Outlook of European integration processes’ market effects applying partial equilibrium model – the case of Macedonia

Abstract

A dynamic mostly recursive synthetic partial equilibrium model is developed to assess the consequences of integration and reform processes on agriculture markets. A series of single equations representing markets for grains and livestock produce an inter-linked system. The system of equation for each commodity is solved through the net trade. Domestic prices are linked to EU prices by price transmission equations. Prices and policy instruments determine levels of production and consumption across commodities. Parameters are synthetically determined due to scarce and unreliable data. Developed model was tested for Macedonian (FYRM) agriculture. Despite highlighted problems, the impact multipliers prove that the complete system can respond to exogenous shocks as was a priori expected, given biological and economic constraints. The baseline incorporates continuation of domestic agricultural policy coupled to production and price paths that closely follow the EU ones. In case FYRM joins the EU in 2015, three alternative scenarios were analysed. If the price convergence scenario were realized, the production of all agricultural products would increase and consumption would fall due to their higher prices, except for pork where prices are implying opposite outcomes. Alternatively, the CAP scenario assumes new (decoupled) measures as well as larger agricultural budget, so the production of all agricultural commodities except pork would increase. This would, in turn, lead to substantial increase of feedstuffs demands, while the increase in demands for meat would be marginal. If both scenarios would occur at the same time, all results would mainly be aggregated effects of both separate scenarios with some minor differences due to sub-markets interactions.