GTAP-AGR: A Framework for Assessing the Implications of Multilateral Changes in Agricultural Policies

Abstract

Global models of agricultural trade have a long and distinguished history. The introduction of the GTAP data base and modeling project represented a significant advance forward as it put modelers and trade policy analysts on common ground. After an initial generation of GTAP based modeling of agricultural trade policy using the standard modeling framework, individual researchers have begun introducing agricultural specificity into the standard modeling framework in order to better capture the particular features of the agricultural economy pertinent to their research questions. This technical paper follows in that same tradition by reviewing important linkages between international trade and the farm and food economy and introducing them into the standard GTAP modeling framework, offering a special purpose version of the model nicknamed GTAP-AGR. We introduce this agricultural specificity by introducing new behavioral relationships into the standard GTAP framework. We focus particular attention on the factor markets, which play a critical role in determining the incidence of producer subsidies. This includes modifying both the factor supply and derived demand equations. We also modify the specification of consumer demand, assuming separability of food from non-food commodities. Finally, we introduce the important substitution possibilities amongst feedstuffs used in the livestock sector. Where possible we support these new behavioral relationships with literature-based estimates of both the mean and standard deviation of behavioral parameters. The express purpose of this is to support systematic sensitivity analysis with respect to policy reform scenarios performed with GTAP-AGR. In addition to documenting these extensions to the standard modeling framework, the paper has an additional goal, and that is to gauge the performance of the GTAP-AGR model and how it differs from the standard GTAP framework. We do this primarily by comparing the farm level supply and demand response in terms of policy incidence for the two frameworks. In addition, we evaluate the ability of both models to reproduce observed price volatility in an effort to validate the performance of these models. Finally, we evaluate the results of the two models in a side-by-side comparison of results from full liberalization of agricultural and non-agricultural support.