The Intermediate United States Food and Agriculture Model of the IIASA/FAP Basic Linked System: Summary Documentation and User's Guide

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NOT FOR QUOTATION WITHOUT PERMISSION OF THE AUTHOR

THE INTERMEDIATE UNITED STATES FOOD AND AGRICULTURE MODEL OF THE IIASA/FAP BASIC LINKED

SYSTEM:

SUMMARY DOCUMENTATION AND USER'S GUIDE

Michael H. Abkin

May

_{1 9 8 5} WP-85-30

Workinp h p e r s a r e interim r e p o r t s on work of t h e 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 Applied Systems Analysis a n d h a v e r e c e i v e d only lim- i t e d review. Views o r opinions e x p r e s s e d h e r e i n d o n o t neces- s a r i l y r e p r e s e n t t h o s e of t h e I n s t i t u t e o r of i t s National Member Organizations.

INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS 2361 Laxenburg, Austria

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AUTHOR

Michael H. Abkin is a Consultant f o r System Solutions, 122 El Olivar, Los Gatos. California, a n d h a s worked with t h e Food a n d Agriculture P r o - gram.

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Understanding t h e n a t u r e a n d dimensions of t h e world food problem and t h e policies a v a i l a b l e t o a l l e v i a t e i t h a s been t h e f o c a l point of IIASA's Food a n d A g r i c u l t u r e P r o g r a m (FAP) s i n c e i t began in 1977.

National food systems are highly i n t e r d e p e n d e n t , a n d y e t t h e major policy options e x i s t at t h e national level. T h e r e f o r e , t o e x p l o r e t h e s e options, i t i s n e c e s s a r y both t o develop policy models for national economies a n d t o link them t o g e t h e r by t r a d e a n d c a p i t a l t r a n s f e r s . Over t h e y e a r s FAP h a s , with t h e help of a network of c o l l a b o r a t i n g institutions, developed and 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 f o r n e a r l y 80 p e r c e n t of important 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 as a r e a , p r o d u c t i o n , population, e x p o r t s , imports a n d s o on. The remaining c o u n t r i e s are r e p r e s e n t e d by 14 somewhat s i m p l e r models of g r o u p s of c o u n t r i e s .

S i n c e t h e United S t a t e s i s a major a c t o r on t h e world m a r k e t , a s p e c i a l food a n d a g r i c u l t u r e model of t h e United S t a t e s w a s developed by t h e Michi- gan S t a t e University (MSU) a n d t h e U.S. Department of A g r i c u l t u r e (USDA) in c o l l a b o r a t i o n with FAP t o s e r v e as t h e b a s i c U.S. model in t h e IIASA/FAP b a s i c linked system.

In t h i s document Mike Abkin p r o v i d e s a summary d e s c r i p t i o n of t h e U.S.

intermediate model a n d guidelines f o r implementing t h e model's computer p r o g r a m , as of i t s August 1984 v e r s i o n , a n d i n t e r p r e t i n g i t s r e s u l t s . I t i s intended t o a s s i s t a n a l y s t s in using t h i s model for policy a n a l y s i s as a p a r t of t h e b a s i c linked system.

This working p a p e r i s o n e 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 v a r i o u s models of FAP's system of linked models.

K i r i t S. P a r i k h P r o g r a m L e a d e r Food a n d Agriculture P r o g r a m .

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CONTENTS

C h a p t e r 1.

C h a p t e r 2.

I n t r o d u c t i o n a n d Overview

A D e s c r i p t i o n of t h e S u p p l y , P o l i c y . a n d Feed Demand Components of t h e U.S. I n t e r m e d i a t e A e r i c u l t u r a l Yodel-by Donald 0. Yitchell a n d Thomas C h r i s t e n s e n

C h a p t e r 3. T h e Land R e s o u r c e Component of C r o p Supply in USINT

C h a p t e r 4. The Domestic Utilization a n d P r i c e Components of USINT

C h a p t e r 5. Policy I n s t r u m e n t s a n d S c e n a r i o s in USINT

C h a p t e r 6. D e s c r i p t i o n of t h e Output of t h e USIYT R e p o r t W r i t e r

C h a p t e r 7. Recommendations f o r F u r t h e r Development R e f e r e n c e s

Appendix A . Endogenous a n d E x o g e n o u s V a r i a b l e s of CSINT

P a e e 1 5

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LIST

OF TABLES

Table 1 . 1 Table 2.1

Table 2.2

Table 2.3

Table 4.1 T a b l e 5.1

Table 5.2

Table 5.3 Table 5.4

Table A-1

Table A-2

Commodities a n d units of U.S. i n t e r m e d i a t e model Commodities. units a n d y e a r d e f i n i t i o n s of t h e s u p p l y module of t h e U.S. i n t e r m e d i a t e a g r i c u l - t u r a l model

Utilization of Wheat. S o y b e a n s a n d Feed G r a i n s in 1978 in mi!lion b u s h e l s

Government policy v a r i a b l e s r e l a t e d t o a c r e a g e a l l o c a t i o n a n d d i v e r s i o n

P r i c e and Income E l a s t i c i t i e s of Demand in 1970 D i r e c t Supply Policy I n s t r u m e n t s f o r G r a i n s a n d S o y b e a n s in t h e U.S. I n t e r m e d i a t e Yodel

Supply-Related V a r i a b l e s P r o j e c t e d Exoqenously in t h e U.S. I n t e r m e d i a t e Model

P a r a m e t e r s of t h e P r i c e Policy S t o c k Functions Definitions a n d Base Values of S t o c k Function P o l i c y P a r a m e t e r

Numbered Endoeenous V a r i a b l e s .

YI,

of t h e U.S.

I n t e r m e d i a t e Yodel

Numbered Exocenous V a r i a b l e s . Zi, of t h e U.S.

I n t e r m e d i a t e Yodel

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LIST

OF

FIGURES

F i g u r e 1.1 F i p u r e 2.1 F i g u r e 2.2 F i p u r e 4 . 1

F i g u r e 4 . 2 F i p u r e 4.3 Figure 6.1

F i e u r e 6.2

F i g u r e 6.3

Flow Diaqram of t h e U . S . I n t e r m e d i a t e Model C r o p l a n d Al!ocation Yodel

Beef a n d D a i r y S e c t o r

Ending s t o c k s function: wheat, coarse g r a i n s , a n d s o v b e a n s

T h e income f a c t o r of p e r c a p i t a consumption T h e p r i c e factor of p e r c a p i t a c o n s u m p t i o n R e p o r t W r i t e r Output of Yumbe;.ed Endogenous V a r i a b l e s

R e p o r t W r i t e r Output of S u p p l y a n d Utilization b y Domestic C . S . Commodities

R e p o r t W r i t e r Output of P o l i c y T a r g e t s a n d Equilibrium R e s u l t s b y IIASA A g g r e g a t e Commo- d i t y

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THE INTERMEDIATE UNITED STATES FOOD

AND

AGRICULTURE MODEL OF THE KKASA/FAP BASIC LINKED SYSTEM:

SUMMARY DOCUMXNTATION AND USER'S GUIDE

Michael H. Abkin

C h a p t e r 1

~ R O D U C T I O N

AND

OVEHYlEW

The intermediate food and a g r i c u l t u r e model of t h e United S t a t e s h a s b e e n developed by Michigan S t a t e University (MSU) a n d t h e U.S. Department of Agricul- t u r e (USDA) in collaboration with t h e Food a n d A g r i c u l t u r e P r o g r a m of t h e I n t e r - national I n s t i t u t e f o r Applied Systems Analysis (IIASA/FAP) t o s e r v e as t h e b a s i c U.S. model in t h e IIASA/FAP b a s i c linked system. The mission of FAP i s e l a b o r a t e d e l s e w h e r e ( R a b a r 1979; P a r i k h , 1981), as are t h e t h e o r e t i c a l and mathematical d e r i v a t i o n s of t h e global t r a d e and national e x c h a n g e models and t h e domestic and i n t e r n a l equilibrium algorithms which link them (Keyzer, 1981).

This document p r o v i d e s a summary d e s c r i p t i o n of t h e U.S. intermediate model (USINT) and guidelines f o r implementing t h e model's computer p r o g r a m , a s of its August W84 version, and i n t e r p r e t i n g its r e s u l t s . I t is intended t o a s s i s t a n a l y s t s in using USINT f o r policy analysis as p a r t of t h e basic linked system. A m o r e com- p l e t e guide t o t h e F o r t r a n p r o g r a m of t h e b a s i c linked system (including USINT) a n d t h e detailed U.S. model (also developed by MSU and USDA) as t h e y are installed on t h e

IBM

3033 c o m p u t e r at t h e USDA in Washington

-

including t h e s t r u c t u r e of s u b r o u t i n e s and COMMON blocks, input-output files, and r u n c o n t r o l p a r a m e t e r s

-

is published in Abkin (1983). Other national models of t h e Basic Linked System are d e s c r i b e d in F i s c h e r and F r o h b e r g (1980).

Commodities a n d U n i t s

The t h i r t y commodities of supply in USINT are a g g r e g a t e d t o twenty commodi- t i e s f o r utilization p u r p o s e s , and t h e s e a r e f u r t h e r a g g r e g a t e d t o IIASA's t e n commodities f o r t h e i n t e r n a t i o n a l linkage. Table 1.1 shows t h e commodity c o r r e s p o n - d e n c e s a n d units used in t h e model. T h e r e remain a few r e l a t i v e l y minor incon- s i s t e n c i e s between t h e commodity definitions of t h i s v e r s i o n of t h e U.S. b a s i c model and t h o s e of t h e i n t e r n a t i o n a l system. These will be r e s o l v e d as t h e i n t e r n a t i o n a l commodity list f o r t h e b a s i c system i s expanded t o t h e 1 9 commodities of t h e detailed model system in o r d e r t o conduct a n a l y s e s using both b a s i c and detailed models. The c u r r e n t inconsistencies are:

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- 2 -

Table.l.1, Comnodi t i e s a n d u n i t s of U

.S.

intermediate model

1. Wheat th.MT ( g r a i n )

+ ...

1. Wheat ^{t h . bu}

I n t e r n a t i o n a l Comnodi t y ¹ U n i t 3

2. R i c e t h - c u t . (rough)

3. Coarse g r a f n th.MT ( g r a i n ) 3. Coarse g r a i n

I

4. Sorghum ^{th. bu}t h . bu

5. B a r l e y th. bu

6. Oats t h . bu

...

Domestic U t i l i z a t i o n Comnod i t y 1

U n i t 3

4. Beef, sheep th.MT ( c a r c a s s ) 12. Beef

I

th.HT ( c a r c a s s ) 7. Fed beef

C

m i . l b s . ( l i v e )

8 . N o n f e d b e e f m i . l b s . ( l i v e ) 13. Lamb, mutton th.MT ( c a r c a s s ) 9. Sheep 8 lambs th. l b s . (1 i v e )

... ... ...

Domestic Supply Commdi t y 2 U n i t 3

5. D a i r y t h . M ( m i l k ) 1 0 . M i l k

C

m i . l b s .

...

6. O t h e r animal th.HT ( p r o t e i n ) 14. Pork m i . l b s . ( l i v e )

15. P o u l t r y mi.lbs. (RTC)

mi.1bs. (RTC)

16. Eggs mi .dozen

18. F i s h m i . l b s . ( f r e s h )

---.---

3. Other foods

'

mi.$ (1970) 7. P r o t e i n feeds th.MT ( p r o t e i n )

th.Cwt.

t h . tons th.cwt.

t h . tons

t h . l b s . ( f a r m wt. ) mi.lbs. ( l i v e )

th.bu

t h . l b s . ( f a r m wt. ) th. bu

m i . l b s . ( o i l ) t h . tons (raw) th. tons (beets )

... ... t ...

19. P r o t e i n feeds th.MT (meal)

4. Potatoes th.HT

5. Vegetables th.MT

6. Dry beans th.MT

7. F r u i t s . n u t s th.MT 9. Fats 6 o i l s th.MT ( o i l )

10. Sugar 4 th.MT ( r e f i n e d ) 11. Coffee.tea.cocoa 4 th.MT (beans)

16. Soybeans th. bu

17. Cottonseed th. tons

18. Peanuts t h . l b s . ( f a n w t . )

19. Flaxseed th. bu

20. Potatoes 21. Vegetables 22. Dry beans 23. F r u i t s , n u t s 18. Peanuts 11. Pork 16. Soybeans 18. Peanuts 19. Flaxseed 24. Cottonseed o i l 25. Cane sugar 26. Sugarbeets none

10. N o n a g r i c u l t u r e mi . $ (1970) 9. Nonfood a g r i - mi.$ (1970)

c u l t u r e

Notes :

8. Tobacco t h . K ( f a r m wt.) 20. f i o n a g r i c u l t u r e mi. S (1 967)

20. N o n a g r i c u l t u r e mi .$ (1967)

'

Includes processed products i n f r e s h e q u i v a l e n t s .

27. Tobacco t h . l b s . ( f a n w t . ) 28. Cotton t h - b a l e s

29. Wool t h . l b s .

30. N o n a g r i c u l t u r e mi . f (1967)

Z ~ d d i t i o n a l comnodr t i e s modeled on t h e supply s i d e , b u t n o t on t h e demand s i d e , a r e beef cows f t h . h e a d ) , d a i r y h e i f e r s ( t h . h e a d ) , sows ( t h . head), corn s i l a g e ( t h . t o n s ) , and sorghum s i l a g e ( t h - t o n s ) .

3 ~ n i t symbols: th-thousand m i = m i ! l i o n MI-metri c tons

S 4 . S . d o l l a r s cwt-hundred weight (100 Pounds )

RTC =ready t o cook 1 bs-pounds

bu = bushels t o n s - s h o r t tons (2063 pounds) 4 ~ e r t h e t e x t f o r d i s c u s s i o n o f i n c o n s i s t e n c i e s i n c o m o d i t y d e f i n i t i o r :

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1. alcoholic b e v e r a g e consumption should b e included in t h e " o t h e r foods"

c a t e g o r y , w h e r e a s t h e model c u r r e n t l y includes i t in a g g r e g a t e consumption of t h e p r i m a r y i n g r e d i e n t s (e.g. wheat, c o a r s e g r a i n s , f r u i t s , e t c . ) ;

2. use of s w e e t e n e r s d e r i v e d f r o m c o r n should b e included with s u g a r in " o t h e r foods" i n s t e a d of its c u r r e n t accounting in "coarse grains";

3. "coffee, tea, c o c o a " c u r r e n t l y includes only c o f f e e ; a n d

4. a few miscellaneous items, such as flowers a n d h i d e s a n d s k i n s , are n o t y e t a c c o u n t e d f o r in "nonfood a g r i c u l t u r e " ; likewise f o r miscellaneous c r o p s , s u c h as r y e .

Model Structure and Chapter Outline

Figure 1.1 i s a simplified schematic flow diagram of USINT, indicating t h e p r i n c i p a l components a n d linkages of t h e system. The e x c h a n g e s i d e of t h e model (enclosed by t h e d o t t e d line in t h e diagram) d e t e r m i n e s equilibrium p r i c e s a n d q u a n t i t i e s simultaneously, as shown by t h e two-way a r r o w s . All components within t h e e x c h a n g e , e x c e p t f e e d demand, are d e s c r i b e d in C h a p t e r 4.

On t h e supply s i d e , production i s b a s e d on lagged p r i c e s . The livestock a n d c r o p p r o d u c t i o n components are d e s c r i b e d in C h a p t e r s 2 a n d 3, including f e e d demand, t h e land r e s o u r c e subcomponent a n d t h e model of t h e government's commodity p r o g r a m s . The demography a n d g e n e r a l economy model a n d t h e nonagricul- t u r a l production component are touched on b r i e f l y in C h a p t e r 7. Domestic supply i s simply t h e sum of p r o d u c t i o n a n d beginning s t o c k s .

C h a p t e r s 5 a n d 6 are intended t o b e of d i r e c t a s s i s t a n c e in using USINT f o r policy a n a l y s i s in t h a t t h e y d e s c r i b e , r e s p e c t i v e l y , how policy assumptions a n d s c e n a r i o s may b e manipulated in t h e model a n d t h e information a n d f o r m a t s gen- e r a t e d by USINT's r e p o r t w r i t e r . C h a p t e r 7, t h e n , recommends p r i o r i t y areas f o r both updating t h e model a n d f u r t h e r developing it. Finally, Appendix A d e f i n e s t h e numbered endogenous a n d exogenous v a r i a b l e s of t h e model; a n d Appendix B d e s c r i b e s t h e call s e q u e n c e of t h e F o r t r a n s u b r o u t i n e s a n d t h e functions of t h e s u b r o u t i n e s a n d t h e i r r e l a t i o n s h i p t o t h e components shown in Figure 1.1.

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C h a p t e r 2

A DESCEUPTION OF THE SUPPLY. POLICY AND FEED DEMAND COMPONENTS OF THE U.S. INTERMEDIATE AGRICULTURAL MODEL

by

Donald 0. Mitchell Thomas Christensen

I n t r o d u c t i o n

The U.S. intermediate model (USINT) i s a synthesis of contributions f r o m various s o u r c e s . The U.S. c r o p and livestock supply, government policy and feed demand components of t h e U.S. model have resulted from t h e adaptation of t h e MSU Agriculture Model, a n a g r i c u l t u r a l forecasting model developed at Michigan S t a t e University. The development and refinement of t h e MSU Agricultural Model h a s involved many individuals; however, t h e portions used in USINT a r e primarily t h e work of E r i c Wailes. Major contributions were made by John F e r r i s , Donald 0 . Mitchell, Thomas H. Christensen and J . Roy Black. Descriptions of t h e MSU Agri- c u l t u r a l Model a r e available in Wailes (1981), Mitchell (1979) and Christensen (1979). Only those portions of t h e MSU Agriculture Model t h a t have been incor- p o r a t e d into USINT are d e s c r i b e d in t h i s c h a p t e r .

The U.S. a g r i c u l t u r a l supply model is an econometrically based annual model.

I t is a national supply model of production, consumption, e x p o r t s , s t o c k s and p r i c e s of g r a i n s , oilseeds, livestock and a number of minor a g r i c u l t u r a l products.

The model does not include detailed r e s o u r c e use or f a c t o r s of production information; i t does have a detailed component which deals with government a g r i c u l t u r a l policy.

The U.S. supply model i s designed t o b e a n intermediate term (5- t o 15-year) forecasting model. With t h e land r e s o u r c e component (Chapter 3), t h e model h a s limited application to longer-run issues of cropland availability and utilization.

However, i t should not b e e x p e c t e d to p r o j e c t long-term s t r u c t u r a l adjustments in U.S. a g r i c u l t u r e due to r e s o u r c e reallocation. Nor should i t b e used to answer questions r e l a t e d to r e s o u r c e quality, environmental impacts o r input utilization in a g r i c u l t u r e . The model i s especially well equipped to a d d r e s s questions r e l a t e d t o p r o d u c e r r e s p o n s e s t o p r i c e changes and t o government policy changes. Table 2.1 shows t h e commodities included in t h e U.S. supply model.

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Table

2 . 1

Comnodities, u n i t s and y e a r d e f i n i t i o n s o f t h e s u p p l y module o f t h e U.S. i n t e r m e d i a t e a g r i c u l t u r a l m d e l

Comod

i

t y U n i t * Year D e f i n i t i o n

Wheat t h . bu. J u l y 1-June 30

R i c e ( r o u g h b a s i s ) t h . c w t . Jan. 1-Dec. 3 1

Corn g r a i n t h . bu. Oct. 1-Sept. 30

s i 1 age t h . t o n s

Sorghum g r a i n t h . bu. Oct. 1-Sept. 30

s i l a g e t h . t o n s

B a r l e y t h . bu. J u l y 1-June 30

Oats t h . bu. ÎÎ Î1

Beef f e d ( l i v e b a s i s ) m i . l b s . Jan. 1-Dec. 3 1

nonfeed ( l i v e b a s i s ) m i . l b s .

S h e e p a n d l a m b s , m e a t ( l i v e b a s i s ) t h . l b s . ^IS ^{I I}

wool t h . l b s .

M i l k m i . l b s . Î1 ÎÎ

Pork ( l i v e b a s i s ) m i . l b s . ^ti ^#I

Turkey ( r e a d y - t o - c o o k - b a s i s ) m i . l b s . ^{I I} ^{I #} Chicken ( r e a d y - t o - c o o k - b a s i s ) m i . l b s . ^{I I} ^{N U}

Eggs m i . doz. ^I1 ^II

F i s h ( f r e s h b a s i s ) m i . l b s . ^I! ^{I I}

Soybeans beans t h . bu. Oct. 1-Sept. 30

me a 1 t h . t o n s

o i 1

m i .

l b s .

C o t t o n f i b e r t h . b a l e s Aug. 1 - J u l y 3 1

c o t t o n s e e d t h . t o n s

meal t h . t o n s

o i 1 m i . l b s .

Peanuts ( f a r m w e i g h t b a s i s ) t h . 1 bs. Aug. 1 - J u l y 3 1

F 1 axseed t h . bu. J u l y 1-June 30

P o t a t o e s t h . c w t . Oct. 1-Sept. 30

Vegetables t h . t o n s J u l y 1-June 30

D r y beans t h . c w t . Î1 ÎÎ

F r u i t s and n u t s t h . t o n s Î1 ÎÎ

Cane Sugar ( r a w b a s i s ) t h . t o n s Jan. 1-Dec. 3 1

Sugar beets t h . t o n s ^{I I} ^I1

Tobacco ( f a r m w e i g h t b a s i s ) t h . 1 bs. ^la ⁱⁿ

* U n i t Symbols: t h . = thousand;

m i .

= m i l l i o n ; bu. = bushel; b a l e = 480 l b s . ; cwt. = hundred w e i g h t (100 I b s .

) ;

1 bs. = pounds; t o n s = s h o r t t o n s

(2000 l b s . ) .

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Model Specification Procedures

The primary emphasis in developing t h e U.S. model w a s specification of t h e s t r u c t u r a l relationships within and between sectors. To accomplish t h i s objective, close i n t e r a c t i o n between model r e s e a r c h e r s a n d commodity e x p e r t s w a s main- tained. This p r o c e d u r e w a s followed f r o m t h e initial s t a g e s of model development through t h e testing and validation of t h e e n t i r e system. Numerous cross c h e c k s , balance s h e e t s and measures of sector alignment were built into t h e model to aid t h e r e s e a r c h e r s in evaluating t h e e n t i r e system.

I n t e r s e c t o r "balance" w a s explicitly tested f o r during t h e specification and respecification. I n t e r s e c t o r balance refers to t h e relationship of e a c h sector to a l l o t h e r sectors. This p h a s e of model development r e q u i r e s close working relationships between commodity e x p e r t s and modelers. The a p p r o a c h r e p r e s e n t s a modeling philosophy used throughout t h i s p r o j e c t .

Following t h i s same philosophy, model f o r e c a s t s include t h e same s c r u t i n y as did t h e model development. S t r u c t u r a l changes which cannot b e estimated f r o m historical d a t a are introduced in t h e model in a systematic way. For example, t h e i n c r e a s e in e n e r g y costs which o c c u r r e d in t h e l a t e 1970's h a v e introduced a s t r u c t u r a l change into t h e a c r e a g e allocation component of t h e model. Since c o r n and soybean profitability are not equally a f f e c t e d by a n i n c r e a s e in t h i s input, a new relationship will develop between t h e s e t w o c r o p s . Before t h e change in input c o s t s , f a r m e r s based t h e i r a c r e a g e decision on t h e e x p e c t e d r e l a t i v e p r i c e s . This change cannot b e o b s e r v e d f r o m t h e historical d a t a , s o t h e r e s e a r c h e r must attempt t o estimate t h e e x t e n t of s t r u c t u r a l adjustment and impose t h e s e changes on t h e model. This change w a s introduced into t h e model by adjusting t h e a c r e a g e equations' estimated coefficients to r e f l e c t t h e s h i f t in profitability.

Characteristics of U.S. Demand for Grain and Soybeans

The U.S. a g r i c u l t u r a l g r a i n and soybean sectors c e n t e r around two primary s o u r c e s of demand: e x p o r t s and livestock feed. Approximately 8 7 p e r c e n t of all g r a i n produced i s used f o r t h e s e two purposes. An additional 2 p e r c e n t of production is used as s e e d and 11 p e r c e n t are consumed d i r e c t l y by humans. Table 2.2 shows t h e utilization of wheat, soybeans and f e e d g r a i n s f o r 1978.

These s o u r c e s of demand r e s u l t in s e v e r a l unique problems. E x p o r t demand is highly v a r i a b l e , depending in t h e s h o r t r u n on production in t h e rest of t h e world.

Long-run growth in e x p o r t demand is a function of income, population a n d productivity growth. Additionally, meat utilization i s relatively p r i c e and income respon- sive, varying with g e n e r a l economic activity. Together t h e s e c h a r a c t e r i s t i c s r e s u l t in t h e U.S. a g r i c u l t u r a l economy being v e r y sensitive t o fluctuations in demand.

Most c o u n t r i e s e x p e r i e n c e s t a b l e demand d u e t o t h e relatively inelastic r e s p o n s e of d i r e c t human g r a i n consumption to e i t h e r p r i c e or income changes. In c o n t r a s t , t h e U.S. h a s both fluctuating supply and fluctuating demand. In y e a r s of low demand and high supply levels, i t i s possible t o build enormous surpluses, while, in y e a r s of high demand and low supply levels, v e r y high p r i c e s c a n r e s u l t . This p r i c e volatility problem h a s led t o a s e r i e s of government policies which are d i r e c t e d at simultaneously dampening both extremes.

Model Capabilities

The model is especially well suited t o t h e analysis of government policies r e l a t e d t o food and f e e d t o g r a i n s . Policies r e l a t e d to both supply r e s t r i c t i o n s and g r a i n stock management are endogenous to t h e policy framework. Income mainte- nance and p r i c e s u p p o r t policies c a n a l s o b e handled by t h e policy framework.

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T a b l e

2.2

U t i l i z a t i o r ! o f Wheat, Soybeans and Feed G r a i n s i n 19 78 i n m i l l i o n b u s h e l s

C o m o d i t y Feed E x p o r t Seed O t h e r T o t a l Use

Wheat * a

180.1 1190.5 87.0 595.2 2052.8

Soybeans *b

757.7 1011.3 76.0 13.0 1858

Feed G r a i n s

5235 .O 2369.5 54.7 723.6 8382.8

Corn

4187 .O 2130 .O 18.0 557 6902

B a r l e y

200.0 26.0 16.6 159.4 402.0

Oats

533.0 12.7 35.8 42.5 624.0

Sorghum

572.0 200.0 2.0 5.7 779.7

- - - - -

*a Based on a 60-pound bean e q u i v a l e n t b u s h e l .

*b Sum o f Corn, Oats, B a r l e y and Sorghum based on a 56-pound e q u i v a l e n t b u s h e l .

Since government policies have historically r e l a t e d t o t h e g r a i n s e c t o r r a t h e r than t o livestock production, no policy framework e x i s t s f o r t h e livestock s e c t o r .

In o r d e r t o a provide a g e n e r a l framework f o r policy analysis, s e v e r a l policy v a r i a b l e s w e r e defined and t h e n included as explanatory v a r i a b l e s in t h e decision p r o c e s s of t h e p r o d u c e r . For example, a c r e a g e allocation policies a r e e x p r e s s e d in two v a r i a b l e s , even though many variations h a v e existed through t h e y e a r s . All policies have r e l a t e d t o p r i c e s u p p o r t o r a c r e a g e diversion. P r i c e s u p p o r t s encourage production while a c r e a g e diversion discourages production. Within t h e s e two v a r i a b l e s are s e v e n specific policy tools which may b e varied indepen- dently. Since i t is impossible t o s e p a r a t e t h e effect of e a c h policy tool indepen- dently, a n e x p e c t e d value of e a c h policy tool is included in t h e g e n e r a l policy variable. This r e s u l t s in a v e r y flexible and manageable way of incorporating government policy into t h e decision p r o c e s s .

The model is not well suited t o analyzing questions r e l a t e d t o long-run r e s o u r c e requirements, input usage, technological change, investment o r environ- ment. The linkage between t h e r e s o u r c e b a s e and production is not well developed.

The only inputs explicitly considered are land (see C h a p t e r 3), f e r t i l i z e r and short-term capital. No distinction between land quality is made, n o r is land p r o - ductivity d i r e c t l y r e l a t e d t o t h e amount of land cultivated. Land productivity is d i r e c t l y tied t o government diversion and set-aside programs. Water quality o r quantity is not considered e i t h e r , and t h e number of a c r e s of cropland i r r i g a t e d is not identified.

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Crop Supply

Crop production i s calculated as t h e p r o d u c t of s e p a r a t e l y estimated h a r - vested acres and yield p e r a c r e . Harvested acres are estimated as a function of planted acres, with some p r i c e and time responsiveness. Planted acres are estimated as a function of lagged planted a c r e s , lagged r e l a t i v e c r o p p r i c e s and c u r r e n t government policy variables. Planted acres are t h e n constrained from above by t h e available extensive and intensive cropland base. This two-step pro- c e d u r e f o r obtaining planted acres i s shown in Figure 2.1. Total cropland under cultivation in a given y e a r is shown by t h e area of t h e c i r c l e . The allocation of t h i s area i s shown by t h e portion of t h e cropland devoted t o e a c h c r o p .

v

Acres Crop

T o t a l Crop1

and

F i g u r e 2 . 1 C r o p l a n d A l l o c a t i o n Model

A four-step p r o c e d u r e i s used for estimating planted and h a r v e s t e d area.

F i r s t , t h e land available for c r o p s (total and intensive) in y e a r t, CLBt, i s estimated in t h e land r e s o u r c e component (Chapter 3). Then t h i s land is allocated t o t h e various c r o p s , as shown in equation (1).

(1) Acreage Allocation Equations

where APit i s t h e d e s i r e d acres planted t o c r o p i in y e a r t , Pi,t-l i s t h e exponential a v e r a g e of p a s t p r i c e s of c r o p i , Pj,t-l is t h e exponential a v e r a g e of p a s t p r i c e s of c r o p j , and GPVt is t h e government policy variable@) in y e a r t.

Equation (2) shows t h e c o n s t r a i n t which limits t h e estimated planted acres f o r e a c h commodity, APlt, t o t h e t o t a l land available in y e a r t. This c o n s t r a i n t i s applied f i r s t t o t h e s u b s e t of intensive c r o p s , t h e n t o t o t a l cropland planted.

&it

APit

=

m i n W i t ,

*

^CLB,]

.

=,Ap,t

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Acres h a r v e s t e d for e a c h commodity, AHit, are then estimated as a fixed p r o p o r - tion of area planted.

Crop yields, CYit, are estimated s t r i c t l y as functions of a time t r e n d . Produc- tion then becomes t h e p r o d u c t of area h a r v e s t e d and yield:

Pit

=

AHit

*

CYit

.

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G o v e r n m e n t P o l i c y R e l a t e d to C r o p l a n d Area

U.S. government policy v a r i a b l e s r e l a t e d t o t h e cropland area are designed t o shift a c r e a g e between u s e s or t o withdraw a c r e a g e from cropland. This is done through a number of programs of voluntary participation in r e s p o n s e t o income supplements and p r i c e guarantees. The components of t h e government program include: t a r g e t p r i c e s , deficiency payments and n o n r e c o u r s e commodity loans.

These components c a n b e combined in a number of ways t o a c h i e v e a desired objective. A brief description of e a c h government policy component and r e l a t e d vari- a b l e s is shown in Table 2.3.

The oldest of t h e p r e s e n t l y implemented government programs i s t h e commodity loan program, called t h e n o n r e c o u r s e commodity loan program. Nonrecourse loans are made available t o p r o d u c e r s who in t u r n pledge a quantity of t h e i r c r o p equal t o t h e amount of t h e loan divided by t h e loan rate. These loans, made a t a rate of i n t e r e s t which is typically below prevailing market r a t e s , may e i t h e r b e redeemed o r allowed t o lapse, in which case t h e USDA-CCC (Commodity Credit Cor- poration) assumes t h e t i t l e of t h e g r a i n originally t e n d e r e d as c o l l a t e r a l . The loan r a t e acts as a p r i c e floor while allowing for more o r d e r l y marketing of g r a i n s by providing needed cash flow during times when m a r k e t p r i c e s are depressed. In o r d e r t o be eligible f o r t h e loan r a t e program, t h e p r o d u c e r must be in compliance with t h e set-aside and diversion programs. The set-aside program r e q u i r e s a p a r - ticipant t o r e f r a i n from planting a specified p e r c e n t a g e of t h e a c r e a g e normally devoted t o a p a r t i c u l a r c r o p o r set of c r o p s . This set-aside land may b e planted to any o t h e r c r o p not specified within t h a t program. Diversion of cropland involves t h e r e t i r e m e n t of a c r e a g e from t h e production of "intensive" c r o p s . Diverted land is t h e r e f o r e r e l e g a t e d t o l e s s intensive use, while set-aside land may b e planted to a l a r g e r group of relatively intensive c r o p s (e.g., set-aside c o r n land h a s often been planted t o soybeans).

A s a n additional incentive t o p a r t i c i p a t e in t h e set-aside and diversion programs, a p r o d u c e r may a l s o r e c e i v e a d i r e c t diversion payment f o r lands not planted t o "intensive c r o p s n * and a deficiency payment for g r a i n marketed at p r i c e s below t h e announced t a r g e t p r i c e . The deficiency payment is equal t o t h e positive d i f f e r e n c e between t h e t a r g e t p r i c e and t h e p r i c e r e c e i v e d by t h e pro- d u c e r f o r his g r a i n times a program allocation f a c t o r . This program allocation f a c t o r is determined by t h e r a t i o of National P r o g r a m Acreage t o t h e level of acres h a r v e s t e d in t h a t c r o p y e a r . A p r o d u c e r who voluntarily r e d u c e s h a r v e s t e d a c r e a g e from his previous y e a r ' s h a r v e s t by t h e p e r c e n t a g e announced by t h e S e c r e t a r y of Agriculture will r e c e i v e t h e full deficiency payments on a l l h a r v e s t e d grains. Otherwise, t h e program p a r t i c i p a n t will r e c e i v e payments equal t o t h e d i f f e r e n c e between t h e t a r g e t and market p r i c e multiplied by t h e program allocation f a c t o r .

The p r o d u c e r makes his planting decision based upon his p r i c e expectations as modified by t h e policy instruments described above. To r e f l e c t t h e impact of

=The crops which a r e defined a s nonintensive are announced by t h e USDA along w i t h the specific details of other policy instruments.

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Table 2.3 Government p o l i cy v a r i a b l e s r e l a t e d t o acreage a l l o c a t i o n and d i v e r s i o n

Pol i c y

V a r i a b l e D e s c r i p t i on Purpose

Acreage A1 1 o t - ment Def i

-

c

i

ency Payment

D i r e c t D i v e r s i o n Payments N a t i o n a l Program Acreage

Non- r e c o u r s e Loan

Program A1 l o c a - t i o n F a c t o r

Acreage e l i g i b l e f o r d e f i c i e n c y and o t h e r government payments

Payments made t o farmers when t h e average market p r i c e i s below t h e t a r g e t p r i c e . The payment i s equal t o t h e t a r g e t p r i c e minus t h e l a r g e r o f market p r i c e o r t h e l o a n r a t e t i m e s t h e program a l l o c a t i o n f a c t o r Payments t o p r o d u c e r s who comply w i t h s u p p l y c o n t r o l o r s e t - a s i d e programs

The number o f h a r v e s t e d acres needed t o meet domestic, e x p o r t and

c a r r y o v e r needs. The l e v e l i s s e t each y e a r by t h e S e c r e t a r y o f A g r i c u l t u r e

Commodity C r e d i t C o r p o r a t i o n l o a n s a t below market i n t e r e s t r a t e s . The p r o d u c e r t e n d e r s h i s c r o p as c o l l a t e r a l and i f t h e l o a n i s a l l o w e d t o lapse, t h e f u l l payment o f t h e l o a n i s r e q u i r e d

The r a t i o o f t h e n a t i o n a l h a r v e s t e d acres t o t h e n a t i o n a l program

acreage

L i m i t p r o d u c t i o n e l i g i b l e f o r government payments and t h e r e b y encourage p r o d u c e r s t o p a r t i c i - p a t e i n t h e program

P r o v i d e s d i r e c t income s u b s i d y t o f a r m e r s when c r o p p r i c e s a r e below t h e c o s t o f

p r o d u c t i o n

Encourage p a r t i c i p a t i o n i n government s u p p l y management programs

E s t a b l i s h e s t h e d e s i r e d acres needed t o meet c u r r e n t y e a r needs

A

l o a n f r o m t h e USDA's Commodity C r e d i t C o r p o r a t i o n t o p r o v i d e o p e r a t i n g c a p i t a l t o t h e p r o d u c e r w h i l e t h e p r o d u c e r r e t a i n s con- t r o l and m a r k e t i n g d i s c r e t i o n over h i s c r o p

Used t o reduce government payments t o producers when t h e y p l a n t more t h a n t h e p r o j e c t e d needs

Set- The p e r c e n t o f p l a n t e d acres which Reduce s u p p l y o f a p a r t i c u l a r As

i

de i s n o t p l a n t e d t o t h e s p e c i f i e d cornnod i t y

comrnodi t y

T a r g e t P r i c e o f each c o m o d i t y e s t a b l i s h e d P r o v i d e s a b a s i s f o r making P r i c e by t h e USDA t o r e p r e s e n t t h e c o s t income s u p p o r t payments t o

o f p r o d u c t i o n f a r m e r s

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t h e s e policy instruments on t h e p r i c e expectations of f a r m e r s , methodology was developed from t h e work of J. Houck and associates? and J. McKeon (1974). An effective loan r a t e v a r i a b l e (ELR) is defined a s t h e nominal loan r a t e (LR) discounted by t h e f a c t o r by which set-asides (SA) impose upon program participation plus deficiency payments (DP), defined a s t h e difference between t a r g e t p r i c e (TP) and loan r a t e , discounted by t h e national program allocation f a c t o r (PAF) (see Wailes 1979). The formula f o r t h e effective loan r a t e is:

ELR

=

LR

*

(1.0

-

^SA) (4)

The formula f o r t h e effective deficiency payment (EDP) is:

EDP

=

(TP

-

^LR)

*

^PAF

The effective s u p p o r t r a t e (PV1) is t h e f i r s t composite policy variable which is introduced a s a measure of t h e impact of loan and deficiency payments upon pro- d u c e r planting decisions. This policy variable i s defined a s t h e sum of t h e effective loan rate and effective deficiency payments, o r :

PV1

=

ELR

+

EDP _{( 6 )}

The d i r e c t diversion payment described above will c r e a t e some d e g r e e of incentive f o r t h e f a r m e r t o p a r t i c i p a t e in t h e diversion program. Additional incentive is provided by a payment beyond t h e effective deficiency payment in y e a r s when t h e program allocation f a c t o r is below 1.0 (this f a c t o r may legally v a r y from 0.8 t o 1.0). If t h e p r o d u c e r r e d u c e s plantings of a l l c r o p s below t h e level of t h e previous y e a r ' s set-aside and cropland of all c r o p s in a c c o r d a n c e with t h e p e r - centage recommended f o r voluntary diversion (the recommended voluntary diversion r a t e ) , t h e p r o d u c e r will r e c e i v e t h e maximum possible deficiency payments on 100 p e r c e n t of t h e a c r e a g e harvested, r e g a r d l e s s of t h e program allocation fac- t o r . The benefit t o a p r o d u c e r complying with t h e recommended voluntary diversion equals:

Benefit

=

( 1

-

PAF)

*

^DP (7)

A less e x a c t measure of this additional deficiency payment is simply t h e recommended voluntary diversion p e r c e n t a g e times t h e deficiency payment. The compo- s i t e variable measuring t h e incentive t o d i v e r t land (PV2) is t h e effective diversion payment which i s equal t o t h e d i r e c t diversion payment (DDP) plus t h e deficiency payment (DP) times t h e recommended voluntary diversion p e r c e n t a g e (RVD). The formula f o r t h e composite diversion v a r i a b l e (PV2) is:

PV2

=

DDP

+

^(DP

*

^RVD) ( 8 )

or decomposing t h e deficiency payment b t h e t a r g e t p r i c e (TP) and loan r a t e (LR) elements:

PV2

=

DDP

+

(TP

-

LR)

*

RVD (9)

This second composite v a r i a b l e , PV2, i s used t o c a p t u r e t h e incentive offered f a r m e r s t o withdraw land from production beyond t h e incentives measured in t h e f i r s t composite policy v a r i a b l e , PV1.

tTheir work is published in several monographs, of which the most complete article i s

"Analyzing the Impact of Government Programs on Crop Acreage," USDA ERS Technical Bul- letin No. 1548. August 1976.

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Producer-Held R e s e n e Program

Farm policy d i r e c t e d at t h e moderation of demand in t h e U.S. is accomplished through t h e management of grain stocks by t h e U.S. government. The management of grain stocks is conducted in o r d e r t o dampen oscillations in U.S. g r a i n prices.

For y e a r s government c o n t r o l of g r a i n stooks was accomplished by d i r e c t owner- ship of stocks by t h e Commodity Credit Corporation (CCC). In t h e aftermath of t h e huge Soviet g r a i n p u r c h a s e s in 1973, U.S. growers e x p r e s s e d t h e d e s i r e f o r a more active r o l e in t h e management of grain s t o c k s owned by t h e U.S. government. In response to t h i s p r o d u c e r lobby, t h e U.S. Congress included enabling legislation f o r a Farmer-Owned Grain Reserve program (FOR) in t h e 1977 Food and Agricul- t u r e Act. A s a r e s u l t of c r e a t i o n of t h e FOR program, total U.S. g r a i n s t o c k s a r e now of t h r e e distinct types: 1 ) s t o c k s held by t h e p r i v a t e t r a d e , 2) s t o c k s held by t h e p r o d u c e r s under t h e FOR program, and 3) stocks acquired and held by t h e CCC from p r i c e s u p p o r t programs and d i r e c t acquisition. A t c e r t a i n times in r e c e n t y e a r s , t h e combined size of t h e CCC and FOR s t o c k s h a s been as l a r g e as t h a t of t h e s t o c k s held by t h e p r i v a t e t r a d e .

The Farmer-Owned Reserve program i s open t o p r o d u c e r s in compliance with t h e set-aside program provisions. A FOR program p a r t i c i p a n t e n t e r s t h e program via a commodity loan agreement with t h e CCC. The loan agreement applies t o a specific portion of t h e produoer's c r o p and i s equal t o t h e quantity of grain e n t e r e d into t h e program times t h e loan rate (typically equal t o t h e s u p p o r t r a t e ) . The CCC o f f e r s s e v e r a l program benefits (i.e., s t o r a g e payments, s t o r a g e facility loans, low-interest rates o r possibly a waiver on i n t e r e s t , e t c . ) "in r e t u r n placing s t r i c t limits on t h e market p r i c e r a n g e o v e r which t h e grower c a n market t h e grain" (see Wailes 1979). This r a n g e is a function of t h e prevailing loan rate and is between 140 (release) t o 175-185 (call) p e r c e n t on feed grains. The USDA has dis- c r e t i o n o v e r t h e s e release and call p r i c e s , both via t h e establishment of t h e loan rate and t o a l e s s e r e x t e n t t h e relationship of call and r e l e a s e p r i c e s to this loan rate. In addition, t h e program management h a s discretion o v e r :

(1) t h e period during which t h e program is open;

(2) t h e eligibility of c r o p s f o r each period;

(3) t h e d e s i r e d level of s t o c k s for e a c h c r o p ;

(4) t h e level of program incentives t o achieve t h e d e s i r e d stock level, i.e., (a) s t o r a g e c o s t payments,

(b) rate of i n t e r e s t ( o r waive) on t h e CCC loan,

(c) availability of loans f o r new o r r e p a i r e d s t o r a g e facilities, and (d) extension of CCC loan period; and

(5) production c o n t r o l s t h a t must b e complied with to b e eligible f o r t h e FOR program.

The policy component of t h e MSU Agriculture Model which is c u r r e n t l y incor- p o r a t e d into t h e U.S. intermediate model i s designed t o simulate existing government stock acquisition programs based on t h e program rules. The specification of t h i s component of t h e policy p r o c e s s i s a l i t e r a l expression of t h e r e s e r v e program rules. Unfortunately, while program r u l e s and p a r a m e t e r s c a n b e identified, t h e behavioral content, in t e r m s of p r o d u c e r response, has little history by which t o be identified. The behavior of t h e f a r m e r in a p a r t i c u l a r short-run market situation may b e c o n t r a r y t o a simplistic market price-stock level function, but longer-term adjustments t o p r i c e are basically consistent. USINT's model of t h i s behavior is described in Chapter 4.

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Livestock Model

Four c a t e g o r i e s of livestock are modeled in t h e U.S. supply model: beef, d a i r y , pork and poultry. S e p a r a t e models are estimated f o r e a c h c a t e g o r y and outputs are aggregated a f t e r production. Some interaction between s e c t o r s i s incorporated, such as t h e number of dairy cows held based in p a r t on t h e p r i c e of beef, but interaction between livestock types is v e r y small.

The number of animals produced and t h e yield p e r animal a r e s e p a r a t e l y estimated. For beef and p o r k , yield is measured as pounds of m e a t produced p e r animal. The d a i r y s e c t o r produces both milk and beef, s o milk produced p e r cow is estimated and pounds of m e a t p e r animal slaughtered i s a l s o estimated. Poultry m e a t production is estimated as a n a g g r e g a t e r a t h e r than p e r b i r d basis. Yield estimates are based on profitability measures such as g r a i n and m e a t o r milk prices.

Beef

The beef model is developed from two types of relationships: p r o d u c e r decision variables and physical response variables. P r o d u c e r decision v a r i a b l e s include decisions about t h e number of animals t o sell, t h e weight at which a n animal is slaughtered and t h e rate of h e r d expansion o r contraction. Physical response variables are determined by primarily biological f a c t o r s beyond t h e control of a producer. Examples of t h e s e physical relationships include d e a t h rates, birth rates and calving r a t e s .

P r o d u c e r decision v a r i a b l e s are econometrically estimated on t h e basis of economic f a c t o r s , while t h e biological f a c t o r s are obtained from historical r e c o r d s . Some f a c t o r s which are primarily biological can still b e a l t e r e d by pro- d u c e r decisions. Calving survival r a t e s , f o r example, are influenced by t h e s t a g e of t h e c a t t l e c y c l e which i s determined by p r o d u c e r decisions. If cow numbers are expanding rapidly, t h e calf survival r a t e will d r o p because t h e proportion of both young cows and old cows will i n c r e a s e , and t h e s e animals tend t o have lower calf survival rates. Variables of t h i s type a r e estimated based on h e r d change f a c t o r s even though they are primarily biological variables.

Figure 2.2 shows t h e linkages in t h e beef and d a i r y s e c t o r . Estimated r e l a - tionships are denoted with an

*

and biological linkages have t h e

*

omitted. Indivi- dual estimated equations a r e included f o r calving rates, breed-feed-slaughter decisions, and t h e slaughter weights of t h e finished animal. S e p a r a t e s l a u g h t e r weight estimates are m a d e f o r steers and heifers. Survival rates, t h e distribution of calves between bulls and heifers, and t h e m e a t yield p e r o a r c a s s a r e a l l t r e a t e d as biological p a r a m e t e r s which a r e independent of p r o d u c e r decisions.

Beef cow numbers a r e estimated as t h e sum of t h e cow h e r d and replacements minus t h e number of culls and deaths. Cull cows and non-fed steers both become p a r t of t h e non-fed beef category. Non-fed beef production i s determined from t h e number of animals in t h i s c a t e g o r y times t h e s l a u g h t e r weight p e r animal. The slaughter weight f o r non-fed beef is estimated f o r all non-fed beef and makes no distinction between cows and steers. Dairy cow culls and non-fed dairy steers a r e a l s o included in t h e non-fed category. Total commercial m e a t production i s t h e sum of fed beef s t e e r and h e i f e r production, non-fed beef and d a i r y production, and d i a r y fed s t e e r production.

Dairy

Dairy cow numbers a r e estimated from h e r d size, replacements, culls and death loss. Heifer replacements a r e estimated on t h e basis of milk production profitability and cow s l a u g h t e r p r i c e s . The milk production profitability measure is

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proxied by a g r o s s margin which includes milk p r i c e s , feed costs, l a b o r costs and technological production s h i f t s o v e r time. The g r o s s margin specification allows many variables to b e included in a n estimated equation without requiring t h e sta- tistical d e g r e e s of freedom which would b e associated with s e p a r a t e l y e n t e r e d variables. The g r o s s margin specification does have t h e disadvantage of imposing a n equal supply r e s p o n s e f o r a l l v a r i a b l e s included in t h e g r o s s margin variable.

Milk production is estimated as t h e p r o d u c t of c o w numbers and milk production p e r cow. Milk production p e r cow is estimated as a function of feed p r i c e , t h e p r i c e of milk and previous y e a r milk yields.

Dairy h e i f e r s not used f o r replacements are slaughtered as veal. Bull calves a r e e i t h e r s l a u g h t e r e d as veal, fed or slaughtered as non-fed steer beef. Fed steers and non-fed steers g o into t o t a l commercial m e a t production.

Pork

P o r k production is determined by t h e size of t h e pig c r o p and t h e weights of t h e s l a u g h t e r e d animals. S e p a r a t e equations are used to r e p r e s e n t fall farrowings and s p r i n g farrowings. Fixed rates are used to obtain l i t t e r size p e r s o w , and pork production is t h e n t h e p r o d u c t of s l a u g h t e r weights and hogs slaughtered.

The specification of t h e s p r i n g sows farrowing equation i s based on t h e previous y e a r ' s inventory of s o w s , t h e competitive opportunities afforded by beef feeding and a profitability measure associated with pork production. Fed beef p r i c e i s a n important v a r i a b l e reflecting t h e opportunities for feeding beef r a t h e r than hogs. This i s consistent with t h e tendency of hog p r o d u c e r s t o a l s o b e beef pro- d u c e r s . Fall s o w farrowings are determined by largely t h e same v a r i a b l e s as s p r i n g farrowings; however, f e e d p r i c e s are identified s e p a r a t e l y f r o m t h e g r o s s margin profitability v a r i a b l e to emphasize t h e m o s t r e c e n t feed p r i c e changes which are associated with t h e fall c r o p h a r v e s t .

S l a u g h t e r weights are estimated f r o m t h e hog/corn p r i c e r a t i o , which is intended to c a p t u r e t h e incentive to feed to l i g h t e r or h e a v i e r s l a u g h t e r weights.

N o distinction i s made between d i f f e r e n t aged animals in estimating s l a u g h t e r weights, n o r i s t h e changing size of t h e animal o v e r time considered.

Poultry

The poultry sector identifies s e p a r a t e t u r k e y , b r o i l e r and egg production.

The complexity and r a p i d s t r u c t u r a l change which h a s o c c u r r e d in t h e poultry sector in t h e last two decades i s not c a p t u r e d by t h e model. The primary r e a s o n for including poultry in t h e model is to identify feed consumption by t h i s s e c t o r . Addi- tional refinements would b e useful for t h i s sector, although t h e c u r r e n t specification a p p e a r s reasonably good at identifying feed demand based on t h e c u r r e n t c h a r a c t e r i s t i c s of t h e industry.

Livestock Feed Consumption

Feed consumption i s estimated for coarse grains, soymeal and wheat. The pro- c e d u r e for estimating coarse g r a i n and soymeal fed i s based on g r a i n o r meal consumed p e r standardized animal unit, while wheat fed i s estimated directly.

Numbers of livestock in e a c h c a t e g o r y are used as a basis for determining t h e number of g r a i n consuming animal units, which i s a weighted sum of livestock units designed to standardize numbers on t h e basis of f e e d consumption. The weights used to obtain estimates of g r a i n consuming animal units are obtained from USDA s o u r c e s . Grain consumption p e r animal unit i s estimated f r o m livestock and feed p r i c e s . Total feed g r a i n consumption i s t h e n obtained as t h e p r o d u c t of feed g r a i n consumed p e r g r a i n consuming animal unit and t h e number of g r a i n consuming

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animal units.

Soymeal consumption i s obtained in a similar way. An index of high p r o t e i n g r a i n consuming animal units is developed t o reflect a standardized animal unit based on high p r o t e i n consumption. Soymeal consumption p e r high p r o t e i n g r a i n consuming animal unit i s then estimated based on soymeal, c o r n and livestock p r i c e s . The p r o d u c t of t h e s e two f a c t o r s provides t h e level of consumption of soymeal.

Wheat fed t o livestock i s d i r e c t l y estimated r a t h e r t h a n estimated o n a p e r animal unit basis. Wheat comprises a relatively small s h a r e of livestock f e e d in t h e United S t a t e s , and t h e amount of wheat fed depends primarily on availability and t h e p r i c e relationship between wheat and coarse grains. Wheat i s p r e f e r r e d t o coarse g r a i n s as a livestock f e e d because i t h a s a h i g h e r p r o t e i n content t h a n c o r n , which i s t h e primary coarse g r a i n fed in t h e U.S. However, t h e margin between wheat and coarse g r a i n p r i c e s usually does not f a v o r wheat feeding. The second r e a s o n for feeding wheat i s d u e t o availability. An abundance of wheat in a given a r e a of t h e U.S. r e l a t i v e t o coarse g r a i n will e n c o u r a g e wheat feeding due t o convenience. The wheat fed relationship is v e r y sensitive, so small changes in t h e wheat/corn p r i c e r a t i o within t h e c r i t i c a l r a n g e of values which makes wheat favorably p r i c e d as a feed. However, t h e amount of wheat fed i s v e r y unresponsive t o p r i c e changes in t h e wheat/corn p r i c e r a t i o outside of t h e c r i t i c a l range.

A second component of wheat feeding is linked t o t h e availability f a c t o r and i s largely unresponsive t o p r i c e changes between wheat and c o a r s e grains.

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C h a p t e r 3

THE

LAND

RESOURCE COMPONENT OF CROP S U P P L Y

M

USINT

There has been occasion t o use USINT in conjunction with t h e basic linked sys- t e m to examine t h e long-run (to 2030) demand f o r agricultural land in t h e United S t a t e s arising f r o m alternative e x p o r t demand scenarios f o r food and feed commodities and whether and when land availability constraints in t h e U.S. are likely t o become effective o v e r t h a t horizon. In o r d e r t o accommodate such longer-run analyses, t h e r e f o r e , t h e national-level version of t h e r e s o u r c e development component of t h e detailed U.S. model was adapted f o r use in USINT as well. This component, including t h e theory, specification, and estimation of both i t s national and regional versions, is described fully in Johnson and Quinby (1983). A brief summary of t h e model s t r u c t u r e is provided h e r e .

The outputs of t h e land r e s o u r c e component are a n upper-bound constraint on total cropland planted and a n upper-bound constraint on land planted t o intensive crops.

The constraint on total a c r e s planted begins with an estimated benchmark of 900 million a c r e s of potentially cropable land in 1977. This includes land currently cropped, in fallow, and in cropland pasture; rangeland, forests, and farmsteads in Class I-IV land; and an allowance f o r potential increases in t h e intensity of land use approaching t h a t observed in t h e F a r East and Western Europe. An identity equation, then, determines t h e cropland potential each y e a r by adjusting this 1977 fig- u r e f o r p r i o r o r subsequent (1) population changes, assuming .22 a c r e s p e r capita going to nonfarm uses; and (2) a n exogenous projection of i r r e v e r s i b l e soil erosion.

In o r d e r t o determine t h e constraint on total cropland planted, t h e m o d e l uses an econometrically estimated equation f o r i t s complement, i.e., unused cropland potential. The explanatory variables h e r e a r e (1) t h e amount of land set aside and diverted, and (2) a technology index reflecting technical change allowing t h e farming of more fragile land. Both of t h e s e variables are currently projected exogenously in USINT. Set-asides and diversions are taken into account in t h e a c r e s planted equations of c r o p supply (see Chapter 2), but only implicitly. The actual number of a c r e s involved, as required by t h e unused cropland potential equation, cannot b e explicitly computed from t h e information currently in t h e model.

A third f a c t o r influencing unused potential is public and private land development investments t o bring additional land into production. The accumulation of such developments o v e r time, less t h e disinvestments which allow land t o r e v e r t t o an unused o r undeveloped status, reduces t h e unused potential, thus relaxing t h e cropland planted constraint.

The cropland planted constraint, then, is defined each y e a r as t h e cropland potential, minus t h e unused potential, plus five p e r c e n t of t h e unused potential (as

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t h e maximum amount of new land t h a t c a n b e developed in any o n e y e a r ) .

I t is t h e land development behavior t h a t provides t h e principal economic feed- back t o t h i s component. The cropland potential equation, t h e unused potential equation, and t h e intensity c o n s t r a i n t equation (discussed below) all depend on technical and institutional variables. I t i s t h e acres planted equations in c r o p supply, responding t o domestic and world p r i c e s through t h e international t r a d e link- a g e , t h a t in sum determine whether any o r all of t h e allowable land development will t a k e place. Any such development accumulates o v e r time t o ease t h e con- s t r a i n t on t o t a l cropland planted in f u t u r e y e a r s .

Finally, an intensity c o n s t r a i n t p l a c e s a n u p p e r bound on t h e area t h a t c a n b e planted t o intensive c r o p s . In t h e national-level version of t h e model, all c r o p s e x c e p t hay, oats, flax, b a r l e y , and r y e are considered t o b e "intensive". The con- s t r a i n t i s based on a n econometrically estimated logit function of (1) a n index of mechanization and (2) a c r e a g e set aside and diverted. The mechanization index, which is exogenously p r o j e c t e d in t h e model, r e p r e s e n t s t h r e e technological fac- t o r s which permit i n c r e a s e s in cropping intensity: t h e use of tractor horsepower, yield-increasing technologies, and technologies which permit t h e farming of more f r a g i l e soils. Two s t a n d a r d e r r o r s are added t o t h e estimated logit value t o pro- duce t h e a c t u a l c o n s t r a i n t applied in a given y e a r .

The concept of intensity as defined h e r e , i.e., c r o p s considered t o b e inten- sively cultivated, is only r e a l l y meaningful at a regional level. In p a r t i c u l a r , a specific c r o p may b e considered intensive in one region and nonintensive in a n o t h e r , depending on t h e soil and water conditions and cultivation p r a c t i c e s applied. F u r t h e r m o r e , c r o p s grown, land planted in c r o p s , and land potentially c r o p a b l e v a r y g r e a t l y by region. Thus, t h e t o t a l cropland planted c o n s t r a i n t would also b e more meaningful at a regional level of disaggregation.

T h e r e f o r e , a regional version of t h i s component h a s been developed for t h e detailed U.S. model (Johnson and Quinby 1983). Additional extensions which may b e considered in t h e f u t u r e include (1) distinguishing between i r r i g a t e d and nonirri- gated land, (2) developing decision functions t o explicitly model t h e investment n e c e s s a r y t o bring potentially c r o p a b l e land into a c t u a l production, and (3) modeling measures of land and water quality, effectively endogenizing t h e c u r r e n t l y exogenous soil erosion.

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C h a p t e r 4

THE DOMESTIC UTZLLZATION AND PRICE COMPONENTS OF USINT

Total utilization of e a c h commodity includes e x p o r t s , if any, and s e v e r a l components of domestic disappearance. E x p o r t s (actually n e t imports) are d e t e r - mined, in t h e simultaneous national-international exchange algorithm of IIASA's linked system, as a residual of domestic supply o v e r demand consistent with world p r i c e s ; domestic p r i c e , quota and stock policies; and assumed international a g r e e - ments. Domestic utilization includes seed, losses, feed, nonfood industrial uses, government consumption, s t o c k s and human consumption. Feed demand i s discussed in Chapter 2; p r i c e s and t h e o t h e r components of demand a r e described h e r e . Seed and Losses, and Industrial and G o v e r n m e n t C o n s u m p t i o n

Seed rates p e r a c r e a r e assumed f o r wheat, r i c e , t h e four c o a r s e grains, potatoes, d r y beans, soybeans (accounted t o fats and oils, and protein feeds) and cotton (accounted t o protein feeds). Losses due t o waste, spoilage, insects, etc., in f a r m and market s t o r a g e , processing and distribution activities a r e modeled as proportions of annual production. In addition, milk fed t o calves, as a proportion of milk production, i s considered a feed use of milk, and eggs used f o r hatching are considered a seed use of eggs.

A general Cobb-Douglas functional form i s postulated f o r t h e nonfood indus- t r i a l consumption of each food commodity

where

DEMIND,

=

industrial demand f o r commodity i (thousand MT) CPRICE,

=

retail-level p r i c e of commodity i

CPRICE,,

=

nonagricultural p r i c e index (1967

=

1.00)

DUMSUP,,

=

nonagricultural production (million 1967 dollars) ail#$, 0,

=

p a r a m e t e r s of t h e function

A preliminary d a t a s e a r c h f o r this version of t h e model yielded d a t a on nonfood use of only two food commodities: fats and oils, and fish. The use of c o r n f o r methanol production is determined based on endogenous investments in distillation capacity and r e l a t i v e fuel-corn p r i c e s . Government incentive policies a r e included, and t h e contribution of t h e high-protein by-product t o protein feed supply is accounted f o r . Z e r o industrial consumption is assumed f o r t h e o t h e r food commodities; f u r t h e r r e s e a r c h will b e necessary t o determine whether this is a reasonable assumption (e.g., potatoes and s u g a r f o r s t a r c h , medicinal alcohol,