Showing papers in "American Journal of Agricultural Economics in 2011"

Does Adaptation to Climate Change Provide Food Security? A Micro-Perspective from Ethiopia

Abstract: We examine the driving forces behind farmers’ decisions to adapt to climate change, and the impact of adaptation on farmers’ food production. We investigate whether there are differences in the food production functions of farm households that adapted and those that did not adapt. We estimate a simultaneous equations model with endogenous switching to account for the heterogeneity in the decision to adapt or not, and for unobservable characteristics of farmers and their farm. We compare the expected food production under the actual and counterfactual cases that the farm household adapted or not to climate change. We find that the group of farm households that adapted has systematically different characteristics than the group of farm households that did not adapt. The relationship between production and average temperature is inverted U-shaped for farm households that adapted, while it is U-shaped for farm households that did not adapt, and vice versa in the case of precipitation. We find that adaptation increases food production, however, the impact of adaptation on food production is smaller for the farm households that actually did adapt than for the farm households that did not adapt in the counterfactual case that they adapted.

Subsidies and Crowding Out: A Double-Hurdle Model of Fertilizer Demand in Malawi

Abstract: This article uses a double-hurdle model with panel data from Malawi to investigate how fertilizer subsidies affect farmer demand for commercial fertilizer. The article controls for potential endogeneity caused by the nonrandom targeting of fertilizer subsidy recipients. Results show that on average 1 additional kilogram of subsidized fertilizer crowds out 0.22 kg of commercial fertilizer, but crowding out ranges from 0.18 among the poorest farmers to 0.30 among relatively nonpoor farmers. This indicates that targeting fertilizer subsidies to the rural poor is likely to maximize the contribution of the subsidy program to total fertilizer use.

Does Local Labeling Complement or Compete with Other Sustainable Labels? A Conjoint Analysis of Direct and Joint Values for Fresh Produce Claim

Abstract: As a way to explore the increasing use of sustainability labels in the marketplace, this study analyzes the differential values and interactive effects of sustainable production claims (organic, fair trade, and carbon footprint) and location claims through a conjoint choice experiment included in a 2008 U.S. survey. Locally grown is the highest valued claim, and its value is further enhanced with fair trade certification, but carbon-intensive local products are discounted more severely than those sourced from other locations. Some negatively valued claims (imports and carbon footprint) can be mitigated by combining them with other claims (organic and fair trade). Copyright 2011, Oxford University Press.

How Much Does the Supplemental Nutrition Assistance Program Reduce Food Insecurity

Abstract: Nearly 15% of all U.S. households and 40% of near-poor households were food insecure in 2009. The Supplemental Nutrition Assistance Program (SNAP) is the cornerstone of federal food assistance programs and serves as the first line of defense against food-related hardship. This paper measures the effectiveness of SNAP in reducing food insecurity using an instrumental variables approach to control for selection. Our results suggest that receipt of SNAP benefits reduces the likelihood of being food insecure by roughly 30% and reduces the likelihood of being very food insecure by 20%.

Export Restrictions and Price Insulation During Commodity Price Booms

Abstract: For individual countries, variable trade barriers can be used to reduce the volatility of domestic relative to world prices. If this is done by countries accounting for a large share of the market, its effect is offset by increases in world price volatility. This study shows the nature of the resulting collective action problem, with the policy being ineffective on average in stabilizing domestic prices while increasing the volatility of the income transfers from terms-of-trade changes. A simple approach to assessing the contribution of insulation to the price increases is developed and used with new estimates of agricultural distortions to assess its contribution to the price spikes in 1972-74 and 2006-08 for rice and wheat. The analysis suggests that 45 percent of the increase in rice prices in 2006-08, and 30 percent of the increase in wheat prices, was due to insulating behavior. One sign of progress since 1972-74 was a substantial reduction in the extent of price-insulating behavior by the industrial countries. This provides little stabilizing benefit in the rice market because countries not classifying themselves at the World Trade Organization as developing account for only 3 percent of world rice consumption. But it does offer some benefit for the wheat market where non-developing countries account for 27 percent of consumption.

The Global Supply and Demand for Agricultural Land in 2050: A Perfect Storm in the Making?

Abstract: The number of people which the world must feed is expected to increase by another 2 billion people by 2050. When coupled with significant nutritional improvements for the 2.1 billion people currently living on less than $2/day, this translates into a very substantial rise in the demand for agricultural production. Most past growth in the demand for food has been met by improvements in productivity, but there is evidence of declining growth rates for agricultural yields; climate-change is likely to have important impacts on productivity through changes in temperature and precipitation; land-based climate mitigation policies are also projected to lead to increasing pressure on agricultural lands. Meanwhile supplies of water for irrigation are under pressure, urban land use is on the rise, and demands for setting aside land for environmental purposes continue to increase. Clearly, an enormous amount of additional research on ways to deal with this potential “perfect storm” is needed. This paper highlights the explores the roles of biophysical and economic uncertainty in these projections of long run land use change, using this to suggest a future research agenda.

Habit Formation and Demand for Sugar-Sweetened Beverages

Abstract: Using scanner data, we estimated demand for nine nonalcoholic beverages under habit formation. We found strong evidence for habit formation. Although demand for sugar-sweetened beverages by low-income households is less elastic to own-price changes compared with high-income households, there is evidence that high-income households consider beverages to be more substitutable than low-income households do. A half-cent per ounce tax on store-purchased sugar-sweetened beverages will result in a moderate reduction in consumption of sugar-sweetened beverages for both income strata. Because of habit formation, long-run national tax revenue from a sugar-sweetened beverage tax is about 15 to 20% lower than short-run revenue.

Migratory Responses to Agricultural Risk in Northern Nigeria

Abstract: We investigate the extent that Nigerian households engage in internal migration to ensure against ex ante and ex post agricultural risk due to weather‐related variability and shocks. We use data on the migration patterns of individuals over a twenty‐year period and temperature degree days to proxy agricultural risk. We find suggestive evidence of household response to ex ante risk by sending males to migrate. Robust findings show that males migrate in response to ex post risk. As global climate change increases risk, these results suggest that increased migration could result as households mitigate risk and strain limited resources in Nigerian cities.

Exploring Scale Effects of Best/Worst Rank Ordered Choice Data to Estimate Benefits of Tourism in Alpine Grazing Commons

Abstract: In many environmental valuation applications standard sample sizes for choice modelling surveys are impractical to achieve. One can improve data quality using more in‐depth surveys administered to fewer respondents. We report on a study using high quality rank‐ordered data elicited with the best‐worst approach. The resulting “exploded logit” choice model, estimated on 64 responses per person, was used to study the willingness to pay for external benefits by visitors for policies which maintain the cultural heritage of alpine grazing commons. We find evidence supporting this approach and reasonable estimates of mean WTP, which appear theoretically valid and policy informative.

Are Consumers in Developing Countries Willing to Pay More for Micronutrient-Dense Biofortified Foods? Evidence from a Field Experiment in Uganda

Abstract: Vitamin A deficiency is a major health problem in Africa and in many other developing countries. Biofortified staple crops that are high in pro-vitamin A have the potential to reduce the prevalence of vitamin A deficiency. Using a choice experiment with the real product in Uganda, we quantify the magnitude of the premium or discount in consumers’ willingness-to-pay (WTP) that may be associated with it. Results suggest that taste plays an important role in consumer acceptance, and the provision of nutrition information does translate into substantial premiums for the biofortified variety. There is a substantial hypothetical bias in the WTP for the new varieties, and while cheap talk mitigates this bias, it does not eliminate it.

Cheap Talk Scripts and Online Choice Experiments: “Looking Beyond the Mean”

Abstract: This paper presents the first known assessment of cheap talk effectiveness in a choice experiment conducted online with a focus on the distinction between impacts on stated willingness to pay at the population mean and in targeted sub‐samples. Utilizing a large national survey and split‐sample experimental design, we find cheap talk scripts may not only influence the level of willingness to pay estimated for representative consumers, but also may produce more reliable estimates. The magnitude of the impact that cheap talk has on willingness to pay is found to depend on the evaluated respondent sub‐sample.

Switching to Perennial Energy Crops Under Uncertainty and Costly Reversibility

Abstract: We study a farmer’s decision to convert traditional cropland into land for growing dedicated energy crops, taking into account sunk conversion costs and uncertainties in crop returns. The optimal decision rules differ significantly from the expected net present value rule, which ignores uncertainties, and from real options models that allow only one-way conversion into energy crops. These models also predict drastically different patterns of land conversions into and out of energy crops over time. Using corn– soybean rotation and switchgrass as examples, we show that the model predictions are sensitive to assumptions about stochastic processes of the returns. Government policies might have unintended consequences: subsidizing conversion costs into switchgrass may not much affect proportions of land in switchgrass in the long run.

The Economic Returns to U.S. Public Agricultural Research

Abstract: We use newly constructed state-specific data to explore the implications of common modeling choices for measures of research returns. Our results indicate that state-to-state spillover effects are important, that the research and development lag is longer than many studies have allowed, and that misspecification can give rise to significant biases. Across states, the average of the own-state benefit-cost ratios is 21:1, or 32:1 when the spillover benefits to other states are included. These ratios correspond to real internal rates of return of 9% or 10% per annum, much smaller than those typically reported in the literature, partly because we have corrected for a methodological flaw in computing rates of return. Copyright 2011, Oxford University Press.

Supply of Cellulosic Biofuel Feedstocks and Regional Production Pattern

Abstract: Interest in cellulosic biofuels has grown due to recent concerns about the impact of expanding production of corn ethanol on food prices and the greater potential of cellulosic biofuels to mitigate climate change. The Energy Independence and Security Act (EISA) of 2007 limits the production of corn ethanol to 56 billion liters after 2015 and mandates the production of at least 80 of the 136 billion liters of ethanol from non–corn starch–based cellulosic feedstocks by 2022. The Biomass Research and Development Act of 2000 had established an even more ambitious goal of using biomass to replace the equivalent of 30% of current petroleum consumption by 2030 and estimated that this would require 1 billion dry (short) tons of biomass annually (U.S. Department of Energy [USDOE 2003]). Biomass can be obtained from several different sources, including forest resources, crop residues,woody biomass,and perennial grasses. A USDA/USDOE report (Perlack et al. 2005) examined the technical feasibility of sustaining this supply of biomass and the land resources that would be required under alternative scenarios with yield-enhancing and other technological changes in conventional crops and perennial bioenergy crops. The study estimated that 0.54 to 1 billion dry tons of agricultural crop-based biomass could be obtained annually from cropland, idle cropland, and cropland pasture with moderate to high productivity gains in crop productivity, residue collection, and tillage practices.

Does Microfinance Reduce Rural Poverty? Evidence Based on Household Panel Data from Northern Ethiopia

Abstract: Evidence on the long-term impacts of microfinance credit is scarce.We use a unique four-round panel dataset on farm households in northern Ethiopia that had access to microfinance, observed on two key poverty indicators:household consumption and housing improvements.Fixed-effects and random trend models are used to reduce potential selection biases due to time-invariant unobserved heterogeneity and individual trends therein. Results show that borrowing indeed causally increased consumption and housing improvements. A flexible specification that takes into account repeated borrowings also suggests that borrowing has cumulative long-term effects on these outcomes, implying that short-term impact estimates may underestimate credit effects.

Structural Agricultural Land Use Modeling for Spatial Agro-Environmental Policy Analysis

Abstract: This paper develops a spatially disaggregated, structural econometric model of agricultural land use and production based on the joint multi-output technology representation introduced by Chambers and Just (1989). Starting from a flexible specification of the farm profit function, we derive land use allocation, input application, crop yield, and livestock intensity equations in a joint and theoretically consistent framework. To account for the presence of censored observations in micro-level data, the model is estimated as a system of two-limit Tobit equations via quasi-maximum likelihood. We present an empirical application using fine-scale spatial data covering the entirety of England and Wales and including the main economic, policy, and environmental drivers of land use change in the past forty years. A simulation of the effects of diffuse pollution reduction measures illustrates how our approach can be applied for agro-environmental policy appraisal.

Are Valuations from Nonhypothetical Choice Experiments Different from Those of Experimental Auctions

Abstract: Due to the importance of comparability and external validity of results, nonhypothetical experimental methods are increasingly used to elicit consumers' willingness to pay for various goods. Two of the increasingly popular preference elicitation methods are the nonhypothetical choice experiments and experimental auctions. We conduct experiments to compare willingness to pay estimates elicited from both methods. Our results generally suggest that valuations elicited from experimental auctions can differ from those obtained from nonhypothetical choice experiments. Copyright 2011, Oxford University Press.

Heterogeneity and Distributional Form of Farm-Level Yields

Abstract: Representing farm-level crop yield heterogeneity and distributional form is critical for risk and crop insuranceresearch.Moststudieshaveusedcountydata,understatingbothsystematicandrandomvariation. Comparison of systematic versus random intra-county variation is lacking. Few studies compare the various distributional forms that have been proposed. This study utilizes the extensive potential of government farm-level crop insurance data. Results show that systematic intra-county variation is surprisingly strong. A newly applied reverse lognormal distribution is preferred when county-wide variation is removed, but the normal distribution fits surprisingly well in the crop insurance relevant percentiles when county-wide variation is not removed. Representing and accounting for both spatial and temporal heterogeneity is a major problem in agricultural economics and policy analysis due to the fact that most data are aggregated to at least the county level (e.g., Gardner and Kramer 1986; Just and Pope 1999). Both systematic and random components of crop yields are major factors in intra-county farm-level heterogeneity that are critical for modeling risk, producer behavior, and crop insurance participation. Most studies have either used aggregate (at least county-level) data or relied on relatively few farm-level observations. The former makes results primarily illustrative, while the latter limits statistical significance. This article characterizes intra-county crop yield heterogeneity both spatially and temporally with the most extensive dataset utilized to date and evaluates a broader set of parametric distributional possibilities than previously.

Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico

Abstract: Recently, Weather Index Insurance (WII) has received considerable attention as a tool to insure farmers against weather related risks, particularly in developing countries. Donor organizations, local governments, insurance companies, development economists as well as agricultural economists are discussing the costs and benefits of WII. While the literature on WII has mainly focused on many cases in Africa and Asia, in this article we analyze the WII program in Mexico, which is one of the largest WII programs worldwide. In this context we discuss potentially important spill-over effects on related markets which so far have not been considered in the academic literature. First, we argue that WII creates disincentives to invest in other non-insured crops leading to potential overspecialization and monoculture. Secondly, WII generates disincentives to invest in irrigation systems because farmers are insured only as long as production takes place on non-irrigated land. Third, in case of catastrophic events food prices can potentially inflate with indemnity payments at the expense of the uninsured poor. We also suggest that in Mexico the thresholds of the weather index be (continuously) re-calibrated in order to adjust for the development of drought resistant seeds. Finally, the index could relatively easily be extended to account for precipitation variances. We argue that these factors and spillover effects should be accounted for in cost benefit analysis of WII.(This abstract was borrowed from another version of this item.)

Welfare Impacts of Alternative Biofuel and Energy Policies

Abstract: An open-economy equilibrium model is derived to investigate the effects of energy policy on the U.S. economy, with emphasis on corn-based ethanol. A second best policy of a fuel tax and ethanol subsidy is found to approximate fairly closely the welfare gains associated with the first best policy of an optimal carbon tax and tariffs on traded goods. The largest economic gains to the U.S. economy from these energy policies arise from their impact on U.S. terms of trade, particularly in the oil market. Conditional on the current fuel tax, an optimal ethanol mandate is superior to an optimal ethanol subsidy. Copyright 2011, Oxford University Press.

A Reduced-Form Model for Dynamic Efficiency Measurement: Application to Dairy Farms in Germany and The Netherlands

Abstract: The stochastic distance function model is extended to allow for the inefficiency component of the error term to be autocorrelated, as implied by a dynamic model of firm behavior. The autocorrelation parameter can then be interpreted as a measure of the persistence of inefficiency. The model is viewed from a state-space perspective, and Kalman filtering techniques are proposed for estimation. The model is applied to two panels of dairy farms from Germany and the Netherlands. The results suggest a very high degree of persistence of inefficiency through time.

Geography Matters: International Trade Patterns and the Indirect Land Use Effects of Biofuels

Abstract: This article investigates the relationship between international trade patterns and the global distribution of coarse grain production responses to market developments in the United States. Our null hypothesis is that world markets are fully integrated, rendering the geographic persistence of bilateral trade flows irrelevant in the global production response to a change in US prices. The alternative hypothesis allows price transmission to vary along with the intensity of competition among countries in specific markets. Using data from 1975 to 2002, we reject the null hypothesis. Our work has direct implications for the analysis of the global land use impacts of biofuel mandates.

Relaxing Heteroscedasticity Assumptions in Area-Yield Crop Insurance Rating

Abstract: This article focuses on the effect of differing heteroscedasticity assumptions on derived premium rates of area-yield crop insurance. Tests of the proportional and absolute heteroscedasticity assumptions are conducted using both in-sample and out-of-sample measures. Our results suggest that arbitrarily imposing a specific form of heteroscedasticity or homoscedasticity in insurance rate calculations limits actuarial soundness. Our results have practical implications for the federal crop insurance programs, as we reject the traditional rating assumptions for many cotton regions and lower-yielding/higher-risk corn and soybean counties but not in the heart of the Cornbelt. Copyright 2011, Oxford University Press.

Who Participates in Household Scanning Panels

Abstract: We compare two widely used household scanning panels maintained by the Nielsen Company and Information Resources Inc. to a random sample of the U.S. population. Results indicate that the demographic characteristics of the random sample more closely match the Census Bureau data than the household scanning panels. We also show that after controlling for demographic differences, participants in the household scanning panels are slightly more price sensitive than participants in the random sample. The two household scanning panels yield similar results in relation to one another, which suggests that the household scanning panels may suffer from sample selection and participation biases.

North American Oriented Strand Board Markets, Arbitrage Activity, and Market Price Dynamics: A Smooth Transition Approach

Abstract: Price dynamics for North American oriented strand board (OSB) markets are examined. The role of transactions costs are explored vis-a-vis the law of one price. Weekly data, February 3rd, 1995 through October 9th, 2009, are used in the analysis. Nonlinearities induced by unobservable transactions costs are modeled by estimating Time-Varying Smooth Transition Autoregressions (TV-STARs). Results indicate that nonlinearity and structural change are important features of these markets; price parity relationships implied by economic theory are generally supported by the estimated models. Implications for the efficiency of spatial market linkages and the dynamics associated with price adjustments are also examined.

Spatial Price Discrimination in Agricultural Product Procurement Markets: A Computational Economics Approach

Abstract: Significant transport costs and spatially distributed supply and processing create oligopsony power in agricultural markets. Price discrimination expressed in the form of partial or complete absorption of freight charges by processors is often observed in these environments, but we understand little about how these pricing decisions are made. Analytical approaches are often intractable. As an alternative, we propose a computational economics approach to analyze a general spatial competition model and study firms' choices of spatial pricing policy. Instead of the commonly presumed free‐on‐board pricing, we find that buyers choose price discrimination, either through uniform delivered pricing or through partial freight absorption.