Demand Module

Model structure for the dairy sector

With the progressive retreat of agricultural-market policy, market imbalances and price fluctuations are gaining in importance. Swiss agriculture is involved in world markets through international trade (WTO negotiation rounds, free trade between Switzerland and the EU, bilateral agreements, etc.) Reforms have substantially changed both Swiss agricultural policy and international trade policy in recent decades. Despite this, Swiss agricultural markets are still characterised by a high level of border protection. The analysis of market trends under various scenarios is of increasing importance for agricultural policy.

The demand module is a dynamic partial-equilibrium model depicting 36 different product markets in the Swiss agricultural sector. Capturing the economic behaviour of producers, consumers and trade, the model provides information on domestic production volumes from the plant-production and animal-husbandry sectors; domestic demand in the form of human consumption and animal-feed consumption; external trade, e.g. export and import volumes and border-protection or tariff systems, as well as world-market prices and domestic producer and consumer prices. The calculated product price of the projection year in question is the average of two iterations, and is included in the supply module the following year as an expected value.

Because of the relatively small size of the Swiss market compared to the global market and the EU market, the prices of the latter two markets are seen as exogenous.   Prices in Switzerland are not unequivocally specified by the international price level,  but, depending on the nett trade situation, can be determined by (a) import prices, (b) export prices, or (c) in the case of a situation without external trade (e.g. for raw milk),  may be subject to a purely domestic  price formation, owing to the domestic-market clearing condition.