Showing papers in "American Journal of Agricultural Economics in 1975"

The Farm-Retail Price Spread in a Competitive Food Industry

Abstract: Consistency with market equilibrium places constraints on the pricing policies of food marketing firms in a competitive industry. This paper examines the implications of simultaneous equilibrium in three related markets: retail food, farm output, and marketing services. From equations representing the demand and supply sides of each market, elasticities are generated which show how the farm‐retail price spread changes when retail food demand, farm product supply, or the supply function of marketing services shifts. Implications for the viability of simple markup pricing rules and the determinants of the farmer's share of the food dollar are discussed.

Redistribution with Growth

Abstract: The proposal for a strategy combining Redistribution with Growth (RWG) was first put forward, at least in contemporary literature on development, by H. W. Singer in 1972 in a working paper for the ILO Employment Mission to Kenya for which he was Chief of Mission. In the course of the Mission, the elements of such a strategy were clarified, made specific to the Kenya context and developed as the unifying theme of the report’s recommendations. The formal exposition of the strategy will be found in Chapter 7 of the ILO Kenya Report, Employment Incomes and Equality (Geneva, 1972) — though details of its implications for the different sector programmes will be found in virtually every chapter of the document. Subsequently the elements of RWG were generalised in a brief paper published (with very slight modifications) as technical paper no. 6 of the report.1 These ideas plus others arising from the two earlier ILO Employment Missions to Colombia2 and Sri Lanka3 were then used as the basis for two conferences and a programme of work by a joint IBRD/IDS group concerned to incorporate these ideas into formal planning models. This group in the event primarily focused on RWG, and elaborated and developed its macro-economic approach a good deal further, drawing on papers, discussions and critiques presented at the two conferences.

Efficiency and Equity in Public Research: Rice Breeding in Japan's Economic Development

Abstract: Research contributes to the public good and public support is required in order to attain a socially optimum level of investment in research. However, the extremely high rate of returns to rice research in Japan provides evidence that an underinvestment in agricultural research is typical. Financing rice research out of government tax revenue is rationalized in terms of its contribution to the national goal of economic development.

Hedging and Income Stability: Concepts, Implications, and an Example

Abstract: The variability in prices often of concern to producers is that which occurs after a production decision has been made but before the commodity can be marketed. A portfolio-type analysis is used to formalize this problem and describe the role futures markets can perform in facilitating the management of this risk. Data from the egg market are used to illustrate hedging opportunities for an egg producer. The results show that hedging a substantial percentage of expected production can significantly reduce a producer's exposure to the risk. Additionally, a total hedging scheme performed nearly as well as an optimal scheme.

Problems and Solutions in Estimating the Demand for and Value of Rural Outdoor Recreation

Abstract: An improved methodology for estimating demand functions for outdoor recreation and evaluating the outdoor recreation resource by use classification is presented. The illustrative framework is a large-scale empirical study of all outdoor recreation activities in all areas of Arizona. The use of the improved procedures produces estimates of resource values which are much larger than in most previous studies and which are about the size of estimates of gross variable expenditures. It is argued that the time has come to relax the search for improved estimating methodology and concentrate on interpretation of the estimates in studies of resource allocations.

World Agriculture, Commodity Policy, and Price Variability

Abstract: The primary emphasis in this paper will be upon governmental agricultural commodity policies and their effects upon price variability. It is the commodity policies of the governments of the world and in the rest of the world's food and agricultural systems.

Interest Rate Determination in Underdeveloped Rural Areas

Abstract: Publisher Summary This chapter presents a study analyzing interest rate determination in underdeveloped rural areas. Interest rates for rural and unorganized money markets in third world societies have not been extensively studied. The chapter reviews agricultural credit literature to explore the relationships among the costs of extending credit, amounts loaned, and the borrower's ability to absorb further capital. High costs in administering small loans and resistance to repay suggest the convenience of linkages between lending agencies and marketing boards for the crops upon which loans are made. Village moneylenders-cum-traders may be able to operate more efficiently than public agencies, particularly when trained staff is in short supply. Administration costs per unit loaned should decline as more is borrowed by individuals for longer periods and that this is really a function of the borrower's ability to absorb further capital investment as sufficiently high marginal rates of return to cover lending costs. The premium for risk is a function of the difference between these additional returns and basic costs.

Concepts and Measurement of Agricultural Productivity

Abstract: Along with Fabricant, U.S. agricultural economists recognized early the inadequacy of partial productivity indexes such as output per man or yield per acre. By 1947 U.S. Department of Agriculture economists were experimenting with the total factor productivity approach (Cooper, Barton, and Brodell). Based on later work by Loomis and Barton, the USDA instituted regular statistical series on total outputs, inputs, and total factor productivity. Thus, I do not believe that I have to convince this audience of the importance of the total factor productivity concept. I will limit my discussion to issues involved in implementation of the concept.

Prices and Incomes in Linear Programming Models

Abstract: A procedure for representing competitive and noncompetitive market structures in linear programming (LP) models is presented. The specification of the objective function follows from the choice of market form to be incorporated in the model. Development of the function yields demand and expenditure equations and an LP tableau with separable demands. In the event of two or more products that are not separable in demand, the nonlinear demand set can be linearized directly by specification of activity vectors representing points on the demand surface and by incorporating an appropriate convex combination constraint. The specification of commodity demand structures incorporates one characteristic, which makes it particularly convenient for obtaining comparative statics solutions. The demand function for any commodity group can be rotated merely by an appropriate change in the constraint value of the convex combination inequality. A representation of international trade can be incorporated by adding commodity specific importing activities as additional production activities and adding exporting activities as additional selling activities. 21 references.

Effects of Changes in the Level of U.S. Beef Imports

Abstract: Regulatory policies pertaining to beef imports are analyzed on the basis of an econometric model of the livestock sector The model encompasses the consumption, production, trade, and retail and farm prices of fed beef, other beef, pork, poultry, and inventory levels of livestock used in the production of these products In terms of consumer welfare, increased beef imports reduce the retail price of all meats with the larger reductions occurring for lower quality of manufacturing beef products, while in the case of producer welfare such increases reduce slaughter steer, cull cow, and feeder calf prices with a heavier burden being placed on cattle breeders relative to cattle feeders

Resource Allocation and Risk: A Case Study of Smallholder Agriculture in Kenya

Abstract: A model of economic behavior under conditions of uncertainty demonstrates that the traditional tests of economic efficiency in agriculture are generally misspecified. A data set from Kenya is used in testing a risk-aversion model; the results permit the following conclusions. Risk plays an important role in farmer decision making; farmers are efficient in their allocation of resources; and lack of credit availability is a major bottleneck in obtaining increased agricultural productivity for the regions studied in Kenya.

On the Use of Theil's Inequality Coefficients

Abstract: Authors of papers published in this Journal occasionally use Theil's inequality coefficients as measures of the accuracy of a set of predictions generated from some model. One of the first applications was by Hee in 1966, and two recent uses were by Tryfos and by Sahi and Craddock. However, some confusion can arise because there are two different inequality coefficients, one of which can have two alternative interpretations depending upon data definitions. This can result in researchers drawing entirely different conclusions about the predictive powers of models, depending upon which formulation is used to compute the statistic. Further misunderstanding sometimes arises when an inequality coefficient is endowed with statistical powers it does not possess, and more recent criticism has demonstrated that under certain conditions the coefficients can be potentially misleading. It is the purpose of this note to clarify and discuss these issues.'

Some Problems in Estimating the Demand for Outdoor Recreation: Reply

Abstract: research is to provide nonmarket measures of the value of recreational facilities which are comparable to market values for competing activities. Measurement of the value of recreational facilities has been beset by data shortcomings and theoretical problems, and, as indicated in an article by J. A. Sinden recently published in this Journal, some of the perennial research problems remain. The purpose of this paper is to derive recreation demand functions consistent with utility maximization to address specific issues in empirical research. Outdoor recreation demand functions are used to

Improving Information on Agriculture and Rural Life

Abstract: What follows evolved out of the experience of having chaired this Association's Committee on Economic Statistics, which was organized in 1970 and was charged to examine the growing claims that various agricultural data were deteriorating.

Equilibrium Quantity and Timing of Mexican Vegetable Exports

Abstract: Mexico has recently expanded its exports of tomatoes, peppers, and cucumbers to the United States. In order to evaluate possibilities for further expansion, a linear programming production model for specific regions in Mexico was constructed and tested. Various equilibrium situations were analyzed to appraise possible future trends. Special features of the model were the inclusion of risk, demand functions for all crops, and allowance for both competitive and monopolistic supply structures. It was concluded that rising wage rates and tighter supply controls would halt Mexico's expansion of export winter vegetables.

Education and Allocative Efficiency in U.S. Agriculture

Abstract: Rapid technological change creates production uncertainty with a consequent decline in allocative efficiency; productivity growth appears to augment the comparative advantage of large farms, which alongside rising operator education implies scale economies in the use of information. A method is provided for measuring cost inefficiency due to changes in input mix and failure to produce optimum output which is related to growth in farm size. Statistical results provide support for the hypothesis that education enhances allocative efficiency.

Risk Response Models and Their Use in Agricultural Policy Evaluation

Abstract: The previous two papers have discussed the possible effects that proposed public policy may have on risk and uncertainty in the agricultural economic environment. Accordingly, I will argue that, before we can adequately evaluate such policies which create new degrees of risk for agricultural producers, we must have better quantitative knowledge of how fathers will respond to changing risk in adjusting input and production decisions. I will then consider models for estimation of the effects of changing risk in agricultural supply response.

The Political Economy of Rural Development in Latin America: An Interpretation

Abstract: The theory of unequal exchange between center and periphery is extended to provide an interpretation of rural underdevelopment in Latin America. It serves to explain both the causality of agricultural stagnation under dominance of the latifundio and the economic functionality of the subsistence sector where rural poverty is concentrated. The contradictions of the subsistence sector as a purveyor of cheap labor to the commercial sector of the economy imply population growth and ecological destruction that reinforce rural misery. This theory provides a framework to analyze the political economy of rural development programs. Land reform and small farmer rural development projects are discussed in this context.

Risk Aversion under Profit Maximization

Abstract: Beginning initially with the work of Friedman and Savage and later with the work of Markowitz, and Tobin, risk aversion became a subject of wide interest in economics.1 The fundamental justification of risk aversion has since been firmly linked with utilitarian economics. The purpose of this paper, however, is to explore an alternative explanation of risk averse behavior for the firm based not on

Economic Criteria for Freshwater Wetland Policy in Massachusetts

Abstract: The value of wildlife, visual-cultural benefits, water supply, and flood control benefits of wetlands (varied by benefit productivity levels) are determined with help from appropriate scientists. Comparison of benefit value with opportunity cost of wetland preservation is demonstrated as the basis for decisions concerning permits for wetland alteration.

Producer Returns from Increased Milk Advertising

Abstract: Each year many agricultural commodity groups spend millions of dollars advertising and promoting generic products. However, empirical analyses of particular generic promotion ventures are scarce (Clement, Henderson, and Eley; Hochman, Regev, and Ward; Nerlove and Waugh). Advertising and promotional monies are often obtained from producers on a voluntary contribution basis, but a major criticism of voluntary programs is that in an atomistic industry the individual producer has little incentive to advertise since his particular share of the increased commodity demand is small. A major argument for mandatory participation is that of equity; however, little economic evidence is available to address the potential profitability of such expanded programs. Since market experimentation is costly, the historical promotional experience of a particular commodity group can provide an important economic input for use by other producers contemplating expanding their own advertising programs. For many years New York State dairy producers have voluntarily contributed to advertise and promote the generic product milk. Prior to May 1972, about 60% of the producers were voluntarily contributing at the rate of 3c per hundredweight. In May 1972, a New York State Dairy Promotion Order became effective with a mandatory assessment rate of 5r per hundredweight levied on milk produced in the state. The voluntary contributions generated about $1.5 million annually compared to some $4 million available annually after the implementation of the Dairy Promotion Order. With the additional funds, several types of milk promotion activities were expanded. This paper focuses on the program area which has experienced the greatest funding increase-media advertising. Specifically, this paper assesses the effect on producer returns, by market, of the expanded fluid milk advertising effort made possible under the New York State Dairy Promotion Order. The selected model is reviewed, an interpretation of the estimated coefficients is presented, and, finally, an estimate of the returns to producers is presented followed by some implications of the analysis. Methodology

Market Intervention Policies When Production Is Risky

Abstract: Exploration of some of the implications of a multiplicative risk model suggests that such a model leads to the rather surprising result that optimally distorted market prices are more efficient for social welfare than prices determined through a competitive market equilibrium. The model is based on the assumption that supply and demand schedules are linear and only supply is risky. Model equations derive anticipated price lag between forecast decisions made by producers and realization of production, risk aversion, market supply variance, market price, equilibrium mean price, and equilibrium variance of price. Producers should plan on the basis of a lower expected price than the competitive equilibrium price in order to realize a higher market price. The existence of an optimal distortion price is attributable to two factors in the model specification, the lack of a fixed relationship between revenue and cost and the existence of the multiplicative risk term. Together, these factors cause the variance of the market supply to increase quadratically as producers move up the expected supply function; hence, the possibility of costs exceeding revenue increases. 10 references.

An Economic Evaluation of Nitrogen Fertilization of Grasses When Carry-over is Significant

Abstract: An economic model is developed to determine optimal nitrogen fertilization policies for seeded grasses in semiarid regions where nitrogen carry-over is significant. The problem is cast in the framework of stochastic dynamic programming and an application of the model is made at two sites in the Nothern Great Plains. A new statistical method was used to estimate carry-over nitrogen and the forage yield-response function simultaneously. Nitrogen carry-over was estimated implicitly through yield response without direct measurements of nitrogen.

Improving Estimates of Economic Parameters by Use of Ridge Regression with Production Function Applications

Abstract: Ridge regression is a promising alternative to deletion of relevant variables for alleviating multicollinearity and can provide smaller mean square error estimates than unbiased methods such as OLS. However, ridge estimates can also be unreliable and misleading under certain conditions. To avoid erroneous conclusions from ridge regression, some prior knowledge about the true regression coefficients is helpful. A theorem on expected bias implies that ridge regression will give much better results for some economic models, such as certain production functions, than for others because of smaller expected bias.

Transfer of Development Rights: An Analysis of a New Land Use Policy Tool

Abstract: The issues in establishing and administering a transfer of development rights program are discussed, and an hypothetical program is empirically analyzed In the case study, administrative assignment of development rights and definition of development unit significantly affected the distribution of program costs Full compensation to restricted landowners would have required widely fluctuating development right prices Initial cost burdens varied with type of development as well as within development categories Timing of development right supply and demand may create problems in the market Although the TDR concept is promising, many practical difficulties remain

The Capitalization of Real Property Taxes Levied on Farm Real Estate

Abstract: The capitalization of changes in property taxes levied on farm real estate is investigated. The per acre value of farm real estate in the United States is estimated as a function of the effective tax rate and as a function of three categories of independent variables which are related to agricultural productivity, farm size, and urban influence in a cross-section study. The effect of anticipated appreciation in farm real estate values is explored in estimating the extent of capitalization. The results of the study are consistent with the hypothesis that changes in property taxes are largely capitalized into farm property values.

Marketable Surplus Functions for a Subsistence Crop: Rice in the Philippines

Abstract: Despite its critical importance in the design of agricultural price policy in developing countries, the price response of marketable surplus for a subsistence crop has remained a major unsettled issue. Ample evidence is available that subsistence farmers adjust their production in response to price changes (Krishna 1967). However, few empirical estimates exist on the price response of farm households in allocating the produced output between home consumption and market sale, although there have been a number of indirect inferences (Behrman; Krishna 1962, 1965; Krishnan; Mangahas, Recto, and Ruttan; Mubyarto). Moreover, limited attempts to estimate the price response directly have yielded mutually conflicting results (Bardhan; Bardhan and Bardhan; Haessel). Difficulty in the empirical estimation of the price response of the marketable surplus and home consumption for a given output following harvest stems simply from the unavailability of adequate data which relate marketable surplus and/or home consumption to price. In this study we attempt to fill this critical gap by estimating the price responses for both the marketable surplus and that portion retained for home consumption using sample survey results for three consecutive years.

Internalizing Agricultural Nitrogen Pollution Externalities: A Case Study

Abstract: Alternative policies to achieve a specified nitrogen pollution standard in subsurface irrigation return flows are compared. A system of effluent charges against emitters was the lowest cost and the amount of agricultural commodities produced was less than the alternative policy considered.

A Spatial and Temporal Model of the North American Pork Sector for the Evaluation of Policy Alternatives

Abstract: A quarterly recursive quadratic programming model of the North American pork sector is constructed to explain spatial and temporal variations in the sector and to evaluate the repercussions of policy changes. The model incorporates econometric supply, demand for consumption and demand for storage equations for Eastern and Western Canada and the United States. It is then run over a forty‐one quarter period to evaluate its ability to simulate the sector. A policy experiment is conducted which assesses a change in tariff policies between Canada and the United States to illustrate the model's application for policy analysis.