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The economic model in the
ELPEN systemPetra Jägersberg,
Martin van der Beek, Peter Hinrichs
Progress December 2002 to February 2003
• Technical validation of the economic model
• Scenario studies (milk quota exit) with typical farms
3-step approach
• Step 1: Check of input data
• Step 2: Model calculation and check of result data
• Step 3: Check of calculation rules
Check of input data
• Step 1: Test set with all input variables (244) for a selection of 10 model farms
• Step 2: Plausibility check of input variables• Step 3: Check of calculation rules for internal
calculated input variables, check of missing values, check of units, etc.
• Step 4: Improvements in first configuration of Economic model in the Elpen system
Check of result data
• Step 1: FADN variables contain logical values
• Step 2: Calculate with the test data set for Austria in the model
• Step 3: Compare the results of the test data set calculated within the Elpen system and of the test data set calculated with the original Excel model
Check of calculation rules
• Step 1: Identify differences in results• Step 2: Check if calculation rules are plausible• Step 3: Corrections in the configuration of the
calculation rules in the Elpen system• Step 4: Confirm identical results for the test data
set inside and outside the Elpen system• Technical validation is finalised
Further work• Vulnerable farms
– Farm groups (averages) & single farm data sets• Knowledge rules on income, liquidity, and farm
development
• Behavioral model– with regard to scenario studies from LP model
analysis (FAL, INRA) and typical farms (IFCN panel farms)
• Knowledge rules on farmers´ behavior• Projected impacts on incomes, production and regional
markets
Vulnerability
• Definition: – as given in Brussels, June 2001
• Criteria – Short-term: Available cash – Long-term: Rentability (incl. accounting the
opportunity costs of family-owned factors)
• Problem: Results were not convincing in too many cases.
Vulnerability - Problems• Country- and year-specific subsidies (A, SF)• Country-specific bookkeeping rules and practice,
Examples:– Family labour in Italy,
– Forestry output in Sweden,
– Revaluation of assets (Italy),
– Different beginning and end of acconting period, accessing different phases of price cycles,
– Neglecting the quota costs in many countries.
• Severe data errors in single-farm data sets.
Vulnerability – Problems (cont.)
Steps taken to overcome the problems:• Direct assessment of milk production costs versus
milk prices (Goertz/Jaegersberg-approach),• Plausi-checking milk quantities and prices, removing
inconsistent farm groups,• Confine vulnerability problems to dairy farms (EU-
type 41 or similarly defined) and/or to groups with meaningful amount of milk production.
Farmers’ reactions to policy actions
• Policy effect in view: Reduction of milk price. • Rules of Farmers’ behavior derived from
– Economic theory, expert judgements,– Simulation models, and– Statistical analyses on past developments.
verbal (not quantitative) rules at the moment.– Quota costs go down (<)1 : 1,– Specialist dairy farms will expand, mixed farms will go out,– High opportunity costs (on- and off-farm) favour outgoing,– Recent investments in buildings object to giving-up.
Further work
The prices of the limiting factors determine the rentability,
and decide on growth or exit from production
Ges
Successful farms would like to
increase production
Average farms trying to grow in order to keep their position
Less successful farmstend to give up milk production
Costs
Farms
Further work-scenario studies
0
100.000
200.000
300.000
400.000
500.000
600.000
700.000
TIPI-CALAgenda 2000 (opt)QA 2008 + MP (-22%)Quote 2008 + MP (-22%)0000TIPI-CALQuote 2008 + MP (-22%)QA 2008 + MP (-30%)QA 2008 + GP (-22%)QA 2008 + MGP (-22%)0000
D-650 cows
Profit € per farm
0
10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
90.000
TIPI-CALAgenda 2000 (opt)QA 2008 + MP (-22%)Quote 2008 + MP (-22%)QA 2008 + MP (-30%)QA 2008 + GP (-22%)QA 2008 + MGP (-22%)00000
D-68 cows
0
5.000
10.000
15.000
20.000
25.000
30.000
35.000
TIPI-CALAgenda 2000 (opt)QA 2008 + MP (-22%)Quote 2008 + MP (-22%)QA 2008 + MP (-30%)QA 2008 + GP (-22%)QA 2008 + MGP (-22%)0000
D-35 cows
Further work
• Threshold of production = short-term needed milk price
• Variable costs - by product sales
• Cash threshold (Liquidity threshold) medium-term needed milk price
• Threshold of production + fixed expenses + family living
• Threshold of profit = long-term needed milk price• Full costs of production (incl. depreciation and
opportunity costs on family-owned land, capital and labour) - by product sales
Further work
• Cash flow indicator: – Development of networth = profit + depreciation -
family consumption• Family consumption ?
= Consumption + private assurances + share for retired farmer - non-farm income