenarios into quantitative implications Simulatio
n of impact of scenarios on farm-level prices,
production levels, farm incomes and crises.
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Deliverables

• Qualitative description of future policy
  scenarios (three likely and two extreme
  scenarios) with their expected impact on price,
  production, farm income, risk management and
  allowed forms of income support.
• Quantification of future policy scenarios (mean,
  variation, extreme values).

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Milestones and expected results
Month 10 Preliminary results CAP/WTO impact
January 2006 Month 17 CAP/WTO scenarios
description and impact August 2006 Month 35
Scientific paper
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Decisions (to be) made in WP (1)

• Many

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KEY Decisions (to be) made in WP (2)
Definition of Scenarios Complexity of
Simulation Model (variables) Output of the Model
(Net Farm or Household Income)
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(Preliminary) results
Draft on Policy Scenarios (with elements of
qualitative analysis) Draft construction of
Simulation Model
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Points for discussion
Are the proposed Scenarios appropriate?
Reference (base) Most Likely Liberal Protectionis
t Time horizon
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Most Likely Scenario ? Just one ? 3 likely
scenarios, if this is a must ? If yes, how
differentiated from the most likely
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The Most Likely Scenario Likely? Reference
2004/5 2013 2018 Shock to the
system?
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REFERENCE SCENARIO

• Existing Policy Measures
• (2004/5) CAP - decoupled payments (SPS) in
  EU-15, different payment schemes and lower
  compensation for NMS
• II-nd Pillar measures (e.g. LFA)
• Common Market Organization
• Relatively high prices
• Support within agreed budget limit
• Future reasonably assured (relatively stable?)

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MOST LIKELY SCENARIO

• Like base scenario, but emphasis on reduction of
  export subsidies (DOHA round)
• LFA scheme review
• Internal prices under pressure
• EU budget under pressure from increased
  production and sugar reform
• Uncertain in post 2013 period, due to planned
  reforms effects

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LIBERAL SCENARIO

• Dismantling of most CAP measures
• free trade, no income support in pillar 1
• Support only from 2 pillar of CAP
• No production control, no coupled support
• Internal prices linked to world prices
• Lower production than in base year on highly
  supported markets

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PROTECTIONIST SCENARIO

• Failure of Doha round
• Re-introduction of pre - 2003/04 CAP, coupled
  payments, quotas
• Production constrained by production control
• Internal prices higher than in reference
  scenario
• Risk of non compliance with new requirements
• Non tariff trade barriers (environmental and
  quality requirements for import and domestic
  goods)

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