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An Examination of Animal Husbandry Development in Northwest China from Environment Perspective Tingjun Peng

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Content An Introduction of Livestock Development in North- West China Environment Protection in North-West China An Theoretical Model to Examine Comparative Advantage in North-West China from Environment Perspective The Compacts of China ’ s Accession into WTO on Livestock Development in North-West China from Environment Perspective Simulation Results Conclusion

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Farm Economy Land Capital Food Manufacture Labor Pastoral economy Land Labor Farm land Grassland Food Animal Husbandry Labor Market Marginal Product Value

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A Theoretical Model to Study Comparative Advantage According to Bruno (1967), Chenery (1972) and Pearson (1974), under free trade the input demand of domestic resource cost (DRC) for j production to earn one unit of foreign currency is: DRCj = domestic resource costs input for j production / net foreign currency earning

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Domestic Resource Cost (DRC) DRC j = s=2 F sj V s j / (U j – M j - r j ) DRC j is the domestic resource costs input for j production, F sj is the quantity of s th input factor for j production, V s is the opportunity cost of s th input factor, U j is the output value of j production calculated by border price, M j is the value of tradable input factors for j production, calculated by C.I.F price, R j is the factor costs of direct foreign investments, calculated by opportunity costs, S is the number of input factors, as foreign currency is taken as the first one, then S is numbered from 2 to m,

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Adjusted Domestic Resource Cost (A_DRC) But if we take environment into account, DRC can be calculated as: A_DRC j = ( s=2 F sj V s j -E j ) / (U j – M j - r j ) where E j is the Externality, if the externality is positive then E j › 0; if the externality is negative then E j ‹ 0; if there is no externality then E j = 0. If we divide DRC j by the shadow foreign exchange rate (V j ), then we get Domestic Resource Costs Coefficient of j production (DRCC j ), i.e, DRCC j = DRC j / V j As DRCC j is a coefficient without units, we can use it to evaluate the comparative advantage of j production. If DRCC j ‹ 1, then there is comparative advantage in the production of j products, the smaller DRCC j is, the larger comparative advantage; if DRCC j › 1, then the production of j products is disadvantaged, the larger the worse; if DRCC j = 0, then it is indifferent to produce j or not.

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Comparative Static Analysis DRCC=DRC/ （ NV*EX ） LN(DRCC)=LN(DRC)-LN(NV)-LN(EX) dDRCC(t)/dt/DRCC(t)=dDRC(t)/dt/DRC( t) - dNV(t)/dt/dNV(t) -dEX(t)/dt/EX(t)

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Net Social Profitability (NSP) NSP j = (U j – m j – r j )*v j - s=2 f sj v s Uj is the output value of j production, calculated by border price mj is the value of all tradable intermediate inputs, calculated by CIF price, Rj is the costs from direct foreign investments, calculated by opportunity costs, vj is the shadow foreign exchange Therefore, NSP means then benefit from one production when factor allocation is efficient. If NSP>0, then production is efficient; if NSP<0, then production is not efficient.

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Adjusted Net Social Profitability (A_NSP) NSP j = (U j – m j – r j )*v j - s=2 f sj v s + E j where E j is the Externality, if the externality is positive then E j › 0; if the externality is negative then E j ‹ 0; if there is no externality then E j = 0.

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China's WTO Accession Negotiations on Agriculture On July 1986, China formally submitted an application to the GATT for resumption of its contracting status. On January 1st, 1995, the WTO was established, replacing the GATT. Starting from November 1995, China's GATT- resumption negotiations are now taken up as WTO accession negotiations. The negotiations have now reached its final stage. It is expected that China will be admitted into the organization eminently. China's WTO talks on agriculture mainly concern market access affairs, such as tariff reduction and tariff quota of agricultural products. As negotiated, China is expected to partially open the agricultural products market after becoming a member of WTO.

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Tariff Reduction of Agricultural Products In 1992 and 1993, China introduced a voluntary reduction of import tariff. On October 1 st, 1997, the country further reduced the tariff by 26% on 4878 tariff lines. The arithmetic level of tariffs was subsequently adjusted to 17%. The arithmetic average of tariff was also reduced from 46.6% to 21.2%. In the WTO negotiations, China was given a five-year transitional period, within which the tariff will be progressively reduced. China's tariff on agricultural products will decrease from the current level of 21.25% to 17% in year 2004.

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TRQ Administration in China The negotiations allow China to apply Tariff Rate Quota administration on key agricultural products such as wheat, rice, corn, cotton, soybean, and sugar. In essence, China's WTO-negotiations on agriculture are concentrated on market access of agricultural products, i.e., issues such as tariff and tariff quota of agricultural products; or the opening of the agricultural products market. The latter concerns the interest of the people and the state, as well as the economic development of the country The reform of China's agriculture and trade policy is expected to take place concurrently with the rest of the economic reform. It is however not likely that trade in agricultural products will be fully liberalized within a short period of time.

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A Partial Equilibrium Model

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Reference price C.I.F Import price Retail Price Producer Price Shipment feeTax& Exchange Rate Population Total Demand Consumption of Grain and Other Crops Direct Consumption Feeding Other Demand Consumption of Husbandry product Per Capita Demand Major import country supply Total Crop Output Animal products Yield Area Heads Yield Pproduction per Head Science & Technology Climate Price of Input Price Farmland Area Difference of Demand & Supply Import & Export Demand Beginning/Ending inventory Refarm index

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Food Demand Model The model assumes that people's income will be spent on the consumption of husbandry products (beef, pork, mutton, poultry and milk), grain (wheat and rice), other food and non-food products. The model assumes that consumption differs in cities urban and rural areas

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Demand Equations C R =p 1 R q 1 R +p 2 R q 2 R + …… +p i R q i R logQ 1 R =a 10 +E 11 R* logP 1 R +E 12 R* logP 2 R …… E 1j R *logP j R +E 1c R* logC R logQ 2 R =a 20 +E 21 R *logP 1 R +E 22 R* logP 2 R …… E 2j R* logP j R +E 2c R* logC R ………………………………………… logQ i R =a i0 +E i1 R* logP 1 R +E i2 R* logP 2 R …… E ij R *logP j R +E ic R* logC R ( i =1, 2, 3, ……,n; j= 1,2, …… m) C U =p 1 U q 1 U +p 2 U q 2 u + …… +p i U q i U logQ 1 U =a 10 +E 11 U *logP 1 U +E 12 U* logP 2 U …… E 1j U* logP j U +E 1c U* logC U logQ 2 U =a 20 +E 21 U *logP 1 U +E 22 U* logP 2 U …… E 2j U* logP j U +E 2c U *logC U logQ i U =a i0 +E i1 U *logP 1 U +E i2 U *logP 2 U …… E ij U *logP j U +E ic U *logC U

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Demand equations C R is per capita expenditure on consumption in rural areas Q I R is per capita demand of commodity i in rural areas P i R is consumer price of commodity i in rural areas E ij R ( i=j) is own-consumption elasticity of commodity i in rural areas E ij R （ i j ） is cross price elasticity of commodity i and j in rural areas E ic R is income price elasticity of commodity i in rural areas C U is per capita consumption expenditure of urban residencehousehold Q i U is per capita demand of commodity i in urban areas P i U is consumer price of commodity i in urban areas E ij U ( i=j) is own-consumption elasticity of commodity i in urban areas E ij U （ i j ） is cross price elasticity of commodity i and j in urban areas. E ic is income price elasticity of commodity i in urban areas

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Restrictions 1. Budget Restraint: W 1 +W 2 + …… W i =1 W 1 =P 1 Q 1 /C, W 2 =P 2 Q 2 /C, W i =P i Q i /C 2. Homogeneity E ii + i j E ij +E ic =0 3. Engel Aggregation W i E ic =1 4.Cournot Aggregation Condition W i E ij = - W j

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Feeding Grain Demand Model Estimation on Total Demand of Feeding Grain Q t =q 1,t x 1,t y 1,t + q 2,t x 2,t y 2,t + …… + q I,t x I,t y I,t x i,t =x i,t-1 (1+g i ) y i,t =y i,t-1 (1+f i ) Q t is total demand for feeding grain in year t; q i,t is production in year t of product i, such as beef, milk, pork, mutton, poultry (head); x i,t is the proportion of feeding grain in the total production of i in year t; g I is the annual growth rate of x i,t; y i,t is the kilograms of feeding grain amount needed by per head of husbandry. f t is the annual growth rate of y i,t.

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Feeding Grain Demand Model of Grain Product Q i,t feed =Q i,t-1 feed +Q icorn,t feed + Q idm,t feed Q icorn,t feed = Q icorn,t-1 feed E icorn PR icornt,t-1 (1+g i )^n Q Idm,t feed = Q idrn,t-1 feed E Idrn DM t,t-1 (1+f i )^n Where Q i,t feed is the amount for feed demand s of grain i in year t; Q icorn,t feed is the change of feed demand change of proportion of grain i, caused by the change in corn price; Q idm,t feed is the change of feed demand change proportion of grain i, caused by the change of total feed total demand; E icorn is the substitute elasticity of product i and corn; PR icornt,t-1 is the change of the price ratio between the prices of product i and corn; E idrn is the feeding demand elasticity of product i; DM t,t-1 is the change of feeding demand; g i is annual change of feeding demand of product i, caused by the change of corn price; f i is the annual change of feeding demand of product i caused by the change of total feeding demand, compared with that of the base period in the model.

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Supply Model Sown area: AH i,t =Ah i,t-1 (1+(% △ ER 1,t E AH i1 +% △ ER 2,t E AH i2 + …… % △ ER k,t E AH ik )) Where, AH i,t is the areas sown for product i in period t; % △ ER k,t is the percentage change of the expected return of product k in period t ; E AH ik is the elasticity of area harvested of crop i with respect to a change in the expected return of crop

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Supply Model Wheat, rice and corn Yield YL i,t =YL i,t-1 (1+ （ % △ P i,t E p i +% △ P input i,t E input i +% △ AWG i, tE AWG i +% △ R i, tE R I +% △ IR i,t E IR I +T i / 10) ） YL it is the yield of crop i in period t; % △ P i,t is the percentage change of producer price of crop i in period t; E p I is the price elasticity of crop i; % △ P input i,t is the percentage change in the input price of crop i in period t; E input I is the elasticity of the input price of crop i; % △ AWG i,t is the percentage change of per capita labor wage of crop i in period t; E AWG I is the labor wage elasticity of crop i; % △ R i,t is percentage change of agricultural science and technology reserve; E R I is the elasticity of agricultural science and technology reserve; % △ IR i,t is the percentage change in water irrigation reserve; E IR I is the elasticity of water irrigation reserve; T I is the trend growth rate derived from changes in yields during the previous 10 years.

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Supply Model Livestock production Q i,t =Q i,t-1 (1+(% △ P i,t E p I,t +% △ P i,t-1 E p I,t-1 +% △ P i,t-2 E p I,t- 2 +% △ P i,t-3 E p I,t-3 +% △ P feed i,t E feed i )) Where, Q i,t is the production in year t of product i ； △ P is the change rate of price; E p is the price elasticity; E feed is the elasticity of feed price.

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Environmental effects △ P it =(p it -p i,t-1 )/p it P it= p it ’ +C i (E) P it ’ is the market price C i (E) is the environmental cost

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Trade Model Q export i,t = Q export i,t-1 (1+(% △ P export i,t E export i +% △ q cons i,t E cons i ) Q import i,t is the import of product i in the period t; % △ P import i,t is the percent change of import price of product i period t ； E import I is the elasticity of import price of product i ； Q export i,t is the export of product i in period t; % △ P export i,t is the percentage change of export price of product i in period t ； E export I is the elasticity of export price of product i ； % △ q cons i,t is the percentage change of consumption of product i in period t; E cons I is the elasticity of consumption price of product i.

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Equilibrium Model Q import i,t + Q production i,t + Q bstock i,t = Q export i,t + Q consumption i,t + Q estock i,t Q production i,t is the domestic production of product i ； Q bstock i,t is the beginning stocks of product i ； Q consumption i,t is the consumption of product i in period t ； Q estock i,t is the ending stocks of product

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Simulation Scenarios Baseline: simulates the future development of China's dairy industry if the current policy remains unchanged. WTO: simulate the development prospect of China's dairy industry based on China's WTO commitment on agricultural. Environment: simulate the development prospect of China's dairy industry based on China's WTO commitment on agricultural taking into environmental cost into account.

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Interests of Study Calculating producer and consumer welfare under WTO and Environment scenario Using updated price, calculate A_DRC and A_NSP

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