WP3 Scenarios

WP 3 Simulation modeling of farm level impact of future CAP/WTO scenarios Lead: P5Particip: P2, P3, P6, P7: 

WP 3 Simulation modeling of farm level impact of future CAP/WTO scenarios Lead: P5 Particip: P2, P3, P6, P7

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Objectives To define likely future CAP and WTO scenarios with their implications for price, production, farm income, risk management strategies and allowed forms of income stabilizing tools. To analyze the impact of future CAP and WTO scenarios on the price, production and income probability distributions of farmers in the European Union. To analyze the impact of future CAP and WTO scenarios on the chance of catastrophically low incomes.

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Description of work Scenarios Update on latest CAP and WTO agreements Update on allowed forms of income support Define likely and extreme future scenarios and describe qualitatively their impact Conversion of qualitative future scenarios into quantitative implications

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Description of work Models Set-up of farm-level Monte-Carlo simulation model Conversion of qualitative future scenarios into quantitative implications Simulation of impact of scenarios on farm-level prices, production levels, farm incomes and crises.

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Deliverables Qualitative description of future policy scenarios (three likely and two extreme scenarios) with their expected impact on price, production, farm income, risk management and allowed forms of income support. Quantification of future policy scenarios (mean, variation, extreme values).

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Month 10: Preliminary results CAP/WTO impact – January 2006 Month 17: CAP/WTO scenarios: description and impact – August 2006 Month 35: Scientific paper Milestones and expected results

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Decisions (to be) made in WP (1) Many…

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KEY Decisions (to be) made in WP (2) Definition of Scenarios Complexity of Simulation Model (variables) Output of the Model (Net Farm or Household Income)

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(Preliminary) results Draft on Policy Scenarios (with elements of qualitative analysis) Draft construction of Simulation Model

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Points for discussion Are the proposed Scenarios appropriate? Reference (base) Most Likely Liberal Protectionist Time horizon

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Most Likely Scenario ? Just one ? 3 likely scenarios, if this is a must ? If yes, how differentiated from the most likely:

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The Most Likely Scenario Likely? Reference 2004/5 2013 2018 Shock to the system?

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REFERENCE SCENARIO Existing Policy Measures (2004/5) CAP - decoupled payments (SPS) in EU-15, different payment schemes and lower compensation for NMS; II-nd Pillar measures (e.g. LFA) Common Market Organization Relatively high prices Support within agreed budget limit Future reasonably assured (relatively stable?)

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MOST LIKELY SCENARIO Like base scenario, but emphasis on reduction of export subsidies (DOHA round) LFA scheme review Internal prices under pressure EU budget under pressure from increased production and sugar reform Uncertain in post 2013 period, due to planned reforms effects

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LIBERAL SCENARIO Dismantling of most CAP measures: free trade, no income support in pillar 1 Support only from 2 pillar of CAP No production control, no coupled support Internal prices linked to world prices Lower production than in base year on highly supported markets

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PROTECTIONIST SCENARIO Failure of Doha round Re-introduction of pre - 2003/04 CAP, coupled payments, quotas Production constrained by production control Internal prices higher than in reference scenario Risk of non compliance with new requirements Non tariff trade barriers (environmental and quality requirements for import and domestic goods)