Volume 23, Issue 2, December 1998

December, 1998

ON CHOOSING A BASE COVERAGE LEVEL FOR MULTIPLE PERIL CROP INSURANCE CONTRACTS

By: Ker, Alan P.; Coble, Keith H.
For multiple peril crop insurance, the U.S. Department of Agriculture's Risk Management Agency estimates the premium rate for a base coverage level and then uses multiplicative adjustment factors to recover rates at other coverage levels. Given this methodology, accurate estimation of the base coverage level from 65% to 50%. The purpose of this analysis was to provide some insight into whether such a change should or should not be carried out. Not surprisingly, our findings indicate that the higher coverage level should be maintained as the base.
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December, 1998

A NOTE ON DEALING WITH POULTRY IN DEMAND ANALYSIS

By: Eales, James S.; Hyde, Jeffrey; Schrader, Lee F.
Two approaches have been taken to the modeling of poultry demand in U.S. meat demand studies. One has been to ignore turkey, and estimate demands for beef, pork, and chicken. The second has been to include turkey by combining it with chicken, and estimating demands for beef, pork, and poultry. The validity of these two approaches is examined using quarterly U.S. time-series data from 1980-96. The results indicate that either approach to the modeling of poultry demand is appropriate.
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December, 1998

TECHNICAL BARRIERS TO TRADE: A CASE STUDY OF PHYTOSANITARY BARRIERS AND U.S. – JAPANESE APPLE TRADE

By: Calvin, Linda; Krissoff, Barry
Concern about the use if technical barriers as restrictions to trade has increased since the World Trade Organization Agreement on Agriculture. In this analysis, we quantify the phytosanitary barriers to U.S. apple exports to Japan by calculating tariff-rate equivalents. We examine the trade and welfare impacts of removing phytosanitary barriers and tariffs under two assumptions regarding transmission of the bacterial disease fire blight: first, that transmission via commercial fruit is not possible, and second, that it can occur. The disease losses required to eliminate the grains to trade are estimated to be much larger than those experienced in other countries.
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December, 1998

AN ANALYSIS OF ON-FARM COSTS OF TIMING N APPLICATIONS TO REDUCE N LOSSES

By: Huang, Wen-Yuan; Hewitt, Tracy I.; Shank, David
Timing nitrogen applications to the biological needs of a crop is an effective way to reduce nitrogen losses to the environment. However, this strategy may carry a production risk and conflict with farmers' economic objectives. A field-level production decision model was used to estimate on-farm costs associated with timing nitrogen applications for crop needs in Indiana. For risk-neutral farmer, the estimated cost is less than $1 per acre with a reduction of 11 pounds of residual nitrogen. For a risk-aversion farmer, the estimated cost is up to $37 per acre with a reduction of 96 pounds of residual nitrogen.
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December, 1998

TRENDS IN THE ACCURACY OF USDA PRODUCTION FORECASTS FOR BEEF AND PORK

By: Bailey, DeeVon; Brorsen, B. Wade
Trends in the accuracy of USDA forecasts of beef and pork production and supply are evaluated for the period 1982-96. Findings of the study show that USDA forecasts underestimated production and supply in the 1980s, but this bias has now disappeared. The variance of forecasts also has declined. Thus the accuracy of the forecasts has improved. The most recent USDA forecasts were found to meet the criteria of optimal forecasts, while those of the 1980s were not optimal.
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December, 1998

MOVING FROM UNIFORM TO VARIABLE FERTILIZER RATES ON IOWA CORN: EFFECTS ON RATES AND RETURNS

By: Babcock, Bruce A.; Pautsch, Gregory R.
This study develops a model based on the yield potential of various soil types in 12 Iowa counties to estimate the potential value of switching from uniform to variable fertilizer rates. Results indicate modest increases in the gross returns over fertilizer costs, ranging from $7.43 to $1.52 per acre. The net profitability of variable-rate technology (VRT) is sensitive to the per acre costs of moving to a VRT program. Under the assumptions of the model, applying variable rates would increase yield by 0.05 to 0.5 bushels per acre, and would reduce fertilizer costs by $1.19 to $6.83 per acre.
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December, 1998

CONSUMERS’ VALUATION OF INSECTICIDE USE RESTRICTIONS: AN APPLICATION TO APPLES

By: Roosen, Jutta; Fox, John A.; Hennessy, David A.; Schreiber, Alan
Economic assessments of pesticide regulations typically focus on producer impacts and generally ignore possible changes in product demand. These changes may be nonnegligible if real and/or perceived product attributes change. We measure consumers' willingness to pay (WTP) for the elimination of one insecticide and also a whole group of insecticides in apple production using a multiple-round Vickrey auction. The data are analyzed using nonparametric statistical tests and a double-hurdle model. Our findings show that consumer perceptions of product attributes change if pesticides are removed from production, and this is reflected in WTP changes. WTP is shown to be income elastic.
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December, 1998

DYNAMIC COMPLEMENTARITY IN EXPORT PROMOTION: THE MARKET ACCESS PROGRAM IN FRUITS AND VEGETABLES

By: Richards, Timothy J.; Patterson, Paul M.
Government-supported promotion in foreign markets may justified when market failures exist, such as spillover externalities, where promotion of one commodity positively influences exports of another, or when market uncertainties cause planning horizons to be shorter than the persistent effects of promotion. A dynamic model of U.S. apple, almond, grape, and wine export supply is developed to test for these market failures. Promotion is viewed as an investment in establishing and maintaining a product's image. Evidence supporting the existence of each market failure is found. Exporters and program administrators may fail to account for them in export promotion planning.
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December, 1998

MARKET AND WELFARE EFFECTS OF LIVESTOCK FEED SUBSIDIES IN SOUTHEASTERN NEW MEXICO

By: Skaggs, Rhonda K.; Falk, Constance L.
Input subsidies have the potential to increase production, promote more input use, and impact the environment. Unlike many other federal agricultural subsidies, livestock feed programs have not been the subject of previous economic research. During 1992-96, the U.S. Department of Agriculture paid livestock producers an annual average of $73.2 million in feed subsidies. The objective of this research is to estimate the market and welfare effects of feed subsidies in one region of New Mexico. The price and output effects of the subsidy are found to be small, and the welfare impacts of the subsidy unevenly distributed between subsidized and nonsubsidized producers.
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December, 1998

TRADE LIBERALIZATION AND JAPANESE AGRICULTURAL IMPORT POLICIES

By: Pantzios, Christos J.; Taylor, Timothy G.
This analysis empirically evaluates a subset of Japanese agricultural policies during the 1970s and 1980s using the Trade Restrictiveness Index recently developed by Anderson and Neary. This index, though theoretically rigorous, is empirically demanding, resulting in relatively few applications. Inferences obtained from the index are in general accordance with policy changes and economic events over the period of analysis. Using 1970 as the base, the estimated TRI suggests that policy changes during 1970-87 resulted in moderately liberalized trade. Comparison with a conventional measure of trade distortion- producer and consumer subsidy equivalents (PSEs and CSEs)- reveals contrasting inference. This suggests the choice of empirical measures in evaluating trade policies in nontrivial.
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December, 1998

FORWARD SHIPPING OPTIONS FOR GRAIN BY RAIL: A STRATEGIC RISK ANALYSIS

By: Wilson, William W.; Priewe, Steven R.; Dahl, Bruce L.
In the late 1980s, grain-hauling railroads began offering alternatives that have made shipping decisions more strategic. Shippers now confront alternatives ranging from nearby and unguaranteed ordering to various durations of forward and guaranteed shipment. Each has varying penalties for cancellation and payments from the railroad for nonperformance, and differing risks and payoffs. Because of the configuration of choices, shippers confront a portfolio of shipping alternatives. A dynamic stochastic simulation model was developed to analyze alternative strategies. The model includes the effects of uncertainties in tariff rate changes, car premiums, basis levels, forward and spot grain purchases, and receiving railcars under each of three alternatives. Shipping demand is determined by inter-month commodity price differences, carrying costs, transport costs, and storage capacity. Considering these factors, the shipper chooses grain sales and shipping strategies that maximize net payoffs and confronts a tradeoff between expected profits and risk.
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December, 1998

DO ALL THE RESOURCE PROBLEMS IN THE WEST BEGIN IN THE EAST?

By: Shogren, Jason F.
Economics can make good policy better and bad policy go away- a message often constrained by the political realities surrounding federal resource policy toward the West. This essay responds to these challenges to economic reasoning based on the lessons learned after a stay at the Council of Economic Advisers. My goal is to help make apolitical economists more effective advocates of efficiency.
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December, 1998

AN ECONOMIC THRESHOLD FOR TICK CONTROL CONSIDERING MULTIPLE DAMAGES AND PROBABILITY-BASED DAMAGE FUNCTIONS

By: Young, Douglas L.; Haantuba, Hyde H.
The economic threshold for thick infestations on Zambian cattle was analyzed considering both direct production losses and mortality from transmitted diseases. Probability theory applied to mortality risks was used to derive the functional form for disease damage. With only noninfectious ticks, the economic threshold based on liveweight gain losses was three ticks per calf. The threshold recommended dipping calves whenever any disease-infectious ticks were present. Similar threshold results held for cows when considering milk production and disease mortality losses. If disease control benefits are omitted, as in some past work, thresholds will be overstated and dipping recommendations understated when infectious ticks are present.
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December, 1998

IMPACTS FROM CAPTIVE SUPPLIES ON FED CATTLE TRANSACTION PRICES

By: Ward, Clement E.; Koontz, Stephen R.; Schroeder, Ted C.
Increased use of noncash-price procurement methods has concerned cattlemen for the past several years. This research estimated impacts of captive supplies on transaction prices for fed cattle. Negative relationships were found between transaction prices and percentage deliveries from the inventory of forward contracted and marketing agreement cattle. However, impacts from the absolute size of the total captive supply inventory were not significant. Price differences were found among procurement methods with forward contract prices being much lower. On balance, captive supplies had small but often negative effects on fed cattle transaction prices.
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December, 1998

ECONOMIC ANALYSIS OF PHOSPHORUS – REDUCING TECHNOLOGIES IN PORK PRODUCTION

By: Boland, Michael A.; Preckel, Paul V.; Foster, Kenneth A.
Soil phosphorus levels have increased as pork production has become concentrated. Phosphorus-based manure management regulations for land application have been proposed by policy makers. The objective of this study is to determine benefits/costs of adopting two alternatives for reducing phosphorus: synthetic amino acids or phytase. An optimization model is constructed to determine optimal excreted nitrogen and phosphorus from alternative feed ingredients. Results are derived using different manure storage and application systems. While the two alternatives are not least-cost ingredients, they become profitable when producers are constrained by land. An important result is that the net cost of manure is negative.
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December, 1998

ECONOMIC AND ENVIRONMENTAL FEASIBILITY OF VARIABLE RATE NITROGEN FERTILIZER APPLICATION WITH CARRY-OVER EFFECTS

By: Watkins, K. Bradley; Lu, Yao-Chi; Huang, Wen-Yuan
This study evaluates the long-term profitability and environmental impacts of variable rate versus uniform nitrogen application in seed potato production with nitrogen carry-over effects included. Seed potato yields were simulated for four different areas of a field using the EPIC crop growth model. A dynamic optimization model was used to determine optimal steady-state nitrogen levels for each area and the entire field. Average nitrogen losses and economic returns were evaluated for both uniform and variable rate nitrogen fertilizer. Variable rate nitrogen application was found to be unprofitable for the field when compared to uniform nitrogen application. Nitrogen losses for the field were about the same under both strategies. The results indicate greater economic and environmental benefits may be achieved by splitting nitrogen applications, especially for areas of the field exhibiting low yield productivity.
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