Modelling the Hungarian Agriculture: a methodological overview of the FARM-T model

This paper provides an opportunity for the reader to get an insight into the current modelling work at the Research Institute for Agricultural Economics, Hungary (AKI). After giving a short summary of the applied econometric models in the past decade, our latest development, the farm group model FARM-T will be introduced. Before introducing FARM-T in details, we devote the second part of the paper to collect all the major challenges we faced during the model development process, when we tried to establish a model structure, with which the possible effects of the introduction of the Single Payment Scheme (SPS) in Hungary can be properly estimated. Therefore, this chapter is meant to explain our motivation for choosing the applied model concept. In the following part of the paper, we provide a detailed introduction into the model. First, we describe the general structure, and then we go into the details about supply and demand sides. We lay an emphasis on the supply side, and especially how the agricultural production is represented by farm groups. After describing supply and demand sides, we focus on how the equilibrium is reached. Here, we discuss the interrelationships between sectors in more details (e.g. connection between crop and livestock production). We also stress the importance of regionally differentiated export and import markets. This enables us to take the various transportation modes, distances and market positions on different external markets into account. Finally, we discuss special model building issues related to the 2003 CAP reform, especially how the effects of decoupling of direct payments from production are estimated. We close this paper with a short summary of the problems concerned.