Volume 35, Issue 2, August 2010

August, 2010

Components of Grain Futures Price Volatility

By: Karali, Berna; Thurman, Walter N.
We analyze the determinants of daily futures price volatility in corn, soybeans, wheat, and oats markets from 1986 to 2007. Combining the information from simultaneously traded contracts, a generalized least squares method is implemented that allows us to clearly distinguish among time-to-delivery effects, seasonality, calendar trend, and volatility persistence. We find strong evidence of time-to-delivery (Samuelson) effects and systematic seasonal components with volatility increasing prior to harvest times— an indirect confirmation of the theory of storage.
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August, 2010

Spatial Competition and Private Labels

By: Richards, Timothy J.; Hamilton, Stephen F.; Patterson, Paul M.
Private labels, also known as store brands, are an important component of competitive strategy among multi-product retailers, as they can increase retailers’ power over suppliers in the vertical channel or facilitate horizontal differentiation among retailers. This paper seeks to identify the relative importance of each role, conditional on the location of both private labels and national brands of ice cream in attribute space. We find that retailers’ share of the total margin (retail price less production cost) is higher for private labels than national brands when retailers choose to imitate national brands with their own offerings.
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August, 2010

Consumption Inertia and Asymmetric Price Transmission

By: Xia, Tian; Li, Xianghong
We propose consumption inertia as a new explanation for asymmetric price transmission. Inertia in consumer demand enlarges retailers’ gains in gross profits from raising prices in response to higher wholesale prices and reduces gains from decreasing prices in response to lower wholesale prices. Thus, consumption inertia can cause asymmetries in price transmission whereby retailers are more willing to change their prices, and change them more quickly, in response to wholesale price increases as opposed to wholesale price decreases.
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August, 2010

Estimating Structural Changes in the Vertical Price Relationships in U.S. Beef and Pork Markets

By: Boetel, Brenda L.; Liu, Donald J.
This paper examines structural breaks in the vertical price relationships in U.S. beef/cattle and pork/hog sectors using monthly data of the past 40 years. A major methodological issue addressed is how to estimate price relationships when data contain intermittent structural breaks with unknown break dates. The adopted procedures endogenously search for structural break dates while explicitly accounting for this search in statistical inferences. Four breaks for the beef/cattle price relationship and three breaks for the pork/hog price relationship are identified. The estimation results further confirm the importance of allowing for structural breaks in the analysis of vertical price relationships.
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August, 2010

To Fund or Not to Fund: Assessment of the Potential Impact of a Regional Promotion Campaign

By: Carpio, Carlos E.; Isengildina-Massa, Olga
This paper develops a framework for assessing the potential economic impact of a regional promotion campaign combining contingent valuation methods with a partial displacement equilibrium model. The proposed approach is applied to the evaluation of the potential economic impact of the locally grown campaign in South Carolina. Results reveal that the first season of the promotion campaign increased consumer willingness to pay for produce by 3.4%. The change in consumer preferences and the corresponding shift in demand increased producer surplus by $3.09 million. This economic benefit, combined with the 2007 promotion campaign investment, resulted in a benefit-cost ratio of 6.18.
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August, 2010

Consumer Willingness to Pay for Livestock Credence Attribute Claim Verification

By: Olynk, Nicole J.; Tonsor, Glynn T.; Wolf, Christopher A.
A choice experiment was used to determine consumer value for verification of livestock production process attributes. Willingness to pay for verification of production process attributes varied for both milk and pork chops across attributes and verifying entity. Statistically significant evidence of social desirability bias was found by comparing estimates of consumer preferences solicited using direct and indirect questioning. Indirect questioning may yield more accurate representations of consumer value than direct questioning, and therefore more accurate estimates for agribusiness decision making.
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August, 2010

Health Care Reform and Farm Women’s Off-Farm Labor Force Participation: Evidence from Taiwan

By: Liao, Pei-An; Taylor, J. Edward
Do non-wage fringe benefits affect women’s off-farm work decisions? We test the impact of the 1995 introduction of universal National Health Insurance (NHI) in Taiwan on off-farm labor force participation (LFP) among farm wives. Our results, based on a difference-in- differences approach, indicate that employment-delinked NHI reduced farm wives’ off-farm LFP by 9.6 to 13.6 percentage points. The larger impact was for wives from small farm households. The health insurance reform had a larger negative impact on overall LFP among married women in agricultural households than in nonagricultural households.
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August, 2010

Is It a Jungle Out There? Meat Packing, Immigrants, and Rural Communities

By: Artz, Georgeanne M.; Jackson, Rebecca; Orazem, Peter F.
The shift of the U.S. meat packing industry from urban to rural areas has generated controversy regarding potential social and economic costs of meat packing plants on their host communities. This study uses media comments to identify the most prominent controversies regarding meat packing, its largely immigrant workforce, and rural communities. We find that the industry has impacted the demographic composition of rural communities and their schools, but find no evidence that the industry increases per capita government expenditures. Our results suggest rural communities trade off the economic benefits of hosting these large employers against the costs of accommodating needs of new residents.
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August, 2010

Local Employment Growth, Migration, and Public Land Policy: Evidence from the Northwest Forest Plan

By: Eichman, Henry; Hunt, Gary L.; Kerkvliet, Joe; Plantinga, Andrew J.
Debates over protecting public land reveal two views. Some argue protection reduces commodity production, reducing local employment and increasing out-migration. Others contend protection produces amenities that support job growth and attract migrants. We test these competing views for the Northwest Forest Plan (NWFP), which reallocated 11 million acres of federal land from timber production to protecting old-growth forest species. We find evidence that land protection directly reduced local employment growth and increased net migration. The total negative effect on employment was offset only slightly by positive migration-driven effects. Employment losses were concentrated in metropolitan counties, but percentage losses were higher in rural counties.
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August, 2010

Using Portfolio Theory to Enhance Wheat Yield Stability in Low-Income Nations: An Application in the Yaqui Valley of Northwestern Mexico

By: Nalley, Lawton Lanier; Barkley, Andrew P.
This study applies portfolio theory to wheat varietal selection decisions in order to find risk-minimizing outcomes while holding historical yields constant. Potential correlation across wheat cultivar yields increases the complexity of cultivar selection decisions, with gains in one attribute (yield potential) often associated with losses in another (yield stability). Using location-specific empirical data, portfolio theory can provide producers in low-income countries a tool for developing a recommended portfolio of varieties given a desired risk-aversion level. Based on data from Mexico’s Yaqui Valley, results suggest that sowing a portfolio of wheat varieties could have lowered yield variance by 22% to 33% in Northwest Mexico.
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