Global Futures & Strategic Foresight (GFSF) program enhances and uses a coordinated suite of biophysical and socioeconomic models to assess potential returns to investments in new agricultural technologies and policies. These models include IFPRI’s International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT), hydrology and water supply-demand models, and the DSSAT suite of process-based crop models.
The program also provides tools and trainings to scientists and policy makers to undertake similar assessments.
GFSF program is a Consultative Group on International Agricultural Research (CGIAR) program led by the International Food Policy Research Institute (IFPRI)
2. Models
• Models are logical constructs that represent
systems
• Models can:
– Simplify a complex system
– Provide insights to the inner workings of a system
• Models cannot explain everything
3. Model Vocabulary
• Agents: Actors within the system (consumers,
farmers, governments)
• Variables: Conditions defining the state of the
agents (income, farmland, technology)
– Exogenous Variables: Inputs to the model, defined by
the designer (population, income)
– Endogenous Variables: Outputs of the model (food
demand, commodity prices)
• Assumptions: Rules about interactions between
agents and variables (equilibrium, max climate
change yield reductions)
4. Economics
• Study of the allocation of scarce resources
• There are many allocation methods
• In Trade Theory the market is predominant
– A market is the process of negotiation between
buyers and sellers, which determines the prices
for goods and services
5. Economic Trade Models
• Many types of trade = Many trade models
• Defining Model Scope
– What is traded (general vs. partial equilibrium)
– Who are the agents (micro vs. macro)
– Market location (local, regional, global)
– Types of analysis (normative or positive)
• IMPACT’s scope:
– Partial equilibrium focused on Ag. Sector
– Macro Agents
– Global markets
– Both normative and positive analysis
6. Defining IMPACT: Agents
• 159 geopolitical regional governments
• Consumers are region level agents and are
defined as either urban or rural
• Farmers are FPU-level agents and are defined
by production technology (irrigated, rainfed,
etc.)
– FPUs (Food production units) are subnational
geospatial units
7. Defining IMPACT: Exogenous
Variables
• Socio-demographic change (Population, GDP)
• Consumer and producer preferences
(elasticities)
• Productivity and technology change (IPRs)
• Climate change and yield response
• Starting Point (base values) and time horizon
8. Defining IMPACT: Endogenous
Variables
• Agriculture Sector Projections for:
– Commodity Prices
– Commodity Production and Demand
– Crop Areas and Yields
– Food Availability
9. Defining IMPACT: Assumptions
• Equilibrium (supply=demand)
• Demand is a function of consumer preferences,
commodity prices, and budgetary constraints
• Supply is derived from area-yield functions and is
a function of existing land, crop prices, changes in
technology, and the availability and cost of inputs
• Suppliers are profit maximizers and consumers
are utility mazimizers
10. • The products and services
consumed at a given price
Explaining Demand
11. • The products and services
consumed at a given price
• Consumers face budgetary
constraints
Explaining Demand
Deriving the Demand Curve
QTea
QCoffee
QCoffee
PCoffee
12. • The products and services
consumed at a given price
• Consumers face budgetary
constraints
– Must make trade offs based on
preferences (elasticity)
Explaining Demand
Deriving the Demand Curve
QTea
QCoffee
QCoffee
PCoffee
Inelastic Demand Elastic Demand
Price
Quantity
Price
Quantity
13. Explaining Supply
• The products and services supplied at a given
price
Simplified Supply Curve
Price
Quantity
14. Explaining Supply
• The products and services supplied at a given
price
• Suppliers must determine how to best utilize
inputs for profit maximization.
Simplified Supply Curve
Price
Quantity
Maize
Wheat
15. Explaining Supply
• The products and services supplied at a given price
• Suppliers must determine how to best utilize inputs
for profit maximization.
– Production Possibility Frontier – Set of possible
outputs from available inputs and technology
Maize
Wheat
Maize
Wheat
Maize
Wheat
Better Wheat Fertilizers More Arable Land
16. Explaining the Market
• Markets are where consumers and producers
negotiate prices. Prices will fluctuate until
equilibrium is reached (supply=demand)
• Why assume equilibrium?
– What happens at price P2?Simplified Supply Curve
P
Q
S
D
P0
P2
P1
Q1 Q2Q0
- Consumers want Q1
- Producers produce Q2
- There is a surplus of Q2-
Q1
17. Explaining the Market
• Markets are where consumers and producers
negotiate prices. Prices will fluctuate until
equilibrium is reached (supply=demand)
• Why assume equilibrium?
– What happens at price P2?Simplified Supply Curve
P
Q
S
D
P0
P2
P1
Q1 Q2Q0
- Consumers want Q1
- Producers produce Q2
- There is a surplus of Q2-
Q1
- Producers will have to
lower prices to sell
excess production
18. Explaining the Market
• Markets are where consumers and producers
negotiate prices. Prices will fluctuate until
equilibrium is reached (supply=demand)
• Why assume equilibrium?
– What happens at price P2?Simplified Supply Curve
P
Q
S
D
P0
P2
P1
Q1 Q2Q0
- Consumers want Q1
- Producers produce Q2
- There is a surplus of Q2-
Q1
- Producers will have to
lower prices to sell
excess production
19. Explaining the Market
• Markets are where consumers and producers
negotiate prices. Prices will fluctuate until
equilibrium is reached (supply=demand)
• Why assume equilibrium?
– What happens at price P1?Simplified Supply Curve
P
Q
S
D
P0
P2
P1
Q1 Q2Q0
- Consumers want Q2
- Producers will produce
Q1
- There is now a shortage
Q2-Q1
20. Explaining the Market
• Markets are where consumers and producers
negotiate prices. Prices will fluctuate until
equilibrium is reached (supply=demand)
• Why assume equilibrium?
– What happens at price P1?Simplified Supply Curve
P
Q
S
D
P0
P2
P1
Q1 Q2Q0
- Consumers want Q2
- Producers will produce
Q1
- There is now a shortage
Q2-Q1
- Excess demand will
push prices up till
production meets
demand
21. Explaining the Market
• Markets are where consumers and producers
negotiate prices. Prices will fluctuate until
equilibrium is reached (supply=demand)
• Why assume equilibrium?
– What happens at price P1?Simplified Supply Curve
P
Q
S
D
P0
P2
P1
Q1 Q2Q0
- Consumers want Q2
- Producers will produce
Q1
- There is now a shortage
Q2-Q1
- Excess demand will
push prices up till
production meets
demand
22. Activity-Commodity Framework
• IMPACT 3 is a structural model
– Describes the production process in a reduce form
• Activities
– Represent production processes
• Farms, ranches,
processing plants
– Demand factors of
production
– Produce commodities
22
23. Activity-Commodity Framework
• Commodities are:
– Produced
– Traded
– Consumed
– Can be endogenous
or exogenous
• Maize has endogenous production and demand
• Oilseeds have endogenous production and both
endogenous and exogenous demand (biofuels)
• Fertilizers could be considered an exogenous
commodity
23
27. IMPACT Prices
• Prices are Endogenous
– Ensure Global Supply = Global Demand
• Each country has three markets:
– Farm gate
– National
– International
• Price wedges (marketing margins, taxes,
subsidies) between markets
27
28. • Prices that are paid by traders for activity outputs
– Price at farm or factory gate
• Equal to the sum of input costs of an activity and any ad
valorem producer subsidy (PSE)
– PSEs originally are from OECD sources and have been
adjusted and mapped to IMPACT countries and activities
28
Producer Prices
Producer
Price
• Price at Farm/Factory Gate
• 𝑃𝑃 = 1 + 𝑃𝑆𝐸 × 𝐼𝑛𝑝𝑢𝑡𝑠 𝑃𝐶
29. • Prices consumers pay in national markets for commodities
– Includes transportation costs, as well as taxes and tariffs
• Consumer Subsidies are targeted and applied in the demand
equations
29
Consumer Prices
Producer
Price
• Price at Farm/Factory Gate
• 𝑃𝑃 = 1 + 𝑃𝑆𝐸 × 𝐼𝑛𝑝𝑢𝑡𝑠 𝑃𝐶
Consumer
Price
• Commodity prices consumers face
Marketing
Margin
31. • Consumer prices are set to
either the country’s export
price or its import price
– 𝑃𝐶 = 𝑃𝑊 × (1 + 𝑡) × (1 +
𝑀𝑀)
• This switch allows commodities
to change from globally traded
to non-traded endogenously
31
Consumer Prices
To trade or
not to
trade?
32. • Commodities can be
globally traded or
non-traded
• This option can be
set exogenously
– E.g. sugar beets
• Or endogenously
through the
following
inequality
32
Tradability in IMPACT
P
C
Export
Price
Import
Price
𝑃𝐸
= 𝑃𝑊
× (1
𝑃𝑀
= 𝑃𝑊
× (1
< <P
E
P
M