Volume 28, Issue 2, August 2003

August, 2003

An Ex Post Evaluation of the Conservation Reserve, Federal Crop Insurance, and Other Government Programs: Program Participation and Soil Erosion

By: Smith, Vincent H.; Goodwin, Barry K.
Recent research has questioned the extent to which government policies, including conservation and risk management programs, have influenced environmental indicators. The impacts of income-supporting and risk management programs on soil erosion are considered. An econometric model of the determinants of soil erosion, program participation, conservation effort, and input usage is estimated. While the Conservation Reserve Program has reduced erosion an average of 1.02 tons per acre from 1982 to 1992, approximately half of this reduction has been offset by increased erosion resulting from government programs other than federally subsidized crop insurance.
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August, 2003

Estimating Consumer Willingness to Pay for Country-of-Origin Labeling

By: Loureiro, Maria L.; Umberger, Wendy J.
Consumer willingness to pay for a mandatory country-of-origin labeling program is assessed. A consumer survey was conducted during 2002 in several grocery stores in Boulder, Denver, and Fort Collins, Colorado. Econometric results indicate that surveyed consumers are willing to pay an average of $184 per household annually for a mandatory country-of-origin labeling program. Respondents were also willing to pay an average of $1.53 and $0.70 per pound more for steak and hamburger labeled as "U.S. Certified Steak" and "U.S. Certified Hamburger," which is equivalent to an increase of 38% and 58%, respectively, over the initial given price.
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August, 2003

Portfolio Analysis for Optimal Seafood Product Diversification and Resource Management

By: Sylvia, Gilbert; Tuininga, Chris; Larkin, Sherry L.
Future harvests from commercial fish stocks are unlikely to increase substantially due to biological and regulatory constraints. Developing alternative sets of processed seafood products is one strategy for increasing welfare while managing the risks inherent in a variable and renewable natural resource. To quantify the risk-benefit tradeoffs of alternative strategies, a portfolio decision framework is embedded into a multi-period bioeconomic model. The model is used to generate an efficient portfolio frontier to estimate possible rent dissipation from status quo management. Frontiers are also generated for seafood processors and brokers. Implications for the different industry agents are discussed.
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August, 2003

Cultivar Diversity: A Neglected Risk Management Strategy

By: Tadesse, Dawit; Blank, Steven C.
Risk reduction through diversification across cultivars is evaluated. A case study of peach growers in California shows that cultivar diversity reduces both yield and revenue variability. As a result, the probability of falling below minimum income requirements set using a safety-first model is reduced using this strategy.
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August, 2003

Infrequent Shocks and Rating Revenue Insurance: A Contingent Claims Approach

By: Richards, Timothy J.; Manfredo, Mark R.
Revenue insurance represents an important new risk management tool for agricultural producers. While there are many farm-level products, Group Risk Income Protection (GRIP) is an area-based alternative. Insurers set premium rates for GRIP on the assumption of a continuous revenue distribution, but discrete events may cause the actual value of insurance to differ by a significant amount. This study develops a contingent claims approach to determining the error inherent in ignoring these infrequent events in rating GRIP insurance. An empirical example from the California grape industry demonstrates the significance of this error and suggests an alternative method of determining revenue insurance premiums.
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August, 2003

Farm Employment, Immigration, and Poverty: A Structural Analysis

By: Martin, Philip L.; Taylor, J. Edward
This study tests for structural change in the poverty-farm employment relationship between 1980 and 1990. Econometric findings from a partially simultaneous block triangular regression model estimated with census data reveal a circular relationship between farm employment and immigration that was associated with a significant decrease in the number of people in impoverished U.S. households in 1980. However, in 1990, the farm employment-poverty relationship reversed: an additional farm job was associated with an increase in poverty. Our findings suggest immigration to fill low-skilled farm jobs is transferring poverty from rural Mexico to communities in the United States.
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August, 2003

Using Both Sociological and Economic Incentives to Reduce Moral Hazard

By: Richter, Francisca G.-C.; Diaz, Edgar F. Pebe; Brorsen, B. Wade; Currier, Kevin
Economists tend to focus on monetary incentives. In the model developed here, both sociological and economic incentives are used to diminish the apparent moral hazard problem existing in commodity grading. Training that promotes graders' response to sociological incentives is shown to increase expected benefits. The model suggests this training be increased up to the point where the marginal benefit due to training equals its marginal cost. It may be more economical to influence the grader's behavior by creating cognitive dissonance through training and rules rather than by using economic incentives alone.
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August, 2003

Analysis of Economically Optimal Nutrition and Marketing Strategies for Paylean® Usage in Hog Production

By: Li, Ning; Preckel, Paul V.; Foster, Kenneth A.; Schinckel, Allan P.
An approach to the development of the economically optimal dietary concentration of Paylean, duration of the Paylean feeding, and dietary lysine concentration for finishing hog production is presented. A simulation model describing daily growth of hogs under different Paylean and lysine concentration combinations was adapted for optimizing nutrition and marketing when feed is supplemented with Paylean. Net returns per pig space per day under four alternative payment schemes are maximized based on 10-year average price levels and production costs. Profitability of Paylean is investigated, and management strategies for swine production with Paylean are developed for two representative finishing operations.
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August, 2003

Agricultural Market Structure, Generic Advertising, and Welfare

By: Cardon, James H.; Pope, Rulon D.
This analysis begins with a definition and discussion of productive advertising. Then, following Dixit and Norman, persuasive advertising is used to study the welfare effects of generic advertising by marketing orders. The study first examines horizontal competition when the competing advertiser is a monopoly, and results show that the socially optimal level of advertising for a competitive marketing order is positive only if advertising raises monopoly output. Next, advertising choices of a marketing order which sells its output to a monopolistic distributor are considered. If the distributor is a monopolist, then marketing order advertising raises welfare. This finding is in marked contrast to the results for the horizontal case studied by Dixit and Norman.
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August, 2003

Voluntary Environmental Action and Export Destinations: The Case of Forest Certification

By: Moeltner, Klaus; van Kooten, G. Cornelis
There is an increasing tendency for forest product firms worldwide to adopt sound environmental management practices by voluntarily agreeing to have their forest practices certified by third parties. Using a simple model of profit maximization, we illustrate that the puzzling emergence of this non-state, self-imposed governance structure is compatible with firms' profit motives. An empirical model using firm data from three countries shows firm location and export destinations play a key role in firms' decisions to seek certification, while the nature of forestland ownership has no significant impact on certification decisions.
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August, 2003

USDA Livestock Price Forecasts: A Comprehensive Evaluation

By: Sanders, Dwight R.; Manfredo, Mark R.
One-step-ahead forecasts of quarterly live cattle, live hog, and broiler prices are evaluated under two general approaches: accuracy-based measures and classification based measures which test the ability to categorize price movements directionally or within a forecasted range. Results suggest U.S. Department of Agriculture (USDA) price forecasts are not optimal. Broiler price forecasts are biased, and all the forecast series tend to repeat errors. While the USDA forecasts are more accurate than those of a univariate AR(4) time-series model, evidence suggests the USDA live cattle forecasts could be improved with a composite forecast that includes a time-series alternative. Despite this, the USDA correctly identifies the direction of price change in at least 70% of its forecasts over the sample period. Furthermore, actual prices fall within the USDA's forecasted range 48% of the time for broilers, but only 35% for hogs. Finally, there is some evidence that the USDA's price forecasting accuracy has improved over time for broilers, but has gotten marginally worse for hogs.
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August, 2003

An Empirical Analysis of the Demand for Wholesale Pork Primals: Seasonality and Structural Change

By: Parcell, Joseph L.
This study focuses on estimating wholesale pork primal demand relationships in order to determine their own-quantity flexibilities, whether these flexibilities have changed over time, and seasonal price fluctuations. A set of equations for pork loin, rib, butt, ham, pork belly, and picnic primals was estimated. Monthly data over an 11-year period were used to determine that own-quantity flexibilities varied across months, that they increased in absolute value over time for some primal cuts, and cold-storage stocks were used as an inventory control measure to reduce price variation for some primal cuts.
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