Volume 44, Issue 3, September 2019

September, 2019

WAEA Presidential Address: Evolution toward Private Negotiation as a Dominant Institution in Agribusiness Supply Chains: Implications, Challenges, and Opportunities

By: Bastian, Christopher T.
This paper discusses the implications, challenges, and opportunities arising from increased contracting and the use of private negotiation as a trading institution within agribusiness supply chains. I address the following questions: (i) As these changes occur and private negotiation becomes a dominant institution, are market signals and economic performance improved?; (ii) Are we preparing our students to be successful in this agribusiness market environment?; and (iii) Are we helping our extension clientele be successful as these changes occur?
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September, 2019

Revenue-Neutral Pollution Taxes in the Presence of a Renewable Fuel Standard

By: Skolrud, Tristan D.; Galinato, Gregmar I.
We assess the welfare implications of a revenue-neutral tax in the presence of two Renewable Fuel Standard (RFS) policies for cellulosic biofuels: the waiver credit and the input-ratio requirement. We extend the model of revenue-neutral taxation to allow for the taxation of a dirty input in an imperfectly competitive market while integrating RFS-specific policies. Simulations from Washington and Oregon indicate that a revenue-neutral tax raises welfare by 19%'21% but growth in cellulosic ethanol production is minimal, ranging from 0.6% to 1.5%. Pollution taxes, cellulosic ethanol production, and welfare are more responsive to the waiver credit than to the input-ratio requirement.
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September, 2019

The Cost of Forest Preservation in the Brazilian Amazon: The “Arc of Deforestation”

By: Silva, Felipe de Figueiredo; Fulginiti, Lilyan E.; Perrin, Richard K.
We estimate the trade-off between agricultural production and forest preservation for the municipalities in Brazil's agricultural frontier, the so-called 'arc of deforestation,' using census and deforestation data for 2006. We use a nonparametric directional output distance function that allows us to identify the gradients of the production possibility frontier, which are the trade-offs of interest. We found that, on average, $979 is forgone in annual livestock, timber, and grain revenues to conserve 1 hectare of forest. This translates, ceteris paribus, to an average present value of costs to permanently sequester CO2 of $16.36/t, higher than most previous estimates.
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September, 2019

The Impact of Input and Output Decisions on Agricultural Production Risk

By: Chavas, Jean-Paul; Cooper, Joseph; Wallander, Steven
This paper investigates the measurement of risk exposure in agriculture and its linkages with input and output decisions. We develop a conceptual analysis of risk under general risk preferences, including cumulative prospect theory. The approach is applied to a sample of U.S. farms from 1996 to 2011. In a multi-input, multi-output framework, the analysis documents the effects of management on production risk exposure and estimates the cost of risk under alternative frameworks. We find that variable inputs contribute to increasing risk, while livestock contributes to reducing risk. Nonfarm income reduces the cost of risk.
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September, 2019

The Cost and Market Impacts of Slow-Growth Broilers

By: Lusk, Jayson L.; Thompson, Nathanael M.; Weimer, Shawna L.
There has been substantial productivity growth in the broiler industry; however, high growth rates might adversely affect animal welfare, resulting in calls for slow-growth breeds. This research shows production costs are 11%'25% per pound higher for slower-growing breeds than for modern breeds, depending on the target endpoint. Breakeven wholesale price premiums needed equate net returns of slow- to fast-growth broilers range from $0.10/lb to $0.36/lb. Annual costs of an industry-wide conversion to slow growth are $450 million for consumers and $3.1 billion for producers. Consumer willingness-to-pay would need to increase 10.8% to offset the producer losses.
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September, 2019

Organic Wheat Prices and Premium Uncertainty: Can Cross Hedging and Forecasting Play a Role?

By: Drugova, Tatiana; Pozo, Veronica F.; Curtis, Kynda R.; Fortenbery, T. Randall
We compare the volatility of organic wheat prices to that of conventional wheat prices using historical measures. To reduce uncertainty, we examine the possibility of cross hedging using conventional wheat futures and the ability of futures to forecast the organic premium. Results provide evidence that conventional futures can be used to cross hedge organic wheat price risk, but results depend on the method used to impute the missing values. We also find a long-run equilibrium relationship between organic wheat prices and conventional wheat futures prices. Finally, futures prices contain some information useful in predicting organic prices in the short run.
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September, 2019

Practical Alternatives for Forecasting Corn and Soybean Basis in the Eastern Corn Belt throughout the Crop-Marketing Year

By: Thompson, Nathanael M.; Edwards, Aaron J.; Mintert, James R.; Hurt, Christopher A.
This paper re-evaluates practical methods of forecasting corn and soybean basis in the eastern Corn Belt. The accuracy of forecast methods differs over the course of the crop-marketing year. At harvest, historical moving average forecasts perform best. Post-harvest forecasts may be improved at short forecast horizons (<8'12 weeks ahead) by combining historical moving averages and recent basis levels. Results suggest that using 3-to-5-year moving average forecasts for corn basis and a 2- or 5-year moving average for soybean basis from harvest through April. The accuracy of these corn and soybean basis forecasts decreases markedly during the summer months.
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September, 2019

The Changing Role of USDA Inventory Reports in Livestock Markets

By: Karali, Berna; Isengildina-Massa, Olga; Irwin, Scott H.
Using traditional price volatility tests, we find that the market impact of USDA Cattle on Feed and Hogs and Pigs reports largely disappeared after 2000. In contrast, using market surprise tests, we find no evidence that the impact of Cattle on Feed information changed significantly after 2000. The evidence is mixed for Hogs and Pigs reports using market surprise tests, with market inventory information increasing in value and breeding inventory decreasing. The contrasting results can be explained by increasing market concentration in cattle and hogs leading to smaller market surprises and smaller futures price reactions.
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September, 2019

Benefits, Challenges and Trade-Offs: Buyer and Contract Characteristics Valued by Small Farm Suppliers to Wholesale Marketing Channels

By: Barrowclough, Michael; Boys, Kathryn A.; Carpio, Carlos
There is increasing interest in accessing local food products through 'conventional' food marketing systems. This study identifies and quantifies key contract characteristics and buyer attributes valued by small-scale produce farmers who are currently or are considering marketing into wholesale channels. Overall, produce farmers are receptive to entering into contracts with wholesale buyers. Substantial heterogeneity, however, is found among farmer attitudes toward the specific contract terms and in the trade-offs farmers are willing to accept between contract terms and buyer characteristics. Insights offered will enable produce buyers to more efficiently target potential suppliers and will facilitate more effective contract design.
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September, 2019

Macroeconomic Impacts of U.S. Farm and Nutrition Programs

By: Reimer, Jeffrey J.; Weerasooriya, Senal
This study estimates the economy-wide impacts of two components of U.S. federal spending'nutrition programs and farm support programs'using an applied general equilibrium model. Both programs slightly reduce overall economic output and have important distributional effects. Farm programs reduce expenditures on a wide array of goods and services throughout the economy, including agricultural products, primarily since the programs reduce the spending power of taxpayers in general. Nutrition programs also reduce expenditures for some goods and services but raise the demand for agricultural products as well certain sectors for which the marginal propensity to consume is high among low-income households.
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September, 2019

Phytosanitary Regulation of Washington Apple Producers under an Apple Maggot Quarantine Program

By: Hong, Yeon A.; Gallardo, R. Karina; Fan, Xiaoli; Atallah, Shady; Gómez, Miguel I.
We investigate how phytosanitary regulations related to apple maggot could affect optimal pest control strategies and profits for apple producers potentially located in apple maggot quarantine areas. We estimate producer profits by an orchard's quarantine status subject to a phytosanitary regulation requiring an additional cold storage period, reflecting the import requirements of China and British Columbia (Canada). Interestingly, we find that the increased cost burden generated by the additional cold storage from quarantine areas has an unintended consequence of raising the number of chemical applications, suggesting a substitution effect between pesticide application and cold storage.
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