I1 THE FOOD AND AGRICULTURE MODEL FOR AUSTRIA
6 COMMODITY SUPPLY
Not all primary products a r e available for t r a d e because p a r t s of t h e m may be consumed a s feeds, inputs t o nonagricultural production, and used as intermediate inputs in the production of agricultural commodities. Seed and waste a r e accounted for by defining production a s t h e amount in excess of
A t the final commodity level we can directly determine the industrial use ("other utilization") of agricultural commodities. This is done with coefficients, g , t h a t define t h e real value of industrial consumption relative to
For nonagricultural goods consumed in t h e agricultural sector (excluding fertilizers) t h e r e is a similar ratio with respect t o the r e a l value of agricultural
ON = consumption of nonagricultural inputs by agriculture (excluding
-
fertilizers) from the value of agricultural production less t h e value of feed and intermedi- a t e consumption, which t h e cost of fertilizer is calculated separately.The nonagricultural sector is endowed with goods produced by it, includ- ing some agricultural goods (other utilization). Its contribution t o t h e GDP consists of the value of production minus t h e value of raw products t a k e n
from agriculture.
The total supply of goods in the economy is defined as the total produc- tion, including goods used during production (industrial consumption of agri- cultural products and inputs t o agriculture), feed consumption, and excluding seed and waste. Feed consumption and intermediately consumed products a r e added to supply and human consumer demand, so t h a t supply can never be negative. That is required by t h e algorithm to calculate domestic and international equilibrium prices, and also ensures t h a t the quantities used for feeding livestock a r e considered marketable and thus influence m a r k e t prices.
7 TRADE
7.1 The Demand System
The demand for consumer goods is determined in two steps. The first s t e p distributes consumer expenditure between food and other commodilies.
A linear expenditure system with habit formation is used for this purpose:
N 1962) and -0.204 (in 1976), and income elasticity increases from a n estimated 0.283 t o 0.479. The elasticities of expenditure on nonagricultural goods a r e close to (absolute) unity.
When consumer expenditures on agricultural and other goods a r e known, t h e former c a n be distributed among food commodities. For t h a t purpose, we now determine t h e preliminary demand for each good as a function of its price and food expenditure, or solely a s a function of real food expenditure. Loga- rithmic, semilogarithmic, and log-inverse functions were estimated, and t h e one with best fit and most plausible elasticity estimates was chosen.
Actual demand deviates from t h e estimate because a desired calorie con- sumption, which depends on r e a l consumer expenditure, is calculated and considered. Actual demand is determined through minimization of weighted
Food and Agriculture Model for Austria 27
sums-of-squares of deviations between estimated and actual demand for goods and calories, subject to budget constraints. The idea of this demand system was introduced by G . Fischer (IIASA) and was estimated by him using a non- linear least-squares estimator and 1961-76 data.
7.2 Foreign Trade
The demand system proposed above determines consumer demand a t given expenditure levels from t h e prices of goods. Yet in t h e context of t h e whole model, consumer expenditure is not a t all exogenous but is connected with consumer incomes through the relation:
where E = tariff receipts. This relation says t h a t the expenditure on consumer goods m u s t be covered by revenues from domestically produced and supplied goods, the balance of t r a d e deficit, and tariff receipts. The latter accrue a s t h e difference between revenues from levies (or tariffs) and outlays for export subsidies, both of which help to protect domestic prices against world market price levels:
where PW is t h e world market price (in national currency).
The balance of trade deficit depends on demand and world market prices by definition, given t h a t domestic supply has already been determined (and Axed):
The equilibrium exchange condition between revenue and expenditure s e t out above can thus also take the form:
The difference between the values of demanded and supplied goods, a t world market prices, is given by the balance of trade (surplus o r deficit). A t domestic prices, the two values differ by t h e factor
a,
which reveals t h a t the government earns revenues or spends money as it approaches the t r a d e equilibrium a t B. In the current version of the model it is assumed t h a t t h e government modifies taxation in such a way t h a t a certain exogenously given t r a d e balance will be realized. Such (positive or negative) taxes include only those t h a t serve to balance t h e exchange condition.The government aims not only a t a certain trade balance, but also a t a certain degree of self-sufficiency in food products, which i t only partly
achieves with t h e help of tariffs and export subsidies. Other instruments include import and export quotas and stockholding activities ( m a r k e t inter- vention). Only the former a r e considered in model FAMA-1. Food self- sufficiency targets a r e supplied t o t h e model via upper bounds on export and import levels.
One of t h e most important policy instruments in the model are prices. It is assumed t h a t the political decision process leads to clear-cut decisions about t h e ratios in which prices of t h e various commodities should stand in relation to each other. The government tries to r e a c h these desired prices by applying t h e usual foreign t r a d e policy instruments of tariffs and levies. Only if the self-sufficiency targets cannot be m e t by these means, t h e effect of t r a d e quotas will be t h a t realized prices will differ from those desired. The algorithm computing general equilibrium iterates on taxes (and possibly on certain prices) until demand meets t h e condition(s) of the balance of t r a d e deficit (and foreign t r a d e quotas) (see Keyzer 1980).
7.3 Raw Materials and Final Products
The demand for food commodities can be interpreted as the sum of t h e demand for agricultural raw materials and t h e demand for processing and marketing services contained in t h e final products:
where
X i = final (retail) commodity X i r = raw (farm gate) commodity i
m, = processing and marketing profit margin per unit of Anal commo- dity i.
The processing and marketing margin can be calculated from the difference between retail and producer prices. Retail prices were determined from data o n consumer expenditure for various products as reported by the 1974 consumer survey by the Austrian Statistical Office. The corresponding consumption of raw materials was evaluated a t producer prices and t a k e n from food balance data; m defines the relation between producer and retail prices in physical terms, and is assumed to be constant over time.