CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Outline

• What is sensitivity analysis ?

• Relation to econometrics

• Problems

• An example

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

What is sensitivity analysis ?

• Systematic evaluation of model behavior

• Report and analyze changes in endogenous elementsprovoked by changes in exogenous element

• endogenous in CAPRI supply part: activity levels, yields, and feeding

• exogenous in supply part: prices, premiums, set-aside rates, quotas... and a whole range of parameters relating to the non-linear cost function, requirement constraints ...

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Relation to econometrics

• Econometrics search “best fit” behavioral model ex post

• Normally, sensitivity tests of these parts not necessary,model behavior known e.g. from estimated elasticities

• Surprising effects possibleif independent estimates are combined “the system is more than the parts”

• Programming models typicallycombine many assumptions/estimates=> model behavior largely unknown

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Specific application to CAPRI

• A whole range of exogenous parameters

• Interesting from an application or policy point of view:

• how does the model react to changesin policy and market incentives ?(prices, premiums, quotas, set-aside rates ...)

• what part(s) of the model determine(s) these changes=> where to invest resources to improve model behavior

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Specific application to CAPRI

• Hence, two types of sensitivity tests:

• Reaction to parameters related to policy/market<=> changed in simulations

• Question: is the reaction plausible ?

1

• Reaction to parameters in the background <=> fixed in simulations (e.g. assumptions used during feed distribution)

• Question: how does the assumption change the model behavior ?

2

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Application

• Automatic reports of elasticities%)10(

%)100(

exo

exo

levl

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i

i

• Exogenous elements type 1:

• Prices of outputs, feeding stuff, young animals, nutrients

• Premiums per group (e.g. Grandes Cultures)

• Set-aside rate

• Quotas

• Exogenous elements type 2:

• Slopes of PMP for activities

• Slopes of PMP for feeding

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

An example: Denmark

PMP slope as percentof standard value:# PMPACT PMPFDG ---------------1 100 1002 200 1003 50 1004 100 10005 100 10

Sensitivity analyseswith 10% increases of- Output prices- Premium amounts- Quotas- Set-aside rates

Reports of elasticity of- supply- land rent - quota rent= 325 iterations with supply part,

ex-post simulations of 1998

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Results overview

• Own price supply elasticities are between 0 and 1

• Area premiums influence land rents more than supply

• Reactions to changed quotas depend on quota rent

• Set-aside only matters if it is binding

• Slope of PMP for activities directly determines supply

reaction

• Supply reaction is not sensitive to changes in slope of

PMP for feeding

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Results for Denmark- Supply elasticities

SWHE RYEM BARL OATS OCER RAPE PULS POTASWHE 0.59 -0.01 -0.12 -0.01 -0.03 -0.01 -0.01RYEM -0.16 0.63 -0.15 -0.01 -0.01 -0.03 -0.02 -0.01BARL -0.16 -0.02 0.49 -0.01 -0.01 -0.03 -0.02 -0.01OATS -0.21 -0.02 -0.20 0.54 -0.01 -0.04 -0.02 -0.02OCER -0.15 -0.02 -0.14 -0.01 0.64 -0.03 -0.01 -0.01RAPE -0.18 -0.02 -0.17 -0.01 -0.01 0.36 -0.02 -0.01PULS -0.16 -0.02 -0.16 -0.01 -0.01 -0.03 0.50 -0.01POTA -0.04 -0.04 -0.01 0.93

1) Only prices are changed here. In calibration, an elasticity of 1 to revenues (sales plus premiums) is assumed.

2) Shadow values of restrictions depend on activity level(as shown in Wolfgangs presentation on estimation ofcrop supply elasticities).

Why is not own price supply elasticity = 1 ?

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Results for Denmark

SWHE RYEM BARL OATS OCER RAPE PULS POTAQMLK -0.36 -0.02 -0.29 -0.01 -0.02 -0.03 -0.02 -0.01LAND 0.51 0.06 0.49 0.02 0.02 0.11 0.05 0.04BSUG 0.03 0.03 0.01ASUG

- Effect of price change on land and quota rents

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Results for Denmark- Reactions to premium- and quota changes

DPGRCU QMILK QSUGB

SWHE -0.01 -0.08 -0.01RYEM -0.01 -0.10 -0.01BARL -0.01 -0.10 -0.01OATS -0.01 -0.13 -0.01OCER -0.01 -0.09 -0.01RAPE 0.25 -0.11 -0.01PULS 0.13 -0.10 -0.01POTA -0.09 -0.03 0.00QMLK -0.23 -7.74 -0.01LAND 1.00 0.32 0.03BSUG 0.06 0.02 -0.71ASUG 0.00 0.00 -0.49

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Results for Denmark- Effekt of changed PMP-parameters on supply elasticity

SWHE RYEM BARL OATS OCER RAPESWHE 0.59 -0.01 -0.12 -0.01 -0.03RYEM -0.16 0.63 -0.15 -0.01 -0.01 -0.03BARL -0.16 -0.02 0.49 -0.01 -0.01 -0.03OATS -0.21 -0.02 -0.20 0.54 -0.01 -0.04OCER -0.15 -0.02 -0.14 -0.01 0.64 -0.03RAPE -0.18 -0.02 -0.17 -0.01 -0.01 0.36

SWHE 0.29 -0.01 -0.06 -0.01RYEM -0.08 0.32 -0.07 -0.02BARL -0.08 -0.01 0.24 -0.02OATS -0.10 -0.01 -0.10 0.27 -0.02OCER -0.07 -0.01 -0.07 0.32 -0.02RAPE -0.09 -0.01 -0.09 0.18

SWHE 1.17 -0.03 -0.24 -0.01 -0.01 -0.05RYEM -0.31 1.27 -0.30 -0.01 -0.01 -0.07BARL -0.32 -0.04 0.97 -0.01 -0.01 -0.07OATS -0.41 -0.05 -0.40 1.09 -0.02 -0.09OCER -0.29 -0.03 -0.28 -0.01 1.27 -0.06RAPE -0.36 -0.04 -0.35 -0.01 -0.02 0.72

Original PMP slope

2 x original PMP slope

1/2 x original PMP slope

CAPRI CAPRI

3rd CAP-STRAT Workshop, 24./25.03.2003, Bologna

Problems

• In total about 1050 models: how to handle technically ?

• What to report and analyze ?

• Which results are accepted and which are not ?