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An Example of Consumer Demand Issues: Modeling BSE in the EU

An Example of Consumer Demand Issues: Modeling BSE in the EU. by Wyatt Thompson Directorate for Food, Agriculture, and Fisheries. Washington DC, 15-16 November 2001. To start a discussion. Definition and implementation of a scenario in a model Review some available studies

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An Example of Consumer Demand Issues: Modeling BSE in the EU

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  1. An Example of Consumer Demand Issues:Modeling BSE in the EU by Wyatt Thompson Directorate for Food, Agriculture, and Fisheries Washington DC, 15-16 November 2001

  2. To start a discussion... • Definition and implementation of a scenario in a model • Review some available studies • Problems and a reminder

  3. Brief background • BSE - not FMD • BSE timeline (in EU) • 1996: UK announcement • 2000: Incidence of BSE and vCJD in other EU countries • Policy response • Destruction schemes and compensation • Public stocks and subsidised exports

  4. UK beef: consumption recovered Note: Eurostat data are used.

  5. Has UK beef demand recovered? Comparing the levels of beef consumption that were observed against the levels that might have occurred if there had not been a demand shock but at the observed beef prices. Notes: (1) Eurostat data are used for the observed data. (2) The expected consumption without the demand shock are calculated using the AGLINK demand equation as applied to the UK data.

  6. Calibrating demand Price P0 Demand before shock A simple shift in demand can be justified if we do not think that there is any fundamental change in demand. However, consumer tastes may affect cross-price or income elasticities. Also, the composition of the aggregate quantity (‘beef’) may change (e.g. elimination of MRM products and changing ages of slaughter for animals). P1 Demand after shock Quantity Q0 Q1

  7. Beef demand shocks Demand change by year, starting early 1996 for UK and late 2000 for EU

  8. Commission Assumed lower consumption Focus on supply-side effects Used to generate “Prospects” of July 2001 ABARE Teagasc and FAPRI-Ireland FAO Analysis

  9. Problems and a reminder • Shift demand (beef, pork…) • But how much does demand shift? • Is there a structural change? • Is the demand effect predictable? • Exports? • The broader context • As always, our modeling decision should depend on our goals

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