2120 final report.pdf - Agra CEAS Consulting

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APPENDIX 2: THIRD COUNTRIES(10*) EQ ta = λ Sa ES a – λ Qa EQ a(11*) EQ ta = e a (EP ta -n ta )(12*) EP ta = e ta (αEP a + τ ta )(13*) ES c = -(γ Sp β (Sc, Sp) + γ Sa β (Sc, Sa) )EP c + γ Sp β (Sc, Sp) EP p + γ Sa β (Sc, Sa) EP a + EX(14*) ES p = γ Sc β (Sc, Sp) EP c - (γ Sc β (Sc, Sp) + γ Sa β (Sp, Sa) )EP p + γ Sa β (Sp, Sa) EP a + EX(15*) ES a = γ Sc β (Sc, Sa) EP c + γ Sp β (Sp, Sa) EP p - (γ Sc β (Sc, Sa) + γ Sp β (Sp, Sa) )EP a + EX(16*) κ X1 EX 1 + κ X2 EX 2 + κ X3 EX 3 = γ Sc ES c + γ Sp ES p + γ Sa ES a(17*) κ X1 EW 1 + κ X2 EW 2 + κ X3 EW 3 = γ Sc EP c + γ Sp EP p + γ Sa EP a(18*) EX 1 = -( κ X2 12 + κ X3 13 )EW 1 + κ X2 12 EW 2 + κ X3 13 EW 3 + ES(19*) EX 2 = κ X1 12 EW 1 – (κ X1 12 + κ X3 23 )EW 2 + κ X3 23 EW 3 + ES(20*) EX 3 = κ X1 13 EW 1 + κ X2 23 EW 2 - (κ X1 13 + κ X2 23 )EW 3 + ES(21*) EX 1 = 1 (EW 1 – t X1 )(22*) EX 2 = 2 (EW 2 – t X2 )(23*) EX 3 = 3 (EW 3 – t X3 )whereλ Si = S i /(S i +Q i )andλ Qi = Q i /(S i +Q i )and these are the relative share of domestic demand and supply for caged shell, processed eggs andalternative shell (i=c,p,a).The structural model (1*-23*) assumes equilibrium in all markets simultaneously. To solve the abovesystem of equations we re-express all equations by placing exogenous variables on the left hand side.To examine shocks (e.g., policy impacts) to the system we set an exogenous variable equal to a valuegreater or less than zero.A3.3. Data, parameters and elasticitiesTo solve the EDM (1*)-(23*) we require three sets of information:1. base equilibrium prices and quantities for all sectors and markets;2. market parameters that describe producer and consumer responses to any price change; and,3. the value of exogenous variables that quantity the shocks (the policy experiments in this case).408A3.3.1. Base equilibrium price and quantity valuesTo construct our base equilibrium prices and quantities we require annual data on prices andquantities (and total value) if possible over a given time period at all production and consumptionstages. Also, we require cost and revenue shares for the egg production sector. Where possible we
APPENDIX 2: THIRD COUNTRIEShave employed data averaged over a number of years so that we can be sure to avoidunrepresentative years biasing our results.A3.3.2. Egg production input costsOn the cost of inputs into the production of eggs use has been made of official EU egg industry dataand that produced in Stage 1 of this research project. From these information sources the total costof egg production for all types of eggs has been estimated. To do this we have it is assumed that eggproduction is based on three main inputs: feed, labour and other. Other captures a myriad ofactivities and costs associated with egg production (principally bird depreciation and building andequipment depreciation) that when taken together contribute a significant part of overall costs ofproduction. Based on this information we have assumed that feed accounts for 50% of costs ofproduction, labour 10% and other 40%.To be able to gauge the plausibility of the cost estimates (relative shares) we know from theProductivity Commission (1998) that in Australia for caged egg production feed costs represent 51%of variable costs, labour 5% and other 44%. We have also compared this data with informationavailable on UK egg production and published in Nix (2003). Nix indicates that feed costs areroughly 5 times greater than labour costs.A3.3.3. Market demandTo assess the total revenue from egg sales (for all types) and the share in revenue for each typeofficial EU egg statistics and information generated in Stage 1 of the project have been used. Giventhat both EU-15 and EU-25 egg production and consumption is being modelled we have madeadjustments to the share in total industry review for each type of egg. That is, in the EU-25 a lowershare of revenue is generated by alternative shell egg production because of the predominance of thetraditional cage systems in the new Member States.A3.3.4. Model elasticitiesThis section provides a discussion of the choice of various elasticities used in the model. A summaryof the elasticity estimates employed is provided in Table A3.1.409
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