Asian Rice Market Model under Climate Change(Regional Rice Initiative)

Tatsuji KOIZUMI, Ph.DClimate, Energy and Tenure Division(NRC), FAO

18 February 2013

- Regional Rice Initiative pilot project is designed within the framework of new strategic objective 2 of FAO.

- The project has a total budget of US$ 1 million and will deliver all its outputs by 31 December 2013. Furthermore, this project has been developed in full collaboration between HQ and RAP and will contribute important elements to the preparation of the Rice Strategy for Asia being developed by RAP in response to the recommendation of the 31st Session of the FAO Regional Conference for Asia and the Pacific (APRC).

Strategic objective 2 (SO2), Regional Rice Initiatives-Pilot Project

- The initial project results will be presented at a side event to be held during the 147th Session of the FAO Council (June 2013) in collaboration with partners including the CGIAR.

- A regional workshop will be held in Bangkok in November 2013 to discuss and mainstream the outcomes of this project into the Regional Priority Framework for Asia, which is being updated to reflect emerging issues in the region.

The project will provide outputs in four components:

Component 1 – Water and rice/fish systemsComponent 2 – Biodiversity, landscape, and ecosystem servicesComponent 3 – Management practicesComponent 4 – Social, economic and policy - cross-cutting issues

Recipient countries: Regional-Indonesia-Lao PDR-Philippines Focal points in FAO: RAP-AG-NR-FI-FO

Target beneficiaries: Governments, International Agencies, Regional and National Institutions, Farmer Communities

Work plan, activities, budgets and responsible officers are summarized in Annexes I and II.

Total budget: 1 million US dollars

Timeframe: 1 January - 31 December 2013

Activity 1.2 Develop a modeling framework for a regional econometric simulation of rice markets under climate change in the Asia region.

Activity 2.2 Conduct policy simulation to alleviate climate risks of rice production systems and rice markets.

For activities 1.2 and 2.2, a national econometric model (partial equilibrium model), linked with downscaled climate projections, crop growth simulation and hydrological model, has been developed for the Philippines under AMICAF.

Activity 1.2 and 2.2 of Component 4

• This national model will be embedded in a new ASEAN regional econometric model (partial equilibrium model) for assessing impacts of climate change on rice market and simulating policy scenarios.

• Capacities of the countries to make assessments and to use the information (assessments and policy simulation) will be built through workshops.

- For Activities 1.2 and 2.2, NEDA (National Economic and Development Authority) will run policy simulation for the Philippines rice market.

- PRIMAFF(Policy Research Institute, Ministry of Agriculture, Japan), and JIRCAS (Japan International Research Center) will provide technical advice for ASEAN model; EST-FAO and RAP will review policy variables and policy simulation.

The concept of rice regional model (Draft)AMICAF

MOSAICC

Regional Rice Markets (National level)

Downscaled Climate Projection Model

Crop Yield Projection

model

Hydrological Model

Provincial Agricultural Market Model (PAM)

Provincial agricultural markets (79 provinces and 2 Cities)

The Phillipines Market

Other ASEAN rice markets (Thailand, Vietnam, Indonesia

and Malaysia)

Other Rice markets in Asia (China, Japan, South Korea,

India, Pakistan)

Other Rice markets (USA, Brazil, EU27 and others)

International Rice Price(Market Equilibrium

Price)

World Agriculal commodities (except for

rice) , Livestock and Fisheries market projection (From

AGLINK-COSIMO)

Climate change impacts on rice yields

and national economies with

climate downscaling in Lao PDR (RAP)

Policy Variables

Projection of International rice price volatility impacted from

climate change

Lao PDR Market

- The rice market in the Philippines; AMICAF PAM model

- The rice market in Lao PDR and Thailand (Tiger) ; RAP (If possible)

- World rice model (ASEAN model (FAO Project for Food and

Agriculture Market Projection Model Development (GCP/INT/895/JPN) /IFPSIM(International Food Policy Simulation Model))

Model selection

AMICAF Project Overview

• Assessments of Climate Change Impacts and Mapping of Vulnerability to Food Insecurity under Climate Change to Strengthen Household Food Security with Livelihoods’ Adaptation Approaches (AMICAF)

• Total Approved Budget: US$ 2.5 million• Project operation: October 2011-September 2014• Participating countries: The Philippines and Peru.

Objectives

• To assist developing countries to address climate change assessment and adaptation, to improve food security through a comprehensive framework.

• This framework would bridge climate change impact assessment, food Insecurity vulnerability analysis and livelihood adaptation approaches.

AMICAF Framework: Addressing the Linkage Between Climate Change and Food Security

Impacts of Climate Change on Agriculture

(Step1)

Food Insecurity Vulnerability Analysis

at household level (Step2)

Livelihood Adaptation to Climate Change

(Step3)

Institutional Analysis and Awareness Raising (Step4)

Global Guideline for Implementation in other

countries (Global delivery)

Step 1 Impacts of climate change on agriculture

• MOSAICC – Modeling System for Agricultural Impacts of Climate Change

• Multiple impact models (Climate downscaling, Crops, Hydrology, Economy) in one package

• Software plus training• Newly developed Partial Equilibrium Agricultural Market

Model, named PAM (Provincial Agricultural Model), is used in addition to MOSAICC’s climate downscaling, crop and hydrology modules.

MOSAICC with Agricultural Market Model

Climate projections

downscalingHistorical weatherrecords

Downscaled Climate

projections

Hydrological Model

Crop growth Simulation

IPCC GCMLow resolution

projections

Historical dischargerecords

Water availability

for irrigation

Historical water usestatistics

Historical yield

records

Yield projections

Crop parameters

Soil data

Technology trend

scenarios

Soil and Land use

data

Dam data

Provincial Agricultural Market Impact Step2 (Food Insecurity Vulnerability Analysis)

Provincial Agricultural Model (PAM)

Export Import

Consumption Ending stocks

Production

Per capita GDP

Market Equilibrium Price of each commodity

Market Equilibrium Price of each commodity

Production, Provincial level

Area harvested, Provincial level

Agricultural land use, Provincial level

Yield

Area Harvested

Policy Instrument

(Step4)Water Availability

Crop Model (MOSAICC)

International market prices

Hydrology Model(MOSAICC)

Food Security, National, Regional and Provincial level (Step2)

Provincial Agricultural Model (PAM)

Retail price, Provincial level

Purpose of PAM

- Link with step1 and step2

- Analysis of how future climate change will impact on agricultural markets at provincial levels.

- Capacity building (Simple model)

- Baseline projection (No policy variables)

- Policy analysis (Step 4)

Overview of PAM (Provincial Agricultural Market Model)

- Partial Equilibrium Model

- Commodity coverage: irrigated rice, rainfed rice and maize

- Provincial coverage: 79 provinces and 2 cities

- The base year is 2010

- Projection to the year of 2030 (Maximum)

AMICAF 2013 Work Plan (Draft)

- March 2013: Link with Hydrology and Crop model and mid-term report

- March / April 2013: Final workshop for step 1

- May 2013: Final report

- June 2013: Workshop step 4 - June 2013: APEC ATCWG

Beyond AMICAF Framework

- In the current PAM model, yield is an exogenous variable from the crop model.

- The current PAM model also uses information from hydrological model. The PAM model is designed in this way to meet the objectives of the AMICAF project.

- In most of the existing econometric models, however, yield is an endogenous variable, which depends on technological growth ratios or weather variables.

- It will also be possible to revise the PAM model with yields as endogenous variables outside the AMICAF framework.

-Policy Research Institute, the Ministry of Agriculture, Forestry and Fisheries, Japan annually releases world food and agricultural demand projections.

-This econometric model for supply-and-demand projections on agricultural products was redeveloped by drastically reviewing equations and various parameters in the model.

World Food Supply and Demand Projections to 2021

Regions Breakdowns (names of countries/areas)

North America U.S., Canada

Latin America Argentina, Brazil, Mexico and other Latin American countries

Oceania Australia, New Zealand

Asia Japan, China, South Korea, Thailand, Vietnam, India, Indonesia, Pakistan, Bangladesh, Malaysia, Philippines, Taiwan, other Asian countries

Middle East Middle east countries

Europe EU (27 countries), Russia, Ukraine, other European countries

Africa South Africa Republic, Nigeria, North African countries, other sub-Saharan African countries

Rest of the world Other countries / areas

Total 31 countries / areas

Coverage of countries and regions in the model

Figure 1 Projections of international field crop prices(Solid lines for nominal prices; dotted lines for real prices)

0

100

200

300

400

500

600

700

800

900

1000

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Soybeans

MaizeWheat

Rice

Dollars/ton

Note: 1. Prices are actual figures for 2001–2011 and are estimated for 2012–2021. 2. Both real prices in the past and estimated nominal prices in the future are calculated, setting 2009 as the base year (three-year averages of 2008–2010) and using consumer price index (CPI) in U.S. for wheat, maize, and soy beans and CPI in Thailand for rice (all CPIs prepared by IMF). Please note that the future nominal prices of rice are calculated with CPI in Thailand, which is experiencing rapid economic growth, and deviation of the nominal price from the real price for rice is therefore larger than ones for soy beans, wheat, and maize for which U.S. CPI is used.

Projection of international field crop prices

Population Current livestock production

Food demand

Industrial, etc. demand

Feed demand (incl. DDG)

Consumer price (own commodities); Consumer price (other commodities)

Supply of own commodities

Intermediate price

Demand for own commodities (Price)

International price setting

Imports

Exports

Net imports/ exports

Increase/ decrease in stocks

Trade volume (International prices have been such that global exports = global imports)

Production of own commodities

Yield Growing harvested area

Exogenous variables

Intermediate price

Producer price (own commodities)

Growing harvested area in next period (Next

period) Endogenous variables

Flow tied to convergence calculations Flow free of convergence calculations

Flow lagged for the preceding period

International price

Demand for biofuels

Energy Prices

Net return of Biofuel production

Note: Biofuels demands are applied to maize, soybean oil and other vegetable oils.

Flowchart of the world food supply and demand projection model

Key Consideration

- Linkage between national level and provincial level (the Philippines)

- Policy simulation and evaluation

- Linkage between PAM and world rice model.

Work Plan (2013)

- Coordination meeting with RAP and PRIMAFF (March 2013)

- Workshop for AMICAF project (April 2013)

- Workshop for policy simulations (June 2013) - Baseline projection for world rice model (June 2013).

- Policy simulation (Sep 2013).

- Technical report (Sep 2013) .

- Regional workshop (Nov 2013).

Questions/commntes for; Tatsuji koizumi, Ph.D. Tatsuji.Koizumi@fao.org