Volume 25, Issue 1, July 2000

July, 2000

FARM LABOR DEMAND: A META-REGRESSION ANALYSIS OF WAGE ELASTICITIES

By: Espey, Molly; McFadden, Dawn Thilmany
Previous research on farm labor demand is reviewed to empirically explore what has been learned over the past 50 years. Following the example of Hamermesh, studies were differentiated by numerous factors. A meta-regression analysis of estimated demand wage elasticities was conducted to more clearly identify any systematic factors that influence such estimates. Results of the analysis show that the magnitudes of own-price demand elasticities are affected by differences including type and area of labor market, methodology, and the time period covered by the data. Understanding variations due to model specification is important when interpreting current and future agricultural labor and policy research.
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July, 2000

MODELING TECHNICAL TRADE BARRIERS UNDER UNCERTAINTY

By: Ker, Alan P.
As traditional forms of agricultural protection continue to decline, agricultural interests will likely seek alternative protection in the form of technical barriers. A flexible framework for theoretically and empirically analyzing technical barriers under various sources of uncertainty is derived. Attention is focused on uncertainty arising from the variation in the product attribute levels, a source not yet considered by the literature. Ex ante and ex post densities of domestic and international quantities and prices as well as the densities of their respective extreme-order statistics are derived. An example is presented to illustrate the application of the developed framework.
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July, 2000

EFFICIENCY AND ECONOMIC PERFORMANCE: AN APPLICATION OF THE MIMIC MODEL

By: Richards, Timothy J.; Jeffrey, Scott R.
Using measures of allocative, technical, and overall efficiency as indicators of a latent "performance" variable, and a set of farm operating ratios as indicators of the amount of effort to improve the quality of feeding, breeding, and labor productivity, we employ a multiple-indicator, multiple-cause (MIMIC) model of Alberta dairy production to determine the factors that contribute to economic performance. Gains in performance may be made through increased milk yield, herd size, breeding program quality, and labor quality, but not by operator experience or increased expenditures on feeding programs. Consequently, the industry trend toward larger dairy herds may indeed improve the economic performance of dairy operators.
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July, 2000

SOIL QUALITY ATTRIBUTE TIME PATHS: OPTIMAL LEVELS AND VALUES

By: Smith, Elwin G.; Lerohl, Mel L.; Messele, Teklay; Janzen, H. Henry
We develop a dynamic soil quality model to evaluate optimal cropping systems in the northern Great Plains. Modeling soil quality attributes is feasible, and attribute model results apply to a wide range of soils. A crop production system with continuous spring wheat and direct planting is the most profitable system. This system has low soil erosion and high quality attributes, indicating the benefits of increased soil quality exceed the higher maintenance costs. On-site value of additional soil organic carbon (OC) ranges from $1 to $4/ton OC/hectare/year. These values for soil OC impact the optimum tillage practice, but not the crop rotation.
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July, 2000

A TWO-STAGE MODEL OF THE DEMAND FOR SPECIALTY CROP INSURANCE

By: Richards, Timothy J.
Recent proposals to reform the federal Multiple-Peril Crop Insurance Program for specialty crops raised concerns that a higher cost for catastrophic-level coverage would significantly reduce program participation. This study estimates the demand for three levels of insurance coverage (50%, 65%, 75%) using aggregate data from grape production in 11 California counties from 1986-96. A discrete/continuous econometric model of the choice of coverage level and the amount of insurance finds that the price-elasticity of demand for 50% coverage is elastic, suggesting that premium increases may indeed reduce participation significantly. Such increases may also cause a significant reallocation of growers among coverage levels.
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July, 2000

FACTOR AND PRODUCT MARKET TRADABILITY AND EQUILIBRIUM IN PACIFIC RIM PORK INDUSTRIES

By: Barrett, Christopher B.; Li, Jau-Rong; Bailey, DeeVon
This study uses a new market analysis methodology to examine price and trade relationships in eight Pacific Rim factor and product markets central to the Canadian and U.S. pork industries. The new method enables direct estimation of the frequencies with which a variety of market conditions occur, including competitive equilibrium, tradability, and segmented equilibrium. While extraordinary profit opportunities emerge episodically in a few niche markets, the vast majority of the markets studies are highly competitive- exhibiting zero estimated marginal profits to spatial arbitrage at monthly frequency- and internationally contestable. With a few notable exceptions due primarily to nontariff barriers, and despite significant remaining tariffs in some niches, the Pacific Rim is effectively a single market for pork producers and processors today.
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July, 2000

MEASUREMENT OF PRICE RISK IN REVENUE INSURANCE: IMPLICATIONS OF DISTRIBUTIONAL ASSUMPTIONS

By: Goodwin, Barry K.; Roberts, Matthew C.; Coble, Keith H.
A variety of crop revenue insurance programs have recently been introduced. A critical component of revenue insurance contracts is quantifying the risk associated with stochastic prices. Forward-looking, market-based measures of price risk which are often available in form of options premia are preferable. Because such measures are not available for every crop, some current revenue insurance programs alternatively utilize historical price data to construct measures of price risk. This study evaluates the distributional implications of alternative methods for estimating price risk and deriving insurance premium rates. A variety of specification tests are employed to evaluate distributional assumptions. Conditional heteroskedasticity models are used to determine the extent to which price distributions may be characterized by nonconstant variances. In addition, these models are used to identify variables which may be used for conditioning distributions for rating purposes. Discrete mixtures of normals provide flexible parametric specifications capable of recognizing the skewness and kurtosis present in commodity prices
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July, 2000

THE EFFECT OF FOOD LABEL USE ON NUTRIENT INTAKES: AN ENDOGENOUS SWITCHING REGRESSION ANALYSIS

By: Kim, Sung-Yong; Nayga, Rodolfo M., Jr.; Capps, Oral, Jr.
This study examines the impact of consumers' use of food labels on selected nutrient intakes of Americans. Endogenous switching regression techniques are employed to control for heterogeneity in the label use decision. When the nutrient intakes of label users and the expected nutrient intakes of label users in the absence of labels are compared, food label use decreases individuals' average daily intakes of calories from total fat and saturated fat, cholesterol, and sodium by 6.90%, 2.10%, 67.60 milligrams, and 29.58 milligrams, respectively. In addition, consumer nutrition label use increases average daily fiber intake by 7.51 grains.
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July, 2000

ECONOMICS OF AGROFORESTRY PRODUCTION IN IRRIGATED AGRICULTURE

By: Knapp, Keith C.; Sadorsky, Perry A.
A dynamic optimization model for agroforestry management is developed where tree biomass and soil salinity evolve over time in response to harvests and irrigation water quantity and quality. The model is applied to agroforestry production in the San Joaquin Valley of California. Optimal water applications are at first increasing in soil salinity, then decreasing, while the harvest decision is relatively robust to changes in most of the underlying economic and physical parameters. Drainwater reuse for agroforestry production also appears promising: both net reuse volumes and the implied net returns to agroforestry are substantial.
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July, 2000

SOCIAL CAPITAL, TRUST, AND THE AGRIBUSINESS OF ECONOMICS

By: Wilson, Paul N.
Economists, including agricultural economists, have a long history of recognizing the importance of the behavioral foundations in decision making while ignoring these observable human dimensions in their economic models. The economics of social capital and trust, two important human characteristics influencing decisions, have captured the attention of economists in recent years. Recent empirical work demonstrates that social capital and trust considerations are prevalent and economically significant, especially in business. Trust alters the terms of trade, generates decision flexibility, reduces transaction costs, and creates additional time resources for management.
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July, 2000

STATE TRADING VERSUS EXPORT SUBSIDIES: THE CASE OF CANADIAN WHEAT

By: Alston, Julian M.; Gray, Richard S.
Canada and the United States have used different trade policies to support their wheat industries. Canada conferred sole export powers to the Canadian Wheat Board, allowing it to price discriminate among markets. The U.S. government has funded transfers to its wheat producers from taxpayers, instead, through export subsidies. This study compares these two ways of supporting producers in terms of their transfer efficiency and overall deadweight losses, the incidence on different domestic interest groups, and their consequences for third party traders. In the analysis we consider the implications of market power of wheat marketing firms for the comparison of policy alternatives in the context of the Canadian wheat industry.
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July, 2000

AN EMPIRICAL EXAMINATION OF OPTIMAL ROTATIONS IN A MULTIPLE-USE FOREST IN THE PRESENCE OF FIRE RISK

By: Englin, Jeffrey E.; Boxall, Peter C.; Hauer, Grant
Fires are an important and natural component of forest ecosystems that affect the timber value of forests, and thus optimal rotations. Fire also affects amenity values provided by forests. This analysis examines the relationships among forest fire risk, timber values, and amenity values in a Faustmann rotation framework. An empirical application of the model is presented where jack pine growth in the Canadian Shield region is integrated with the nonmarket values associated with wilderness recreation. The results suggest that while the rotation period of jack pine is shorter in the presence of fire risk, the inclusion of this particular amenity would lengthen rotation periods. The level of visits to the wilderness area has a significant effect on the rotation period. Failure to account for backcountry recreation in rotations of forests in multiple-use wilderness areas of the Canadian Shield would result in suboptimal management.
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July, 2000

RESEARCH CONTRIBUTIONS FROM THE SOYBEAN CHECKOFF PROGRAMS

By: Lim, Hongil; Shumway, C. Richard; Love, H. Alan
Soybean producers participate in a checkoff program to support research and market development activities. Checkoff funds are used for both yield-enhancing and cost-reducing production research. Using USDA cost-of-production data and a regional modeling framework with greater model pretest support than several alternatives, national marginal returns to producers are estimated to higher for checkoff-supported research than for publicly supported soybean research. They are also higher for checkoff cost reducing than for checkoff yield-enhancing research.
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July, 2000

ASSESSING THE FINANCIAL RISKS OF DIVERSIFIED COFFEE PRODUCTION SYSTEMS: AN ALTERNATIVE NONNORMAL CDF ESTIMATION APPROACH

By: Ramirez, Octavio A.; Sosa, Romeo
Recently developed techniques are adapted and combined for the modeling and simulation of crop yields and prices that can be mutually correlated, exhibit heteroskedasticity or autocorrelation, and follow nonnormal probability density functions. The techniques are applied to the modeling and simulation of probability distribution functions for the returns of three tropical agroforestry systems for coffee production. The importance of using distribution functions that can more closely reflect the statistical behavior of yields and prices for risk analysis is discussed and illustrated.
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July, 2000

A DERIVATIVE SECURITY APPROACH TO SETTING CROP REVENUE COVERAGE INSURANCE PREMIUMS

By: Stokes, Jeffrey R.
The nature of indemnities and reliance on futures price averaging during two distinct time intervals throughout the production year imply Crop Revenue Coverage (CRC) insurance behaves like an exotic put option. Treating this type of insurance as a derivative security, an analytical model is developed and an algorithm for solving the model to place a lower bound on insurance premiums is presented. Monte Carlo simulation, taking into account the path-dependent nature of an Asian-type option, is then used to determine lower-bound estimates for insurance premiums on corn gross revenue under specified price and yield distributions.
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July, 2000

JOINT COSTS IN MEAT RETAILING

By: Hahn, William F.; Green, Richard D.
A dynamic econometric model relating wholesale meat prices to retail prices and wholesale meat demand is estimated using monthly data on U.S. prices and quantities of beef, pork, and chicken. The hypothesis that meat retailing costs are separable is rejected; that is, the data support joint costs in meat retailing. The hypothesis that there are fixed proportions between wholesale meat inputs and retail meat outputs is accepted.
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July, 2000

DO FARMERS GET AN EQUAL BANG FOR THEIR BUCK FROM GENERIC ADVERTISING PROGRAMS? A THEROETICAL AND EMPIRICAL ANALYSIS

By: Chung, Chanjin; Kaiser, Harry M.
This study presents a theoretical and empirical analysis of the distribution of generic advertising benefits across individual producers. We develop a closed-economy partial equilibrium model that allows for the presence of producer heterogeneity in supply response. Analytical results indicate that producers having less elastic supply response capture more benefits per dollar expended than producers with more elastic supply response. The extent of unequal distribution depends on parameters characterizing industries. The inequality may not be a significant problem for some industries, especially where the firm-level supply elasticities are not substantially different among producers, but it may be an important issue when industries have substantial differences in firm-level supply elasticities and firm sizes, and experience large demand shifts due to advertising programs
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July, 2000

CAPTIVE SUPPLIES AND THE CASH MARKET PRICE: A SPATIAL MARKETS APPROACH

By: Zhang, Mingxia; Sexton, Richard J.
Exclusive contracts (often called "captive supplies") between processors and farmers are in increasingly important feature of modern agriculture. We study an interesting empirical regulatory occurring in markets that feature both contract and spot exchange: the spot price is inversely related to the incidence of contract use in the market. We use a spatial model and a noncooperative game approach to show that processors can use exclusive contracts to manipulate the spot price in certain situations. Captive supplies in these settings represent geographic buffers that reduce competition among processors. However, in markets where the spatial dimension is less important, captive supplies are ineffective as barriers to competition because firms have incentive to "jump" across a captive supply region to procure the farm product.
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