Volume 24, Issue 1, July 1999

July, 1999

CONSUMER FOOD SAFETY CONCERNS AND FRESH PRODUCE CONSUMPTION

By: Henneberry, Shida Rastegari; Piewthongngam, Kullapapruk; Qiang, Han
The linear approximation of an almost ideal demand system model was used to measure the impacts of prices, expenditures, and consumer food safety concerns on the consumption of 14 major fresh produce categories in the United States for the period 1970-92. The changes in fresh produce consumption due to food safety concerns was calculated. The results indicate that risk information has not had a significant impact on the consumption of most of the fresh produce items studied.
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July, 1999

DEMAND FOR HERBICIDE IN CORN: AN ENTROPY APPROACH USING MICRO-LEVEL DATA

By: Arndt, Channing
Price responsiveness of herbicide demand in corn for farmers in Indiana's White River Basin using cross-section data from individual farms is estimated. Particular attention is paid to appropriate treatment of binding nonnegativity constraints. Estimation was first attempted using an approach to demand systems estimation suggested by Lee and Pitt. However, analytical and computational difficulties effectively preclude estimation by the Lee and Pitt approach. As an alternative, a maximum entropy (ME) approach is presented and discussed. Results from the ME estimator tentatively indicate limited response of herbicide demand to changes in own prices. The maximum entropy approach to demand systems estimation appears to have merit and warrants further attention.
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July, 1999

DAIRY DEREGULATION AND LOW-INPUT DAIRY PRODUCTION: A BIOECONOMIC EVALUATION

By: Tozer, Peter R.; Huffaker, Ray G.
Deregulation of the Australian dairy industry could affect the utilization of resources by milk producers and the profitability of dairy production. In this study we examine the feed mix that dairy producers use, both pastures and supplements, under partial and total deregulation. We are particularly interested in the interaction of pasture utilization and farm profitability. The results of this research demonstrate that profitable low-input dairy is constrained by the most limiting resource, feed supplied by pasture, and that the interactions between economic and biological processes are critical to farm profitability.
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July, 1999

A STRATEGIC RATIONALE FOR CAPTIVE SUPPLIES

By: Love, H. Alan; Burton, Diana M.
Partial backward integration is prevalent in many agricultural and natural resource processing industries. A strategic rationale for partial backward integration is developed for a dominant firm with a competitive fringe purchasing from competitive input suppliers. A partially backward integrated dominant firm potentially can increase profit through production efficiency gains and through a lower price for externally purchasing input. The optimal degree of backward integration results when the dominant firm's profit from exerting monopsony market power in the external spot market equals its profit from producing raw input internally, less the incremental cost of acquiring internal raw input production capacity. Comparative statics results are consistent with recent empirical studies of the beef packing industry.
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July, 1999

PATENTS, R&D, AND MARKET STRUCTURE IN THE U.S. FOOD PROCESSING INDUSTRY

By: Gopinath, Munisamy; Vasavada, Utpal
This study investigates the effects of market structure and research and development (R&D) on the innovation activities of firms. Fixed and random effects count data models are estimated with firm-level data for the U.S. food processing industry. Results show a positive association between patents and R&D, and patents and market structure, suggesting that firms which exhibit noncompetitive behavior are likely to develop new products and processes. Significant intra-industry spillovers of knowledge are identified using industry R&D. For this industry, deadweight losses from imperfect competition may be offset by greater product variety and quality of food products for consumers.
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July, 1999

THE ADOPTION AND DIFFUSION OF LEVEL FIELDS AND BASINS

By: Anderson, David P.; Wilson, Paul N.; Thompson, Gary D.
Strategic investments in agriculture often are lumpy and irreversible, with significant impacts on operating and fixed costs. Leveling cotton fields to zero slope in central Arizona is a strategic decision made by relatively younger farmers who are farming fine-textured soils in irrigation districts with higher expected water costs. The diffusion of the technology across the region between 1968-89 appears to be both a function of institutional changes (e.g., the Groundwater Management Act of 1980, the Central Arizona Project) and the long-run expected price changes induced by these new policies.
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July, 1999

EMERGING AGRICULTURAL WATER CONSERVATION PRICE INCENTIVES

By: Michelsen, Ari M.; Taylor, R. Garth; Huffaker, Ray G.; McGuckin, J. Thomas
Recent Bureau of Reclamation policies encourage or require irrigation districts to adopt price conservation incentives. Using unpublished survey results and new district-level information, we examine the rate structures and incentives of district water pricing. Our findings reveal that the majority of districts use fixed charges independent of the quantity of water delivered and that most conservation rate structures recently implemented are designed so that the first tier quantity allocation satisfies most crop water needs. Although other district management objectives may be satisfied, price incentives are diminished or nonexistent. The question of whether conservation is being achieved is tautological and depends on how each district defines conservation.
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July, 1999

ADVERTISING TRADED GOODS

By: Kinnucan, Henry W.
Nerlove and Waugh's theory of cooperative (generic) advertising is extended to the case of traded goods. Results suggest that trade reduces the incentive to promote by enlarging the effective supply or demand elasticity facing the industry. This is especially true in the net exporter situation where the enlarged demand elasticity (relative to the autarky case) limits the ability to shift advertising costs onto consumers. Simulations of the model using data and parameter values for the California egg industry suggest that ignoring trade prejudices benefit-cost ratios in favor of the promotion program. The upward bias, moreover, is significant even when the trade share is modest.
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July, 1999

TESTING SEPARABILITY OF JAPANESE DEMAND FOR MEAT AND FISH WITHIN DIFFERENTIAL DEMAND SYSTEMS

By: Eales, James S.; Roheim, Cathy A.
The separability of meat products from fish products is investigated to gain a better understanding of Japanese consumer choices in protein demand. Rather than view fish as a single homogeneous commodity, fish and seafood are categorized into several groups of products. Separability is investigated using a demand system approach in which a generalized system of demand equations is specified and used, first to identify if any of the alternative demand structures nested within the general system are appropriate for these data, and then, conditional on those results, to test separability of meats from fish products following Moschini, Moro, and Green. Results indicate that meats and fish were separable prior to 1990; however, when examined over the entire 1981-95 study period, they are not.
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July, 1999

IRREVERSIBLE INVESTMENT DECISIONS IN PERENNIAL CROPS WITH YIELD AND PRICE UNCERTAINTY

By: Price, T. Jeffrey; Wetzstein, Michael E.
Optimal entry and exit thresholds for Georgia commercial peach production are calculated when both price and yield follow a Brownian motion process. The thresholds are based on an irreversible sunk-cost investment model, where revenue from peach production is affected by the timing of when to enter production. Results indicate stability in Georgia peach production, with growers who are currently producing peaches remaining in production and potential peach growers delaying investment unless they have the ability of earning enhanced returns.
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July, 1999

FEDERAL GRAZING REFORM AND AVOIDABLE RISK

By: McCluskey, Jill J.; Rausser, Gordon C.
Recent rangeland reform attempts have increased ranchers' uncertainty of retaining grazing permits on federal land. This uncertainty is analyzed with a model of grazing on federal land. Ranchers facing this uncertainty will behave differently than if they were guaranteed the renewal of grazing permits at constant real grazing fees. It is shown that the socially optimal outcome may be achieved by adding avoidable risk through targeted rangeland reform. Rangeland reform attempts that create unavoidable risk can make both ranchers and environmental groups worse off.
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July, 1999

CONSUMER PREFERENCES FOR FOOD SAFETY ATTRIBUTES IN FRESH APPLES: MARKET SEGMENTS, CONSUMER CHARACTERISTICS, AND MARKETING OPPORTUNITIES

By: Baker, Gregory A.
Past research has yielded conflicting results on consumer valuation of food safety characteristics. In this study, conjoint analysis is used to evaluate consumer responses to hypothetical apple products in a nationwide survey. Product characteristics include price, quality, pesticide use levels and the corresponding cancer risk, and type of government inspection. Consumers expressed a broad preference for reduced pesticide usage. Four market segments were identified corresponding to consumers: (a) who had a strong preference for food safety, (b) who exhibited a more balanced desire for all product characteristics, (c) who were extremely price sensitive, and (d) who had a strong preference for product quality. Results suggest that consumers in these segments differ based on demographic and psychographic characteristics. This information should prove useful to produce marketers in marketing produce that better meets consumers' needs.
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July, 1999

THE VALUE OF ADDITIONAL CENTRAL FLYWAY WETLANDS: THE CASE OF NEBRASKA’S RAINWATER BASIN WETLANDS

By: Poor, P. Joan
Waterfowl habitat is a biological resource which is neither bought nor sold in the traditional market sense. Nebraska, which is situated near the center of North American Central Flyway, contains unique wetlands habitat. Recognizing this, resource managers working in Nebraska promote regulatory protection of such areas. This study found that Nebraskans positively value their state's Rainwater Basin wetland region in that they are willing to pay to have it maintained and expanded. In addition, this study demonstrates how this value was estimated and illustrates how such a value can assist in policy decisions regarding habitat acquisition programs.
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July, 1999

ASYMMETRIC GRADING ERROR AND ADVERSE SELECTION: LEMONS IN THE CALIFORNIA PRUNE INDUSTRY

By: Chalfant, James A.; James, Jennifer S.; Lavoie, Nathalie; Sexton, Richard J.
Grading systems are often introduced to address the classic adverse selection problem associated with asymmetric information about product quality. However, grades are rarely measured perfectly, and adverse selection outcomes may persist due to grading error. We study the effects of errors in grading, focusing on asymmetric grading errors- namely when low-quality product can erroneously be classified as high quality, but not vice versa. In conceptual model, we show the effects of asymmetric grading errors on returns to producers. Application to the California prune industry shows that grading errors reduce incentives to produce more valuable, larger prunes.
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July, 1999

COST-SHARE INCENTIVES AND BEST MANAGEMENT PRACTICES IN A PILOT WATER QUALITY PROGRAM

By: Houston, Jack E.; Sun, Henglun
This study integrates three biophysical simulators to predict crop yields, water-soil pollution emissions, and farmers' net returns under uncertain weather and market conditions. Multiple-objective programming incorporates farmer attitudes toward voluntary participation under alternate rates of government cost-share subsidies to search for efficient pollution abatement solutions as best management practices (BMPs). Net returns decline an estimated 9.6% when farmers adopt a cost-share program with a $2.50/acre subsidy, while reducing N leaching by 2.7%. For a $10/acre subsidy, N leaching can be reduced by almost 6%, but farmer net returns decline by 15%.
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July, 1999

THE ROLE OF AGRICULTURE IN OREGON’S ECONOMIC BASE: FINDINGS FROM A SOCIAL ACCOUNTING MATRIX

By: Waters, Edward C.; Weber, Bruce A.; Holland, David W.
Most studies of a state's economic base count as "basic" only the "traditional" exports of goods, federal spending, and business investment. "Nontraditional" elements of the economic base (including exports of services, federal transfers to state/local governments and households, and extraregional property income) are typically ignored. We construct a social accounting matrix (SAM) for Oregon and estimate Oregon's economic base accounting for both traditional and nontraditional elements. Almost 20% of Oregon's jobs depend on extraregional income to households (including government transfers and outside property income), 11% depend on lumber and wood and paper products, and 8% depend on agriculture.
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July, 1999

ON THE ECONOMIC RATIONALITY OF MARKET PARTICIPANTS: THE CASE OF EXPECTATIONS IN THE U.S. PORK MARKET

By: Chavas, Jean-Paul
This study investigates the nature of price expectations in a competitive market. The approach is illustrated in an application to the U.S. pork market, which exhibits cyclical patterns and biological production lags. Pork price equations are estimated under different expectation regimes. The empirical results suggest the presence of heterogeneous price expectations among market participants. A large proportion of the market (73%) is found to be associated with backward-looking expectations, where future prices are anticipated on the basis of their observed historical patterns.
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