Volume 23, Issue 1, July 1998

July, 1998

CAPITAL ADJUSTMENT IN U.S. AGRICULTURE AND FOOD PROCESSING: A CROSS-SECTORAL MODEL

By: Arnade, Carlos Anthony; Gopinath, Munisamy
Significant differences exist in the rates of capital adjustment in the four major sectors of the U.S. economy: agriculture, food, manufacturing, and services. A multioutput adjustment cost model is specified to compute the rates of capital adjustment. This specification allows us to derive dynamic output supply and investment demand functions for the four sectors, which are then fitted to time-series data. Our estimates show that capital in agriculture and manufacturing is almost fixed and adjusts toward respective long-run equilibrium at a rate of about 2% per year. The food processing and services sectors are more flexible in that their capital stocks fully adjust in less than five years. Thus, the rate of adjustment of agricultural capital is lower than that of other sectors in the U.S. economy.
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July, 1998

INFORMATIONAL EFFECTS OF NUTRIENT INTAKE DETERMINANTS ON CHOLESTEROL CONSUMPTION

By: Variyam, Jayachandran N.; Blaylock, James R.; Smallwood, David M.
Nutrient information and dietary data for a sample of U.S. household meal planners are used to estimate the direct and indirect effects of various dietary determinants on cholesterol intake. Holding sociodemographic and household characteristics constant, greater nutrition information translates to significantly lower intake of dietary cholesterol. Evidence supports the hypothesis that schooling promotes better health behavior through greater acquisition and use of health information. Blacks and Hispanics stand to benefit from nutrition education programs to increase their awareness of diet-health relationship. A low-calorie diet decreases the intake of cholesterol more than a low-fat diet.
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July, 1998

AN ECONOMIC ANALYSIS OF OZONE CONTROL IN CALIFORNIA’S SAN JOAQUIN VALLEY

By: Kim, Hong Jin; Helfand, Gloria E.; Howitt, Richard E.
This study estimates the benefits to agricultural and human health of reducing ozone in the San Joaquin Valley of California, and the costs of ozone control. The San Joaquin Valley's highly valued crops suffer from high ozone levels. Federal and state primary ozone standards are based on health effects, not effects on other sectors, and do not consider costs of attaining the standards. The methods here allow comparison of both total and marginal benefits and costs. The results suggest that net gains can be achieved for the entire valley by reducing ozone below 1990 levels, although results vary by region.
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July, 1998

EXPERIMENTAL SIMULATION OF PUBLIC INFORMATION IMPACTS ON PRICE DISCOVERY AND MARKETING EFFICIENCY IN THE FED CATTLE MARKET

By: Anderson, John D.; Ward, Clement E.; Koontz, Stephen R.; Peel, Derrell S.; Trapp, James N.
Federal budgetary pressures raise questions regarding the importance of public market information. This study assesses the impact of price discovery and production efficiency of reducing public price and quantity information. The amount and type of information provided to Fed Cattle Market Simulator (FCMS) participants was varied by periodically withholding current and weekly summary information according to a predetermined experimental design. Results show that reducing information increased price variance and decreased marketing efficiency; that is, more cattle were delivered at weights deviating from 1,150 pounds- the least-cost marketing weight in the simulator. These factors, which increase costs, make the industry less competitive.
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July, 1998

THE ROLE OF SOIL TEST INFORMATION IN REDUCING GROUNDWATER POLLUTION

By: Fleming, Ronald A.; Adams, Richard M.; Ervin, David E.
Testing soils for nutrients is expected to improve groundwater quality. However, it is unknown whether soil testing will improve groundwater quality sufficiently to decrease the demand for direct regulation of agricultural practices. Focusing on an irrigated agricultural region in eastern Oregon, the economic and environmental aspects of soil testing are assessed using a spatially distributed, dynamic simulation model which links economic behavior with the physical processes that determine groundwater quality. Results indicate that soil testing of all fields increases farm profits and reduced groundwater nitrate concentration. However, the benefits are small in terms of potential improvements in groundwater quality
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July, 1998

ECONOMIC AND HYDROLOGIC IMPLICATIONS OF SUSPENDING IRRIGATION IN DRY YEARS

By: Keplinger, Keith O.; McCarl, Bruce A.; Chowdhury, Manzoor E.; Lacewell, Ronald D.
A dry year irrigation suspension has been proposed as a way of reallocating water when aquifer levels are low for the Texas Edwards Aquifer. Under this program, farmers would be paid to suspend irrigation to allow more spring flow or nonagricultural pumping. When irrigation is suspended in the east, springflow response is markedly larger than when suspended in the western portions of the aquifer. Most acreage participates when a $90 per acre payment is offered before the cropping season. Considerably higher payments are needed and less water saved for a suspension program instituted during the cropping season.
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July, 1998

THE EFFECT OF STOCHASTIC IRRIGATION DEMANDS AND SURFACE WATER SUPPLIES ON ON-FARM WATER MANAGEMENT

By: Willis, David B.; Whittlesey, Norman K.
This study presents a procedure for simultaneously addressing stochastic input demands and resource supplies for irrigated agriculture within a linear modeling framework. Specifically, the effect of stochastic crop net irrigation requirements and streamflow supplies on irrigation water management is examined. Irrigators pay a self-protection cost, in terms of water management decisions, to increase the probability that stochastic crop water demand is satisfied and anticipated water supply is available. Self-protection cost is lower when increasing the probability that anticipated water supplies are delivered, ceteris paribus, than when increasing the probability that the crop receives full net irrigation requirement in the study region.
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July, 1998

EVALUATING THE EFFECTIVENESS OF CONSERVATION WATER-PRICING PROGRAMS

By: Huffaker, Ray G.; Whittlesey, Norman K.; Michelsen, Ari M.; Taylor, R. Garth; McGuckin, J. Thomas
Charging farmers increasing block prices for irrigation deliveries is advocated as a means of encouraging agricultural water conservation in the West. We formulated a model of a hypothetical irrigated river basin to investigate the hyrdro-economic circumstances in which such pricing leads to water conservation. Our results indicate that increasing delivery prices may encourage irrigators to make adjustments with countervailing impacts on consumptive water use and conservation. Whether these countervailing impacts combine to conserve water or increase its consumptive use must be resolved empirically. An alternative resolution of this ambiguity is to assess water prices in terms of consumptive use.
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July, 1998

CROSSING THE NEXT MERIDIAN: THE ECONOMICS OF RURAL-URBAN INTERDEPENDENCE, INSTITUTIONS, AND INCOME DISTRIBUTION IN THE AMERICAN WEST

By: Weber, Bruce A.
This article explores and develops three ideas: (a) that the aridity of western North America and its attendant characteristics have fundamentally shaped the work of western agricultural economists and encouraged some distinctive western contributions to the study of economics; (b) that in order to understand economic relationships that are critical to rural western economic development, economists need to move beyond the standard equilibrium economic models and explore some emerging models of spatial development and institutional change in which the concept of "increasing returns" plays a key role; and (c) that the West provides a fine laboratory for testing these frameworks.
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July, 1998

CONTRACTING FOR NONPOINT-SOURCE POLLUTION ABATEMENT

By: Bystrom, Olof; Bromley, Daniel W.
This study presents an incentive scheme to control agricultural nonpoint-source pollution. The analysis is based on a principal-agent framework with two parties: farmers and a regulating authority. Our incentive scheme proposes collective penalties as a way to control pollution. Unlike previous analyses of incentive schemes to control agricultural pollution, we suggest nonindividual contracts between farmers and a regulating authority, where farmers can trade pollution abatement efforts. Findings show that the information requirement of a regulatory agency can be substantially reduced if contracts can be made nonindividual.
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July, 1998

THE EFFECTS OF WATER RIGHTS AND IRRIGATION TECHNOLOGY ON STREAMFLOW AUGMENTATION COST IN THE SNAKE RIVER BASIN

By: Willis, David B.; Caldas, Jose Vaz; Frasier, W. Marshall; Wittlesey, Norman K.; Hamilton, Joel R.
Three species of salmon in the Snake River Basin have been listed as endangered. Recovery efforts for these fish include attempts to obtain increased quantities of water during smolt migration periods to improve habitat in the lower basin. Agriculture is the dominant user of surface flows in this region. This study investigates farmer cost of a contingent water contract requiring the agricultural release of stored irrigation supplies in low flow years during critical flow periods. Results show that contingent contracts can provide substantial quantities of water at a relatively modest cost without significantly affecting the agricultural base of the area.
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July, 1998

IMPACTS OF SOCIODEMOGRAPHIC VARIABLES ON THE IMPLICIT VALUES OF BREAKFAST CEREAL CHARACTERISTICS

By: Shi, Hongqi; Price, David W.
The implicit values of nutrient and nonnutrient characteristics of breakfast cereal were estimated using the 1987-88 household portion of the USDA's Nationwide Food Consumption Survey data. The effects of sociodemographic variables on cereal characteristic values were also estimated. The conceptual framework of the hedonic price model, used for food products, has traditionally focused on the nutritional characteristics of these products. This framework was extended to incorporate nonnutritional characteristics. Findings indicate that consumers' sociodemographic characteristics significantly affect the implicit values of both nutritional and nonnutritional cereal characteristics. Results generally met with prior expectations.
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July, 1998

OPTIMAL CHOICE OF GENERIC MILK ADVERTISING EXPENDITURES BY MEDIA OUTLET

By: Pritchett, James G.; Liu, Donald J.; Kaiser, Harry M.
The largest portion of dairy and milk checkoff funds is spent on generic fluid milk advertising. These funds are distributed among four distinct media outlets-television, radio, print, and outdoor. Spending too little on one media outlet or too much on another constitutes a missed opportunity to garner higher returns. Using 1984-93 data, this study compares historical advertising expenditures in each media outlet to the advertising expenditure decision of an optimal control model. Results show profits would have increased if funds had been reallocated from television to radio, print, and outdoor media outlets.
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July, 1998

EVALUATION OF EXTENSION AND USDA PRICE AND PRODUCTION FORECASTS

By: Kastens, Terry L.; Schroeder, Ted C.; Plain, Ronald L.
This study evaluates agricultural forecasting accuracy in an analysis of responses to the Annual Outlook Survey conducted by the American Agricultural Economics Association from 1983 through 1995. Representative extension and composite, production, and price forecasts for several commodities are constructed from the survey data. These forecasts are compared to each other and to U.S. Department of Agriculture (USDA) and futures-based forecasts. Relationships between forecast features and accuracy are examined. Generally, extension forecasts are more accurate than USDA forecasts for livestock series, but not more accurate for crops. Composite forecasts are often more accurate than either extension or USDA forecasts.
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July, 1998

PERCEPTIONS OF MARKETING STRATEGIES: PRODUCERS VERSUS EXTENSION ECONOMISTS

By: Schroeder, Ted C.; Parcell, Joseph L.; Kastens, Terry L.; Dhuyvetter, Kevin C.
Extension marketing economists commit substantial resources to outlook and market analysis. Producers demand this information and use it to make production and marketing decisions. This study analyzes responses to a marketing survey of producers and extension marketing economists to discern similarities and differences in their perceptions regarding market timing, futures market efficiency, and risk management. Producer and extension perceptions are consistent with regard to several marketing issues, although they are not always consistent with published research results. Both producers and extension economists disagree that producers will receive a lower average price by forwarding contracting, and many do not believe hedging reduces risk and lowers expected return. Extension marketing economists rate risk reduction as a less important goal of marketing strategies than do producers.
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July, 1998

EXTERNALITIES FROM ROAMING LIVESTOCK: EXPLAINING THE DEMISE OF THE OPEN RANGE

By: Centner, Terence J.; Griffin, Ronald C.
Fence-in laws in most states require ranchers to pay for fences to keep their livestock from trespassing onto others' property. Some states, or jurisdictions within states, have a fence-out rule that requires ranchers' neighbors to pay for fences to keep livestock out. Both rules are Pareto optimal. Using a potential Pareto criterion, we show that a preference for fence-out in some areas may end as conditions change, such as increased nonranching land uses. Changed conditions may have legal consequences. Specific fence-out and fence cost-sharing provisions may be potentially Pareto inefficient and may be challenged for being unconstitutional under the due process clause.
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July, 1998

WATER MANAGEMENT POLICIES FOR STREAMFLOW AUGMENTATION IN AN IRRIGATED RIVER BASIN

By: Willis, David B.; Whittlesey, Norman K.
The value of maintaining a minimum streamflow objective on average is lessened when there is considerable dispersion around the average. An integrated economic and hydrology model is presented which provides water policy planners with a way to accurately measure both the economic cost and hydrologic consequences of maintaining a minimum streamflow level in an irrigated river basin at alternative probabilities of maintaining the target flow level. Water markets for streamflow augmentation are shown to be the most cost-effective policy in the study area.
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July, 1998

WELFARE EFFECTS OF AGRICULTURAL TRADING BLOCS: THE SIMULATION OF A NORTH AMERICAN CUSTOMS UNION

By: Kennedy, P. Lynn; Hughes, Karol W.
Agricultural trade liberalization among the three North American Free Trade Agreement (NAFTA) signatories is modeled using a political preference function. The model distinguishes among Canada, Mexico, the United States, and a politically passive rest of the world. Through the use of intracountry compensation, the analysis shows that, from an agricultural perspective, economic integration is in the best interest of the group as a whole, although not in the best interest of individual countries. More specifically, of the agricultural production sectors, Canadian dairy, Mexican corn, and U.S. beef producers suffer the greatest losses from the formation of North American customs union.
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