Research Reports
Korea Agricultural Simulation Model
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AuthorKim, Myunghwan
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Publication Date2008.11.01
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Original
KREI-ASMO (Korea Rural Economic Institute - Agricultural Simulation Model) was developed by the Korea Rural Economic Institute in 1995, and has been used for mid- and long-term outlook as well as to analyze external shocks or various alternative policies for the Korean agricultural sector. The model is a partial equilibrium model that adopts a structural/recursive simulation method.
KREI-ASMO includes five sub-models; 1) sub-model for forecasting of macro-economic variables, 2) agricultural input price sub-model, 3) plants sub-model, 4) livestock sub-model, and 5) sub-model for agriculture macro variables.
This 2-years research project aims to version-up the KREI-ASMO, and we named the new model KASMO(Korean Agricultural Simulation Model). Main features of KASMO are; 1) replacing the supply and demand estimation for 18 large commodity groups to 45 specific commodities, 2) finding the equilibrium prices through simultaneous equilibrium of supply and demand instead of recursive method, 3) switching calendar year average to marketing year average of supply and demand for grain and fruits, 4) switching econometric equation to Cohort method to forecast agricultural population, and 5) each commodity group submodel can be operated independently, and aggregated and feedbacked easily in the Excel spreadsheet.
Ex post simulation of KASMO was performed to test the fitness for the sample period of 2000∼06. The average root mean squre percentage errors (RMSPE) are as low as 2% for the equations in the submodel of macro-economic variables, agricultural input, and the agricultural macro variables, so that the model fitness seems quite good.
The RMSPEs of the plant submodel may be considered as acceptable. The average RMSPEs are less than 5% for the grain acreage equations except for wheat, less than 10% for the grain demand equations except for corn, and less than 3% for the grain import demand equations except for wheat. The average RMSPEs are less than 10% for the demand and supply equations of vegetables except for the import demand equations of cabbage and chinese cabbage, acreage equation of fresh pepper, and demand equation of eggplant.
The RMSPEs of the fruits and special crops are poor. The average RMSPEs are less than 10% for the demand and supply equations of fruits except for the import demand equations of grape and persimmon, acreage equations of grape and tangerine, and demand equations of pear, peach and persimmon. The average RMSPEs are 10% for the acreage demand and supply equations of special crops except for the import demand equations of ginseng, green tea and mushrooms, acreage equation of green tea, and demand equation of flowers.
The RMSPEs of the livestock submodel are poor. While the average RMSPEs are less than 3% for the supply equation, those are more than 20% for the meat demand equations and 15% for the meat import equations.
Baseline forecast to the year 2018 was performed under the following assumptions;
- Tariff and tariff rate quota (TRQ) of 2005 stand still, except the TRQ of rice increased until 2014, and tarrified thereafter.
- Average exchange rate of 2008 of 1,050 won per US dollar, and the year average international crude oil price 105 US dollar per gallon continues.
- GDP growth rate is quoted from Global Insight forecast.
- World grain price is quoted from the FAPRI forecast.
The agricultural population is forecasted to decrease 3% per annum. While the nominal agricultural production will increase 0.8%, the value added of agriculture will decrease 0.1% per annum. Income per household from farming will increase 1.1% per annum, and non-farm income will increase 3.5%.
Two sensitivity analyses are performed to test the model stability. One is exchange rate shock, and the other is FTA shock.
If exchange rate will be 1,200 won per US dollar, which is 14.3% higher than the baseline, agricultural production in 2018 will inelastically increase 3.9% than the baseline as the agricultural import will decrease. And the value added will increase only 1.7% as the main intermediate goods like oil will be imported more.
If we assume the Free Trade Agreement between Korea and US will start from 2010, agricultural production in 2018 will decrease 3.5% than the baseline as the agricultural import will increase by tariff cuts. And the value added will decrease 4.7% as there will be less demand for intermediate goods than baseline. The result is quite consistent with the recent analyses.
Researchers: Myung-Hwan Kim (Ph.D.), Oh-Bok Kwon (Ph.D.), Young-Soo Cho (Ph.D.), Dae-Seob Lee (Ph.D.), Tae-Hun Kim (Ph.D.), and Sang-Mi Park
E-mail address: kimkim@krei.re.kr, obkwon@krei.re.kr, yscho@krei.re.kr, daeseob@krei.re.kr, taehun@krei.re.kr, psm801@krei.re.kr
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