Economic outlook, analysis and forecasts

OECD Economic Studies No. 13, Winter 1989-1990


Modelling the effects of agricultural policies


Estimation of agricultural assistance using producer and consumer subsidy equivalents (PSEs/CSEs): Theory and practice

Carmel Cahill and Wilfrid Legg

Producer and Consumer Subsidy Equivalents (PSEs/CSEs) are the main indicators for measuring levels of agricultural assistance in OECD countries. This paper describes the concept and discusses the practical measurement of the PSE and CSE as applied in the OECD calculations. The PSE/CSE is one of several methods of measuring assistance which are briefly reviewed. The effects of changes in exchange rates and the treatment of supply controls are examined, as these are key issues in the interpretation and use of the results in monitoring agricultural policy reform and in trade negotiations. The paper concludes that the PSE/CSE is a useful tool for policy analysis and is constantly evolving to meet the needs of policy-makers.

The Ministerial Trade Mandate model

H. Bruce Huff and Catherine Moreddu

The MTM model is a medium-term, comparative-static, partial-equilibrium model of world agriculture, comprising eleven country models linked through trade. I t was constructed to evaluate the domestic and international market impact of a reduction in assistance to commodities, as measured by PSEs and CSEs. Recently, the model has examined these impacts on production inputs, net farm income, developing countries, and specific types of agricultural policies.

WALRAS - A multi-sector, multi-country applied general equilibrium model for quantifying the economy-wide effects of agricultural policies

Jean-Marc Burniaux, François Delorme, Ian Lienert and John P. Martin

This article provides the methodological background of the WALRAS model which has been developed by the OECD to quantify economy- and world-wide effects of agricultural policies in OECD countries. WALRAS is a multi-sector applied general equilibrium model in which the major OECD agricultural trading countries/regions are represented in a fully integrated world framework. The paper describes the structure of the model and discusses the main economic mechanisms at work with the help of diagrammatic representations. It also discusses the data and parameter values used to calibrate the model.

Quantifying agricultural policies in the WALRAS model

Ian Lienert

Agricultural policies in OECD countries are complex: they include price supports, income payments, trade barriers and domestic supply controls. This paper relies on the PSE/CSE data and other information to quantify various policy instruments for use in the WALRAS model. It finds that import taxes and export subsidies are particularly important in Japan and the EC, whereas subsidies for supporting domestic production are the main form of farm support in Canada and the United States.

Economy-wide effects of agricultural policies in OECD countries: Simulation results with WALRAS

John P. Martin, Jean-Marc Burniaux, François Delorme, Ian Lienert and Dominique van der Mensbrugghe

This paper reports the results of various scenarios with the OECD’s applied general equilibrium model, WALRAS. These quantify the long-run effects of agricultural policies in OECD countries on resource allocation between the agricultural and non-agricultural sectors, on factor returns, on trade volumes and prices, and on economic welfare. The results suggest that existing levels of farm support in OECD countries are costly, both to the OECD countries and to non-OECD countries. The paper also presents a range of policy-relevant simulations designed to highlight certain aspects of the current debate on agricultural reform.

How robust are WALRAS results?

Dominique van der Mensbrugghe, John P. Martin and Jean-Marc Burniaux

This paper aims to provide an assessment of the robustness of WALRAS simulation results. It does this by presenting the results of sensitivity analysis with respect to changes in both the specification of the model and the values of its key exogenous parameters. None of the three changes in model specification examined makes a major difference to the results. The analysis reveals that the import and export demand elasticities are the most crucial exogenous parameters in WALRAS. However, the presumption that agricultural liberalisation should lead to real income gains is shown to be very robust, even to wide variations in the trade elasticities.

Assessing the role of scale economies and imperfect competition in the context of agricultural trade liberalisation: A Canadian case study

François Delorme and Dominique van der Mensbrugghe

This paper describes a version of the WALRAS model which incorporates scale economies and imperfect competition. This model, referred to as WALRAS-SE, is calibrated to Canadian data. The paper first outlines the theoretical considerations involved, and describes how two alternative assumptions concerning the pricing behaviour of producers in imperfectly competitive markets were implemented in the model. WALRAS-SE is then used to assess the economy-wide effects of unilateral agricultural liberalisation using 1986-88 levels of support. Finally, the results shed light on the key interaction between the structure of support and the sectoral location of economies of scale.

The so-called "non-economic" objectives of agricultural support

L. Alan Winters

Agricultural support costs OECD countries 72 billions of U.S. dollars per year in lost income. It is frequently argued, however, that this is not waste, but is rather a fair price to pay for a number of "non-economic" objectives such as thriving rural communities and increased national food security. This paper analyses these objectives and their relationship with agricultural policy. It draws three conclusions: first, the so-called "non-economic" objectives are, in fact, economic; second, they are amenable to quantification and economic analysis; and, third, present forms of agricultural support may be inefficient means to achieve these objectives.