2120 final report.pdf - Agra CEAS Consulting

APPENDIX 2: THIRD COUNTRIESevaluate the policy scenarios of interest are derived. Finally, Sections A3.5 and A3.6 containreferences cited in this Appendix and an extensive sensitivity analysis, respectively.A3.1. Literature reviewThere is a limited literature that has previously modelled or econometrically examined eggproduction and/or marketing. Much of the recent research has been motivated by actual or proposedchanges in animal welfare legislation (Babcock, et al., 2002, and McInerney, 2004). A large proportionof this literature has been concerned with consumer reaction to changes in production systems andthe resulting impact on egg prices (e.g., Pesaran and Samiei, 1991, and Bennett and Blaney, 2003).There are only a few papers in the literature that are directly of relevance to the research presentedhere and very few have a European focus.A recent paper in the literature is that of van Horne and Bondt (2002). This research contains aprevious analysis of Directive 1999/74/EC. This paper provides descriptive information of the EU eggsector that is relevant to the research presented here. However, a significant weakness of thisresearch is that it does not model the egg sector specifically. A Computable General Equilibrium(CGE) model is employed. But, when an industry is small relative to the rest of the economy, suchas the egg industry, and the commodities in question have few close substitutes in production orconsumption then an EDM is more appropriate. Furthermore, many CGE models are highlyaggregated in nature and as such they do not provide the richness of detail that an EDM canincorporate and as result the breadth of industry specific results. This point in neatly borne out bythe work of van Horne and Bondt (2002) who employ the GTAP GCE model to consider the eggDirective. The GGTAP database not only aggregates many countries into regions, ignoring theimportance of intra-regional trade, but also it does not model eggs as a separate production activity.Instead eggs are subsumed into intensive livestock along with pigs and poultry. Also, eggs are notdisaggregated to include shell eggs from alternative production. Thus, this CGE model lacks asufficient degree of industry disaggregation to capture the egg sector adequately. As a result we canonly consider the results to be a very rough guide to the magnitude to the changes that we mightexpect to see as a result of the Directive. Another criticism of van Horne and Bondt (2002) is thatthe authors do not detail the key elasticities they have employed in their model and the impact of theelasticity estimates on the results presented.Outside Europe, the Australian egg industry has also been the subject of potential changes inproduction methods as a result of animal welfare concerns. For example, the ProductivityCommission (1998) considered how changes in production would affect egg consumption andproduction in the ACT. This research built on earlier work that examined this issue. Employing adynamic simulation model the Productivity Commission produced estimates of the impact onconsumers and producers. A potential limitation of this research is that it assumed that the supply ofeggs is perfectly elastic. This assumption has been challenged by Trewin (2002) who examined theeconomic impact of the introduction of more stringent animal welfare legislation in Australia. Thispaper provides a useful discussion of the many of the economic consequences of the policy change.It also estimates changes in consumer and producer surplus. Although the methods employed in this400