The model covers the most important products produced by the Norwegian agricultural sector, in
all 14 final and 9 intermediary products. Most products in the model are aggregates. Primary inputs in
the model are: land (four different grades), labor (family members and hired), capital (machinery,
buildings, livestock) and other inputs (fertilisers, fuel, seeds, etc.). The prices of inputs are determined
outside the model and treated as given.
Supply in the model is domestic production and imports. Domestic production takes place on the
model’s approximately 400 different “model farms”. The farms are modeled with fixed input and output
coefficients, based on data from extensive farm surveys carried out by the Norwegian Agricultural
Economics Research Institute, a research body connected to the Norwegian Ministry of Agriculture.
Imports take place at given world market prices inclusive of tariffs and transport costs. Domestic and
foreign products are assumed to be perfect substitutes. The country is divided into nine production
regions, each with limited supply of the different grades of land. This regional division allows for regional
variation in climatic and topographic conditions and makes it possible to specify regional goals and policy
instruments. The products from the model farms go through processing plants before they are offered on
the market. The processing plants are partly modelled as pure cost mark-ups (meat, eggs and fruit), and
partly as production processes of the same type as the model farms (milk and grains).
The domestic demand for final products is represented by linear demand functions. These
demand functions are based on existing studies of demand elasticities, and are linearised to go through the
observed price and quantity combination in the base year (1990). Between the meat products there are
cross price effects, while cross price effects are neglected for all other products for which the model only
assumes own price effects. The demand for intermediary products are derived from the demand for the
final products for which they are inputs. Export take place at given world market prices.
Domestic demand for final products is divided among 5 separate demand regions, which have
their own demand functions. Each demand region consists of one or several production regions. If
products are transported from one region to another, transport costs are incurred. For imports and exports
transport costs are incurred from the port of entry and to the port of shipment respectively. In principle
restrictions can be placed on all variables in the model. The restrictions that we include, can be divided
into two groups:
(1) Scarcity restrictions: upper limits for the endowment of land, for each grade of land in each
region.
(2) Political restrictions: lower limits for land use and employment in each region, for groups of
regions (central regions and remote areas), or for the country as a whole; maximum or minimum
quantities for domestic production, imports or exports; maximum prices.
In the model, the economic surplus (consumer’s surplus plus producer’s surplus) of the agricultural sector
is maximized. This maximization is performed subject to demand and supply relationships and the
imposed restrictions. Which restrictions are included depends upon what kind of simulation that is
attempted. The solution to the model is found as the prices and quantities that give equilibrium in each
market. No restrictions must be violated, and no model farm or processing plant that is active, must be run
at a loss.
References
Ballenger, N. and Mabbs-Zeno, C. (1992): Treating food security and food aid issues at the GATT,
Food Policy, August: 264-276.
Brunstad, R. J. and Vârdal, E. (1989): Goal conflicts in the Norwegian farming Industry: Allocational
loss through the pursuit of non-efficiency goals, In Bauer, S. and Heinrichsmeyer, W. (eds.),
Agricultural Sector Modeling, Kiel: Wissenschaftsverlag Vauk.
Brunstad, R. J, Gaasland, I. and Vârdal, E. (1995a): Agriculture as a provider of public goods: a case
study for Norway, Agricultural Economics, 13: 39-49.