2120 final report.pdf - Agra CEAS Consulting

APPENDIX 2: THIRD COUNTRIESsmaller demand elasticity for eggs yields lower producer surplus and increased consumer surplus.These findings support the observation that the overall benefits of research are a function of the shiftin supply, but that the distribution depends on the relative magnitude of demand and supplyelasticities.In a study of the California egg industry, Kinnucan (1999) employs domestic supply elasticities of 0,0.2 and 0.942 to capture different time horizons. For demand, elasticity values of 0.15 and 0.33where used. Also, because he examines issues of trade, import supply elasticities are employed andthese range between 3, 6 and 12.A3.2. Economic specification of the EDMIt needs to be acknowledged at the outset of this research that any model is subject to generallimitations because by design it is an abstraction of reality and modelling does not provide a panacea.The work of van Horne and Bondt (2002) is a good example in that highly aggregated analysis formsthe basis of sector specific observations regarding the egg industry. The model developed andemployed in this research is also an abstraction from reality, but it does model egg production morespecifically and in far greater detail and as a consequence its results are explicitly sector specific.Before the model structure is set out it is necessary to detail the egg industry structure. The eggindustry is relatively complex in all countries that are examined in this project, both in terms of eggproduction and egg consumption. There are a number of markedly different egg production systemsand egg demand represents a very good example of a differentiated product.The key policy issue that motivates this research is the removal of the traditional cage by 2012 andits replacement with enriched cages and/or alternative production systems. Enriched cages providemore space for the birds as well as allowing the bird to lay its eggs in a nest. In addition the birdshave a perch and can scratch and peck litter. Although there are some concerns expressed aboutthe animal welfare benefits of cages (for example, this has led to Germany announcing that it will banall forms of cage by 2012), it is likely that the enriched cage provides a compromise between theremoval of all cages and the exclusive use of alternative systems, i.e. barn and free range. Indeed,some research points to the possibility that enriched cages may well be the animal welfaremaximising production system (Farm Animal Welfare Council, 1997).As a result, the model developed here focuses on the production of eggs (shell caged, shellalternative and processed) and the likely impact of a range of policy scenarios manifested in priceincreases. The differentiation between caged shell, alternative shell and processed production andthe resulting demand for these products is a key feature of the sector as the relationship betweenthese types of eggs as a result of the introduction of the Directive is important.The model also includes trade in caged shell and processed eggs. The increasing importance of theinternational trade in eggs is apparent from a cursory examination of egg trade data (e.g., Gillin, 2003,EU and Defra statistics various). For example, in the UK in 1980 almost 100% of egg supply came402