Principles of construction and global architecture of the future momagri model

Introduction

The economic model of the New Agricultural Regulations or the NAR model, has two main objectives:

> to improve how the reality of the agricultural landscape is taken into account by conferring greater capability to translate all the specific aspects of agriculture as well as its strategic importance than the capability of international models currently being used.

> to integrate certain fields which interact with the agricultural sector, such as innovation, energy, transport, exchange rates or environmental standards, and put agriculture back in the forefront of planetary challenges such as the fight against poverty, the environment and food security.

It will also give political decision-makers a platform to evaluate and to simulate for international negotiations. The NAR model will make it possible to launch simulations upstream of international negotiations, or even between negotiation sessions, using far more credible bases than those used in the current models. The decision makers will thus be able to perceive the consequences of their proposals. To achieve this goal, the NAR model will innovate in order to remedy the construction hypotheses which render current models totally unsuitable.

The NAR model will thus be designed as a central well-balanced computable model, supported by a series of satellite models. It will not as heavy and rigid as the major international models and will incorporate the key elements which are not taken into account, and which WOAgri has synthesized around the seven following criteria.

Criterion 1 : Reliance on foreign countries
Evaluating the possibly negative effects of excessive reliance on foreign countries.

Criterion 3 : The effects on poverty
Placing the fight against world poverty as a key objective and measuring the effects as a result of the liberalization of international agricultural exchanges.

Criterion 4 : Growth and effects on future generations
Taking into account the importance of education and the effects induced by poverty in developing countries.

Criterion 5 : Taking innovation into account
Evaluating the impact of on the liberalization of international agricultural exchanges on the capacity of the agro-food sector to be innovative and its fair distribution amongst the different countries/regions.

Criterion 6 : The link between the environment and market stability
Integrating the environment in the modelling of international exchanges.

Criterion 7 : Sustainable growth and the future of the planet
Linking agricultural exchanges to global changes, in other words to the problems of climatic changes, biodiversity and desertification.

Initially, we will roll out our new approach and the hypotheses on which the central model will be built, by underlining the limits of the current international agricultural models.
Subsequently, we will present the global architecture of the NAR model..

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I / The new approach of the NAR model in comparison with the theories which form the foundations of the current models.

The current models (World Bank, FAPRI, OECD, etc…) are founded on the theories of a perfect market technology and pure competitive behaviour. These hypotheses are entirely theoretical, not observable in reality, and thus contribute to the imperfection of the current international models, which we have denounced.
The NAR model will therefore be based on more credible hypotheses, and be faithful to agricultural realities, by considering the existence of imperfect market technologies (mainly those concerned with information) and unfair competitive behaviour (the inelasticity of supply and the existence of monopolistic and oligopolistic market structures)..

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A - The hypotheses linked to “market technologies”

The current models consider that market technologies are perfect, in other words that all the transactions are anonymous and that information flows are perfect.

1. The anonymity of transactions

According to this hypothesis, each buyer is indifferent between the various sellers with whom he or she deals with (and each seller between the various buyers), or they do not know the identity of those with whom they are dealing.

2. The perfect nature of information

The perfect nature of information implies that each buyer or each seller is informed at all moments of all the prices of all the goods and services in every area in the world and of all the expiry dates and the conceivable contingencies.
If our current information-based society has led to considerable progress in these fields, one must be careful not to draw any general conclusions about this assertion, which must, on the contrary, be appreciated in a different manner taking into account the different products, regions and participants in the corresponding markets.

The NAR model will therefore be founded on a hypothesis which is far more realistic that the ideal one, of the perfect nature of information, as the agriculture world is above all characterised by risk (climate and the market) which affects the behaviour and choices of the people involved, and therefore prices.
This is why the individual (and collective) choice-making process, as well as attitudes in terms of risk-taking, must figure predominantly in the determination of the behaviour of people making these choices, in particular production behaviour patterns.

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B - The hypothesises linked to competitive behaviour

In the same way as international models consider that market technologies are perfect, they lean on the principles of pure competitiveness.
They therefore observe two key rules, whose consequences are both even more striking and more important when the results are being simulated :

1. Respecting the perceived prices, which consists of dealing with prices as imposed parameters … which signifies that no actor has the capacity to influence the levels of prices.

Yet if we can admit that this assertion is as an acceptable approximation in the case of transactions initiated by households, observation of international transactions leads us to conclude that this is not the same for transactions initiated by firms.
In particular, leaning on demand which is not perfectly elastic (which is the case in agriculture) to extract the best possible price from these sales cannot be ignored without serious falsification of the results of a simulation.

2. Respecting the free entry of new candidates for production into the markets, whether it involves manpower, investors or entrepreneurs.

This second rule is an objective which a lot of statutory decision-makers around the world have set themselves. But, between a targeted objective and the observed reality, there is a deep gulf: the most elementary observation therefore leads to conclude that success is not always comparable.
The evolution of international negotiations at the WTO which advocates the dismantling of trade barriers and liberalization of the markets is a perfect example.
These negotiations aim to implement increasingly less restrictive access clauses to national markets (and therefore promote free entry), whilst at the same time decreeing more restrictive clauses to access intellectual property rights for innovation, characterised by strong entry barriers and an oligopolistic structure.
Likewise, there are countries with State companies and export monopolies which prevent competitors from penetrating the market.
We can clearly see, the hypothesis of free entry corresponds to an idyllic situation far from the reality of agricultural markets.

The NAR model will therefore not fail to search out local or regional monopolies for any particular products, in particular if such products are truly innovative.

Consequently, rather than a market balance in the conventional sense of pure competition based on the hypotheses evoked above, the authors of this model will focus more on an unprecedented model that can be envisaged through the game theory as applied to markets. The model will therefore be based on a game with entries which are regulated differently depending on the situation, on the branches and the type of producer, in a general balanced framework based on the Cournot (a famous French political scientist) model.

The global architecture of the NAR model is therefore established in the following manner :

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