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RURAL CHANGE
The Challenge for Agricultural Economists
PROCEEDINGS
SEVENTEENTH
INTERNATIONAL CONFERENCE
OF AGRICULTURAL ECONOMISTS
Held at Banff, Canada
3rd-12th SEPTEMBER 1979
Edited by
Glenn Johnson, Department of Agricultural
Economics, Michigan State University, USA
and
Allen Maunder, Institute of Agricultural Economics
University of Oxford, England
INTERNATIONAL ASSOCIATION OF AGRICULTURAL
ECONOMISTS
INSTITUTE OF AGRICULTURAL ECONOMICS
OXFORD
1981
Gower
CSABA CSAKI
National Agricultural Sector Models for
Centrally Planned Economies
Because food production is one of the most decentralized activities of
mankind and nations are the largest units in which agricultural problems
appear in their full complexity, the study of national food and agricultural
systems has always been under focus of research in food and agriculture.
At IIASN to study the world's food and agricultural problems, consistent national agricultural policy models are going to be constructed and
linked. In this paper the first results of IIASA's modelling work on
centrally planned food and agriculture systems are summarized.
1 OBJECTIVES AND MAJOR ASSUMPTIONS IN THE MODELLING OF CENTRALLY PLANNED FOOD AND AGRICULTURE
SYSTEMS
In the CMEA 2 member countries, agricultural policy and policy goals are
determined according to the central plans of the countries. The basic
figures of production and consumption are fixed by the national plan and
realized by a co-ordinated system of sectoral (industry, agriculture, etc.),
regional, local (country, city, etc.) and enterprise plans. Therefore, the
major policy goals in agriculture are to ensure a level of consumption to
satisfy industrial needs in agricultural products as determined by the
national plan. Thus the government's agricultural aims are the following:
the satisfactory growth of food production by increased efficiency and
productivity in agriculture;
a certain degree of self-sufficiency of the country in agricultural products;
optimization of foreign exchange earnings from agriculture;
the improvement of living and working conditions of the population.
From the above mentioned policy objectives in each country in a given
period of time only few and not by any means all are emphasized. The
methods for realization of these policy objectives often differ. Though
agricultural policies of the individual countries are not unified, we intend
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National agricultural sector models
313
to model the European centrally planned economies on the basis of a
common model structure. We believe that the similarity of major agricultural policy objectives, and the fact that the food and agricultural sector is
an integral part of the centrally planned national economy, fully justifies
our approach.
Using the experiences gained from former agricultural modelling work
in socialist countries and the results of methodological research on the
general structure and linkage of national sector models, 3 we aimed at the
development of a relatively new model structure for centrally planned
food and agriculture systems. This structure
should incorporate the basic features of the CMEA member countries'
economy,
should be suitable to incorporate the specific features of the individual
CMEA countries,
should be consistent and comparable with other parts of liAS A's Food
and Agricultural model system
should be detailed enough to be used as an experimental tool for
investigations connected with the development of food and agriculture, and
would hopefully contribute to the further development of techniques
applicable in the planning and management offood and agriculture.
2 THE GENERAL MODEL STRUCTURE
The basic characteristics of the IIASA model for centrally planned food
and agriculture systems is determined by the main objective of this
modelling effort. Our main goal is not straightforward optimization, but
to make a tool that offers opportunities for a better understanding of the
dynamic behaviour of the centrally planned agricultural systems and the
interactions of their elements, so that the model can also be used for midand long-range projections. Unlike the normative agricultural models
that have been developed, this model has a descriptive character. It
reflects the present operation of the centrally planned food production
systems and, therefore, the present decision-making practices and
economic management of the government are described. At the same
time, various normative elements, such as government decisions and
published plan targets influencing the projected operation of the system,
are also considered.
In the model we try to endogenize a large part of the economic
environment and the most important factors of food production. Food
and agriculture is modelled as a disaggregated part of an economic system
closed at the national as well as at the international level. Therefore our
model has the following features:
the food consumption sphere is incorporated;
the non-food production sectors of the economy are represented by
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General structure of the model. The detailed mathematical structure of the model is described in'.
Next Period
National agricultural sector models
315
assuming that they produce only one aggregated commodity;
the economic, technical, biological, and human aspects of food production are covered;
both the production of agricultural raw materials and food processing
are modelled;
under "other" agricultural production and food processing, all products not individually represented are aggregated; and
financial equilibrium is maintained.
The structure of the model is outlined in Figure 1. The overall
methodology used by the model is a simulation technique. For the description of subsystems, suitable techniques, e.g. linear and nonlinear programming, econometric methods, are employed. The model is dynamic,
with a one-year time increment. Subperiods within the year are not
considered. The time horizon of the analysis is 15-20 years. Random
effects of weather and animal disease conditions can also be considered.
Long-range government objectives such as the growth of the whole
economy, the growth rate of food production and consumption, a given
relation of consumption to accumulation, and a given positive balance of
payments in food and agriculture are considered exogenously as they are
determined by the long-range development plan of the national
economy. The model is focused on the development of food and agriculture (production structure, investments) and its interaction with the rest
of the economy. The major steps of the solution can be described as
follows:
1 As a first step the overall growth targets are settled for a given year
based on long-range objectives and results of the previous period. After
setting targets for gross and net production the planned consumption and
accumulation funds are calculated, determining the targets for consumption of individual commodities and investment funds in food and agriculture as well as in the rest of the economy.
2 Next a detailed plan for food and agriculture is determined considering available resources and minimum required production of certain
commodities.
3 As a third step the behaviour of producers (state and co-operative
farms, private producers) is described and the random effects on the final
output of food and agriculture as well as the rest of the economy are
calculated. In the model both direct and indirect instruments of government can be handled to realize the production targets of the central
planners. According to the government's economic management system
(more or less decentralization) in a given country the producer's decision
model and relations between government and producers might be modelled in various ways.
4 The Exchange Module compares supply and demand. Here export
and import figures, final private consumption and investments are calculated satisfying the balance of trade equilibrium constraint. The model
can be linked with other IIASA national models through this model part.
To express the reaction of a centrally planned economy to changing world
316
Csaba Csaki
market conditions a special equilibrium type of model has been
developed.
5 As the final results for a given year are obtained, overall government objectives and policy instruments (prices, tax rates, etc.) are
adjusted based on the analysis of the performance of the whole system.
The available resources and some of the model parameters are also
updated.
3
A PROTOTYPE MODEL: HUNGARIAN AGRICULTURAL
MODEL(HAM)
As a first step in the realization of IIASA's objectives in the modelling of
centrally planned agricultural systems, the Hungarian Agricultural
Model has been developed as a prototype for the modelling of CMEA
countries. This work is a joint undertaking of IIASA and three institutions in Hungary. 4
HAM structure has been developed according to the general principles
summarized above. Figure 2 shows the structure of the final version of the
model. HAM is in fact a system of interconnected models. Two spheres
are differentiated within the system. The economic management and
planning submodel describes the decision-making and control activities
of the government. The submodel of real sphere covers the whole
national economy, including the disaggregated food production sector.
The major blocks of the latter submodel are related to production,
consumption and trade as well as updating available resource and model
parameters. In Hungary the overall targets of food and agriculture are
realized mostly using indirect economic means (price, tax, subsidies),
therefore HAM represents a decentralized version of our general model
structure, where producer's decisions play quite an important role.
HAM-I
HAM is the first system simulation model to describe the Hungarian food
and agriculture sector. The former modelling works offered many useful
experiences but in several cases HAM applies entirely new approaches
and the development of HAM requires the analysis of several possible
alternative methodological solutions. Therefore, to avoid the difficulties
of immediately working with a large scale system, we have decided to
develop first a more aggregated, relatively simplified model version
(HAM-1). 5
Hungarian food and agriculture is described in HAM-1 on a relatively
high level of aggregation. The Hungarian food and agriculture is represented by 5 agricultural and 4 processed food commodities, the 1Oth
commodity is related to the rest of the economy. Practically all the model
commodities represent a relatively wide range of products. On the whole,
approximately the whole Hungarian food and agriculture and the
national economy as well are covered. Therefore the computed results of
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4
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FIG. 2 Schematic structure of the second version of the Hungarian Agricultural Model
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318
Csaba Csaki
HAM-1 can be compared with the actual indicators of Hungarian food
and agriculture and the national economy.
HAM-1 is based on official Hungarian statistics. The methodological
character of the HAM-1 experiment allowed us to be less exacting and
sophisticated in data preparation. Most of the model parameters have
been calculated using the data of the Hungarian National Statistical
Bureau and the Ministry of Food and Agriculture. The consumers'
demand system has been estimated at IIASA based on time series.
HAM-1 is structured according to our general model outline and has all
of the features described above. Besides the commodity coverage, the
simplified features of HAM-1 mean the following:
different sectors of agricultural production (state farms, co-operative
farms, household plots) are not considered, only the so-called socialist
agricultural production (state and co-operative farms together) is
modelled,
weather random effects on agricultural production are not directly
included,
in some cases (e.g. savings function) less sophisticated mathematical
formulation is applied,
the description of the government's policy instrument revising
activities (e.g. pricing) can be considered as the first preliminary
approach,
no separate CMEA market is considered.
During 1978 numerous runs of HAM-1 have been executed. The
results of these investigations supported the appropriateness of our
approach and proved that the IIASA's model structure really can contribute to the further development of planning techniques and is suitable for
various investigations connected with the development of the centrally
planned food and agriculture systems. (Figure 3 shows the impacts of
various government policies on the development of the Hungarian food
and agriculture as forecasted by HAM-1.) HAM-1 also led us to several
methodological conclusions that are very important for the further
refinement of the model.
HAM-2
The second version of HAM has been completed recently. The Hungarian food and agriculture as well as economic management system are
modelled in HAM-2 in a rather disaggregated way. There are 45 food and
agriculture commodities considered in the model. The detailed structure
ofHAM-2 can be seen in Figure 2.
As far as the methodology of the model is concerned, first of all our
attempts to describe the agricultural policy-making and planning
activities of the government have to be pointed out. In HAM-2 the
implementation of given policy objectives is fully endogenized. Government plan targets on food and agriculture are determined by a linear
programming model assuming that central planners want to maximize
National agricultural sector models
319
]" 600
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FIG. 3 GNP in food and agriculture as projected by HAM -1
' Basic Variant expresses the present operation of Hungarian food and agriculture.
• Variant 4: world market prices are used as domestic producer prices using 1 US$ = 30
Hung. Ft. exchange rate.
• Variant 14: instead of 100% only 70% is the required level of self-sufficiency from food
and agricultural commodities.
Csaba Csaki
320
foreign exchange earnings from food and agriculture beside a given level
of self-sufficiency. The adjustment of overall objectives and policy
instruments is modelled by heuristic routines. This is one of the first
attempts at a mathematical description of the pricing mechanism in a
centrally planned economy.
The food and agricultural production is modelled according to producing sectors. The socialist agriculture (state and co-operative forms) is
modelled by a linear programming model, the behaviour of private and
household farms is described by supply functions and a separated model
block is related to the food processing. A simulation type of model is
constructed to describe the investment decisions of producing firms. The
output of the non-food producing part of the economy is calculated by a
Cobb-Douglas type function.
The Exchange Module is a crucial part of the whole system. As was
already mentioned, an equilibrium type of model has been constructed to
reach the balance of trade equilibrium and adjust to changing international market conditions. In this model, stock adjustment, adjustment of
government and other investment as well as private consumption are
considered. A special version of extended linear expenditure systems has
been estimated to describe consumers' behaviour.
The parameters of the two linear programming models are updated
based on production functions.
HAM-2 can obviously be considered as an element of the IIASA
agricultural model system being developed and as such it will be linked
with other national models, and used for global investigations. Furthermore HAM-2 is used in the elaboration of the next five year plan of
Hungarian food and agriculture. Up until now several runs have been
executed to analyse the impacts of various alternatives for agricultural
pricing mechanisms. In the very near future the model is intended to be
used to investigate the reality of major policy goals, the desired level of
self-sufficiency and specialization, the possible strategies of the reaction
of the domestic to the world market and changes in export and import
structure.
4
AGGREGATEDCMEAMODEL
Based on IIASA's model structure and experiences gained by the Hungarian Agricultural Model, an aggreated CMEA model has also been
constructed at IIASA. The CMEA model first of all is designed to
represent the European centrally planned countries within IIASA's
aggregated model system. 6 Therefore our main objective is to develop a
model which realistically describes the aggregated behaviour of this
group of countries on the international market of agricultural commodities. The model is not for the study of problems of the agricultural
development of the CMEA countries in detail. But besides its aggregated
character it hopefully will be useful for investigations related to the
National agricultural sector models
321
overall problems of agricultural development of these countries. Based
on the model, first of all: ·
the realization of major targets on growth of agricultural production
and their main alternatives,
the key factors and conditions of realization,
the interaction of agricultural and industrial development (more or
less investment in agriculture),
the feasibility of certain overall targets (consumption versus investment) can be investigated.
The CMEA model which actually covers the European CMEA
member countries (Bulgaria, Czechoslovakia, GDR, Poland, Hungary,
USSR, Romania) has a structure consistent with other elements of the
aggregated model system including the same commodity coverage. Figure 4 shows the general structure of the model.
In the model, similarly to the general structure and HAM, we assume
that long-range government objectives are taken as exogenous variables.
We also assume that central decisions on the production structure of
agriculture are transferred directly to producing enterprises. Therefore a
producer's decision model is not included and deviation from targets at
the national level is not considered. The production plan of the government is modelled using a non-linear optimization model including constraints on available resources and minimum required production of
certain commodities. In the objective function either the net national
product of food and agriculture or foreign exchange earnings from the
food sector are maximized. The parameters of the production model have
been estimated based on FAO data.
The Exchange Model is solved similarly to the Hungarian Agricultural
Model. The development of private consumption is modelled based on
past trends and considering overall objectives on changes in the food
consumption structure.
In the model three types of prices are distinguished: producer prices,
consumer prices and international prices. The domestic prices are expressed in roubles. The initial prices have been calculated as weighted
average of the individual country prices using the inter-CMEA exchange
rates as published in Hungary. The domestic prices are not modified
during the simulation run.
As further steps in IIASA modelling work on centrally planned food
and agriculture systems the Polish and Bulgarian agricultural models will
be developed. In the case of Poland the special role of private farms and in
the case of Bulgaria the higher level of centralization in the management
of agriculture, represent new features and obviously require special solutions.
(J.}
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FIG. 4 General structure of the CMEA model
net pnces
Stocks
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import
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Next period
National agricultural sector models
323
NOTES
1 International Institute for Applied Systems Analysis, Laxenburg, Austria.
• CMEA = Council for Mutual Economic Assistance.
3 Primarily Prof. Ferenc Rabar's and Michie! Keyzer's works.,e,1 and •·
4 Research Institute for National Planning at the National Planning Bureau, Research
Institute for Agricultural Economics of the Ministry of Food and Agriculture, and Department of Agricultural Economics at the K. Marx University of Economic Sciences.
• The experiences with HAM-I are discussed in detail in•.
• First aggregated version of IIASA's food and agriculture model system. The commodity
coverage of the study includes: wheat, rice, coarse grain, bovine and ovine meats, dairy
products, other animal products, protein feeds, other food, non-food agriculture, nonagriculture.
REFERENCES
1 Csaki, C., Jonas, A., Meszaros S., "Modelling of Centrally Planned Food and Agricultural Systems: A Framework for a National Policy Model for the Hungarian Food and
Agricultural Sector", IIASA, RM-78-11.
• Csaki, C. "First Version of the Hungarian Agricultural Model" (HAM-I), IIASA,
RM-78-38.
3 de Haen, H. Schrader, J.V. Tangermann, S. "Modelling the EC Agricultural Sector:
Problem assessment, policy scenarios and model outline", IIASA, RM-78-23.
4 Heady, E.O. Srivestana, U.K. (eds): Spatial Sector Programming Models in Agriculture,
Iowa State University Press, Ames, 1975.
• Keyzer, M.A. "Linking National Models of Food and Agriculture- An Introduction",
IIASA, RM-77-2.
• Keyzer, M.A." Analysis of a National Model with Domestic Price Policies and Quota on
International Trade", IIASA, RM-77-19.
7 Keyzer, M.A. "International Trade Policies in Models of Barter Exchange", IIASA,
RM-77-51.
• Parikh, K.S. "A Framework for an Agricultural Policy Model for India", IIASA,
RM-77-59.
• Rabar, F. "Food and Agriculture Programme Annual Report of IIASA, 1977.
10 Rosmiller, G.E. (ed.) Agricultural Sector Planning -A General System Simulation
Approach, Michigan State University, 1978.
DISCUSSIONOPENING-MOHINDERS.MUDAHAR
Introduction
This paper describes national agricultural sector models for centrally
planned economies in general and the Hungarian agricultural sector
model in particular. It is part of a large modelling effort at IIASA to build
global models for the food and agricultural sector. The main purpose is to
provide insights to the planners about the development process of the
agricultural sector and to provide guidelines for them to formulate
agricultural policies which are effective and consistent with national
goals.
Professor Csaki has presented us interesting and very complicated
agricultural sector models in a very limited time and space. The paper
summarizes four different but closely related agricultural sector models.
These are (a) the general model structure for centrally planned
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Csaba Csaki
economies, (b) the aggregated Hungarian agricultural sector model
(HAM I), (c) the disaggregated Hungarian agricultural sector model
(HAM II), and (d) aggregated CMEA (Council for Mutual Economic
Assistance) model. My knowledge of decision-making in centrally planned economies is rather limited, and the information provided in the
paper about the specifics of the models is rather scanty. As a result, I have
decided in favour of raising some general issues for discussion and asking
some important questions for clarification. I have divided my opening
comments into three categories, namely, methodology, empirical
analysis, and relevance of the results for policymakers.
Methodology
I commend Professor Csaki on his ability to develop comprehensive
agricultural sector models which incorporate three major modelling
approaches, namely, system simulation approach, mathematical programming approach, and econometric approach. However, I have not
been able to determine which model components use which of these
approaches, how these various methodologies used in different model
components are made consistent and linked with each other, or the basis
for choosing each of these alternative approaches.
From the macro point of view, the objective (or set of objectives) and
constraints for the models are specified exogenously. It is not very clear,
however, what the optimality criterion is to determine the allocation of
physical resources to achieve these objectives at the regional and/or
national levels.
From the micro point of view, one component of these models deals
with the "producer or farmer's decision". However, it is not clear how the
farmers make the production decisions with respect to various farm
activities, allocation of resources, and what their decision criterion is. For
example, in "market-oriented" economies farmers may maximize profit
and/or minimize cost and/or minimize risk subject to different
behavioural and resource constraints.
The model is dynamic with a one-period time increment. Sub-periods
within a year are not considered. Since agriculture is seasonal in nature,
the models do oversimplify the agricultural sector and thus cannot realistically address very interesting policy issues dealing with seasonal allocation of physical resources and scheduling of marketing, storage, and
transportation activities for inputs and outputs.
Empirical analysis
The paper does not deal with the empirical aspects of these models. I wish
that Professor Csaki had chosen instead just one model and provided us
with more detail on the methodological and empirical aspects of that
model. Since the models reported in the paper are not empiricially tested
-except a prototype model for Hungary- it is rather difficult to discuss
the associated data needs, estimation of these models, and interpretation
of the results. To what extent these models would track the real history of
National agricultural sector models
325
the agricultural sector in Hungary or for that matter in any other centrally
planned country is a question which can only be answered (a) by comparing model results with actual time series of various variables in the
agricultural sector and (b) by subjecting the model results to various
validation tests. Professor Csaki has indicated that the empirical results
obtained from HAM I support the appropriateness of these models for
planning purposes. However, these empirical results and the basis for this
conclusion are not reported in the paper.
Relevance for policy-makers
The models do incorporate producer prices, consumer prices, and international prices for inputs and outputs into various model components.
However, it is not clear what the roles of these prices and the shadow
prices derived from programming models are. Also, what are the flexibility and constraints imposed in the model to determine consumer and
producer prices?
What are the other policy instruments incorporated in these models
and how do they influence the working of the model structure such that
they could provide insights with respect to the implications of various
policy instruments and thus be relevant to the policy-makers to achieve
the stated goals?
Finally, in all fairness, I fully sympathize with Professor Csaki in the
sense that it is very difficult to present these complex models in a limited
space. However, the answers to these questions would, I believe, be quite
informative for our professional colleagues from the so-called "marketoriented" developed and developing countries.