A Mathematical Framework for the Japanese Agricultural Model

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NOT FOR QUOTATIOR WITHOUT PERMISSIOS OF THE AUTHOR

A MATKEMATICAL FRAMEWORK FOR THE JAPANESE AGRICULTURAL MODEL

October 1980 WP-BO- 156

Working Papers a r e interim r e p o r t s on work of the 1 n t e r n a t i ~ ; l a l Institute for. Applied Systems Analysis a n d have received only limited review. Views or opinions expressed herein do not necessarily r e p r e s e n t those of t h e Institute or of its National Member Organizations.

INTE~KNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANLALYSI

S

A-2361 Laxenburg, Austria

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FOREWORD

Understanding t h e n a t u r e and dimension of t h e food problem and t h e policies available t o alleviatp i t has been t h e focal point of t h e lIASA Food and Agri- culture P r o g r a m since it began in 1977.

National food systems a r e highly interdependent, and y e t t h e major policy options exist a t t h e national level. Therefore, t o explore t h e s e options, i t is nect:ssary both t o develop policy models for national economies and to link t.heni hogether by t r a d e a n d capital transfers. For g r e a t e r realism, t h e models in this s c h e m e of anlysis a r e being k e p t descriptive, r a t h e r t h a n normntive. In t h e end i t is proposed t o link models of twenty countries, which together a c c o u n t For nearly 80 p e r c e n t OF important agricultural a t t r i b u t e s s u c h as a r e a , production, population, exports, imports and so on.

In t h i s p a p e r Dr. Onishi describes a mathematical framework for a n agricul- t u r a l policy model for Japan.

Kirit S. Parikh Acting Leader

Food and Agriculture P r o g r a n ~

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PREFACE

The Food and Agriculture Program of IIASA s t a r t e d in 1977. Since t h a t time, methodology, simplified national models, and some detailed national models have progressed. In 1980. Japan joined t h e Program.

Japanese agriculture is protected by various kinds of policies such as pro- d u c e r price support policies, import tariff a n d quota policies and taxation policies. As a result, the production costs of many agricultural commodities in Japan a r e much higher than those of other countries. I t is quite interesting t o s e e what would happen t o Japanese agriculture if the producer price of rice were set a t the international rice price. If the import quota of beef and pork a r e entirely removed, could s t e e r a n d hog production in Japan still continue? If Japan exports rice, would

U.S.

farmers' incomes be reduced? What kind of policies a r e effective for the alleviation of the world hunger problem? If we can experiment on even some of these problems through a world food model, Japan's participation in t h e Food and Agriculture Program could have some significance.

I would like t o express my d e e p appreciation t o Director R. Levien and Pro- g r a m Leader F. Rabar. Finally, I am grateful to Ms. Cynthia Enzlberger and Ms.

Bonriie Riley for their patient typing and retyping of this paper.

Haruo ONISHI July 1980

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CONTENTS

THE PURPOSE OF THE FOOD AND AGRICULTURE PROGRM LINKAGE REQUIREMENTS FOR A WORLD MODEL

THE OBJECTS OF MODELING JAPANESE AGRICULTURE COMMODITY LIST

STRUCTURE OF THE MODEL

EXPLANATIONS OF THE JAPANESE AGRICULTURAL MODEL Market Clearance and Social Account Module

D e m a n d f o r C o m m o d i t i e s

Domestic S u p p l i e s of C o m m o d i t i e s E x c e s s D e m a n d s for C o m m o d i t i e s A g r i c u l t u r a l , F a r m a n d R u r a l I n c o m e s

U r b a n I n c o m e

N o n a g r i c u l t u r a l r e v e n u e

G o v e r n m e n t R e v e n u e a n d E x p e n d i t u r e

Cross N a t i o n a l Product, N a t i o n a l Income, a n d Ceneral R i c e Level

Population, Labor Availability, Household, and Land Availability Module

R u r a l a n d U r b a n P o p u l a t i o n Labor A v a i l a b i l i t y

Household

Przddy a n d U p l a n d Field A v a i l a b i l i t y

Consumption and Intermediate Demand Module H u m a n C o n s u m p t i o n

G o v e r n m e n t C o n s u m p t i o n Irxtermediate D e m a n d A n i m a l C o n s u m p t i o n N u t r i t i o n

Agricultural Production Module P r o d u c t i o n of Wheat

P r o d u c t i o n of B o v i n e Meat a n d Milk

Nonagricultural Production a n d Government Employment Module

N o n a g r i c u l t u r a l Labor E m p l o y m e n t , Wage R a t e , Cupital U s e R a t e , a n d P r o d u c t i o n

G o v e r n m e n t E m p l o y m e n t

Investment a n d Capital Formation Module

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I n v e s t m e n t

Capital F o r m a t i o n Depreciation of Capital

International Trade, Price Deterrnination, Net I m p o r t Quota, a n d Buffer S t o c k Constraint Module

I n t e r n a t i o n a l Trade und Price D e t e r m i n a t i o n Net I m p o r t Q u o t a

B u f l e r Stock Constraint Government Policy Module Price S u p p o r t PO licies

Agricultural Productiun Policies I n t e r n a t i o n a l Trade Policies

T a z a t i o n Policies

CONCLUDING REMARKS AF'PENDIX 1

A Mathematicid Framework for t h e J a p a n e s e A g r i c l ~ l t u r a l Model APPENDIX 2

Variable Notation REFERENCES

. ..

- V l l l

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1 . T H E P U R P O S E O F T H E FOOD A N D A G R I C U L T U R E PROGRAM

The oil crisis in 1973 a n d t h e food crisis in 1974 affected t h e world economy seriously. These crises have lead to many people paying m o r e a t t e n t i o n t o global r a t h e r t h a n national problems a n d t o recognizing t h a t economic gro-vth is not unlimited. A few y e a r s l a t e r , the Food and Agriculture P r o g r a m a t I I A 5 4 was established to:

- evaluate t h e n a t u r e and dimensions of t h e world food situation, - identify the factors affecting it, and

- find alternative policy action a t t h e national, regional a n d global level.

Using t h e d a t a and evaluations f r o m this study it is hoped t h a t solutions to alleviate existing and emerging food problems in t h e world can be found.*

*"Local Problems in a Global System (The Approach of IIASA's Food and Agriculture P r e gram)", F. Rabar, FAP Newsletter No. 3, August 1979, p. 5 .

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2. LINKAGE REQUIREMENTS FOR A WORLD MODEL

A general equilibrium approach is taken to a world agricultural model. A variety of national agricultural models which reflect the characteristics of each country's agriculture a r e linked t o a world agricultural model. To integrate many national models into a world agricultural model several conditions a r e imposed on each national agricultural model.

They a r e required (a) for a common goal of all countries and (b) for guaran- teeing the existence of an equilibrium in a world agricultural model. They a r e the following:

*

1) The IIASA commodity list should be accepted. I t is possible to introduce more commodities than t h e r e a r e on the commodity list, but they must be only those productas which participate in international exchange and which a r e defined by the list.

2) The time horizon will be 15 years and the time increment one year.

3) There is a one-year time lag after t h e production decisions a r e made. Pro- duction is given a t the time point of exchange.

4) The rnodels should be closed: The rest of t h e economy should be represented in one aggregated commodity.

5) Government policies should be explicitly formulated.

6) The models should behave as continuous, nonsmooth excess demand functions of international prices.

7) Excess demand functions a r e homogeneous of degree zero in international prices and incomes.?

3. THE OBJECTS OF MODELING JAPANESE AGRICULTURE

Japanese agriculture is closely related to agriculture and nonagriculture in the r e s t of t h e world. It is impossible t o predict the effects of government policies on Japanese agriculture from a n analysis of an agricultural sector model or even a Japanese economy model, because there are some reactions to government policies for Japanese agriculture from the rest of the world. Hence, i t is of great importance t o evaluate quantitative1.y the "net" effects of agricultural policies, trade policies, and taxation policies set by the Japanese government on Japanese agriculture in a global framework.

The purpose of this research is:

(1) to evaluate quantitatively the effects of agricultural policies, t r a d e policies, and taxation policies regarding Japanese agriculture,

(2) to pursue appropriate labor allocation, land use, and capital formation, and (3) to predict incomes and food consumption patterns in rural and urban areas

between 1981 and 1995.

4. COMMODITY LIST

The commodities to be introduced into the production module differ from those listed in the Food and Agriculture Program a t IIASA. In order to reflect the characteristics of Japanese agriculture in the model, 28 agricultural commodities a r e selected. All products and services in the r e s t of the national

*FAP Newsletter No. 3, August, 1979, pp. 30-31.

tKeyzer. M.A.. A n Outline of IIASKs Food and Agriculture Model. January, 1980, p. 8 .

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produc:tion a r e t r e a t e d a s one aggregate nonagricultural commodity. However, i t is possible t o disaggregate the nonagricultural commodity into t h r e e commodities ( a ) capital goods, (b) consumption goods a n d services, a n d ( c ) minerals and energy, in a future version of t h e Japanese Agricultural Model, JAM. The commodity lists of IIASA and JAM a r e :

11 ASA JAM

Wheat 1.

Rice 2.

Coarse grain 3.

O i l a n d fats 4.

Protein feeds 5.

Sugar 6.

Bovine m e a t s 7.

Pork 8.

Poultry and eggs 9.

Dairy products 10.

Vegatables 11.

Fruit and n u t s 12.

Fish 13.

Coffee 14.

Cocoa and t e a 15.

Alcoholic beverages 16.

Clothing fibers 17.

Industrial crops 18.

Noriagricultural commodities 19.

( t h e r e s t of t h e national production)

20.

2 1.

22.

23.

24.

25.

26.

27.

28.

29.

Wheat Rice Barley

Rye a n d o a t s Corn

Oil and fats Protein feed Sugar b e e t s Sugar c a n e Nonprotein feed Bovine m e a t Pork

Poultry Egg s

Dairy p r o d u c t s Starchy roots Soybeans Vegetables

Grapes

Other fruit Fish

Tea

Alcoholic beverages Tobiicco

Silk cocoons Ingusa plants Green feed Wood

Nonagricultural commodities ( t h e r e s t of t h e national

production) 5. STRUCTURE

OF

THE MODEL

The model r e p r e s e n t s t h e Japanese economy a n d puts emphasis oil t h e agricultural sector. The s t r u c t u r e of t h e JAM consists of t h e following eight modules:

(1) Market clearance a n d social account,

(2) Population, labor availability, household and land availability, (3) Consumption and i n t e r m e d i a t e demand.

(4) Agricultural production,

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(5) Nonagricultural production and government employment, (6) Investment and capital formation.

(7) International trade, price determination, net import quota, and buffer stock constraint, and

(8) Government policy.

The market clearance and social account module represents commodity balances, incomes, corporate profit, government revenues and expenditures, and gross national product.

The population, labor availability, household and land availability module is related t o rural and urban population, rural and urban labor availabilities, numbers of rural and urban households, and acreages of paddy and upland fields.

The consumption and intermediate demand module deals with human.

government, and animal consumption of agricultural and nonagricultural commodities, and intermediate demand for agricultural commodities which are used for t h e production of alcoholic beverages (sake, beer. whiskey, and wine), oil (vegetable oil and fish oil) and protein feed (soybean cake and fish cake).

The agricultural production module shows acreages of crops, labor allocation, capital allocation, nitrogen fertilizer application, production of crops, animals, fish and wood, expected producer price formation, and producer prices of disaggregated commodities.

The nonagricultural production a n d government employment module s t a t e s workir\g hours per worker during a year, capital use rate, wage r a t e of nonagricultural production, employment and production.

The investment and capital formation module deals with investments by gover-nment, farmers (including fishermen and forestry workers) and enterprises, savings, capital formation and depreciation of capital.

In the international. trade, price determinati.on, n e t import quota and buffer stock constraint module, net imports, upper and lower bounds of net imports quota, buffer stocks, upper and lower bounds of buffer stocks, relations between IIASA's world prices and world prices with which Japan is faced (in t e r m s of 1970 base year.), consumer prices, a n d producer prices a r e discussed.

Finally, tax rates, producer and consumer prices for wheat, rice and tobacco, tariff rates, subsidies, government wage r a t e , a n d imports of government-controlled commodities a r e det.ermined in the government policy module.

6. EXPLANATIONS OF THE JAPANESE AGRICULTURAI.

MODEL

(JAM)

Let 11s give brief explanations of most. of the equations and identities in t h e model. The whole s e t of simultaneous equations rnodel JAM and Variable Nota-

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FLOW CHART OF JAM

I n v e s t GN

A: A g r i c u l t u r a l Sector N: Nonagricultural Sector

G: Government

U

^: determined

-

I n v e s t GA

I

ALLOCATION

1

_t ^Producer

1

C a p i t a l GA

]

P r i c e

t

Tax A

F e r t i l i z e r I' Consumer

Net

-

P r i c e Consump. A 11

Import

1

I n v e s t A Buffer

Demand ^'* ¹

Stock v1

I

I n t . Rate

I n v e s t N *Capital N

1 Labr

Producer P r i c e

O

^: ^given

J

=.

I n v e s t A

Land ,*Capital A

Labor A

1

World P r i c e A

r Ag. Prod.

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tion is given in t h e Appendix.

6.1. Market Clearance a n d Social Account Module 6.1.1. Demand for Commodities

As far as wheat and rice a r e concerned, the commodities supplied from farmers and traded in the international m a r k e t a r e not t h e same a s those consumed. I-Iulled wheat and rice a r e supplied and t r a d e d , while wheat flour and polished rice a r e consumed. It is assumed t h a t the commodities wheat, rice, coarse grains, bovine m e a t , pork and nonagricultural commodities c a n be stored. while all other commodities a r e perishable. The commodities rice, coarse grains, vegetables, fruit and fish c a n be used for processed commodities.

Nonagricultural commodities a r e used a s consumption goods, investment goods and intermediate goods.

6.1.2. Domestic Supplies of Commodities

Commodities produced a r e consumed one year l a t e r in order t o satisfy t h e common requirements of IIASA's general equilibrium system.

6.1.3. Excess Demands for Commodities

Excess demand is defined a s total consumption minus total domestic supply. 1f excess demand is positive, i t is regarded as import. On t h e other hand, if excess demand is negative, it is regarded as export. The reduced forms of excess demand function m u s t be homogeneous of degree zero in IIASA's world prices.

6.1.4. Agricultural. F a r m a n d R u r a l Incomes

Crop income of crop i, CIi, is defined a s t h e gross sales of crop i minus the cost for intermediate goods used for production of crop i. Animal income of animal i. AIi, is accounted a s the gross sales of animal i (including t h e joint products) minus t h e cost for intermediate goocis and feeds. The allowances for capital depreciation a r e determined by a function of total capital in agriculture.

Agricultural income AGIN is defined as t h e sum of farming income FART, fishery income FISI, and forestry income FORI, where farming income implies t h e sum of all c r o p and animal incomes. Farm income FI consists of agricultural income AGIN, r~onagricultural income NMI, net income transfer from overseas ITOF.

dividend DIVF, and subsidies from fallow paddy fields ARP2-ARZ. Rural income RI includes the income t,ransfer (subsidies) from the government. P e r capita incomes and p e r household incomes a r e defined for convenience.

6.1 -5. Urban 11lcome

Urban income U I consists of wage incomes UWI from nonagricultural production a n d government work, dividend DIVU, and n e t income transfer from overseas

ITOU.

Disposable u r b a n income IIUI is obtained from t h e subtraction of nonagricultural persorlal t a x NPTX-UI frorri urban income. P e r capita urban income a n d p e r household u r b a n income a r e introduced for convenience.

6.1.6. Nonagricultural revenue

The previous year's production brings the curren-t gross revenue NC19-NQ1.9-1 due t o t h e common requirements for t h e IlASA linkage system.

Gross profit is defined a s t h e gross revenue plus n e t income transfer from overseas ITON minus indirect t a x II'XN-NC19.NQ19-1 :minus wage WRNmENAL minus

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allowances for capital depreciation DAN. Capital depreciation allowances a r e considered t o be a function of capital stock KN and capital use r a t e KURN. Divi- d e n d DIVI is determined by gross profit GP19. Then. retained earnings RE is defined a s t h e gross profit plus capital depreciation allowances minus c o r p o r a t e tax CTX-GP19 and dividend DIVI. Dividend is divided into dividend t o f a r m e r s (including fishermen and forest workers) and dividend t o urban dwellers.

6.1.7. Government Revenue a n d Expenditure

The government including c e n t r a l and local collects personal taxes FI-M3TX and UI-NPTX. indirect taxes CP6.DG-ITXS, CPlG.Dl6-ITXB, and CPlS.Q19.ITXN, cor- p o r a t e t a x GP19.CTX. tariffs z T ~ i - M i . w P i sales of wheat, rice and t;obacco CP1-Dl, CP2G-D2G, and C18T-QlBT, and net income transfer from overseas ITOG.

On t h e o t h e r hand, t h e government spends money on t h e consumption and investment of nonagricultural commodities CP19-(IG+CG), purchases of wheat, rice, a n d tobacco from f a r m e r s and overseas, P P l . Q l , WP1.Ml. PP2G.Q2G, P18TeQ18T. and WlEiT*MlEiT, income t r a n s f e r t o agriculture SUBA, subsidies for fallow paddy fields ARP2.AR2, and wages for government employees WRG-LGOV.

6.1.8. Gross National Product, National Income. a n d General P r i c e Level.

Gross national product GNP is defined a s the s u m of t h e gross incomes z P P i . Q i _ l of all commodities divided by general price level GPL. The general price level is obtained as t h e Laspires index. National income NAIN is t h e s u m of agricult,ural income AGIN a n d nonagricultural income NPIS.NQl9.

6.2. Population, L a b w Availability, Household, a n d L a n d Availability Module.

6.2.1. R u r a l a n d Urban Population

Change in population is influenced by various factors such a s demographic, econornic, arld social factors. It is quite difficult t o explain the change in population only by economic factors. Hence, total population in Japan is treated. a s exogenous in t h e model. Given total population, r u r a l and-urban popul.ation a r e derived. Rural population is a function of total population TPOP, r u r a l a n d u r b a n s t a n d a r d of 1.iving r e p r e s e n t e d by per. capita disposable rural-urban income ratio (PDRI/'PDUI)_l, government investment IGA-, in agriculture and r u r a l activities t o m a k e r u r a l life attra.ctive, a n d p r e s s u r e of urban ~ v e r p o p u l a t i o n reflecting high living costs, high land price, high food pric:e. I.ac:k of sewage s y s t e m , etc.

(UPOP/TPOP)_l. Then, u r b a n population is de:fined a s the s u b t r a c t i o n of r u r a l popula.tion from total population.

6.2.2. Labor Availability

Total labor availability LAR in rural a r e a s is determined by rural popul a t ' .ion RPOP, rdtio of rural household expenditures on food, beverages a n d housing over r u r a l tlisposable household income (REF'H/DRHI)-l representing r u r a l st.andard of living, a n d time t r e n d variable indirectly representing t h e situation in which people in rural a r e a s t r y t o g e t higher edut-alion and a s a result t h e age a t which they d a r t work is later.

Labor avai1abilit.y in r u r a l a r e a s i s used up by labor for farming (crop and animal production), LFAR, labor for fishery LF'IS, labor for f o r e s h y work LFOR and nonagricultural productiori LNAR (including part-time jobs). Labor availability in u r b a n a r e a s LAU is d e t e r m i n e d by urban population, ratio of urban household expenditures or1 food, beverages and housing over disposable u r b a n household income, a n d time t r e n d variable. The rnearlirigs of t h e s e explanalory variables a r e similar t o those of labor availability irl rurSal a r e a s .

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6.2.3. Household

The n u m b e r s of r u r a l and urban households a r e determined in t h e model by t h e respective p o p u l a t i o ~ ~ and time t r e n d variable.

6.2.4. Paddy a n d Upland Field Availability

Paddy field acreage availability is t h e previous year's paddy field acreage minus t h e s u m of additional land acreage used for urbanization a n d further industrialization and t h e acreage of paddy field changed into upland field. The definition of upland field acreage c a n be easily understood through t h e definition of paddy field acreage. The acreage of additional land used for urbanization and f u r t h e r industrialization is affected by changes in GNP AGNP-1, r e t a i n e d earnings RE-l, change in u r b a n population AUPOP, and time t r e n d variable t. The ratio of paddy and upland field deteriorated by urbanization a n d f u r t h e r industrialization is fixed in t h e model.

The change of paddy field into upland field depends on rice production reduction policy variable ARPZhI and r-atio of land productivit.ies of rice and dairy products in t e r m s of incomes (C12/A2)_1/(A110/AGF)_I.

6.3. Consumption a n d Intermediate Demand Module 6.3.1. H u m a n Consumplion

Linear expenditure s y s t e m is adopted for r u r a l a n d urban human consumption. Total r u r a l and u r b a n household expenditure RHE and UHE a r e functions of respective disposable household incomes DRISI and DUHI a n d ratios of respective population over labor engaged in agricultural a n d nonagricultural production

RPOP/LAR

and UPOP/EUL. Rural and urban expenditure on t h e i-th consurner's c o m ~ n o d i t y REi a n d UEi a r e determined by t h e respective linear expenditure systems, where r u r a l and urban committetl consumptions of t h e i- t h consumer's commodity a r e expressed by RCi and UCi respectively.

6.3.2. Government Consump tion

It is assumed t h a t the government does not, consume agricultural commodities but consumes nonagricultural commodities. The government consumption of nonagricultural commodities is determined by real government revenue CR/ CP19 and real national income (NAIN/CPIS)-~. The last explanatory variable r e p r e s e n t s a little Keynesian influence.

6.3.3. Intermediate Demand

Rice, coarse grains, s t a r c h y roots, soybeans, vegetatlles ( s e s a m e seeds, r a p e seeds, etc.), g r a p e arid fish a r e used for t h e production of processed commodities such a s alcoholic beverages (sake or rice wine, beer, whiskey. wine), oil a n d cakes. Nonagricultural commodities used a s intermediate goods a r e nitro- g e n fertilizer, viriyl s h e e t , n e t , chemicals, fuel oil, e t c . Real national iricome, t h e previous year's i n t e r m e d i a t e demand quantity, consumer pric e ratio, and time t r e n d variable a r e corlsidered to determine intermediate demands.

6.3.4. Animal Consuznption

Protein feed, non-protein feed, and green feed a r e consumed by steers.

bulls, cows, pigs, broilers a n d hens. It is assumed t h a t the consumption quantities of protein, non-prolein, and g r e e n feed per head of animal a r e fixed and half of t h e animals slaughtered ( o r consumed) had consumed t h e s e feeds.

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6.3.5. Nutrition

Per capita protein, carbohydrates, and fats are calculated for rural and urban dwellers.

6.4. Agricultural Production Module

Twenty-eight agricultural commodities are focussed on. Instead of men- tioning all of the 28 submodules of agricultural production module, we would like t o concentrate only on wheat production and bovine and milk production, because it is not difficult t o understand other submodules.

First of all, it is assumed t h a t the production decision time differs from t h e harvest and exchange time and the farmers would like to maximize the expected farming income subject to acreage, nitrogen fertilizer, capital and labor con- straints.

We can s e t up a basic problem as follows:

max z ( P ~ i * - ai).Qi Ai,Li.Ki.Ni.NFi

subject t.o

A2 5 APF

Ki 5

KFAR

z

3 ^NFi^{I; NFTL} i= 1

where

for wheat, rice, and coarse grains

for other crops.

for an.imals, and

with the Box-Jenkins approach where

ai-Qi cienot.es the cost of intermediate goods and/or feeds and all variable notations car) be found i.n the appendix Variable Notations.

The nitrogen fertilizer quantity applied p e r a c r e of wheat NFl/Al is d e t e r m i n e d by t h e previous year's application quantity (NF1/Al).l a n d t h e expected wheat producer price divided by nitrogen fertilizer price PPl*/PNF. Since A1 is p r e d e t e r m i n e d for this equation, t h e nitrogen fertilizer quantity used for wheat production c a n be derived a s NF1. The capital used for wheat production K 1 is a function of t h e previous y e a r ' s capital u s e K1_l a n d capital labor r a t i o KFAR/LFAR. The a m o u n t of labor used for wheat production L1 in t e r m s of m a n d.ays is determi-ned by t h e previous year's labor L1-l and t h e r a t i o of e x p e c t e d wheat income p e r f a r m e r over wage r a t e of nonagricultural production (PP I*-Q l ~ ) / (WRN.l.L1.l). Accordingly, t h e production function of wheat is specified a s a function o f a c r e a g e , nitrogen fertilizer application quantity, private capit.al used, government capital, labor, weather index, and time t r e n d variable. Instead of production function, a wheat yield function c a n be considered. The final decision whether the production function is m o r e suitable for wheat production in J a p a n than t h e yield function d e p e n d s on estimation.

Since t h e submodules of o t h e r crops a r e similar t o t h e submodule of wheat production, we would like to skip t h e m and r e f e r t o tohe production of bovine m e a t a n d rnilk.

6.4.2. Production of Bovine Meat a n d Milk

The n u m b e r of s t e e r s N7 is d e t e r m i n e d by the n e t birth r a t e R7 a n d t.he n u m b e r of s t e e r s surviving at. t h e e n d of t h e previous y e a r NS7.1. The n e t birth r a t e is affected by t h e previous year's bovine m e a t price-pork price ratio (PP?/I'PB)-l, the previous year's bovike m e a t price-mixed feed price ratio (PP?/PNF5)-l and t i m e t r e n d variable t . Expected p r o d u c e r price of bovine m e a t PP7* is of Rox-Jenkins type. The n u m b e r of slaughtered s t e e r s SL7 ic; a function of t h e n u m b e r of s t e e r s N? and t h e r a t i o of e x p e c t e d bovine m e a t p r ~ c e over p o r k price PP7*/PP8-1. Then, the nunlber NS7 of s t e e r s which (:an survive a t t h e e n d of a y e a r is d e t e r m i n e d as the nurrtber of s t e e r s minus t h e n u m b e r of slaughtered steers. The average weight of bovine m e a t per head of s t e e r is a function of t i m e t r e n d variable. Government r e s e n r c l ~ into animal husbandry may have helped t o increase t h e average weight.

The n u m b e r of cows is d e t e r m i n e d by t h e n e t birth r a t e B10 and t h e n u m b e r NF'lO-l of cows survlvirig a t the e n d of t h e previous year. Half t h e calves a r e cows and t h e r e s t are raised a s bulls for t h e production of bovine m e z t . The n e t birth r a t e is influenced by t h e milk price change PP10-l/PP10-2, average g r e e n feed intake QQGF/NF'lO.l, and t i m e t r e n d v a r i a b l e t . The nurnber of cows slaughtered SF10 is deter-mined by the nurriber of cows N10, t h e previous year's ratio of bovine m e a t price over milk price ( P P ~ / P P ~ O ) - ~ , and t h e p r o d r ~ c t i o n quantity of g r e e n feed QQGF. The n u m b e r of cows which c a n survive a t t h e e n d of a y e a r is obtained by subtaracting t h e n u m b e r of cows s l a u g h t e r e d f r o m t.he n u m b e r of cows raised. The n u m b e r of bulls slaughtered SMlO is d e t e r m i n e d by t h e n u m b e r of bulls r a i s e d NM1O-l

+

1/2-810-NF10 a n d the previous y e a r ' s ratio of bovine m e a t price over pork price (PP7/PP8)_1. The nunlber NMlO of bulls which can survive a t t h e e n d of a y e a r is t h e n u m b e r of raised bulls minus t h e n u m b e r of slaught.ered bulls. Therefore, t h e prod uc:tion quantity of bovine m e a t is t h e s u m of the production quantities of bovine m e a t of st.eers, cows and bulls.

On t h e o t h e r hand, t h e production quantity of milk is deterrnined by t h e n u m b e r

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of cows N10 - l/Z.SFlO and t h e average g r e e n feed intake QQGF/NF10 The capital K7 a n d labor L7 used for t h e production of bovine m e a t a r e assumed t o bc proportional t o t h e number of s t e e r s and bulls raised. Similarly, t h e capital K10 and labor 1,lO used for milk production a r e assumed t o b e proportional t o t h e number of cows raised. The explanation of other submodules of animal, fish, and wood production is omitted, because i t is easy t o u n d e r s t a n d them.

6.5. Nonagricultural Production and Government Employment Module

6.5.1. Nanagricultural Labor Employment, Wage Rate. Capital Use Rate, and Production

The n u m b e r of employees is determined n o t only by economic variables of real wage r a t e WRN/NP19 and capital-labor ratio KN/LNAP b u t also by t h e insti- tutional variable meaning t h e Japanese p e r m a n e n t employment system and r e p r e s e n t e d b y t h e previous year's employment level ENAL-I. Therefore, even if t h e r e a l wage r a t e increases substantially, employment may not go down m u c h due t c t h e previous y e a r ' s employment level. The time lag n u m b e r 1 of ENAL-1 implies t h a t for a t least one y e a r a considerable n u m b e r of employees do not lose jobs as a r e s u l t of a traditional employment c u s t o m even if a recession hits t h e Japanese economy.

There is a n assumption t h a t t h e labor from t h e r u r a l a r e a i s always hired, so t h a t this labor does not include t h e labor in r u r a l a r e a s which wished t o find jobs in t h e nonagricultural s e c t o r b u t did not find them. However, t h e labor in r u r a l a r e a s which t r i e d and failed to find jobs in nonagricultural production is always absorbed by agriculture. As a result, t h e labor engaged in agricultural production m a y include disguised unemployment. Unemployment is always in urban a r e a s if i t occurs.

Average working days, in t e r m s of 8 hours p e r day, of a worker during a year WHN is a function of capital-labor ratio (KN+KGN)/LNAP including govern- m e n t capital in t h e nonagricultural s e c t o r , t h e previous y e a r ' s working days showing rigidity of working days WHN-l, p e r capita u r b a n expenditure on food, beverages and housing (UEF'H-NUH)-l/UPOP-l which reflects t h e i m p o r t a n t a s p e c t s of t h e Japanese economy t o be improved. and time t r e n d variablet.

Capital use r a t e KURN is considered t o b e r e l a t e d t o capital productivity change, inventory stock-production ratio, arld government investment change which is considered t o stimulate s t a g n a n t nonagricultural production.

Nonagricultural production is d e t e r m i n e d by a Cobb-Douglas production function of capital actually used KAUN, a n d total working days TWHN with con- s t a n t r e t u r n s to scale. Hicks n e u t r a l technical progress is assumed to prevail in nonagricultural production. So far, nonagricultural product.ion quantity NQ19 has not included wood production quantity. IIASA's nonagricultural production quantity Q19 includes both non-IIASA nonagricultural production NQ19 quantity and wood production quantity QFOR.

6.5.2. Government Employment

Government employment is needed mainly for social services which a r e useful f o r daily life a n d private production. The national railroad, t e l e p h o r ~ e and telegram, NHK (government broadcasting), e t c . which a r e semi-government enterprises a r e t r e a t e d as private e n t e r p r i s e s in t h e model.

The n u m b e r of government employees is determined by t h e total labor availability for nonagricultural production LNAP a n d ratio

WRG/WRN

of government wage r a t e and nonagricultural wage r a t e . The ratio of government employees

KFOR)-l. Thus we c a n write

IA* = KA* - (KFAR+KFIS+KFOR)-I

The long-run e x p e c t e d capital in agriculture depends on t h e long-run expected government capital in agriculture KGA* a n d t h e long-run expected r e a l profit r a t e PRA*, which a r e expected n o t by t h e government b u t by farmers.

However, since t h e long-run e x p e c t e d government capital KGA* is based on t h e long-run expected government investment in agriculture IGA*, we c a n write

The long-run expected government investment IGA* is considered t o be a function of t h e arithmetically weighted average food self-sufficiency r a t e during t h e l a s t t h r e e years a n d arithmetically weighted average government invest- m e n t in agriculture during t h e l a s t t h r e e years, so t h a t we can write

IGA* = f(C(4-i).FSSR-i/ 6, C(4-i).IGki/ 6)

On t h e o t h e r hand. t h e government t a x policy f o r agriculture a n d govern- m e n t subsidies (or income transfer) t o agriculture influence t h e expectation formation of t h e long-run profit r e a l r a t e . Therefore, we consider t h a t t h e long-run r e a l e x p e c t e d profit r a t e is a function of arithmetically weighted average r e a l r u r a l income during t h e last t h r e e years.

We c a n write

KF0R)-1)

The investment in fishery lFIS o u t of total investrrlent in agriculture IA is d e t e r m i n e d by arithmetically weighted average production quantity of fishery during t h e last t h r e e years, t h e previous y e a r ' s investment in fishery, t h e r a t i o of fishery income over farming income p e r worker, a n d t h e previous y e a r ' s capi- t a l in fishery. In a sim.ilar way, t h e investment in forestry IFOR is considered t o

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b e a function of arithmetically weighted average wood production quantity d u r - ing the last t h r e e years, t h e previous year's investment in forestry, t h e ratio of forestry income over farming income p e r worker, and t h e previous year's capital in forestry. Then, the remaining investment defined a s IA-IFIS-IFOK goes t o t h e farming subsector.

In general, t h e c u r r e n t capital stock is defined a s t h e previous y e a r ' s capital stock plus net investment. Net investment is equivalent t o gross investment minus capital depreciation.

6.6.3. Depreciation of Capital

Depreciation of capital is mainly determined by the previous year's capital stock. However, if we think of rapid technical progress in Japan, capital rnay be replaced earlier t h a n scheduled because firms, farms, fishermen a n d forest own- e r s d o not want to lose their competitive power. On t h e assumption t h a t high economic growth is based on high technical progress, we introduce economic growth r a t e GNP-I in addition to capital stock. The depreciation of housing is just a function of the previous year's housing capital.

6.7. I n t e r n a t i o n a l Trade. Price Determination, Net I m p o r t Quota, a n d Buffer Stock Constraint Module

6.7.1. I n t e r n a t i o n a l T r a d e a n d Price Determination

The foreign exchange r a t e i s used here as an e x post converter of one US dollar into Japanese yen, and its change does not affect international t r a d e because foreign reserves or foreign deficits a n d IIASA world prices in t e r m s of 1970 U S dollars a r e predetermined from t h e Japanese economy's point of view.

P r e d e t e r m i n e d foreign reserves, after being converted from U.S. dollars into Japanese yen, a r e t r a n s f e r r e d t o farmers, urban dwellers, enterprises, and government as income t r a n s f e r s from overseas ITOF. ITOU, ITON a n d ITOG.

World prices WPi with which Japan is actually faced a r e a linecr form of IIASA world prices converted frorn US dollars into Japanese yen FXK.IPi. World price WP19 of nonagricultural commodities observed in Japan includes international transportation unit cost. international t r a d e margin, etc.. s o that. world price WP19 i s adjusted by a : 9 - ~ ~ ~ - ~ ~ 1 ~ . World prices of agricultural commodities with which Japan is confronted a r e a linear homogeneous function of IIASA world prices-of agricultural commodities and nonagricultural commodities, i.e.,

~ / - F X R . I Pi

+

b f Q i - F X ~ ' I P 19.

Target prices of consum.er prices a r e functions of a c t u a l world. prices WPi a n d tariff ra.te TRi, if imposed. The coefficient

~7

is considered t o r e p r e s e n t pro- cessing unit costs (for example. wheat is traded, while wheat flour is consumed), domestic transportation unit cost, margins, a n d s o on. If t h e r e is no effective i n i p o r t a n d export quota and t h e r e a r e enough storage capacities for buffer stock, t h e n the t a r g e t prices t u r n out t.o be c o n s u m e r prices. However, if import or export quotas a r e effective and/or if buffer s t o c k hits the upper bound of storage facilities or lower bound of buffer stock, then c o n s u m e r price diverts by the value of Lagrangean rnultiplier frorn the t a r g e t price.

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Producer price PP19 of nonagricultural commodities is determined by a Cobb-Douglas function of world prices WP19 and consumer price CP19 of nonagricultural commodities. Producer prices PPi of free-market agricultural commodities a r e determined by Cobb-Douglas functions of respective consumer price CPi and consumer price CP19 of nonagricultural commodities. These functions a r e homogeneous of degree one.

6.7.2. Net Import Quota

The upper bounds of n e t import quotas of all commodities except for bovine m e a t a n d q o r k a r e s e t with t h e maximum purchases by accumulated foreign reserves AFR/IPi. The lower bounds of n e t import quotas of all commodities except f o r coarse grains and nonagricultural commodities a r e zero. The upper bound of bovine m e a t import is s e t by a function of national income divided by consumer price of bovine m e a t , ratio of bovine m e a t production income p e r farmer over nonagricultural wage r a t e , and change in ratio of bovine m e a t producer price over rice producer price. The upper bound of pork import quota is affected by the upper bound of bovine m e a t irnport quota, real national income, ratlo of pork-production income per farmer over nonagricultural wage, and change in real pork price.

The lower bound of import quota of coarse grains which a r e used for non- protein feeds is needed for short-run stability of animal production. It is considered to be proportional t o t h e total animal demand for non-protein feed.

Since t h e Japanese economy a n d daily life heavily depends on imports of petroleum and minerals, t h e lower bound of export exists and is considered t o b e a function of GNP.

6.7.3. Buffer Stock Constraint

The upper bounds of buffer stocks of storable commodities i

=

1, 2, 3, 7, 8 and 19 in t h e llASA commodity list a r e given as exogenous. However, t h e lower bounds of buffer stocks of the storable commodities a r e explicitly expressed a s functions of economic variables. Whenever positive excess supply of wheat Ml+DSl-Dl results, it is stored as buffer stock. From t h e viewpoint of national security, we believe t h a t t h e r e is a rninimurn buffer stock of wheat

NSBI

which, for instance, c a n cover two mo_nthsl consumption of wheat. Therefore, if t h e minimum buffer s t o c k of wheat NSBl is not satisfied, the government decides t o import more wheat and/or to change t h e wheat production policy.

We also believe t h a t t h e minimum buffer stock of rice

NSBZ,

for instance, two or t h r e e months' consumption of rice, is needed from t h e viewpoint of national security. Although rice is overproduced in Japan, the government has been taking measures t o ban exporting rice except for sporadic cases. The lower bound of rice stock is defined as the maximum among t h e amount of excess supply anti t h e minimum buffer stock.

The lower bound of coarse grains for buffer stock is needed for short-run protection of animal production from t h e fluctuation of the world coarse grain price. Since animal production in Japan heavily depends on imported coarse grains, the lower bound d.epends on the total demand for non-protein feed. DFC-l, difference of real coarse grain producer price A(PP3/ WP3)_1, and r e a l accunlu- lated foreign reserves (AFF1/WP3)_1. The lower bounds of buffer stocks of bovine m e a t and pork are equal t o positive excess supplies of them, whenever the positive excess supplies occur. The lower bound of nonagricultural commodities in inven1,ory depend.^ on GNP., , real producer price change A(P 19/ WP19)-1 and real

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accumulated foreign reserves (AFR/IP19)-,.

6.8. Government Policy Module

Government h a s various economic goals. These a r e (1) social stability, (2) national security, (3) efficiency, (4) development a n d growth, a n d (5) coopera- tion with t h e r e s t of t h e world. Social stability may be r e g a r d e d a s a s h o r t - r u n goal a n d r e l a t e d t o equity a n d opportunity for employment. The r u r a l - u r b a n income gap, overpopulation in u r b a n a r e a s and high unemployment r a t e m a y belong t o t h e problems of social stability. National security is r e l a t e d t o national defense a n d uncertainty of domestic agricultural production a n d t h e international m a r k e t . Energy and food storage a n d protection of d o m e s t i c agricultural production a r e considered t o be m e a s u r e s for national s e c u r i t y in t h e model.

Government investment is h e r e considered t o m a k e contributions mainly t o efficiency, development, a n d growth. Construction of i n f r a s t r u c t u r e , various kinds of r e s e a r c h , and fostering key industries a r e some m e a s u r e s for efficiency improvement, development, a n d growth. Economic aid, forced p u r c h a s e of overproduced wheat from c e r t a i n countries, and income t r a n s f e r t , ~ international organizations belong t,o t h e category of cooperation with t h e world. Income t r a n s f e r s from u r b a n t o r u r a l a r e a s SUBA, and rice p r o d u c e r prices PPZG and government investment in r u r a l a r e a s IGA c a n be considered t o be very effective for social stability. Government control of wheat and rice, PP1. CP1. PPZG.

CPZG, MI, BS1 a n d BS2, import. quota and tariff r a t e s UI7, UI8,

TR7

a n d TR8, c a n b e considered t o be very effective for national security. Government investment in t h e agricultural a s well a s t h e nonagricultural s e c t o r IGA a n d IGN, a n d govern- m e n t capital s t o c k KGA and KGN a r e t r e a t e d a s m e a s u r e s for t h e inlprovement of production efficiency and a s incentives t o economic activities. Tax policties affect t h e economic goals (1) t o (4) t o various degrees. Econonlic aid is n o t t r e a t e d in t h e model.

6.8.1. Price Support Policies

The rice p r o d u c e r p r i c e plays a key role in t h e determination of tlie r i c e consumer price, and p r o d u c e r a s well a s c o n s u m e r prices of wheat a n d . tobacco.

The wheat producer price PP3. is a funct,ion of t h e wheat world p r i c e WP1, t h e previous year's wheat p r o d u c t e r price PP1-l, t h e food self-sufficiency r a t e FSS1Z-

1, t h e ratio of r i c e storage over rice consumption (BS2/D2)_l, t h e rice pro- d u c e r price PP2G, and t h e r a t i o of wheat storage over wheat consum.pt,ion BSl/Dl. The wheat flour czonsumer price CP1 is d e t e r m i n e d by wheat p r o d u c e r price PP1, polished rice c o n s u m e r p r i c e CPZG, previous y e a r ' s w h e a t flour- con- s u m e r p rice CP1-l, r a t i o of rice s t o c k over rice consurnption (BSZ/D2)_1, consu- m e r price of nonagricultur-al. cornmodities CP19 representing polishing a n d mil- ling wheat, and ratio of wheat s t o c k over wheat consumption B S l / D l . Th.e determination of rice p r o d u c e r p r i c e PP2G depends on t.he previous y e a r ' s r i c e producer price PPZG.l, c;lect,ion d u m m y ELED, food self-sufficiency r a t e FSSR_l, government deficits GS, r a t i o of r i c e s t o c k over rice consum.pt;ion (BS2/D2).1.

a n d r a t i o of p e r capita r u r a l income over p e r capita u r b a n income (PCRI/PCUI)_

Consumer price CPZG of polished rice i s a function of r i c e pr-oducer price PPZG, government deficits GS-l, r a t i o of rice s t o c k over rice consumpt.ion (BS2/D2)-1 and c o n s u m e r p r i c e CP19 of nonagricultural commodities which r e p r e s e n t s polishing cost. P r o d u c e r price P18T of t o b a c c o is affected by the previous year's tobacco proclucer p r i c e 'l'18T1 and r i c e p r o d u c e r p r i c e PPZG.

Tobacco consum.er p r i c e Cl8T is d e t e r m i n e d by tobacco p r o d u c e r price P3.8T, t h e previous y e a r ' s t,obacco c o n s u m e r price ClST-,, r a t i o of governrrlent expenditures over government revenues GE/GR and t i m e t,rend variable which

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reflect.^ t h e lung c a n c e r problem.

The wage r a t e WRG for government er~lployees is d e t e r m i n e d by t h c prt:vi- ous y e a r ' s wage r a t e for government erriployces WRC-l a n d t h e previous y e a r ' s wage r a t e for nonagricultural production WRN_l. The t i m e lag of t h e s e explanatory variables implies wage rigidity.

6.8.2. Agricultural Production Policies

Income t r a n s f e r t o agriculture SLTBA which is h e r e called subsidies t o agri- c u l t u r e is determined by food self-sufficiency r a t e FSSR_l, r a t i o of p e r c a p i t a rural income over p e r c a p i t a u r b a n i n c o s e (PCRI/PCUI)-l, and ratio of u r b a n population over total population (UPOP/TPOP)-l. Fallow p a y m e n t p e r a c r e of paddy field is deterrnined by ratio of rice s t o c k over rice consumption (BS2/D2).I, land rice-income productivity ( P P Z G - Q ~ / A Z ) . ~ , and t h e previous y e a r ' s r i c e a c r e a g e A2.1.

6.8.3. International Trade Policies

Tariff r a t e TRi depends on t h e previous y e a r ' s import-productior~ ratio

(ML/

Qi).I, government expenditures-revenues ratio GE/GR, r e a l a c c u m u l a t e d foreign r e s e r v e s

AFR/TPI

9, a n d previous y e a r ' s tariff r a t e TRi-jl Import of wheat -

MI is d e t e r m i n e d by r e a l accumulated foreign r e s e r v e s AFR/IP19, t h e previous y e a r ' s wheat production Ql-,, t h e previous year's ratio of rice s t o c k over rice consumption, a n d t h e previous year's ratio of wheat s t o c k over wheat corisump- tion. Import of t,obacco M18T is a function of r e a l acr:umulated foreign r e s e r v e s A F R / ~ P ~ ~ , GNP change AGNP, a n d the previous year's r a t i o of tobacco production over tobacco import (Q18T/M18T)-1.

6.8.4. Taxation Policies

JAM, which is suitable for IIASA's World Model Linkage. The model is designed t o r e p r e s e n t t h e Japanese economy with t h e emphasis on t h e agricultural sector. So far, t h e d a t a bank necessary for t h e estimation of t h e model JAM has been made neither iri IIASA-nor in the University of Tsukuba. I t is planned t h a t we s t a r t making t h e d a t a bank in t h e University of Tsukuba this S e p t e m b e r . Then, t h e estimation and economic simulation will be made.

Finally, I would like to mention t h a t JAM m a y be modified l a t e r when we s t a r t estimating JAM.

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A P P E N D I X 1

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1.1.2. Domestic Supplies of Commodities

3,7,8,19

DSi

= FARI

+

FISI

+

FOR1

U I . ( l - N P T X ) D U H I = DUI/NUH P D U I

=

D U I / U P O P

1.1.6. Nonagricultural Revenue

G P 19

=

NC 1 9 . N Q 1 9 - 1 - ( 1 - ITXN)

+

ITON - WRN-ENAL

-

DAN DAN

=

f(KN, K U R N )

DIVI = ~ ( G P I S )

RE = G P 1 9 . ( 1 - CTX) - DIVI

+

DAN D l V F = ~ ~ . D I V I

DIVU

=

DIVI - DIVF

1.1.7. Gwernment Revenue and Expenditure

NP19.NQ19

1.2. Population. Labor Availability. Household, and Land Availability Module

1.2.1. Rural and Urban Population

R P O P

= POP-,,

(PDRI/PDUI)-1, IGA-1, (UPOP/'*OP)-I)

7

LNAR

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1.2.3. Household

NRH = f(RPOP, l/T) NU14 = f(LTPOP, l / y )

1.2.4. Paddy and Upland' Field Availability

A P F

=

APF-1 - a.AUILU - NPUI AUF

=

=

~ ( D L ~ H I , UPOP/EUL)

RCi)

UTi

=

NUH.(UEi/CPi

+

UCi)

1 -3.2. Gwernment Consumption

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1.3.3. Intermediate Demand

1.3.4. Animal Consumption

I / ~ - S L I O )

zaiaP.RTi/RPOP for i = 7,8,9,10, 1 3 PCRV = a%-HT1 l/RPOP

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PCRT PCRC P C R F PCRK PCUA PCUV P C U T P C U C P C U F PCUK PCAP PCVP P C T P P C C

= RA

+

PCRV

z a F . U T i / U P O P f o r i = 1 , 2 , 3 , 6

=

~ ~ ~ U T ~ / U P O P f o r i

=

4 , 7 , 8 , 9 , 1 3

=

z

a i C " ' - U T i / U ~ O ~

=

z a ? P - ( R T i

+

UT~)/??OP f o r i

=

7 . 8 , 9 , 1 0 , 1 3

= a n - ( R T 1 1

+

UTII)/TPOP

~ ( N F T L , PNF-I, ~ ~ 1 9 )

1 A.1. W h e a t P r o d u c t i o n