1. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Sensitivity Analysis with the supply System of CAPRI - Wolfgang Britz and Torbjörn Jansson, IAP, Bonn - CAPRI Common Agricultural Policy Regional Impact

2. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Outline What is sensitivity analysis ? Relation to econometrics Problems An example

3. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna What is sensitivity analysis ? Systematic evaluation of model behavior Report and analyze changes in endogenous elements provoked by changes in exogenous element endogenous in CAPRI supply part: activity levels, yields, and feeding exogenous in supply part: prices, premiums, set-aside rates, quotas... and a whole range of parameters relating to the non-linear cost function, requirement constraints...

4. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Relation to econometrics Econometrics search “best fit” behavioral model ex post Normally, sensitivity tests of these parts not necessary, model behavior known e.g. from estimated elasticities Surprising effects possible if independent estimates are combined “the system is more than the parts” Programming models typically combine many assumptions/estimates => model behavior largely unknown

5. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Specific application to CAPRI A whole range of exogenous parameters Interesting from an application or policy point of view: how does the model react to changes in policy and market incentives ? (prices, premiums, quotas, set-aside rates...) what part(s) of the model determine(s) these changes => where to invest resources to improve model behavior

6. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Specific application to CAPRI Hence, two types of sensitivity tests: Reaction to parameters related to policy/market changed in simulations Question: is the reaction plausible ? 1 Reaction to parameters in the background fixed in simulations (e.g. assumptions used during feed distribution) Question: how does the assumption change the model behavior ? 2

7. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Application Automatic reports of elasticities Exogenous elements type 1: Prices of outputs, feeding stuff, young animals, nutrients Premiums per group (e.g. Grandes Cultures) Set-aside rate Quotas Exogenous elements type 2: Slopes of PMP for activities Slopes of PMP for feeding

8. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna An example: Denmark PMP slope as percent of standard value: # PMPACT PMPFDG --------------- 1 100 100 2 200 100 3 50 100 4 100 1000 5 100 10 Sensitivity analyses with 10% increases of - Output prices - Premium amounts - Quotas - Set-aside rates Reports of elasticity of - supply - land rent - quota rent = 325 iterations with supply part, ex-post simulations of 1998

9. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Results overview Own price supply elasticities are between 0 and 1 Area premiums influence land rents more than supply Reactions to changed quotas depend on quota rent Set-aside only matters if it is binding Slope of PMP for activities directly determines supply reaction Supply reaction is not sensitive to changes in slope of PMP for feeding

10. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Results for Denmark - Supply elasticities 1) Only prices are changed here. In calibration, an elasticity of 1 to revenues (sales plus premiums) is assumed. 2) Shadow values of restrictions depend on activity level (as shown in Wolfgangs presentation on estimation of crop supply elasticities). Why is not own price supply elasticity = 1 ?

11. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Results for Denmark - Effect of price change on land and quota rents

12. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Results for Denmark - Reactions to premium- and quota changes

13. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Results for Denmark - Effekt of changed PMP-parameters on supply elasticity Original PMP slope 2 x original PMP slope 1/2 x original PMP slope

14. CAPRI 3 rd CAP-STRAT Workshop, 24./25.03.2003, Bologna Problems In total about 1050 models: how to handle technically ? What to report and analyze ? Which results are accepted and which are not ?