NOT FOR QUOTATION WITHOUT PERMISSION OF THE AUTHOR
THE
CANADIAN CObtIF'ONENT OFTHE
IIASA WORLD FOOD MODEL
John D. Graham
H.
Bruce Huff Ralph G. LattimoreA p r i l 1 9 8 5
WP-85-23
Working
Papers a r e interim reports on work of t h e International Institute for Applied Systems Analysis and have received only limited review. Views or opi.nions expressed h e r e i n do not necessari.ly represent those of t h e 1rist;itute o r of its National Member Organizations.INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS 2361 Laxenburg, Austria
FOREWORD
Understanding t h e n a t u r e a n d dimensions of t h e world food problem a n d t h e policies available t o alleviate i t h a s been t h e focal point of IIASA's Food a n d Agriculture Program (FAP) s i n c e i t began in 1977.
National food systems a r e highly i n t e r d e p e n d e n t , a n d yet t h e major policy options exist a t t h e n a t i o n a l level. Therefore, t o explore t h e s e options, i t is n e c e s s a r y both t o develop policy models for n a t i o n a l economies a n d t o link t h e m t o g e t h e r by t r a d e a n d capital t r a n s f e r s . Over t h e y e a r s FAP has, with t h e help of a network of collaborating institutions, developed a n d linked national policy models of twenty c o u n t r i e s , which t o g e t h e r a c c o u n t for n e a r l y 8 0 p e r c e n t of i m p o r t a n t a g r i c u l t u r a l a t t r i b u t e s s u c h a s a r e a , product.ion, population, exports, imports and. s o on. The remaining c o u n t r i e s a r e r e p r e s e n t e d by 14 somewhat simpler models of g r o u p s of countri.es.
A s e p a r a t e national model of Canada, which is a major a g r i c u l t u r a l t r a d e r , i s included i n o u r system of linked models. Several different a p p r o a c h e s t o model Canadian a g r i c u l t u r e were t r i e d o u t arid compared with t h e h e l p of Cana- dian specialists from t h e University of British Columbia a n d Agriculture Canada.
John Graham, H. Bruce Huff a n d Ralph G. Lattimore have described t h e s e approaches arid compared t h e m in t h i s paper.
This working paper i s one of a s e r i e s of Working P a p e r s documenting t h e work t h a t went i n t o developing t h e various models of FAP's system of linked models.
Kirit S. Parikh Program Leader Food a n d Agriculture Program.
1. BACKGROUND
1.1 The Linkage System a n d Commodity Aggregation 1.2 Existing Country Models
1.3 The Work t o Date 2. POLICY CONSIDERATIONS
2.1 Earlier Policy Developments 2.2 C u r r e n t Policy Issues
1. Research a n d Development 2. Market Ilevelopment
3. M-arket Stabilization
4. Regional Development Programs 5. I n f r a s t r u c t u r e
6. F a c t o r Supplies
7. S t r u c t u r e , Conduct a n d Performance 3. THE AGRICULTURAL SUPPLY SECTOR
3.1 The Allocation Model of t h e Basic Linked System 3.1.1 S t r u c t u r e
3.1.2 Model Results
1. Grains Market Scenarios
3.1.3 Proposed Changes t o t h e Canadian Basic Allocation Model 1. The Land Constraint
2. The Aggregation of Livestock 3. Feedgrain Consumption
4.
The Production Function 3.2 A Revised Allocation Model3.2.1 Resource Capacities Capital Stocks
The Labor Force Arable Land
The Objective Function Input Costs
The Allocation of Feed Costs to Livestock Feed Allocation for t h e Basic Linked Approach An Allocation Between Four Livestock Classes Derived Feed Demands
3 . 2 . 2 P r o d u c t i o n Function P a r a m e t e r Estimation Results 3 . 2 . 3 Some Allocation Model Results
4. AN ECONOMETRIC SUPPLY SPECIFICATION 4.1 Wheat, Coarse Grains a n d Oilseeds 4.2 P o r k a n d P o u l t r y
4.3 Dairy a n d Beef 4.4 Simulation Results 5. THE DEMAND BLOCK
Design for t h e Demand Component Two-Sector Linear Expenditure System Engel Curves
Consistency of LES a n d Engel Curve Estimates F e e d Consumption
Marginal Budget S h a r e s Elasticities
Data S o u r c e s Model Results
An Evaluation of t h e P r o c e d u r e s a n d Results 6. CANADIAN/WORLD PRICE LINKAGES
Canada's Agricultural Trade Tariffs a n d Quotas
7. SUMMARY AND CONCLUSIONS Canadian Basic Linked Model
A Revised Canadian Allocation Model An Econometric Supply Specification The Demand System
Canadian/World P r i c e Linkages Conclusions
REFERENCES
BACKGROUND
The I n t e r n a t i o n a l I n s t i t u t e f o r A p p l i e d S y s t e m s A n a l y s i s ( IIASA) i s f u n d e d by t h e a c a d e m i e s o f s c i e n c e o f 17 d i f f e r e n t n a t i o n s . The o b j e c t i v e s o f t h e I n s t i t u t e are t w o f o l d :
1 . The p r o m o t i o n o f i n t e r n a t i o n a l c o l l a b o r a t i o n by b r i n g i n g t o g e t h e r s c i e n t i s t s of d i f f e r e n t n a t i o n a l i t i e s a n d
d i s c i p l i n e s ,
2 . To c o n t r i b u t e t o t h e a d v a n c e m e n t o f t h e s c i e n c e s a n d s y s t e m s a n a l y s e s and a n a p p l i c a t i o n o f t h e s e two p r o b l e m s o f
i n t e r n a t i o n a l i m p o r t a n c e .
The Food a n d A g r i c u l t u r e P r o g r a m (FAP) a t IIASA h a s as i t s o b j e c t i v e a n e v a l u a t i o n o f t h e n a t u r e a n d d i m e n s i o n s o f t h e w o r l d f o o d s i t u a t i o n o v e r t h e n e x t 1 0 t o 15 y e a r s . I t a i m s t o i d e n t i f y f a c t o r s a f f e c t i n g t h e w o r l d Food s i t u a t i o n by s t u d y i n g t h e g r o w t h p r o c e s s e s o f d i f f e r e n t c o u n t r i e s a n d how n a t i o n a l p o l i c i e s o f b o t h d e v e l o p e d a n d d e v e l o p i n g n a t i o n s i m p a c t o n t h e s i t u a t i o n . The r e s e a r c h s t r a t e g y i s t o d e v e l o p e c o n o m i c m d e l s o f a b o u t 2 0 d i f f e r e n t c o u n t r i e s , t o l i n k t h e s e t h r o u g h i n t e r n a t i o n a l t r a d e a n d t h e n t o s t u d y t h e i r e c o n o m i e s a n d g r o w t h p r o c e s s e s . I t i s r e c o g n i z e d t h a t t h e w o r l d f o o d s i t u a t i o n c a n b e s t be s t u d i e d by c o n s i d e r i n g t h e p r o g r a m s a n d p o l i c i e s o f i n d i v i d u a l n a t i o n s a n d it i s t h e s e p o l i c i e s a n d t h e r e s o u r c e s a n d t e c h -
n o l o g i e s o f e a c h o f t h e s e i n d i v i d u a l n a t i o n s t h a t w i l l i n t h e l o n g r u n d e t - e r m i n e p r o d u c t i o n c a p a c i t i e s . On t h i s b a s i s r e s e a r c h teams f r o m d i f f e r e n t n a t i o n s h a v e a s s e m b l e d a n d are d e v e l o p i n g n a t i o n a l economic m d e l s which a r e l i n k e d t h r o u g h i n t e r n a t i o n a l t r a d e . The c o m p l e t e d s y s t e m w i l l a l l o w f o r a n e v a l u a t i o n o f n a t i o n a l a n d g l o b a l p o l i c y a l t e r n a t i v e s as t h e y r e l a t e t o f o o d p r o b l e m s a n d o t h e r e c o n o m i c i s s u e s .
C o u n t r i e s c u r r e n t l y i n c l u d e d i n F A P ' s model system were s e l e c t e d a c c o r d i n g t o two c r i t e r i a . F i r s t , t o g e t h e r they comprise about 8 0 per- c e n t of t h e w o r l d ' s p o p u l a t i o n , l a n d b a s e , a g r i c u l t u r a l p r o d u c t i o n and t h e e x p o r t s and i m p o r t s of a g r i c u l t u r a l p r o d u c t s . A second c o n s i d e r a t i o n was t h a t c o u n t r i e s i n c l u d e d be b o t h from d e v e l o p i n g and developed cate- g o r i e s , and a s a consequence most of t h e i m p o r t a n t c o u n t r i e s from a t r a d e p o i n t of view a r e i n c l u d e d .
1.1 The Linkage System a n d Commodity Aggregation
The development of a work program and t h e c o m p u t a t i o n a l r e q u i r e - ments f o r a l i n k e d i n t e r n a t i o n a l t r a d e system have r e s u l t e d i n c e r t a i n b a s i c r e q u i r e m e n t s b e i n g s t i p u l a t e d f o r each of t h e c o u n t r i e s i n v o l v e d :
1 . Commodities t o be t r a d e d by a l l c o u n t r i e s s h o u l d f o l l o w a common commodity c l a s s i f i c a t i o n ( i . e . , 18 a g r i c u l t u r a l and
1 n o n a q r i c u l t u r a l ) .
2 . A c o u n t r y ' s import and e x p o r t r e q u i r e m e n t s f o r each of t h e s e a r e a f u n c t i o n of world commodity p r i c e s .
3. Import and e x p o r t r e q u i r e m e n t s a r e g e n e r a t e d on a y e a r l y b a s i s and a c o u n t r y ' s s u p p l y of a commodity i s a f u n c t i o n of p r i c e s f o r t h e p r e v i o u s y e a r . The world p r i c e i s
determined by e q u a t i n g domestic demands and f i x e d s u p p l i e s f o r each of t h e t r a d e d commodities.
These r e q u i r e m e n t s imply t h a t each w d e l be c l o s e d i n t h e s e n s e t h a t t h e t o t a l economy i s c o n s i d e r e d , t h a t t h e model be r e c u r s i v e l y dynamic because t o t a l world s u p p l y i s p r e d e t e r m i n e d and t h e models
o p e r a t e i n one-year i n c r e m e n t s over a 10 t o 15 y e a r time h o r i z o n . No r e s t r i c t i o n s a r e p l a c e d on t h e e s t i m a t i o n p r o c e d u r e s adopted by d i f f e r e n t p a r t i c i p a t i n g c o u n t r i e s . Both mathematical programming and econometric methods a r e c u r r e n t l y b e i n g used. Table 1 i n d i c a t e s t h e commodity c l a s s - i f i c a t i o n c o n s i d e r e d f o r t r a d e d goods. Two l e v e l s of a g g r e g a t i o n a r e n o t e d w i t h t h e d e t a i l e d commodity c l a s s i f i c a t i o n r e p r e s e n t i n g t h e f i n a l g o a l . C u r r e n t l y some models have been d i s a g g r e g a t e d to t h i s l e v e l , w h i l e o t h e r n a t i o n a l economies a r e r e p r e s e n t e d a t t h e m r e a g g r e g a t e d l e v e l .
D i f f e r e n t c o u n t r i e s w i l l use d i f f e r e n t p o l i c y i n s t r u m e n t s f o r many of t h e commodities i n d i c a t e d and t h e e f f e c t s of t h e s e a s they i n f l u - e n c e b o t h n a t i o n a l and i n t e r n a t i o n a l t r a d e p r i c e s may be examined u s i n g t h e l i n k e d system of n a t i o n a l models. P r o d u c t i o n and t r a d e a l t e r n a t i v e s , changes i n p r o d u c t i o n s t r u c t u r e s and income r e d i s t r i b u t i o n a l t e r n a t i v e s
( i m p o r t a n t f o r many c o u n t r i e s ) may a l s o be i n v e s t i g a t e d by i n t e r e s t e d p o l i c y makers. The system of l i n k e d n a t i o n a l models a l s o permits an e v a l u a t i o n of a number of i n t e r n a t i o n a l p o l i c y i s s u e s . For example, t h e workings of an i n t e r n a t i o n a l b u f f e r s t o c k agency o r t h e e f f e c t s of i n t e r n a t i o n a l food t r a n s f e r s may be examined.
1.2 E x i s t i n g Country Models
C o u n t r i e s i n c l u d e d i n FAP's programs r e p r e s e n t o v e r 80% of t h e w o r l d ' s p o p u l a t i o n , a g r i c u l t u r a l p r o d u c t i o n and t r a d e ( S e e Table 2 ) . N a t i o n a l models of t h e U.S.A., J a p a n , t h e European Economic Community and Canada r e p r e s e n t t h e most i m p o r t a n t t r a d i n g n a t i o n s . .Amongst t h e
T a b l e 1. Commodity L i s t a t t h e D e t a i l e d and 9 Commodity L e v e l
Condensed Model D e t a i l e d Model
U n i t of Unit of
No. Commodity Measurement No. Commodity Measurement
1 Wheat 10 m . t . 1 Wheat 10 m . t .
- 2 Rice, m i l l e d 10 m . t . 2 R i c e , m i l l e d 10 m . t .
4 Bovine and 10 m . t . 7 Bovine and 10 m . t .
o v i n e meats ( c a r c a s s w e i g h t ) o v i n e m e a t s ( c a r c a s s w e i g h t )
5 Dairy 10 m . t . 10 Dairy 10 m . t .
p r o d u c t s f r e s h m i l k e q u i v . p r o d u c t s ( p r o t . e q u i v . )
6 O t h e r a n i m a l 10 m . t . 8 Pork 10 m . t .
p r o d u c t s ( p r o t
.
e q u i v . ) ( c a r c a s s w e i g h t )9 P o u l t r y & e g g s 10 m . t .
( p r o t . e q u i v . )
13 F i s h 10 m . t .
( p r o t . e q u i v . ) 7 P r o t e i n f e e d s 10 m . t . 5 P r o t e i n f e e d s 10 m . t .
f r e s h m i l k e q u i v . ( p r o t . e q u i v . ) 8 O t h e r f o o d m i l l . US$( 1970) 4 O i l s and f a t s 10 m . t .
( o i l e q u i v . ) 6 Sugar p r o d u c t s 10 m. t .
( r e f . s u g a r ) 11 V e g e t a b l e s m i l l . US$ ( 197 0 ) 12 F r u i t & n u t s m i l l . US$( 1970)
14 C o f f e e 10 m . t .
15 Cocoa, t e a &
t h e i r p r o d u c t s m i l l . US$(1970)
9 Nonfood 17 C l o t h i n g f i b r e s m i l l . US$( 1970)
a g r i c u l t u r e m i l l . US$( 1970) 18 I n d u s t r i a l c r o p s m i l l . USS(1970) 10 N o n a g r i c u l t u r e 19 N o n a g r i c u l t u r e m i l l . US$(1970)
T a b l e 2. P e r c e n t a g e s of World P o p u l a t i o n , P r o d u c t i o n of
A g r i c u l t u r a l Commodities, Land Base, a n d A g r i c u l t u r a l Trade i n 1 9 7 6 a
Pop- pro- Land
Country u l a t i o n d u c t i o n b a s e I m p o r t s E x p o r t s P e r c e n t
US 5.3 12.3 9.8 8.07 8 . 8 5
A u s t r a l i a 0.3 1.6 1.3 0 . 2 5 5.00
New Zealand 0 . 1 0 . 5 0 . 1 0 . 1 4 2.09
Canada 0.6 1.2 2.0 1.99 3 . 2 5
E C J a p a n A u s t r i a Sweden F i n l a n d
Sub-Total 25.0 46.9 34.8 7 2 . 5 3 6 2 . 0 1
P a k i s t an 1.8 0.9 1.4 0.34 0.34
China 2 1 . 4 13.2 17.3 1.64 1.81
N i g e r i a 1.6 0.5 1.6 0.50 0.40
A r g e n t i n a 0.6 2.0 1.7 0.14 2 . 8 6
I n d o n e s i a 3.4 1.6 1.5 0.64 1.02
Turkey Mexico T h a i l a n d B r a z i l
Bangladesh 1.9 0.7 1.1 0.34 0 . 1 1
E W P ~ 1.0 0.7 0.3 0 . 9 4 0.56
I n d i a 15.5 6.7 14.6 1.06 1.30
Kenya 0.3 0.2 0.2 0 . 0 6 0 . 3 3
Sub-Total 53.8 3 5 . 4 47.7 7 . 0 8 1 7 . 2 9
T o t a l 7 8 . 8 8 2 . 3 8 2 . 5 79.6 1 7 9 . 3 0
d e v e l o p i n g n a t i o n s one f i n d s Bangladesh, B r a z i l , I n d o n e s i a , Kenya, N i g e r i a and o t h e r s . China and t h e CMEA c o u n t r i e s a r e a l s o i n c l u d e d .
The r e s e a r c h e f f o r t i n v o l v e d i n a t t e i n p t i n g t o m d e l e a c h of t h e s e c o u n t r i e s i s enormous. I n i t i a l l y , a s p e c i f i c g r o u p of c o u n t r i e s were s e l e c t e d and modeled: t h e European Economic Community ( a d e v e l o p e d , n e a r l y s e l f - s u f f i c i e n t m a r k e t economy), I n d i a ( a d e v e l o p i n g m a r k e t econ- omy w i t h n u t r i t i o n a l p r o b l e m s ) a n d Hungary ( a c e n t r a l l y p l a n n e d economy w i t h a food s u r p l u s ) . The d e t a i l i n v o l v e d i n t h e s e m d e l s is a t t h e 19-commodity l e v e l of d i s a g g r e g a t i o n and p a r t i c u l a r a t t e n t i o n is p a i d to r e p r e s e n t i n g t h e s t r u c t u r e of t h e s e economies a s a c c u r a t e l y a s p o s s i b l e . R e s e a r c h t e a m s from i n s t i t u t i o n s f o r e a c h of t h e s e c o u n t r i e s w e r e r e s p n - s i b l e f o r model d e v e l o p m e n t .
A s e c o n d s t a g e of t h e program h a s i n v o l v e d t h e development of
" s i m p l i f i e d " models f o r most of t h e c o u n t r i e s i n d i c a t e d i n T a b l e 2 . The l e v e l of a g g r e g a t i o n f o r t h e s e i s a t t h e 10-commodity l i s t and t h e s t r a t - e g y i n v o l v e d i s t o r e p l a c e t h e s e s i m p l i f i e d c o u n t r y models w i t h d e t a i l e d c o u n t r y models a s s o o n a s t h e s e a r e d e v e l o p e d and v a l i d a t e d . One may s t u d y i n t e r n a t i o n a l t r a d e e f f e c t s b e c a u s e a framework f o r d o i n g so i s a v a i l a b l e and a s d e t a i l e d a n d v a l i d a t e d c o u n t r y models a r e d e v e l o p e d t h e e n t i r e model framework becomes more a c c u r a t e and r e l i a b l e . These s i m p l i - f i e d c o u n t r y models t h e r e f o r e r e p r e s e n t a n i n t e r m e d i a t e s t u d y i n t h e e v o l u t i o n of t h e r e s e a r c h program; t h e y s u c c e s s f u l l y i n c o r p o r a t e t h e m a j o r s t r u c t u r a l components of t h e economy of e a c h c o u n t r y b u t t h e d e t a i l i s l a c k i n g . P o l i c y a s p e c t s a r e g e n e r a l l y i g n o r e d a s a r e some o t h e r i m p o r t a n t components.
I n t h e d e v e l o p m e n t of e a c h of t h e d e t a i l e d models it i s FAP's p o l i c y t o a t t e m p t t o i n v o l v e l o c a l e x p e r t i s e and l o c a l i n s t i t u t i o n s . An
i n t e r n a t i o n a l network of m o d e l i n g g r o u p s was e s t a b l i s h e d and t h e s e g r o u p s work c l o s e l y w i t h FAP. D e t a i l e d models f o r t h e f o l l o w i n g c o u n t r i e s a r e c u r r e n t l y u n d e r d e v e l o p m e n t : A u s t r i a , B r a z i l , B a n g l a d e s h , C h i n a , CMEA, EC, Egypt, J a p a n , Kenya, T h a i l a n d , t h e U.S.A. and Canada. T h e r e a r e c o u n t r i e s a l s o c o l l a b o r a t i n g w i t h FAP a n d n o t i n c l u d e d i n t h e o r i g i n a l g r o u p of 2 0 . I n c l u d e d a r e F i n l a n d , P o l a n d and T u r k e y , where l o c a l i n s t i t u t i o n s a r e d e v e l o p i n g d e t a i l e d n a t i o n a l m d e l s
.
C o l l a b o r a t i o n i s s t i l l r e q u i r e d from A r g e n t i n a , A u s t r a l i a , I n d o n e s i a , Mexico, New Z e a l a n d , N i g e r i a a n d P a k i s t a n i n o r d e r t o c o m p l e t e d e t a i l e d models from t h e s e c o u n t r i e s . I t s h o u l d be n o t e d t h a t i n some of t h e s e c o u n t r i e s d e t a i l e d a g r i c u l t u r a l models h a v e a l r e a d y been d e v e l o p e d and it i s m e r e l y a m a t t e r o f making t h e r e q u i r e d r e s o u r c e s and f u n d s a v a i l a b l e i n o r d e r t o a c h i e v e c o n s i s t e n c y a n d l i n k a g e .Hence, t h e l o n g - r u n w o r k i n g program c a l l s f o r d e t a i l e d c o u n t r y models t o be d e v e l o p e d a n d m a i n t a i n e d by n a t i o n a l r e s e a r c h i n s t i t u t i o n s . The i n t e r n a t i o n a l l i n k a g e s y s t e m w i l l p r o v i d e a s o l u t i o n a l g o r i t h m f o r t r a d e d i t e m s i n one-year i n c r e m e n t s o v e r a 15-year p l a n n i n g h o r i z o n . Long-run t r e n d s i n t h e w o r l d p r i c e s f o r e a c h of t h e t r a d e d i t e m s a r e g i v e n and t h e s e r e l a t i v e p r i c e s may be u s e d a s i n f o r m a t i o n i n t h e plann- i n g p r o c e s s e s f o r e a c h of t h e c o u n t r i e s i n v o l v e d . The program e m p h a s i z e s t h e r o l e t h a t n a t i o n a l p o l i c i e s p l a y i n d e t e r m i n i n g t h e d i r e c t i o n of g r o w t h f o r e a c h n a t i o n a l economy and t h e e f f e c t of t h e s e growth p a t t e r n s o n i n t e r n a t i o n a l t r a d e .
The development of a C a n a d i a n m d e l w i t h i n t h e IIASA w o r l d f o o d model s y s t e m i s viewed a s a c o o p e r a t i v e e f f o r t of a d v a n t a g e t o a l l . Each
c o u n t r y would h a v e a c c e s s t o m e t h o d o l o g i c a l e x p e r t i s e of IIASA and p a r t i c - i p a t e i n t h e l i n k i n g of t h e C a n a d i a n model w i t h o t h e r c o u n t r y models. I n t h e development of t h e C a n a d i a n model some s p e c i f i c i n s t i t u t i o n a l informa- t i o n and p o l i c i e s a r e i n c o r p o r a t e d . An a t t e m p t h a s been made t o d e v e l o p a f u n c t i o n i n g model c a p a b l e of p r o v i d i n g i n f o r m a t i o n on some of t h e i s s u e s mentioned above.
1.3 The Work t o Date
A t y p i c a l FAP g e n e r a l e q u i l i b r i u m t y p e model w i l l g e n e r a l l y con- s i s t of f o u r i m p o r t a n t components o r s e c t o r s
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t h e a g r i c u l t u r a l s u p p l y module, t h e n o n a g r i c u l t u r a l s e c t o r , t h e government s e c t o r and a demand module. T h i s r e p o r t c o v e r s work a t t e m p t e d f o r t h e a g r i c u l t u r a l s u p p l y s e c t o r o n l y ; t h e r e m a i n i n g components w i l l b e c o v e r e d s e p a r a t e l y .I n t h e s e c t i o n t h a t f o l l o w s some C a n a d i a n p o l i c y i s s u e s a r e a d d r e s s e d t h a t a model o f t h e FAP t y p e may a t t e m p t t o i n c o r p o r a t e . I t i s a r g u e d t h a t n a t i o n a l p o l i c i e s d e t e r m i n e and i n f l u e n c e p r o d u c t i o n p a t t e r n s i n i n d i v i d u a l c o u n t r i e s a n d c o n s e q u e n t l y t h e s e i s s u e s must be a d d r e s s e d a n d i n c o r p o r a t e d i n t o t h e s t r u c t u r e of t h e p r o p o s e d model framework.
F o l l o w i n g t h i s , d e t a i l s of t h e b a s i c l i n k e d m d e l ( C a n a d i a n ) a s d e v e l o p e d by F i s c h e r and F r o h b e r g ( 1 9 8 0 ) a r e p r e s e n t e d . A s a s t a r t i n g p i n t i n t h e d e v e l o p m e n t of a m r e d e t a i l e d C a n a d i a n model it was u s e f u l t o examine t h i s model. A s w e l l , a more r e f i n e d v e r s i o n i s p r e s e n t e d a t t e m p t i n g t o overcome some of i t s s h o r t c o m i n g s . Another a l t e r n a t i v e s p e c i f i c a t i o n i s b a s e d on a s t a n d a r d e c o n o m e t r i c m o d e l l i n g a p p r o a c h . F i n a l l y , t h e r e p o r t d e t a i l s some of t h e d i f f i c u l t i e s e n c o u n t e r e d i n l i n k i n g d o m e w p r i c e s t o
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t h o s e of t h e w o r l d .
2 . POLICY CONSIDERATIONS
N a t i o n a l p o l i c i e s a s implemented by a government of a c o u n t r y a r e o f c r i t i c a l i m p o r t a n c e i n t h e FAP model s y s t e m . A f t e r a l l , it is s u c h p o l i c i e s t h a t d e t e r m i n e a g r i c u l t u r a l p r o d u c t i o n p a t t e r n s i n a c o u n t r y and u l t i m a t e l y w o r l d t r a d i n g p a t t e r n s ( P a r i k h , 1981 1. On a n
ex
post b a s i s t h e FAP model c o v e r s t h e p e r i o d 1961 t o 1980. On a n ex a n t e basis a 10-15 y e a r h o r i z o n i s a p p r o p r i a t e . G i v e n t h e s e r e q u i r e m e n t s it is neces- s a r y t o a t t e m p t t o c o n c e p t u a l i z e a n a g r i c u l t u r a l model t h a t a d e q u a t e l y i n c o r p o r a t e s p a s t and p o s s i b l e f u t u r e p o l i c i e s i n some manner. Many p o l i c i e s a r e commodity- o r r e g i o n - s p e c i f i c , t h e y a r e o p e r a t i v e f o r t i m e p e r i o d s o f v a r y i n g l e n g t h , t h e y a r e implemented by d i f f e r i n g l e v e l s ofgovernment a n d t h e i r i m p a c t s h a v e d i f f e r e d . I t i s a l s o i m p o r t a n t t o t r y a n d a n t i c i p a t e some f u t u r e p o l i c y d i r e c t i o n s a n d a t t e m p t to i n c o r p o r a t e some o f t h e i r components i n t o t h e s t r u c t u r e o f t h e m d e l d e v e l o p e d . W i t h i n a n i n t e r n a t i o n a l s e t t i n g some p o l i c i e s t h a t may be a n a l y z e d h a v e b e e n o u t l i n e d by P a r i k h ( 1981 )
.
I n t h i s s e c t i o n of t h e p a p e r w e b r i e f l y o u t l i n e i n a g e n e r a l manner C a n a d i a n p o l i c y a s p e c t s of i n t e r e s t . F u t h e r d e t a i l s c o n c e r n i n g p o l i c i e s d i r e c t e d a t s p e c i f i c c o m n o d i t i e s a r e n o t e d i n S e c t i o n 3 .2.1 Earlier Policy Developments
Menzie ( 1980 ) i n r e v i e w i n g t h e d e v e l o p m e n t of C a n a d i a n a g r i c u l - t u r a l p o l i c y o v e r a 5 0 - y e a r p e r i o d (1929-1979) c o n c l u d e d t h a t p o l i c i e s t h a t h a v e emerged h a v e i n d i c a t e d a c o n s i s t e n t and b a s i c theme. F a r m e r s h a v e s t r u g g l e d f o r g r e a t e r b a r g a i n i n g power a n d o n e r e s u l t h a s been n a t i o n a l m a r k e t i n g b o a r d s . F a r m e r s h a v e s o u g h t improved p r i c e and
income s e c u r i t y and t h i s h a s a l s o been o b t a i n e d t h r o u g h t h e a c t i o n s of v a r i o u s p r o d u c e r m a r k e t i n g b o a r d s and t h r o u g h income s t a b i l i z a t i o n l e g i s - l a t i o n e n a c t e d b o t h by p r o v i n c i a l and f e d e r a l governments.
I n 1979, t h e r e were more t h a n 100 m a r k e t i n g b o a r d s i n Canada hand- l i n g o v e r 50 p e r c e n t of a l l a g r i c u l t u r a l s a l e s . M a r k e t i n g b o a r d s e x i s t f o r g r a i n s , m i l k , p o u l t r y , p o r k , f r u i t and v e g e t a b l e s . S e v e r a l of t h e b o a r d s a r e n a t i o n a l i n s c o p e w h i l e o t h e r s a r e p r o v i n c i a l . T h e i r r o l e v a r i e s from mere p r o m o t i o n t o a more c o n t r o l l e d s i t u a t i o n where b o t h mark- e t p r i c e s a n d p r o d u c t i o n q u o t a s a r e s e t . The C a n a d i a n Wheat Board e s t a b - l i s h e d i n 1935 w a s g i v e n f u l l c o n t r o l o v e r c o m m e r c i a l l y m a r k e t e d wheat i n 1943. T h i s p o l i c y h a s c o n t i n u e d to t h e p r e s e n t t i m e
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i t s i m p a c t o n t h e e n t i r e a g r i c u l t u r a l i n d u s t r y , upon t h e t o t a l C a n a d i a n economy and to a c e r t a i n e x t e n t o n t h e i n t e r n a t i o n a l m a r k e t f o r wheat c a n n o t be i g n o r e d .C o n c e r n s a b o u t income s t a b i l i t y and low farm incomes r e l a t i v e to nonfarm incomes h a v e a l s o r e s u l t e d i n p o l i c i e s d i r e c t e d to t h i s end.
D u r i n g t h e 1 9 4 0 ' s and e a r l y 5 0 ' s p r i c e s u p p o r t s were p r o v i d e d . I n 1958 t h e A g r i c u l t u r a l S t a b i l i z a t i o n Act was p a s s e d , whereby p r i c e s f o r n i n e commodities were t o be m a i n t a i n e d a t 80% o f t h e p r e v i o u s 1 0 - y e a r a v e r a g e p r i c e
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payments u n d e r t h i s program were f a i r l y s m a l l . More r e c e n t l y ( 1 9 7 5 ) s t a b i l i z a t i o n l e g i s l a t i o n s u p p o r t s p r i c e s a t 90% o f t h e a v e r a g e m a r k e t p r i c e o v e r t h e p a s t 5 y e a r s a d j u s t e d f o r c h a n g e s i n c a s h p r o d u c t i o n c o s t s . Commodities c o v e r e d i n c l u d e i n d u s t r i a l m i l k a n d cream, beef c a t t l e , h o g s , s h e e p and l a m b s , c o r n , soybeans and o a t s and b a r l e y grown o u t s i d e t h e d e s i g n a t e d C a n a d i a n Wheat Board a r e a . A l s o , u n d e r t h e Western G r a i n S t a b i l i z a t i o n Act g r a i n p r o d u c e r s r e c e i v e payments when r e c e i p t sd r o p below t h e p r e v i o u s f i v e - y e a r a v e r a g e a d j u s t e d f o r c h a n g e s i n produc- t i o n c o s t s . Crop i n s u r a n c e programs a l s o o p e r a t e and i n a d d i t i o n i n many p r o v i n c e s o p e r a t e s t a b i l i z a t i o n programs.
A s i d e from t h e s e m a j o r p o l i c y i n i t i a t i v e s t h e r e a r e o b v i o u s l y o t h e r m e a s u r e s t h a t i n f l u e n c e a g r i c u l t u r a l growth and p r o d u c t i v i t y a n d t h e r e a r e a l s o p o l i c i e s d i r e c t e d a t income e q u i t y and t h e u r b a n p o p u l a t i o n . Farm c r e d i t p r o g r a m s , a g r i c u l t u r a l e x t e n s i o n and r e s e a r c h p r o g r a m s , t h e A g r i - c u l t u r a l R e h a b i l i t a t i o n a n d Development Act of 1 9 6 1 , v a r i o u s m a r k e t i n g programs and o t h e r s h a v e a l l i n f l u e n c e d t h e d i r e c t i o n a g r i c u l t u r e h a s t a k - e n . I n t h e c o n c e p t u a l i z a t i o n of t h e m d e l p r e s e n t e d a n a t t e m p t h a s been made t o i n c o r p o r a t e t h e s e components. P a r t i c u l a r a t t e n t i o n is g i v e n t o t h e r o l e of p r i c e f o r m a t i o n a s i n f l u e n c e d by m a r k e t i n g b o a r d s and t h e r o l e p l a y e d by t h e Canadian Wheat Board.
2 . 2 . Current P o l i c y Issues
C u r r e n t f e d e r a l government p o l i c i e s and programs h a v e a s t h e i r o b j e c t i v e t h e a t t a i n m e n t of e f f i c i e n c y , g r o w t h , e q u i t y and f o o d q u a l i t y i n t h e a g r i c u l t u r e - f o o d s y s t e m . I t i s h i g h l y l i k e l y t h a t t h e s e o b j e c t i v e s w i l l n o t change i n t h e n e a r f u t u r e . Given t h i s v e r y b r o a d c a t e g o r i z a t i o n , some s p e c i f i c programs h a v e b e e n d e v e l o p e d t o promote t h e s e g o a l s . I n c l u d - e d a r e s u c h a c t i v i t i e s a s t h e p r o m o t i o n of a g r i c u l t u r a l r e s e a r c h , r e s e a r c h a n d development i n c e n t i v e p r o g r a m s f o r s e c o n d a r y i n d u s t r i e s , m a r k e t inform- a t i o n p r o g r a m s , e x p o r t m a r k e t development s e r v i c e s , a g r i c u l t u r a l s t a b i l i z - a t i o n p r o g r a m s , t r a d e a n d t a r i f f m e a s u r e s and so f o r t h . The i n t e r d e p e n d - e n c e between s e c t o r s and between t h e d i f f e r e n t l e v e l s w i t h i n a s e c t o r a s t h e s e p r o g r a m s a r e d e v e l o p e d must be r e c o g n i z e d a n d i n f o r m a t i o n i s
r e q u i r e d on t h e d i s t r i b u t i o n of t h e s e b e n e f i t s by r e g i o n , by t y p e of pro- d u c e r , by s i z e of f a r m , by p a r t i c i p a n t i n t h e a g r i c u l t u r a l food c h a i n and s o f o r t h .
I t i s p o s s i b l e t o d e t a i l some of t h e s e p o l i c i e s a s s e t o u t i n a r e p o r t on a g r i c u l t u r a l d e v e l o p m e n t s t r a t e g i e s t o t h e M i n i s t r y of S t a t e f o r Economic Development. Seven a r e a s a f f e c t i n g development a r e i n d i c a t - e d . I t would a l s o seem n e c e s s a r y t o a t t e m p t to i n c o r p o r a t e m s t of t h e s e a s p e c t s i n t h e m d e l d e v e l o p e d and an a n a l y s i s of t h e s e i s s u e s s h o u l d a l s o be a t t e m p t e d .
1. R e s e a r c h a n d Development
T e c h n o l o g i c a l change h a s p l a y e d a key r o l e i n f r e e i n g l a b o r r e s o u r c e s f o r u s e i n o t h e r s e c t o r s , i n a l l o w i n g p r o d u c t s t o be c o m p e t i t i v e i n w o r l d m a r k e t s , i n k e e p i n g f o o d e x p e n d i t u r e s low r e l a t i v e t o income and i n i m p r o v i n g t h e q u a l i t y and v a r i e t y of food p r o d u c t s . I n t h e p r i m a r y a g r i c u l t u r a l s u p p l y s e c t o r b a s i c and a p p l i e d r e s e a r c h , and t h e t r a n s - f e r of t h e s e r e s u l t s t o t h e o p e r a t i n g farm l e v e l , w i l l c o n t i n u e t o r e c e i v e h i g h p r i o r i t y . It may be e x p e c t e d t h a t o v e r a 10 t o 15 y e a r h o r i z o n some f a i r l y s i g n i f i c a n t c h a n g e s may o c c u r . N o r t h e r n a g r i c u l - ture i s b e i n g c o n s i d e r e d , t h e r e a r e s c i e n t i s t s d e b a t i n g t h e merits of summerfallow, new l o w e r g r a d e s o f wheat o f f e r p o t e n t i a l f o r e x p a n s i o n i n y i e l d s , t h e r e i s i n c r e a s e d i r r i g a t i o n , d r a i n a g e and snow c o n t r o l , t h e r e a r e p r o g r a m s aimed a t t h e p r e v e n t i o n of s o i l d e g r a d a t i o n t h r o u g h s a l i n i z a t i o n , c o m p a c t i o n a n d e r o s i o n , t h e r e a r e p r o j e c t s e x a m i n i n g e n e r g y - r e d u c i n g methods and s o f o r t h . The k n p a c t of t h e s e programs w i l l v a r y by commodity. I t would be e x t e m e l y u s e f u l i f t h i s p r o j e c t c o u l d p r o v i d e i n f o r m a t i o n o n some of t h e s e m r e s p e c i f i c r e s e a r c h
p r o g r a m s . The b e n e f i t s and c o s t s i n v o l v e d i n t h e s e d e v e l o p m e n t s a r e i m p o r t a n t .
2 . Market Development
Growth i n t h e C a n a d i a n d o m e s t i c f o o d m a r k e t i s l i m i t e d by r e l a t i v e l y s t a b l e p e r c a p i t a f o o d demand and by low r a t e s of i n c r e a s e i n popul- a t i o n . Income g r o w t h o b v i o u s l y a l l o w s f o r a n expanded m a r k e t , p a r t - i c u l a r l y f o r t h o s e h i g h q u a l i t y f o o d p r o d u c t s w i t h h i g h income e l a s t - i c i t i e s ( e . g . m e a t s o r f o o d away from home). Also of h i g h p r i o r i t y i s t h e development of e x p o r t m a r k e t s , p a r t i c u l a r l y f o r t h e g r a i n s and l i v e s t o c k s e c t o r s . The Wheat Board s a l e s p o l i c y h a s t e n d e d to con- c e n t r a t e on t r a d i t i o n a l m a r k e t s and h i g h - q u a l i t y w h e a t s , b u t i n c r e a s - i n g l y e v i d e n c e is t h e r e t h a t t h e market f o r l o w e r g r a d e wheat and t h e m a r k e t s i n d e v e l o p i n g c o u n t r i e s a r e growing m s t r a p i d l y . Programs which e n c o u r a g e an e f f i c i e n t and m a r k e t - o r i e n t e d p r o d u c t i o n - p r o c e s s - i n g - d i s t r i b u t i o n s y s t e m are c r i t i c a l . E f f i c i e n c i e s t o be g a i n e d from a l i b e r a l i z a t i o n of t r a d e a r e a l s o i m p o r t a n t and a r e e x p e c t e d to r e c e i v e p r i o r i t y i n t r a d e n e g o t i a t i o n s . I t would of c o u r s e be u s e f u l t o measure w e l f a r e l o s s e s a s s o c i a t e d w i t h t h e s e b a r r i e r s and i n t h e l o n g e r r u n m e a s u r e t h e g a i n s t h a t c o u n t r i e s may e x p e r i e n c e i f some of t h e s e b a r r i e r s a r e r e d u c e d . On t h e o t h e r h a n d , it h a s a l s o been a r g u e d t h a t a s t a b l e d o m e s t i c market i s r e q u i r e d to p r o t e c t c e r t a i n a g r i c u l t u r a l s e c t o r s a t c e r t a i n t i m e s from low c o s t i m p o r t s , espec- i a l l y when t h e s e r e s u l t from a g r i c u l t u r a l and t r a d e p o l i c i e s of t h e e x p o r t i n g c o u n t r i e s i n v o l v e d . A g a i n , t h e s e a r e i m p o r t a n t p o l i c y i s s u e s f o r which t h e IIASA model framework may p r o v i d e some in- s i g h t s .
3. Market S t a b i l i z a t i o n
F l u c t u a t i o n s i n a g r i c u l t u r a l commodity s u p p l i e s and p r i c e s a r e of c o n c e r n because of t h e high i n v e s t m e n t c o s t s a s s o c i a t e d w i t h Inany farming e n t e r p r i s e s . A g r i c u l t u r a l p o l i c i e s aimed a t c o u n t e r i n g t h i s v a r i a b i l i t y i n c l u d e p r i c e and income a s s u r a n c e p o l i c i e s , s u p p l y management p o l i c i e s and t r a d e p o l i c i e s . Q u e s t i o n s may be r a i s e d whether t h e b a l a n c e among t h e s e t h r e e a p r o a c h e s i s e f f e c t i v e and whether a p r o p e r emphasis between income and p r i c e s t a b i l i t y v e r s u s o t h e r g o a l s i s a c h i e v e d .
Under t h e A g r i c u l t u r a l S t a b i l i z a t i o n Act and t h e Western G r a i n S t a b i l i z a t i o n Act payments a r e made to p r o d u c e r s when market p r i c e of a commodity, a d j u s t e d f o r cash p r o d u c t i o n c o s t s , f a l l s below t h e av- e r a g e f o r t h e b a s e p e r i o d . The program o b v i o u s l y aims a t p r o t e c t i n g p r o d u c e r s a g a i n s t v i o l e n t swings i n t h e market. I t t r i e s t o a v o i d d i s t o r t i n g u n d e r l y i n g s u p p l y and demand r e l a t i o n s h i p s and it a l s o a t t e m p t s t o p r e s e r v e r e g i o n a l comparative a d v a n t a g e s . The c o n c e r n i n t h e a d m i n i s t r a t i o n of s u c h programs i s t o a v o i d i n t r o d u c i n g r i g i d - i t i e s and e x c e s s i v e p r o f i t s i n t o t h e system and y e t m a i n t a i n s t a b l e p r o d u c t i o n and a d e q u a t e incomes f o r p r o d u c e r s . The i n t e r e s t s of a l l s e c t o r s i n c l u d i n g p r o d u c e r s , p r o c e s s e r s , d i s t r i b u t o r s , r e t a i l e r s and consumers need t o be c o n s i d e r e d . Where q u o t a s e x i s t , q u e s t i o n s a r i s e a s t o how e x i s t i n g o r new q u o t a s may be r e a l l o c a t e d between r e g i o n s i n accordance w i t h changes i n r e g i o n a l comparative a d v a n t a g e s and i n ways t o meet r e g i o n a l and n a t i o n a l economic development o b j e c t i v e s . I t i s a l s o i m p o r t a n t t o e n s u r e t h a t p r o d u c t i v i t y g a i n s a r e always t r a n s f e r r e d t o t h e market.
On t h e s u p p l y management s i d e , i n d u s t r i a l milk and p u l t r y p r o d u c t s a r e covered a t t h e f e d e r a l l e v e l ; t h e r e a r e a l s o a few commodities managed a t t h e p r o v i n c i a l l e v e l . The Canadian Wheat Board t h r o u g h t h e u s e of d e l i v e r y q u o t a s a l s o c o n t r o l s t h e flow of wheat, o a t s and b a r l e y t o t h e market. Under t h e G e n e r a l Agreement on T a r i f f s and T r a d e a c o u n t r y may e s t a b l i s h import q u o t a s to p r o t e c t domestic s u p p l y management programs. T h e r e f o r e , f o r t h e s e commodi- t i e s c o n t r o l s on i m p o r t s e x i s t .
T u r n i n g t o t r a d e measures, temporary t a r i f f s u r c h a r g e s have been u s e d t o p r o t e c t domestic p r o d u c e r s from t e m p o r a r i l y d e p r e s s e d i n t e r n a t i o n a l markets and when domestic p r o d u c t i o n f a l l s s h o r t i m p o r t s a r e n e g o t i a t e d . Canada i s a l s o i n v o l v e d i n a c o n t i n u i n g e f f o r t to s t a b i - l i z e world g r a i n m a r k e t s t h r o u g h some form of p r i c e - b u f f e r s t o c k management.
4 . Regional Development Programs
With t h e development of t h e energy i n d u s t r y i n t h e Western p r o v i n c e s some f a i r l y d r a m a t i c r e g i o n a l growth changes a r e c u r r e n t l y t a k i n g p l a c e i n Canada. Q u e s t i o n s a r e r a i s e d a s to how t h e development of t h e primary and s e c o n d a r y i n d u s t r i e s s h o u l d be d i r e c t e d . A t t h e f e d e r a l l e v e l such p l a n s i n v o l v e t h e Department of Regional Economic Expansion, t h e Department of I n d u s t r y , Trade and Commerce and A g r i - c u l t u r e Canada. A development s t r a t e g y p r o v i d i n g f o r e f f i c i e n c y , growth and e q u i t y between r e g i o n s is o b v i o u s l y d e s i r a b l e b u t d e v i s i n g programs t o a c h i e v e t h i s b a l a n c e is a l s o d i f f i c u l t . A r e g i o n a l i z a -
t i o n of t h e model may be d e s i r a b l e .
5 . I n f r a s t r u c t u r e
An e f f i c i e n t a g r i c u l t u r e a l s o r e q u i r e s a w e l l d e v e l o p e d i n f r a s t r u c t - u r e . A m a j o r c u r r e n t c o n c e r n i n Canada r e l a t e s t o t h e t r a n s p o r t a t i o n a n d h a n d l i n g s y s t e m o f g r a i n s . How t o i n c r e a s e t h i s c a p a c i t y a n d how t o d e a l w i t h p r o b l e m s a r i s i n g f r o m t h e C r o w s ' R a t e a g r e e m e n t a r e b e i n g d e b a t e d a n d s o l u t i o n s a r e b e i n g s o u g h t . I n a d d i t i o n , t h e r e i s t h e n e e d t o d e s i g n a s y s t e m t h a t h a s t h e c a p a c i t y a n d f l e x i b i l i t y to meet t h e n e e d s o f a w i d e r a n g e of demands
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g r a i n s , l i v e s t o c k a n d m e a t p r o - d u c t s , h o r t i c u l t u r a l a n d f i s h p r o d u c t s a n d p r o c e s s e d f o o d s b o t h f o r d o m e s t i c a n d e x p o r t m a r k e t s . T h e r e a r e o t h e r i s s u e s r e l a t e d to i n f r a s t r u c t u r e-
t h e g r o w t h o f t h e s e a n d t h e i r r a t e o f d e v e l o p m e n t i s d e p e n d e n t upon e x p e c t e d l o n g - r u n g r o w t h t r e n d s i n e a c h o f t h e many s e c t o r s c o n s i d e r e d w i t h i n t h e IIASA f r a m e w o r k .6 . F a c t o r S u p p l i e s
T h e r e a r e s e v e r a l p r o g r a m s w h i c h a f f e c t i n p u t s u p p l i e s a n d p r i c e s . I n c l u d e d i n t h e s e a r e t a x a t i o n p o l i c i e s , l a b o r a n d c r e d i t p r o g r a m s , e n v i r o n m e n t a l r e g u l a t i o n s a f f e c t i n g c e r t a i n i n p u t s , l a n d a n d water p r o g r a m s , e n e r g y p o l i c i e s a n d so f o r t h . A l s o r e l a t e d t o t h e s e c o n s i d - e r a t i o n s are t h e e f f e c t s o f r a p i d l y i n c r e a s i n g c o s t s of c a p i t a l , of l a b o r a n d o f e n e r g y a n d t h e manner i n w h i c h t h e s e c h a n g e s a f f e c t t h e c o m p e t i t i v e p o s i t i o n o f C a n a d i a n A g r i c u l t u r e .
7 . S t r u c t u r e , C o n d u c t a n d P e r f o r m a n c e
T h e p r e s e n t s t r u c t u r e o f t h e a g r i c u l t u r e - f o o d s y s t e m i s c h a r a c t e r i z e d b y a l a r g e number o f f a m i l y - o p e r a t e d f a r m s , a r e l a t i v e l y few l a r g e f o o d p r o c e s s i n g f i r m s , many o f w h i c h a r e f o r e i g n - o w n e d , a n d some smaller p r o c e s s e r s , a s m a l l number o f r e l a t i v e l y l a r g e r e t a i l f o o d
c h a i n s , a f a i r l y r a p i d l y growing f o o d s e r v i c e and r e s t a u r a n t bus- i n e s s , i n t e r m e d i a r y m a r k e t i n g and d i s t r i b u t i n g f i r m s and v a r i o u s i n s t i t u t i o n s i n c l u d i n g c o o p e r a t i v e s , m a r k e t i n g b o a r d s and o t h e r government m a r k e t i n g a g e n c i e s . I t is e x t r e m e l y d i f f i c u l t t o d e c i d e o n some d e s i r e d mix f o r t h i s s y s t e m , b u t i t is c e r t a i n t h a t v a r i o u s government p o l i c i e s a f f e c t e a c h of t h e s e many s e c t o r s d i f f e r e n t l y . Take f o r example f a r m s t r u c t u r e
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a q u e s t i o n o f t e n r a i s e d c o n c e r n s s i z e e f f i c i e n c y a s it r e l a t e s to t h e f a m i l y farm. The t y p i c a l farm r e q u i r e s a l a r g e i n v e s t m e n t and t h i s makes e n t r y i n t o t h e f a r m i n g b u s i n e s s d i f f i c u l t a n d a l s o makes t a n s f e r s from one g e n e r a t i o n to t h e n e x t a problem. The i s s u e s and t h e d e g r e e t o which p r o g r a m s s h o u l d f a v o r e i t h e r l a r g e r o r s m a l l e r f a r m s a n d how b e g i n n i n g f a r m e r s can e n t e r t h e b u s i n e s s a r e i m p o r t a n t . Another q u e s t i o n a t t h e p r o c e s s i n g l e v e l c o n c e r n s t h e most e f f i c i e n t s i z e of e n t e r p r i s e , t h e d e g r e e of c o n c e n t r a t i o n i n c e r t a i n m a r k e t s , and t h e d e g r e e of f o r e i g n owner- s h i p . T h i s s t r u c t u r e i s i m p o r t a n t i n t h a t b o t h farm p r o d u c e r s and t h e f i n a l consumer a r e a f f e c t e d a c c o r d i n g 1 y.T h i s s e c t i o n h a s d e t a i l e d s o m e of t h e p a s t and c u r r e n t C a n a d i a n a g r i c u l t u r a l p o l i c i e s . I n d o i n g so some i m p o r t a n t model c o n c e p t u a l i z a - t i o n i s s u e s a r e n o t e d . I t i s of c o u r s e i m p o s s i b l e to i n c o r p o r a t e all of t h e c o n s i d e r a t i o n s m e n t i o n e d w i t h i n t h e framework of t h e model d e v e l o p e d b u t an a t t e m p t must be made t o i n c o r p o r a t e t h e mre i m p o r t a n t of t h e s e . I s s u e s which we v i e w a s c u r r e n t l y b e i n g of l o w e r p r i o r i t y w i l l be t a c k l e d a s r e s o u r c e s p e r m i t . I t i s a l s o r e c o g n i z e d t h a t t h e r e a r e c e r t a i n i s s u e s
t h a t can o n l y be h a n d l e d i n a m d e l framework v e r y d i f f e r e n t to t h a t which we have s p e c i f i e d o r p e r h a p s c a n n o t u s e f u l l y be t a c k l e d w i t h g i v e n m e t h o d o l o g i e s . The m d e l d e t a i l e d i n t h e n e x t s e c t i o n s i s h i g h l y agqre- g a t e d and n o t r e g i o n a l i z e d and c o n s e q u e n t l y t h e s e l i m i t a t i o n s a r e n o t e d . A s development c o n t i n u e s it is hoped t h a t a m r e u s e f u l p o l i c y a n a l y s i s t o o l w i l l r e s u l t .
3 . THE AGRICULTURAL SUPPLY SECTOR
A m a j o r t a s k i n t h e development of a model of t h e economy i s t h a t o f a d e q u a t e l y r e p r e s e n t i n g t h e farm s u p p l y s e c t o r . S e v e r a l components of t h e work a r e r e p o r t e d on i n t h i s s e c t i o n . I n i t i a l l y t h e a g r i c u l t u r a l s u p p l y s e c t o r of t h e C a n a d i a n model d e v e l o p e d by F i s c h e r and F r o h b e r g ( 1980) a s p a r t of t h e i r b a s i c l i n k e d s y s t e m i s examined. Based on t h i s e v a l u a t i o n a r e v i s e d a l l o c a t i o n model f o l l o w i n g t h e same methodology is d e s c r i b e d and some of t h e i n p u t s r e q u i r e d f o r t h i s r e v i s e d model a r e d e t a i l e d . W e a l s o p r e s e n t a n a l t e r n a t i v e model b a s e d upon s t a n d a r d e c o n o m e t r i c methodology. We a l s o p o i n t t o t h e d i f f i c u l t i e s i n v o l v e d i n t h e hope t h a t t h e s e e x p e r i e n c e s may be u s e f u l knowledge t o o t h e r s in- v o l v e d i n t h e FAP t a s k .
U n t i l d e t a i l e d models f o r t h e v a r i o u s c o u n t r i e s a r e d e v e l o p e d and l i n k e d , FAP r e l i e s upon t h e c o u n t r y models d e v e l o p e d by F i s c h e r and F r o h b e r g ( 1 9 8 0 ) . T h i s s e t of c o u n t r y - s p e c i f i c models r e f e r r e d t o a s t h e
" b a s i c l i n k e d s y s t e m " forms a n e x t r e m e l y i m p o r t a n t component of t h e en- t i r e program b e c a u s e a t t h i s s t a g e d e t a i l e d c o u n t r y models d e v e l o p e d by
r e s e a r c h e r s from a p a r t i c u l a r c o u n t r y a r e few. I n f a c t , it is o n l y models of I n d i a , t h e U . S . A . and T h a i l a n d ( s e e T a b l e 1 ) t h a t have been d e v e l o p e d i n d e p e n d e n t l y and a r e c u r r e n t l y l i n k e d . Work on o t h e r coun- t r i e s c o n t i n u e s , b u t it is h i g h l y l i k e l y t h a t b e c a u s e of t h e d i f f i c u l t t a s k t h a t , i n t h e n e a r f u t u r e , t h i s number w i l l remain small. For t h i s r e a s o n it is i m p o r t a n t t h a t one u n d e r s t a n d t h e methodology and s t r u c t u r e o f t h e b a s i c l i n k e d models. I t s h o u l d a l s o be n o t e d t h a t work on t h e s e b a s i c l i n k e d models c o n t i n u e s and many m o d i f i c a t i o n s have been made s i n c e t h e t i m e of t h i s w r i t i n g .
A s i d e from t h e t a s k of d e v e l o p i n g m r e d e t a i l e d c o u n t r y models t h e FAP p r o g r a m r e q u i r e s t h a t once d e v e l o p e d t h e s e nmdels b e c u r r e n t and m a i n t a i n e d on t h e s y s t e m a t IIASA. I n t h e l i n k e d r u n s v a r i o u s s c e n a r i o s w i l l be a n a l y z e d . Because of t h e d i f f e r e n t m e t h o d o l o g i e s i n v o l v e d i n t h e s e d e t a i l e d c o u n t r y models and b e c a u s e of v a r i o u s s t a t i s t i c a l and c o m p u t a t i o n a l p r o b l e m s t h a t a r e l i k e l y to a r i s e when t h e s e a n a l y s e s a r e a t t e m p t e d ( e v e n i f t h i s a n a l y s i s is a t t e m p t e d a f t e r e x t e n s i v e t e s t i n g ) it i s e x p e c t e d t h a t d i f f i c u l t i e s w i l l be e n c o u n t e r e d
--
p a r t i c u l a r l y s o i n s i t u a t i o n s where t h o s e o r t h e i r r e p l a c e m e n t s who d e v e l o p e d t h e work a r e no l o n g e r r e s i d e n t . The e x p e r t i s e a t IIASA c a n minimize t h e s e p r o b l e m s b u t t h e s e c o n s i d e r a t i o n s h a v e i n f l u e n c e d o u r r e s e a r c h a g e n d a . We, t h e r e f o r e , c o n s i d e r e d it e s s e n t i a l t o e v a l u a t e and t e s t t h e C a n a d i a n b a s i c l i n k e d model b e c a u s e t h i s model s i n c e t h i s model w i l l r e m a i n l i n k e d u n t i l a n a l t e r n a t i v e more d e t a i l e d model d e v e l o p e d by t h e w r i t e r s o r o t h e r s i s s u b s t i t u t e d . F'urthermore, i n t h e development of a m r e d e t a i l e d s u p p l y module t h e r e is much t o be g a i n e d from f o l l o w i n g t h e same methodology a s t h a t u s e d f o r t h e b a s i c model s y s t e m , and now c u r r e n t l y b e i n g used f o r t h e EEC c o u n t r i e s . W e r e p o r t on t h i s work by p r e s e n t i n g t h e s t r u c t u r e of t h e b a s i c l i n k e d model, a r e v i s e d a l l o c a t i o n model t h a t was s p e c i f i e d and e s t i m a t e d , a n d we a l s o r e p o r t on some of t h e r e s u l t s f o r a n e c o n o m e t r i c s p e c i f i c a t i o n o f t h e a g r i c u l t u r a l s u p p l y module. Some of t h e p r o b l e m s e n c o u n t e r e d i n a l l t h r e e a p p r o a c h e s a r e n o t e d .The t i m e h o r i z o n was d i v i d e d i n t o t h r e e i m p o r t a n t p e r i o d s . F o r e s t i m a t i o n p u r p o s e s o u r time s e r i e s b a s e c o v e r s t h e y e a r s 1961 t o 1976.
The p e r i o d 1977 t o 1 9 8 1 may b e u s e d f o r e x p o s t f o r e c a s t i n g a n d t h e
p e r i o d 1981 a s an e x a n t e f o r e c a s t i n g p e r i o d . The e x p o s t f o r e c a s t i n g p e r i o d (1977 t o 1981) p r o v i d e s a r a t h e r s e v e r e t e s t of some of t h e r e s u l t s .
3.1 The A l l o c a t i o n Model of t h e B a s i c Linked System
The model developed by F i s c h e r and Frohberg ( 1980) f o r Canada i s termed an a l l o c a t i o n model because it is a n o n l i n e a r o p t i m i z i n g rmdel w i t h a n o n l i n e a r c r i t e r i o n f u n c t i o n and l i n e a r i n e q u a l i t y c o n s t r a i n t s . The c o n s t r a i n t s of t h e model i n v o l v e an a l l o c a t i o n of t o t a l c a p i t a l , t o t a l a g r i c u l t u r a l l a b o u r and f e r t i l i z e r between 8 ' a l t e r n a t i v e a g r i c u l t u r a l a c t i v i t i e s . T h i s s e c t i o n h i g h l i g h t s some of o u r f i n d i n g s of t h i s model. More d e t a i l e d r e p o r t s of t h e rmdel i t s e l f and t h e f i n d i n g s a r e a v a i l a b l e ( F i s c h e r and Frohberg, 1980; Graham and Huff, 1980; Rabar and H u f f , 1 9 8 0 ) .
3.1.1 S t r u c t u r e
The approach f o l l o w d by F i s c h e r and F r o h b e r g i n d e v e l o p i n g t h e i r b a s i c l i n k e d models i s f a i r l y unique. The c o n c e p t of a n o n l i n e a r maximization model i s n o t new, b u t i t s a p p l i c a t i o n a s a t o o l t o model t h e a g r i c u l t u r a l s e c t o r s of many d i f f e r e n t c o u n t r i e s i s f a i r l y unique. S i n c e t h e s e models a r e t o be used o v e r a 15 y e a r f o r e c a s t p e r i o d , t h e i r v a l i d i t y i s c r i t i c a l . The approach adopted i s t o e s t i m a t e n o n l i n e a r p r o d u c t i o n f u n c t i o n s of a Cobb Douglas t y p e f o r 8 f a i r l y a g g r e g a t e d
commodities.
The a g r i c u l t u r a l commodities shown i n T a b l e 1. Bovine and d a i r y p r o d u c t i o n i s a j o i n t p r o d u c t .
With a given s e t of c o e f f i c i e n t s f o r each of t h e s e p r o d u c t i o n f u n c t i o n s a n o n l i n e a r o p t i m i z i n g model i s t h e n s o l v e d and t h e optimum o u t p u t l e v e l s f o r each of t h e 8 a c t i v i t i e s o b t a i n e d . These o u t p u t l e v e l s a r e t h e n t h e p r e d i c t e d p r o d u c t i o n l e v e l f o r t h a t p a r t i c u l a r commodity f o r t h a t y e a r . I n p u t s i n t o t h e a g r i c u l t u r a l s e c t o r f o r a p a r t i c u l a r y e a r a r e a g r i c u l t u r a l c a p i t a l , l a b o u r and f e r t i l i z e r ( f o r c r o p s ) and it is t h e s e l i m i t i n g re- s o u r c e s t h a t a r e a l l o c a t e d between t h e 8 a l t e r n a t i v e s . S i n c e it is o p t i - m i z i n g m d e l an a l l o c a t i o n of r e s o u r c e s between a l t e r n a t i v e s i s made on
t h e b a s i s of e x p e c t e d p r o f i t p e r u n i t f o r each of t h e a c t i v i t i e s . The a l l o c a t i o n model a l g o r i t h m was developed by F i s c h e r s p e c i f i c a l l y f o r t h i s p a r t i c u l a r problem, b u t a more g e n e r a l i z e d a l g o r i t h m may a l s o be s u i t - a b l e .
The approach adopted i n e s t i m a t i n g t h e p a r a m e t e r s of t h e produc- t i o n f u n c t i o n s i s f a i r l y u n i q u e . E s s e n t i a l l y , i n e s t i m a t i n g a p r o d u c t i o n f u n c t i o n f o r a number of d i f f e r e n t a g r i c u l t u r a l commodities one a t t e m p t s t o s p e c i f y t h e r e l a t i o n s h i p between a s e t of i n p u t s and o u t p u t s . C r o s s s e c t i o n a l o r time s e r i e s d a t a a r e r e q u i r e d . A major problem e n c o u n t e r e d f o r t h i s model i s t h a t t h e l e v e l s of i n p u t s a r e n o t o b s e r v a b l e . T o t a l i n p u t l e v e l s a r e known b u t an a l l o c a t i o n of t h e s e between a l t e r n a t i v e commodities o r o u t p u t s is unknown. Furthermore, o v e r time t o t a l i n p u t l e v e l s change and a r e a l l o c a t i o n between o u t p u t s i s a l s o l i k e l y . I n f a c t , t o c a t e r to t h e t i m e dimension a s p e c t s of t h e problem, s e v e r a l changes a r e made. F i r s t l y , t h e c o n s t r a i n t s of t h e a l l o c a t i o n problem change because o v e r time changes i n t h e a g r i c u l t u r a l l a b o u r f o r c e and t h e s t o c k of cap- i t a l i n v e s t e d i n t h e i n d u s t r y o c c u r . The a g r i c u l t u r a l l a b o u r f o r c e o v e r t h e h i s t o r i c a l p e r i o d h a s g e n e r a l l y d e c l i n e d whereas c a p i t a l s t o c k s have
s t e a d i l y i n c r e a s e d . The l e v e l s of t h e s e i n p u t s need t o be p r e d i c t e d o v e r t h e 15 y e a r f o r e c a s t p e r i o d and t h e i r a l l o c a t i o n between a l t e r n a t i v e s de- c i d e d . Secondly, t o a l l o w f o r c e r t a i n t e c h n i c a l changes t h a t a r e t a k i n g p l a c e , t h e p a r a m e t e r s of t h e e s t i m a t e d p r o d u c t i o n f u n c t i o n s a r e time v a r i a n t .
The p r o d u c t i o n r e l a t i o n s h i p between i n p u t s and t h e c o m m d i t i e s i s unknown. E s t i m a t e s of t o t a l a g r i c u l t u r a l c a p i t a l , l a b o u r and f e r t i l i z e r usage a r e a v a i l a b l e , b u t an a l l o c a t i o n of t h a t c a p i t a l t o each of t h e major a g r i c u l t u r a l commodities i s not. E s t i m a t e s of t h e s e a l l o c a t i o n s c a n b e made, v a r i o u s a g r i c u l t u r a l c e n s u s e s may p r o v i d e i n s i g h t s , v a r i o u s a l l o - c a t i o n r u l e s may be d e v i s e d , b u t i d e a l l y i f p r o d u c t i o n f u n c t i o n s a r e t o be e s t i m a t e d o b s e r v a t i o n s on commodity s p e c i f i c i n p u t l e v e l s and p r i c e s a r e r e q u i r e d . I n mixed Farming o p e r a t i o n s o r f o r j o i n t commodities an a l l o c a - t i o n of r e s o u r c e i n p u t s t o commodities is d i f f i c u l t , b u t a s i d e from t h e s e problems, no o b s e r v a t i o n s on t h e amount of l a b o u r , c a p i t a l and f e r t i l i z e r used i n t h e p r o d u c t i o n of each of t h e 8 commodities is a v a i l a b l e f o r Canada, o r more g e n e r a l l y f o r t h e o t h e r c o u n t r i e s concerned. The approach a d o p t e d has been t o d e v i s e r u l e s t h a t p r o v i d e an i n i t i a l a l l o c a t i o n of r e s o u r c e u s e between commodities o v e r 16 y e a r s ( 1961- 1976)
.
Given t h e s e o b s e r v a t i o n s t h e p a r a m e t e r s of t h e p r o d u c t i o n f u n c t i o n s have been d e r i v e d . With t h e s e g i v e n p a r a m e t e r s t h e a l l o c a t i o n model is s o l v e d and o p t i m a l o u t p u t l e v e l s o v e r t h e h i s t o r i c a l p e r i o d o b t a i n e d . For t h e 16 y e a r p e r i o d t h e s e optimum o u t p u t l e v e l s may be compared w i t h observed o r a c t u a l o u t p u t l e v e l s f o r t h e economy and t h e d e v i a t i o n s n o t e d . S o l u t i o n of t h e non- l i n e a r maximization problem w i l l a l s o p r o v i d e an a l l o c a t i o n of t h e l i m i t e d r e s o u r c e s between commodities o v e r t h e 16 y e a r s . S i n c e t h e i n i t i a la l l o c a t i o n of r e s o u r c e s between commodities may b e c o n s i d e r e d a s t a r t i n g p o i n t , F i s c h e r a n d F r o h b e r g compare o b s e r v e d a n d optimum o u t p u t l e v e l s f o r e a c h of t h e 8 c o m m o d i t i e s o v e r 16 y e a r s t o s e e w h e t h e r t h i s i n i t i a l a l l o c a t i o n of r e s o u r c e s p r o v i d e d p r o d u c t i o n f u n c t i o n p a r a m e t e r s t h a t a l - lowed t h e d e v i a t i o n between o b s e r v e d and optimum o u t p u t l e v e l s t o be r e a s o n a b l y s m a l l . I n i t i a l l y , i n most i n s t a n c e s , t h i s i s n o t t h e c a s e and t h e r e f o r e , a r e v i s e d s e t of p r o d u c t i o n f u n c t i o n p a r a m e t e r s may be e s t i - mated. I n d o i n g s o t h e a l l o c a t i o n l e v e l s of r e s o u r c e s between commodi- t i e s a s p r o v i d e d by t h e s o l u t i o n of t h e n o n l i n e a r programming problem a r e r e l i e d upon. A new set of p r o d u c t i o n f u n c t i o n p a r a m e t e r s i s o b t a i n e d , t h e a l l o c a t i o n model may be s o l v e d o v e r 15 y e a r s f o r t h i s new s e t , o p t i - m u m o u t p u t l e v e l s a r e o b t a i n e d and a new set of a l l o c a t i o n s of r e s o u r c e s between commodities o b t a i n e d . The d e v i a t i o n s between o b s e r v e d and o p t i - mum o u t p u t l e v e l s a r e n o t e d . Given t h e d e v i a t i o n s a d e c i s i o n i s m t h e n made w h e t h e r t o i t e r a t e o n c e more o r n o t . I t e r a t i o n w i l l g e n e r a l l y c o n t i n u e u n t i l t h e r e i s no s i g n i f i c a n t improvement, u s i n g c e r t a i n c r i - t e r i a : t h e c o e f f i c i e n t s of t h e p r o d u c t i o n f u n c t i o n s a r e r e l a t i v e l y s t a b l e , t h e optimum o u t p u t l e v e l s remain r e l a t i v e l y s t a b l e , and t h e d e v i a t i o n between o b s e r v e d o u t p u t l e v e l s and optimum o u t p u t l e v e l s a r e r e l a t i v e l y s m a l l . These c o e f f i c i e n t s of t h e p r o d u c t i o n f u n c t i o n s w i l l be used t o p r o j e c t o v e r t h e 15 y e a r p l a n n i n g h o r i z o n .
With t h i s background we now r e p o r t on some d e t a i l s of t h e b a s i c a l l o c a t i o n model, some of t h e r e s u l t s o b t a i n e d and some c h a n g e s t h a t may b e made i f t h e a g r i c u l t u r a l s e c t o r of Canada is t o be more c l o s e l y r e p r e - s e n t e d .
The commodities t r e a t e d i n t h e a l l o c a t i o n m d e l have been a g g r e g a t e d t o t h e f o l l o w i n g e i g h t c a t e g o r i e s :
.
wheat ( m i l . t o n s ).
r i c e ( m i l . t o n s ).
c o a r s e g r a i n s ( m i l . t o n s ).
b o v i n e and o v i n e p r o d u c t i o n ( b e e f and d a i r y m a i n l y-
m i l . t o n s c a r c a s s weight and m i l k e q u i v . ).
o t h e r a n i m a l s ( p o r k , p o u l t r y and f i s h-
m i l . t o n s p r o t e i n e q u i v . ).
o t h e r f o o d s of c r o p o r i g i n ( m i l . U.S.$ 1970).
nonfood a g r i c u l t u r a l c r o p s ( m i l . U.S.$ 1970)The c o n s t r a i n t s of t h e model a l l o c a t e c a p i t a l , l a b o u r and f e r t i l i z e r t o t h e d i f f e r e n t u s e s and do n o t exceed t h e t o t a l a v a i l a b i l i t y t h e r e o f . Output of e a c h of t h e commodities i s a f u n c t i o n of t h e r e s o u r c e i n p u t s i n t o t h a t commodity. T h i s r e l a t i o n s h i p between p r o d u c t i o n ( o u t p u t ) and r e s o u r c e i n p u t s f o r c r o p commodities i s g i v e n a s :
f o r i E c r o p p r o d u c t i o n a c t i v i t i e s
w i t h
+ +
pi = 1; E i t , dit = f ( t ) , i E c r o p p r o d u c t and Y 1+ Bi
+ Qi < 1, i E c r o p p r o d u c tand where
KtA = t h e c a p i t a l s t o c k i n a l l of a g r i c u l t u r e i n y e a r t
Kit = t h e c a p i t a l s t o c k employed i n t h e p r o d u c t i o n of commodity i i n y e a r t
LtA = t h e l a b o u r f o r c e i n a g r i c u l t u r e i n y e a r t Lit = t h e l a h o u r f o r c e used on c o m m d i t y i i n y e a r t
F~~ = t h e n i t r o g e n f e r t i l i z e r used i n a l l of a g r i c u l t u r e i n y e a r t o Fit = t h e n i t r o g e n f e r t i l i z e r used on c r o p i i n y e a r t
