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Model implementation

PASMA is designed to adequately depict the political, natural, and structural complexity of Austrian farming (Figure 13.2). It is regionally differentiated to account for spatial and structural heterogeneity. Regional results are aggregated at the national scale following the methodology of the EAA. In Austria, about 85% of all payments to farms come from three sources: direct payments (= single farm payment from 2005 on), the agri-environmental programme OPUL, and the programme for farmers in Less Favoured Areas.

Agri-environmental policies are of major significance for Austrian farming. This is best illustrated by the fact that the volume of such premiums (EUR 645 million) has exceeded the volume of direct payments (EUR 500 million in 2004) over long periods. Given their importance, not only instruments of Pillar 1 of the CAP are modelled in detail, but also Pillar 2 policies.

Figure 13.2. Structure of the Positive Agricultural Sector Model Austria (PASMA)

The construction of the model ensures a broad representation of production and income possibilities that are essential in comprehensive policy analysis. Data from the Integrated Administration and Control System (IACS), Economic Accounts of Agriculture (EAA), the recent Agricultural Structural Census (ASC), the Austrian Farm Accountancy Data Network (FADN), the Standard Gross Margin Catalogue, and the Standard Farm Labour Estimates (Greimel et al., 2002) provide the necessary information on resource and production endowments for 40 regional and structural production units (i.e. alpine farming zones, Less Favoured Areas) in Austria. Consequently, PASMA can estimate production, labour, income, and environmental indicator responses for each of the units.

Due to its partial approach, the model treats the farm sector without any behavioural interaction with other sectors of the economy or with the rest of the European Union's agriculture. Policies and prices are given exogenously, and output changes are assumed not to affect equilibrium prices (demand is perfectly elastic). Price expectations are based on forecasts by the OECD (2004b) which provides two sets of price estimates (one with the Agenda 2000 reform in place, and the other after the implementation of the 2003 CAP reform). Mark-ups for organic products are based on Freyer et al. (2001).

Apart from the core elements of the 2003 CAP reform outlined below, several reform details are important for our analysis. For cereals (apart from rye), the intervention price remains practically unchanged. For other crops, regulations were simplified but not all production-related premiums have been abolished (notably durum wheat, protein crops, starch potatoes and energy crops). A reformed milk quota system will be maintained until the 2014-15 marketing year. Prices of butter and skimmed milk powder will be cut asymmetrically in four stages. The milk quota will be moderately expanded in 2006 and a decoupled quota premium will add up to the single farm payment.

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