Volume 32, Issue 1, April 2007

April, 2007

Grower Response to Contracts and Risk in Genetically Modified (GM) Crops

By: Wilson, William W.; Dahl, Bruce L.; Maxwell, Brett J.
Contract strategies can resolve some of the challenges that exist for property rights conformance of genetically modified (GM) crops. The purpose of this research is to determine how contract terms impact adoption decisions related to GM grain production and marketing. A simulation model was developed for prospective GM introduction in hard red spring (HRS) wheat, and distributions of net returns for growers were analyzed using stochastic dominance and stochastic efficiency. Results illustrate that contracts can be designed to induce desired behavior. Technology fees, probabilities of detection, and the level of non-GM premiums were the most notable factors influencing adoption decisions. In addition, point-of-delivery pricing and premiums for non-GM production impact adoption decisions.
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April, 2007

Perspectives on Farm Policy Reform

By: Alston, Julian M.; Sumner, Daniel A.
This article begins with a review of what has happened to U.S. domestic farm policies and related agricultural trade policies over the past 10 years. We conclude this review with a brief overview of the policies as they stand today. Then we consider potential outcomes in the 2007 Farm Bill, and their implications for U.S. agriculture and, in particular, for agriculture in the Western states. Finally, we contemplate the longer-term possibilities for meaningful, enduring reform of U.S. farm program policies.
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April, 2007

Cross-Sector Relationships Between the Corn Feed Grains and Livestock and Poultry Economies

By: Marsh, John M.
A systems econometric model of the livestock (beef and pork), poultry (broiler), and corn sectors was estimated to evaluate cross-sector relationships. The equilibrium multipliers and comparative statics indicate unequal cross-effect of market disturbances, e.g., shocks in the livestock and poultry markets impact corn demand and supply more than shocks in the corn market impact livestock and poultry demands and supplies. Recent 2003 mad cow disease (BSE) problems in Canada and the United States display nontrivial cross-effects. For example, the BSE occurrences reduce real corn revenue in the United States by $0.62 billion, or 5.0% of its 2003 revenue.
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April, 2007

Common Trends, Common Cycles, and Price Relationships in the International Fiber Market

By: Fadiga, Mohamadou L.; Misra, Sukant K.
A multivariate unobserved component model was applied to identify common movements among cotton, wool, rayon, and polyester world prices. Two common stochastic trends and cycles govern the stochastic behaviors of price fluctuations in the world fiber market. These unobserved components have important implications as they can help in the design of more efficient commodity programs to smooth terms of trade shocks, especially in developing countries. The study found the effect of inventory adjustments on world cotton price is diminishing, which indicates that speculative behaviors in the world fiber market are less prevalent than previously thought.
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April, 2007

Economic Benefits of Animal Tracing in the Cattle Production Sector

By: Elbakidze, Levan
One of the options to prepare for a potential outbreak of an infectious livestock disease is to initiate an animal tracking system, which would provide information on animal movements and facilitate disease management. This study examines the benefits of implementing an animal tracking system in the context of a simulated cattle disease outbreak with and without animal tracking. Estimates are provided for some of the losses that would be avoided with an animal tracking system if an infectious animal disease were introduced. The results show that the economic efficiency of an animal tracking system depends on such factors as inter-herd contact rates, effectiveness of animal disease response actions, and the extent to which an animal tracking system decreases the time of tracing animal movements. In the event of a highly infectious animal disease outbreak, substantial economic losses could be avoided if an effective animal tracking system is implemented.
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April, 2007

Grain Marketing Strategies Within and Across Lifetimes

By: Peterson, Hikaru Hanawa; Tomek, William G.
To reconcile the discrepancy between the efficient market hypothesis and grain marketing recommendations by advisory services and extension programs, simulated prices from an efficient market are used to compare performance of marketing practices over the long run and in individual 40-year periods. We find that an efficient market can generate diverse price behavior within finite samples, allowing for strategies that are inferior on average to perform relatively better, as frequently as half of the time in an average 40-year lifetime. Lifetime returns of strategies show considerable overlap, suggesting extremely low confidence in recommendations made based on short samples.
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April, 2007

Persistent Pockets of Extreme American Poverty and Job Growth: Is There a Place-Based Policy Role?

By: Partridge, Mark D.; Rickman, Dan S.
Over the past four decades almost 400 U.S. counties have persistently experienced poverty rates in excess of 20%. This raises the question of whether poverty-reducing policies should be directed more at helping people or helping the places where they reside. Using a variety of approaches, including geographically weighted regression analysis, we find that local job growth especially reduces poverty in persistent-poverty counties. Findings also show that these counties do not respond more sluggishly to exogenous shocks. Finally, this analysis identifies some key geographic differences among persistent-poverty clusters. Taken together, place-based economic development has a potential role for reducing poverty in these counties.
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April, 2007

An Analysis of Default and Liquidity Risk in Farm Credit System Bonds

By: Jensen, Farrell E.; Perry, Christoffer K.
This study tests for the existence of default and liquidity risk premiums in Farm Credit System bonds. ARCH models are used with over eight years of daily data on yields to maturity of Farm Credit System bonds and U.S. Treasury bonds. Matching five-year maturities for both types of bonds were used. Out data contain evidence of both default and liquidity risk in the spread between the two securities. Elasticity estimates show that the yield spreads are more responsive to default risk than liquidity risk. These sources of risk likely increase the rates agricultural borrowers must pay for loans from the Farm Credit System.
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April, 2007

Multiple Environmental Externalities and Manure Management Policy

By: Key, Nigel D.; Kaplan, Jonathan D.
This paper considers the economic and environmental implications of regulating water and air nitrogen emissions under single and multi-environmental media policies in the U.S. hog industry. We examine tradeoffs from policies designed to correct an externality in one medium, when there are multiple environmental externalities. We separately and jointly analyze: (a) nitrogen land application restrictions consistent with recently adopted EPA requirements under the Clean Water Act, and (b) hypothetical air quality restrictions under the Clean Air Act, both with and without EQIP payments available to mitigate the costs of complying with nutrient application regulations.
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April, 2007

Health Information Availability and the Consumption of Eggs: Are Consumers Bayesians?

By: Chang, Hung-Hao; Just, David R.
This study uses a generalized Bayesian updating model to estimate the impact of health information appearing in the popular media on the consumption of eggs. The framework permits us to explore the possible effects of several known psychological biases in learning. Generalized Bayesian learning allows media publications to have a decaying effect on behavior. Our primary finding is that health information has a significant impact on U.S. egg consumption. Furthermore, the reaction to health information is found to be temporary. Health information will, on average, decay to a point of unimportance in a matter of a few weeks without a constant and consistent stream of confirming information.
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April, 2007

Market Reforms, Spatial Price Dynamics, and China’s Rice Market Integration: A Causal Analysis with Directed Acyclic Graphs

By: Awokuse, Titus O.
Previous studies on post-reform market performance of Chinese grain markets have produced mixed results. This paper employs province-level price data to determine if China's food market liberalization policies in the 1990s resulted in interregional rice market integration. Furthermore, this study extends the literature on spatial market integration by augmenting multivariate cointegration modeling techniques with directed acyclic models (DAGs), a recently developed statistical method for analyzing contemporaneous causal relationships. While the empirical results confirm the existence of strong market linkages subsequent to the reforms of the early 19902, the linkages became less as the Chinese government reversed several reform policies in the mid-1990s. Overall, the empirical evidence from this study indicates that China's agricultural market policy reforms have been relatively effective.
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April, 2007

Why Grazing Permits Have Economic Value

By: Rimbey, Neil R.; Torell, L. Allen; Tanaka, John A.
Grazing permit value supposedly arises as a cost advantage for permit holders. Yet, ranches are overpriced relative to income earning potential. Hedonic models for New Mexico and the Great Basin were used to evaluate permit value. We found less than 16% of the marginal value of grazing permits in New Mexico can be attributed to livestock production, and for Great Basin ranches, estimates indicate none of the value can be assigned to livestock production. Deeded and public land acreages make the ranch bigger and it is the acreage, not the cattle grazing it, that adds the most to ranchland value.
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