Agricultural economy/Description

From IMAGE
Jump to: navigation, search
MAGNET- the agro-economic model in IMAGE 3.0
Flowchart Agricultural economy. See also the Input/Output Table on the introduction page.

Model description of Agricultural economy

The MAGNET model (Woltjer et al., 2011; Woltjer et al., 2014) is based on the standard GTAP model (Hertel, 1997), which is a multi-regional, static, applied computable general equilibrium (CGE) model based on neoclassical microeconomic theory. Although the model covers the entire economy, there is a special focus on agricultural sectors. It is a further development of GTAP regarding land use, household consumption, livestock, food, feed and energy crop production, and emission reduction from deforestation.

Demand and supply

Household demand for agricultural products is calculated based on changes in income, income elasticities, preference shift, price elasticities, cross-price elasticities, and the commodity prices arising from changes in the supply side. Demand and supply are balanced via prices to reach equilibrium. Income elasticities for agricultural commodities are consistent with FAO estimates (Britz, 2003), and dynamically depend on purchasing power parity (PPP) corrected GDP per capita. The supply of all commodities is modelled by an input–output structure that explicitly links the production of goods and services for final consumption via different processing stages back to primary products (crops and livestock products) and resources. At each production level, input of labour, capital, and intermediate input or resources (e.g., land) can be substituted for one another. For example, labour, capital and land are input factors in crop production, and substitution of these production factors is driven by changes in their relative prices. If the price of one input factor increases, it is substituted by other factors, following the price elasticity of substitution.

Regional aggregation and trade

MAGNET is flexible in its regional aggregation (129 regions). In linking with IMAGE, MAGNET distinguishes individual European countries and 22 large world regions, closely matching the regions in IMAGE (Figure IMAGE regions). Similar to most other CGE models, MAGNET assumes that products traded internationally are differentiated according to country of origin. Thus, domestic and foreign products are not identical, but are imperfect substitutes (Armington assumption; Armington, 1969).

Land use

In addition to the standard GTAP model, MAGNET includes a dynamic land-supply function (Van Meijl et al., 2006) that accounts for the availability and suitability of land for agricultural use, based on information from IMAGE (see below). A nested land-use structure accounts for the differences in substitutability of the various types of land use (Huang et al., 2004; Van Meijl et al., 2006). In addition, MAGNET includes international and EU agricultural policies, such as production quota and export/import tariffs (Helming et al., 2010).

Biofuel crops

MAGNET includes ethanol and biodiesel as first-generation biofuels made from wheat, sugar cane, maize, and oilseeds (Banse et al., 2008) and the use of by-products (DDGS, oilcakes) from biofuel production in the livestock sector.

Livestock

MAGNET distinguishes the livestock commodities of beef and other ruminant meats, dairy cattle (grass- and crop-fed), and a category of other animals (e.g., chickens and pigs) that are primarily crop fed. Modelling the livestock sector includes different feedstuffs, such as feed crops, co-products from biofuels (oil cakes from rapeseed-based biofuel, or distillers grain from wheat-based biofuels), and grass (Woltjer, 2011). Grass may be substituted by feed from crops for ruminants.

Land supply

In MAGNET, land supply is calculated using a land-supply curve that relates the area in use for agriculture to the land price. Total land supply includes all land that is potentially available for agriculture, where crop production is possible under soil and climatic conditions, and where no other restrictions apply such as urban or protected area designations (see also Component Land-use allocation). In the IMAGE model, total land supply for each region is obtained from potential crop productivity and land availability on a resolution of 5x5 arcminutes. The supply curve depends on total land supply, current agricultural area, current land price, and estimated price elasticity of land supply in the starting year. Recently, the earlier land supply curve (Eickhout et al., 2009) has been updated with a more detailed assessment of land resources and total land supply in IMAGE (Mandryk et al., 2015), and with literature data on current price elasticities. Regions differ with regard to the proportion of land in use, and with regard to change in land prices in relation to changes in agricultural land use. In regions where most of the area suitable for agriculture is in use, the price elasticity of land supply is small, with little expansion occurring at high price changes. In contrast, in regions with a large reserve of suitable agricultural land, such as Sub-Saharan Africa and some regions in South America, the price elasticity of land supply is larger, with expansion of agricultural land occurring at smaller price changes.

Reduced land availability

By restricting land supply in IMAGE and MAGNET, the models can assess scenarios with additional protected areas, or reduced emissions from deforestation and forest degradation (REDD). These areas are excluded from the land supply curve in MAGNET, leading to lower elasticities, less land-use change and higher prices, and are also excluded from the allocation of agricultural land in IMAGE (e.g., Overmars et al., 2014).

Intensification of crop and pasture production

Crop and pasture yields in MAGNET may change as a result of the following four processes:

  1. autonomous technological change (external scenario assumption);
  2. intensification due to the substitution of production factors (endogenous);
  3. climate change (from IMAGE);
  4. change in agricultural area affecting crop yields (such as, decreasing average yields due to expansion into less suitable regions; from IMAGE).

Biophysical yield effects due to climate and area changes are calculated by the IMAGE crop model and communicated to MAGNET. Likewise, also the potential yields and thus the yield gap can be assessed with the crop model in IMAGE. External assumptions on autonomous technological changes are mostly based on FAO projections (Alexandratos and Bruinsma, 2012), which describe per region and commodity, the assumed future changes in yields for a wide range of crop types. In MAGNET, the biophysical yield changes are combined with the autonomous technological change to give the total exogenous yield change. In addition, during the simulation period, MAGNET calculates an endogenous intensification as a result of price-driven substitution between labour, land and capital. In IMAGE, regional yield changes due to autonomous technological change and endogenous intensification according to MAGNET are used in the spatially explicit allocation of land use (Component Land-use allocation).