Volume 31, Issue 1, April 2006

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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April, 2006

A Continuum of Consumer Attitudes Toward Genetically Modified Foods in the United States

By: Ganiere, Pierre; Chern, Wen S.; Hahn, David E.
A national telephone survey was conducted in the United States in April 2002 to study the consumer acceptance of genetically modified (GM) foods. Attitudes toward GM foods were examined through the use of a multiple correspondence analysis (MCA), analyzing the interrelationships among many categorical variables. This method was combined with a cluster analysis to construct a typology of consumers' attitudes. Four distinct classes of attitudes were finally extracted, denoted as: Proponents, Non-Opponents, Moderate Opponents, and Extreme Opponents. It was estimated that only 35% of the surveyed population was opposed to GM foods.
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April, 2006

Designing a Voluntary Beef Checkoff

By: Norwood, F. Bailey; Winn, Chris; Chung, Chanjin; Ward, Clement E.
Recently, the U.S. Supreme Court considered whether the mandatory fees imposed by the beef checkoff violates the First Amendment. As a precaution, many states began forming voluntary beef checkoffs, where funds would be raised through voluntary contributions. This study conducted a survey of Oklahoma cattle producers to determine what type ofvoluntary checkoff design would receive the greatest support. The most popular checkoff placed a large emphasis on advertising and a slightly lower checkoff fee. The survey also tested the ability of a provision point mechanism to limit free-riding. The mechanism was not as effective as in other studies which used laboratory experiments.
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April, 2006

Information Acquisition and Adoption of Organic Farming Practices

By: Genius, Margarita; Pantzios, Christos J.; Tzouvelekas, Vangelis
This study offers an empirical framework for analyzing farmers' joint decisions to adopt organic farming practices and to seek technical (i.e., farming) information from various sources. To that end, a trivariate ordered probit model is specified and implemented in the case of organic land conversion in Crete, Greece. Findings suggest that the decisions of information acquisition and organic land conversion are indeed correlated, and different farming information sources play a complementary role. Structural policies improving the farmer's allocative ability are found to play an important role in encouraging organic farming adoption.
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