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International Oilseeds Model

The FAPRI International Oilseeds Model examines and projects the area, production, usage, stocks, prices, and trade in the soybean, rapeseed, sunflower seed, palm, and peanut complexes for several countries and regions of the world.

Structure of the FAPRI/CARD International Oilseed Model

The FAPRI/CARD International Oilseed Model is a non-spatial, partial-equilibrium econometric world model consisting of several countries/regions, including a rest-of-the-world aggregate to close the model. The model is used to establish the oilseeds component of the FAPRI baseline and for policy analysis. Major oilseed producing, exporting, and importing countries are included in the model. The model treats each seed, meal, and oil as a homogeneous commodity. No quality differentials or level of processing are taken into account.

Using price transmission equations driven by estimated or consensus price transmission elasticities, we link the world price in domestic currency and the domestic price for all products. The price transmission equations assume that agents in each country are price-takers in the world market. Countries are either natural importers or exporters if their autarkic price falls above or below the world price. Abstracting from any spatial consideration and assuming an "ad valorem tariff only" regime, the domestic price can be expressed as Pd = α + β · Pw · r ยท (1+d), where Pd is the domestic price, Pw is the world price of the commodity including international transportation cost if the country is an importer (FOB price for exporters), r is the exchange rate, and d summarizes policy interventions between the world and domestic markets and is expressed in ad valorem form. Parameter α captures the divergence of the domestic and border price that does not depend on the price level but rather reflects transaction costs arising between the farmgate and the marketplace, and/or marketing markups. Parameter β allows imperfect transmission between world and domestic prices.

Depending on data availability, domestic prices in the oilseed model can be farm, wholesale, or port prices. Because of the homogeneous nature of oilseeds, quality adjustments are not incorporated in the price transmission equations. In general, only one domestic price is used in the model. Consumer and producer prices are differentially specified only in countries that have a deficiency type of producer support or differentiated taxation. This general structure is slightly modified to accommodate policy interventions other than price distortions, such as quantitative restrictions on area, supply, or trade flows.

The general structure of each country oilseed submodel includes behavioral equations for area harvested, yield, and production of oilseeds on the supply side, and crush, seed, food, and other consumption as well as ending stocks on the demand side. Planted area is a function of lagged prices and a trend. Yield is a function of prices, area expansion, and a trend. Production is equal to the product of planted area and yield. Ending stocks are a function of current prices.

The ending stock of each year becomes the beginning stock of the following one. Total supply for each year is the sum of production, beginning stocks, and imports. The crush demand is driven by the oil demand and/or by meal demand. Given the joint product of oil and meal and the positive economic value attached to meal, the derived demand from crushing reflects both oil and meal. The derived demand for crush oilseeds is driven by the crush margin.

The crush equation constitutes the price and quantity links between the seeds and products markets. We make the usual assumption of fixed proportion in the technology of meal and oil production and price-taking assumptions in oilseed crushing to describe the crushing cost. As the margin increases (decreases), the demand for crush seeds increases (decreases). A change in the crush demand affects seed demand and products supply simultaneously. Prices adapt accordingly to re-establish equilibrium.

The oil and meal supplies are a function of the crush. Total demand is the sum of consumption, ending stocks, and exports. Imports and exports are not explicitly modeled. Net trade is the difference between total supply and demand.

Vegetable oil demand is a final demand coming from the consumer. Per capita oil demand is modeled as a function of the real consumer price of the oil, the prices of competing substitute oils, and real income per capita. Total demand is just the product of population and per capita consumption.

Meal demand is a derived demand from livestock production. Meal demand is an output-constant demand, which is a function of livestock numbers (as measured by aggregate livestock animal units), the price of meal, and the price of other feed products.

We assume trade in seeds, oil, and meal is an excess demand/supply and provides closure in the markets. The sum of excess demands over all countries is equal to zero and determines the world price for each commodity.

The international oilseed model is linked to all other FAPRI model components. During the solution process, data on prices is exchanged between all components to reach equilibrium in all sector world markets. Of special importance to the oilseed model are the interactions with the livestock and crops models. The international livestock model provides the data on the feed demand, which drives the meal demand side. The grain prices, received from the international crops model, are opportunity costs of land. In return, oilseed prices are used in the crops model as an estimate of opportunity costs of land. Meal prices are an important component of feed costs in the livestock model.

View the current FAPRI-ISU 2011 World Agricultural Outlook.

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