Principles, structure and application of dynamic regional sector model of Finnish agriculture
MTT Economic Research
P.O. Box 3, FIN-00411 Helsinki, Finland
MTT Economic Research, Publications 98, 2001. 265 p.
This study presents a dynamic regional sector model for Finnish agriculture
(DREMFIA) to be used in evaluating the effects of different agricultural
policies on production and agricultural income in Finland. Recursive
programming has been used in simulating annual market reactions and economic
adjustments. A process of adjustments in dis-equilibrium is assumed. The
theoretical basis of the chosen modelling methodology is presented.
Two versions of the model were presented. The base model assumes exogenous
efficiency development, i.e. labour and capital inputs needed per hectare
and animal, in agriculture. Using the base model one may analyse the levels
of production and income at different levels of efficiency development.
The technology diffusion model used in the extended version models the
change in capital invested in alternative production techniques. The change
in capital is affected by the profitability of each technique, as well as
the relative spread of each technique, i.e. commonly used techniques are
more accessible to farmers.
It is found that Agenda 2000 results in larger grain areas and farm income
in medium term, but in lower milk and beef production volumes in the long
term compared to the base scenario. Also farm income will slightly decrease
due to the Agenda 2000 dairy reform starting at 2005. It is also found that
the long term effects of Agenda 2000 on milk production are larger if the
endogenous investments are taken into account in the analysis.
Agricultural sector model, policy analysis, Recursive Programming, technology diffusion, Armington assumption