2006

August, 2006

Producer Surplus Distributions in GM Crops: The Ignored Impacts of Roundup Ready Wheat

By: Wilson, William W.; Huso, Scott R.
Release of a genetically modified (GM) crop variety would lower prices of competing pesticides used on conventional varieties. This causes an increase in surplus for those farmers who adopt the GM variety, as well as for those who plant the conventional variety. A Cournot model was developed to determine the equilibrium quantities of conventional pesticides. A market with conventional wheat was compared to a market with both conventional and GM wheat varieties to identify price decreases of the conventional pesticide as a result of the GM trait introduction.
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August, 2006

Feeding and the Equilibrium Feeder Animal Price-Weight Schedule

By: Hennessy, David A.
Feeder animal prices depend on fed animal prices, the biological growth technology, and feed costs. In addition, daily maintenance costs can be avoided through accelerated feeding. These observations allow us to model optimal feeding under equilibrium feeder animal pricing. Our model enables a better understanding of regulation in feedstuff markets. The feeder animal price-weight schedule is likely decreasing and convex in weight. Prices for animals with better growth potential should be less sensitive to feed and fed animal prices. Prices for lighter animals should be more sensitive to these prices. Regression analyses on Southern Great Plains cattle prices provide support for this model.
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August, 2006

Designing Catastrophe Bonds to Securitize Systemic Risks in Agriculture: The Case of Georgia Cotton

By: Vedenov, Dmitry V.; Epperson, James E.; Barnett, Barry J.
This article makes an initial attempt to design catastrophe (CAT) bond products for agriculture and examines the potential of these instruments as mechanisms for transferring agricultural risks from insurance companies to investors/speculators in the global capital market. The case of Georgia cotton is considered as a specific example. The CAT bond contracts are based on percentage deviations of realized state average yields relative to the long-run average. The contracts are priced using historical state-level cotton yield data. The principal finding of the study is that the proposed CAT bonds demonstrate potential as risk transfer mechanisms for crop insurance companies.
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August, 2006

The Economics of Manure Utilization: Model and Application

By: Keplinger, Keith O.; Hauck, Larry M.
A model of manure utilization is developed and applied to four types of transportable manure. Model results highlight important response differences among manure types and generally illustrate the diseconomies of manure production. For example, as manure production increases, manure value decreases and excess phosphate applications increase, thereby increasing the potential for phosphorus runoff. Policy scenarios limiting the manure application rate reduce manure value and excess phosphate application. Increasing the ratio of land using manure increases manure value while reducing excess phosphate application. Buildup of soil nutrients reduces manure value, but either increases or decreases excess phosphate application depending on the scenario.
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August, 2006

Actual Media Reports on GM Foods and Chinese Consumers’ Willingness to Pay for GM Soybean Oil

By: Hu, Wuyang; Zhong, Funing; Ding, Yulian
Information has been proven to have significant impacts on consumers' behavior and willingness to pay (WTP). In this study, information on GM soybean oil is given in the form of real-life cases involving GM food. These cases recorded from actual media reports. Using a hybrid of the double-bounded and payment care elicitation approaches, Chinese consumers' WTP for soybean oil is examined both before and after these cases are presented to them. Results indicate that media reports on positive cases do not increase consumers' WTP significantly, while reports on negative cases drastically lower their WTP.
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August, 2006

Testing for the Efficiency of a Policy Intended to Meet Objectives: General Model and Application

By: Streicher, Gerhard; Schmid, Erwin; Salhofer, Klaus
This study presents a general model demonstrating how to measure the (in)efficiency of a policy intended to meet objectives. If it is assumed that the government has available only those policy instruments it actually utilizes, our method is a test as to whether the government combines these instruments efficiently. In addition, one could also include other policy instruments, which are not actually used, but are available to the government. Our general model is applied to bread grain policy in Austria. The primary result is that the policy was quite inefficient in meeting the two main objectives of farm income support and self-sufficiency. The stochastic nature of our efficiency measures is acknowledged by taking into account the inherent uncertainty of model parameters. A response surface function is used to identify those parameters which contribute most to model output uncertainty.
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August, 2006

The Value of USDA Situation and Outlook Information in Hog and Cattle Markets

By: Good, Darrel L.; Irwin, Scott H.; Isengildina, Olga
This study investigates the impact of six major USDA reports in hog and cattle markets: Cattle; Cattle on Feed; Cold Storage; Hogs and Pigs; Livestock, Dairy, and Poultry Outlook (LDPO); and World Agricultural Supply and Demand Estimates (WASDE). A TARCH-in-mean model, with dummy variables to measure the impact of USDA reports and other external factors, is used to model close-to-open live-lean hog and live cattle futures returns from January 1985 through December 2004. The analysis revealed a statistically significant impact of all but Cattle and Cold Storage reports in live/lean hog futures, and all but Cold Storage reports in live cattle futures. Hogs and Pigs reports had the highest impact on live/lean hog returns by increasing conditional standard deviation 96%. Cattle, Cattle on Feed, and Hogs and Pigs reports had the highest impact on live cattle returns by increasing conditional standard deviation between 26% and 37.5%.
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August, 2006

Restricted Opportunities, Personal Choices, Ineffective Policies: What Explains Food Insecurity in Oregon?

By: Edwards, Mark Evan; Weber, Bruce A.; Bernell, Stephanie L.
This study examines the extent to which household demographics, local economic and social conditions, and federal food security programs explain the likelihood of household food insecurity in Oregon. Between 1999 and 2001, Oregon had the highest average rate of hunger in the nation and ranked in the top five states with respect to food insecurity. Statistical analyses using a multivariate logit model reveal that food insecurity is influenced by much more than demographics and individual choices. County-level factors such as residential location (urban versus rural) and housing costs significantly affect the likelihood that families will be food insecure.
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August, 2006

The Variable-Rate Input Application Decision for Multiple Inputs with Interactions

By: Roberts, Roland K.; English, Burton C.; Larson, James A.
Research has evaluated the relative profitability of variable-rate (VRT) versus uniform-rate (URT) application of a single input in fields with multiple management zones. This study addresses map-based VRT decisions for multiple inputs in fields with multiple management zones. The decision-making framework is illustrated for nitrogen and water applied to irrigated cotton in fields with three management zones. Results suggest traditional methods of determining VRT application of a single input may by suboptimal if interactions exist among VRT inputs and URT inputs. Implications are that a systems approach to multiple-input VRT decisions can produce increased net returns to VRT.
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August, 2006

A Battle of Taste and Environmental Convictions for Ecolabeled Seafood: A Contingent Ranking Experiment

By: Johnston, Robert J.; Roheim, Cathy A.
Consumers face pressure from environmental groups to modify their seafood purchase decisions based on concerns about fisheries' production practices. Existing research provides little information indicating whether seafood consumers are willing to change purchasing behavior based on a product's environmental attributes, to the exclusion of other attributes. We describe a contingent ranking experiment addressing preferences for fresh seafood, allowing for choices among different species, some displaying an ecolabel. Results suggest consumers consider overfishing sufficiently important to contemplate changing the species of fish they buy; however, they are unwilling to choose a less-favored species based solely on the presence of an ecolabel.
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August, 2006

Estimating Willingness to Pay Using a Polychotomous Choice Function: An Application to Pork Products with Environmental Attributes

By: Hurley, Sean P.; Miller, Douglas J.; Kliebenstein, James B.
Bid data from a Vickrey auction for pork chops with embedded environmental attributes were analyzed. It was found that approximately 62% of the participants had a positive WTP for the most "environmentally friendly" package of pork. Thirty percent of the participants had no WTP, and 8% had a negative WTP. A polychotomous choice model was used to accommodate data having an anchoring point within the distribution of the data. Standard variables found in the WTP literature coupled with this model were used to predict participants who were premium payers and non-premium payers using an estimated ordered probit equation.
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August, 2006

Estimating the Benefits of Bt Corn and Cost of Insect Resistance Management Ex Ante

By: Hurley, Terrance M.; Langrock, Ines; Ostlie, Kenneth
This paper estimates farmer benefits for corn rootworm (CRW) active Bt corn and costs of complying with Environmental Protection Agency insect resistance management requirements. The estimates are obtained from farmer survey data that were collected in Minnesota in 2002, just prior to the commercial releases of CRW Bt corn. Benefit estimates range from $14 to $33.4 million, while compliance cost estimated range from $3.5 to $8.7 million depending on whether or not CRW Bt corn also controlled the European corn borer and whether of not it was approved for sale in major export markets.
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August, 2006

Private Agricultural R&D in the United States

By: Tokgoz, Simla
The objective of this study is to analyze the determinants of private agricultural R&D investment in the United States and the liaison between public and private R&D sectors. The empirical analysis employs U.S. agricultural data for the 1970-1996 period. The results show that federal R&D obligations for basic research, used as a proxy for the complementary role of public R&D, have a significant and positive impact on private agricultural R&D spending. In contrast, federal R&D obligations for applied research, used as a proxy for the substitute role of public R&D, are not found to have a significant impact.
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April, 2006

Input Quality in the Sugar Beet Industry

By: Boland, Michael A.; Marsh, Thomas L.
Using 23 years of data (1978-2000), this study examines seven vertically integrated sugar beet plants representing three different companies in the United States. The objective of this research is to identify the marginal costs of producing sugar beets for vertically integrated sugar beet processors as a way of determining the cost savings from higher quality sugar beets. In doing so, we account for quality differences in the sugar beet input that are used to manufacture the refined sugar output. The results quantify links between high quality sugar beets and lower processing costs.
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April, 2006

Do Inspection and Traceability Provide Incentives for Food Safety?

By: Starbird, S. Andrew; Amanor-Boadu, Vincent
One of the goals of inspection and traceability is to motivate suppliers to deliver safer food. The ability of these policies to motivate suppliers depends on the accuracy of the inspection, the cost of failing inspection, the cost of causing a foodborne illness, and the proportion of these costs paid by the supplier. We develop a model of the supplier's expected cost as a function of inspection accuracy, the cost of failure, and the proportion of the failure cost that is allocated to suppliers. The model is used to identify the conditions under which the supplier is motivated to deliver uncontaminated lots. Surprisingly, our results show that when safety failure costs can be allocated to suppliers, minimum levels of inspection error are required to motivate a supplier to deliver uncontaminated lots. This result does not hold when costs cannot be allocated to suppliers. As a case study, we use our results to analyze the technical requirements for suppliers of frozen beef to the USDA's Agricultural Marketing Service.
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April, 2006

Entry of Alternative Fuels in a Volatile U.S. Gasoline Market

By: Vedenov, Dmitry V.; Duffield, James A.; Wetzstein, Michael E.
Dramatic increases in levels and volatility of gasoline prices observed in recent years may create market incentives for adoption of alternative fuels characterized by lower price volatility. This hypothesis is investigated by applying the real-options pricing approach to develop optimal thresholds for switching from conventional gasoline to alternative fuels such as ethanol blends. The main result of the paper is that given the historical price patterns of conventional gasoline and ethanol, switching to ethanol blends is an economically sound decision provided this does not decrease efficiency of the vehicle. Analysis of data subsamples during the periods of higher volatility of gasoline prices (Gulf War and War on Terrorism) provides even stronger support for this result.
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April, 2006

Portfolio Allocation and Alternative Structures of the Standard Reinsurance Agreement

By: Vedenov, Dmitry V.; Miranda, Mario J.; Dismukes, Robert; Glauber, Joseph W.
This paper examines how insurance companies participating in delivery of crop insurance would change patterns of portfolio allocation across reinsurance funds in reaction to the 2005 Standard Reinsurance Agreement. The returns of insurance companies under the SRA are calculated using a simulation model. An heuristic allocation rule is introduced in order to imitate portfolio allocation strategies of participating companies. The main conclusion of the analysis is that the bulk of changes in portfolio allocations are likely to be caused by the introduction of "retained net book quota share" reinsurance rather than adjustments in the cession limits and retention requirements for the Assigned Risk Fund.
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April, 2006

Rating Crop Insurance Policies with Efficient Nonparametric Estimators that Admit Mixed Data Types

By: Racine, Jeffrey S.; Ker, Alan P.
The identification of improved methods for characterizing crop yield densities has experienced a recent surge in activity due in part to the central role played by crop insurance in the Agricultural Risk Protection Act of 2000 (estimates of yield densities are required for the determination of insurance premium rates). Nonparametric kernel methods have been successfully used to model yield densities; however, traditional kernel methods do not handle the presence of categorical data in a satisfactory manner and have therefore tended to be applied on a county-by-county basis. By utilizing recently developed kernel methods that admit mixed data types, we are able to model the yield density jointly across counties, leading to substantial finite sample efficiency gains. Findings show that when we allow insurance companies to strategically reinsure with the government based on this novel approach they accrue significant rents.
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April, 2006

Space-Time Modeling of Timber Prices

By: Zhou, Mo; Buongiorno, Joseph
A space-time econometric model was developed for pine sawtimber timber prices of 21 geographically contiguous regions in the southern United States. The correlations between prices in neighboring regions helped predict future prices. The impulse response analysis showed that although southern pine sawtimber markets were not globally integrated, local supply and demand shocks did transmit partially to immediate neighboring regions, and could also have weaker effects in more distant regions.
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