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This paper presents an econometric, recursive dynamic, partial equilibrium multi-commodity model for the Finnish agricultural sector developed within the AG-MEMOD modelling framework, a joint endeavour by several European research institutes. The objective of the AGMEMOD project is to build and validate an econometric model of the whole EU agricultural sector for projection and policy simulation purposes. The building blocks of the AGMEMOD model are the national policy models. The specific aim of the Finnish modelling project was to build a country model on a common format so that it would link-up to provide an integrated model for the whole EU. The different commodities in the model are linked together through cross-price effects in supply and demand equations and the price transmission equations that link domestic prices with EU prices. The responsiveness of the model to policy changes is demonstrated by comparing the results of different policy scenarios with that of the baseline scenario, i.e. continuation of the Agenda 2000 agricultural policy. The policy scenario examined in the paper is the CAP reform approved at the EU Agricultural Council in Luxembourg in 2003. The main impacts of the CAP reform in Finland can be summarised as follows. Changes in crop sector are moderate. As regards to milk, the results indicate that the additional 10 percent cut in intervention price of butter beyond the Agenda 2000 agreement is estimated to reduce milk producer price by 4 percent and total milk production by 6 percent relative to the baseline. The impact in the beef production is expected to be dominated by the developments on the dairy sector. Beef output will decline progressively to stand at around 6 percent below the baseline levels by 2010. Lower beef availability in the EU will trigger a rise in EU producer prices of some 6.5 percent and result a 3 percent higher producer price in Finland at the end of the simulation period compared to the baseline. Though the broad patterns of reactions to agricultural policy reform are fairly predictable, the specific details are not so. In particular, when several geographic markets simultaneously change the policy, the impact of policy reform depends not only on domestic price elasticities, but also on the transmission of domestic production and consumption adjustments to the other countries’ markets for that commodity, and the feedback effects between market prices and production and consumption decisions in the group of countries pursuing policy reform. It is also highly promising that the findings are consistent with the other studies on the impacts of CAP reform on Finnish agriculture. Thus although there remains substantial scope for further research on the model (improving the estimation and specification of the sub-models), the model offers considerable potential for application even without additional development.

Agricultural policy analysis with the AGMEMOD model: A new super model takes the stage?