FAO CEA Lecture 1.1 Overviewnature.berkeley.edu/.../FAO_CEA_Lecture_1.1_Overview_PPT.pdf · 2013....

Lecture 1.1 Decision Support for FMD Risk

Management: Overview of Economywide Assessment Tools

David Roland-Holst, Sam Heft-Neal, and Anaspree Chaiwan UC Berkeley and Chiang Mai University

Training Workshop Economywide Assessment of High Impact Animal Disease

14-18 January 2013 InterContinental Hotel, Phnom Penh, Cambodia

Roland-Holst 2 14 January 2013

Contents

• Historical Context and Motivation • Assessment Issues • Assessment Methods


Asia and Livestock (Tropical livestock units per km2)


Expenditure on Meat (PPP$/sqkm)


Regional Demand Trends

• Because of joint densities of animal and human populations, Asia is becoming a global epicenter of animal disease risk.

• Meanwhile, Asian emerging markets are driving a dramatic acceleration of the livestock sector.

• This trend is part of an overall change in the fundamental narrative of regional food security.


The Asian Food Security Narrative is Changing: From Basic Needs to Sustainability


Global Agrifood Demand

Source: Authors' estimates.

BRIC agrifood demand rises six-fold in 25 years. Green revolution productivity trend.


Livestock as a Primary Driver of Trade and Growth Asia Pork and Poultry Production

Million metric tons

Source: USDA.


0

10

20

30

40

50

60

70

80

90

100

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

IndiaThailandBangladeshPakistanIndonesiaMalaysiaPhilippinesChina

All Asia Pork and Poultry

Million metric tons

Source: USDA.

Clearly, the impact of any imbalance in China’s meat economy will fall on the price system.


China Soy Demand

Source: USDA.


Trade: China’s Soy Tsunami

Source: USDA/ERS.

Net trade in soy products (Million MT)

In 2011, one country bought 42% of the world’s traded soy.


Demand-Driven Growth Opportunities in Asian AgriFood

• With 20 percent of population, 7 percent of world farmland, 5 percent of renewable fresh water, and the fastest growing middle class,

• China’s Agrifood balances are beginning exert enormous influence on global trade

•  If import trends continue, there will be significant opportunities to alleviate rural poverty at home and across the region.


Shares of Asian Livestock Product Imports

HiInc&Asia&16%&

PRC&78%&

India&2%&

OthSAsia&0%&

Thailand&2%&

Viet&Nam&0%&

Cambodia&0%&

Lao&PDR&0%&

Philippines&0%&

Rest&Asia&2%&

2030&

HiInc&Asia&45%&

PRC&43%&

India&2%&

OthSAsia&1%&

Thailand&4%& Viet&

Nam&1%&

Cambodia&0%& Lao&PDR&

0%&

Philippines&0%&

Rest&Asia&4%&

2005&

Source: Author estimates.

Who will produce this?

Total imports will rise 250-350%


What can happen? US Beef Exports, 1/2002-4/2005 Figure 3. Foreign Export Trends of U.S. during Jan.02 to Apr. 05 by State

0

10

20

30

40

50

60

70

80

90

0102 0202 0302 0402 0502 0602 0702 0802 0902 1002 1102 1202 0103 0203 0303 0403 0503 0603 0703 0803 0903 1003 1103 1203 0104 0204 0304 0404 0504 0604 0704 0804 0904 1004 1104 1204 0105 0205 0305 0405

MonthYear

Foreign Export($M)

WA

CONE

TX

KSCA

The BSE occurred at WA on Dec. 23, 2003

21


Globalization and Animal Disease Risk

• These trends obviously increase the importance of FMD risk, both in terms of § absolute scale – very rapid growth, and § risk pathways – trade

• The same characteristics, however, raise the economic reward for effective risk management.

• Both trends justify more determined investment in evidence based FMD policy.


Economywide Assessment

•  Traditionally, policy has focused on producer conditions/needs/costs.

•  In developing countries, many of these are rural smallholders with limited public voice.

•  An economywide assessment of FMD risk is needed to identify is fullest implications and the many stakeholder groups associated with them. §  Consumers §  Supply chain partners §  Allied institutions – public health, trade, finance,

etc.


Cattle sector impacts (2)

National economy impacts (4)

Livestock / ag. sector impacts (3)

Farm / household impacts (1)

Valu

e ch

ain

impa

cts

(4)

Glo

bal e

xter

nalit

ies

(6)

Nat

iona

l ext

erna

litie

s (5

)

What we want to capture: FMD Impact Pathways


Primary Characteristics

To adequately inform policy in this context, assessment tools must: 1. Have sufficient detail to identify leading

stakeholder groups. 2. Capture economic linkages between

groups to trace indirect impacts. 3.  Include a aggregate consistency

framework that identifies constraints and trade-offs.


Priorities for Economic Assessment

•  Damage/cost assessment § Reach beyond production systems § Capture economywide and international

spillovers § Expand stakeholder audience (private

and public) •  Economic policy – raise the status of

animal health policy in the larger context of economic development, poverty reduction, food security, etc.


Mellor Hypothesis : Why Agriculture Matters for Economywide Growth

1.  Increases in farm income and profitability, resulting in improved welfare of farmers and the rural poor

2.  Declining food prices, benefiting poor rural and urban consumers, including small farmers who might be net purchasers of food

3.  Lower urban cost of living/wages allow the industrial sector to reduce costs

4.  Increases in the domestic demand for industrial output 5.  Increasing competitiveness of both agricultural and

industrial exports, with positive impact on hard currency earnings

6.  Expansion of the domestic industrial sector, pulling “surplus” labor out of agriculture


Recommended Assessment Tools

• Social Accounting Matrix (SAM) Analysis – a static national economic impact assessment tool

• Computable General Equilibrium (CGE) Modeling – dynamic modeling of market interactions


SAM: A Tool for Economic Impact Assessment

• Economic activities have linkages, leading to a myriad of indirect effects that together often exceed direct effects

• Modern assessment tools strive to account for these “multiplier” effects to attain better understanding of longer-term, more inclusive stakeholder interests


Multi-Sectoral Development Analysis

•  Macro policy is important, but so are economic structure and economic interactions.

•  Indeed, linkages and indirect effects are often more important than the direct targets of policy.

•  To improve visibility for policy makers and make appropriate recommendations, we need to understand these interactions.


CGE Models

• CGE models extend the SAM framework to simulate market activity

• They highlight the role of prices and scarcity in determining the incidence of economic impacts

• Generally, both techniques are used, SAMs for indicative analysis and CGEs for more detailed long term planning


Advantages

• Explicit treatment of spillovers • Explicitly distributional – detailed

composition of output, employment, income, and demand

•  Linkage to a broad spectrum of other socio-economic issues – poverty, equity, fiscal policy, trade, rural-urban interaction, migration


Examples of CGE Applications

• Agricultural Policy • Trade policy • Tax policy • Environmental regulation and reform • Poverty and Inequality


Agricultural Policy •  The issue

§  What does agriculture contribute to the economy and what does the (domestic and international) economy contribute to agriculture

§  What are the detailed effects of agriculture policy? •  Why a CGE model?

§  Agriculture remains a dominant sector in China, the most important source of income for the poor, and will experience many transitions in the next generation

•  Key insights §  Agriculture can be a main driver for growth and

poverty alleviation, but the composition of this growth will be very complex

§  Big contrast with partial equilibrium analysis


Trade policy

• The issue § Effect of changes in tariffs and other forms

of industry assistance

• Why a CGE model? § Trade policy is the classic GE problem

• Key insights § For complex sectors like agriculture, it is a

rich story about how the benefits and costs of trade policy are distributed.


Tax policy

• The issue § Effect of replacing wholesale sales tax with

goods and services value added tax

• Why a CGE model? § Very complicated initial structure of taxes

• Key insights § Overall gains very small and § very sensitive to some key assumptions


Environmental regulation

•  The issue §  Effects of regulations such as:

o pollution o Resource (water, fisheries, forestry) policy

•  Why a CGE model? §  Still emerging in a live policy debate §  Energy and water, for example, key inputs to all

production processes •  Key insights

§  Environmental policies have many indirect effects


Poverty and Inequality

•  The issue §  What is the real composition of income and growth

effects? •  Why a CGE model?

§  Institutional detail is essential §  Relative incomes are determined by relative prices §  Constraints play a major role in incidence and distribution

•  Key insights §  Who are the winners and how can they be enlisted to

support policy? §  Who are the losers and how can they be compensated?


Data Requirements

• SAMs are built from extensive economic accounting data

• Usually available from official sources, but can be augmented by independent and more recent data when available

• CGEs require the same SAM data, in addition to information on resource use.


Capacity Requirements

•  Both methods are technical and best supported by professional staff with university level economics training

•  SAM §  Multiplier methods are relatively easy to implement

and interpret §  They are limited in scope, however, to relatively

simple comparative static scenarios •  CGE

§  Generally more complex technically §  Much wider scope for policy simulation and impact

assessment


Thank you!

FAO CEA Lecture 1.1 Overviewnature.berkeley.edu/.../FAO_CEA_Lecture_1.1_Overview_PPT.pdf · 2013....

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