A COMPARISON OF DEPRECIATION METHODS UNDER CURRENT COST ACCOUNTING

In New Zealand the Richardson Report has recommended to government the adoption of a form of inflation accounting known as Current Cost Accounting (CCA). This paper reports research carried out to determine which of the traditional historical cost depreciation methods used in farm accounting might be most appropriate when adapted to a current cost basis. The current cost depreciation methods are compared on the basis of their ability to predict accurately actual replacement values for a survey sample of farm tractors and headers. The resultant measures of depreciation are compared with those currently allowable under New Zealand taxation laws, and the proposition that investment allowances on purchases of new machinery offset the inadequacies of historical cost depreciation is discussed.     

Capacity Depreciation, Implicit Rental Price, and Investment Demand for Farm Tractors in Canada

Among the different factors pertaining to the demand for durable inputs in agriculture, the way the input depreciates over time is an important issue. This study investigates four alternative capacity depreciation patterns for farm tractors. While published estimates from government agencies implicitly assume convex capacity depreciation patterns, the results of this study demonstrate that the use of agricultural engineering data which depict a concave rather than convex pattern better reflect farmers' investment decisions. An implicit rental price measure is also proposed to account for the fact that the purchase price of a durable input is not an appropriate measure of the implicit rental cost of the asset.
Parmi les facteurs déterminants de la demande pour les biens durables en agriculture, la rapidité avec laquelle I'intrant se déprécie est certainement importante lors des décisions d'investissement. La présente etude analyse quatre différents scénarios de dépréciation pour les tracteurs agricoles au Canada. Bien que les données publiées par les agences gouver-nementales supposent implicitement que les biens durables se déprécient à un taux annuel constant, les résultats de cette etude montrent que I'utilisation de données basées sur la valeur productive de I'intrant telle que calculée sur une base expkrimentale donne de meil-leurs résultats statistiques dans I'estimation de la demande pour les tracteurs agricoles. De plus, une mesure du coût implicite de I'intrant est également proposée pour tenir compte du fait que le prix d'achat n'est pas une mesure appropriée dans I'analyse de la demande pour un bien durable.     

Estimating Farm Tractor Depreciation: Tax Implications

Data on secondhand farm tractor prices are used to estimate farm tractor depreciation. Our estimation results indicate that depreciation of farm tractors may be approximated by an 8.3% annual rate, which is lower than most previous estimates and the depreciation allowed by the current tax laws. Our estimated rate suggests that over 50% of the asset's value remains at the end of its seven-year U.S. tax life. Canadian tax law employs a 30% depreciation rate, thus leaving 10% of the asset's value remaining after seven years. We find no support for the hypothesis that depreciation patterns vary over time or across different tractor vintages. Technical growth is evidenced, although the hypothesis of exponential technical change is rejected. A quality-constant tractor price index generated from our estimate indicates that normal increases in tractor prices have averaged 4.9% between 1960 and 1988, whereas the Canadian tractor replacement index and the U.S. Producer Price Index for tractors averaged 5.5% and 6.5%, respectively. Such a disparity may reflect the indexes lack of full adjustment for quality changes. Une base de données des prix de tracteurs d'occasion est utilisée pour estimer la dépréciation des tracteurs agricoles. Les résultats de notre estimation suggèrent que le taux de dépréciation exponentielle des tracteurs agricoles est de 8.3 %. Ce taux est inférieur à ceux trouvés par plusieurs études précedentes, de même que le taux courant autorisé par la loi. Un taux de dépréciation de 8.3 % signifie que plus de 50 % de la valeur du capital est récupérable à la fin de la vie du bien, tel que spécifié par la loi en vigueur. La croissance technique est mise en evidence même si l'hypothèse du changement technique exponentielle est rejetée. Les données ne soutiennent pas l'hypothèse que les flux de dépréciation varient avec le temps ou selon les différents modéles de tracteurs. L'indice de prix des tracteurs de qualityé constante généré par notre estimation indique que l'indice de prix des tracteurs actuellement utilisé pourrait sur-estimer le changement du prix et ce, probable-ment à cause d'un mauvais ajustement de la qualityé.     

PRICE-QUALITY RELATIONSHIPS IN A DURABLE ASSET: ESTIMATION OF A CONSTANT QUALITY PRICE INDEX FOR NEW FARM TRACTORS, 1948–1965*, †

Because of the many uses of price indices it is important that they be corrected for quality change. This paper presents a regression approach to the problem of extracting the influences of quality change on price and a price index for new farm tractors is calculated which allows for the considerable, post-war, quality improvements in the input. The results indicate that whilst the average price of tractors has risen rapidly over the post-war period, the true (constant quality) price has shown only a small increase. Some implications of these results are put forward—particularly with regard to the measurement of gross investment and capital stock, and to the importance of input quality change in explaining increasing agricultural productivity over time. Finally, firm level decision making leads to the observed changes over time in the quality demanded of an input: some consideration is given to the place of factor quality selection in firm theory.     

A METHOD FOR ESTIMATING THE DEMAND FOR AGRICULTURAL MACHINERY IN THE UK

In this paper an investment demand function is estimated, making use of some particular characteristics of data on the sales of agricultural equipment in the UK. The characteristics are that, first, much of agricultural equipment is deliverable quickly from stock and does not appear to be supply-constrained, thus allowing equality of actual and desired capital stocks as a working hypothesis. Second, frequent replacement of machinery leads to depreciation rates which are high and variable. A method is presented to calculate a variable depreciation rate for each period and the resulting estimates are superior to the same model with a conventional, fixed depreciation rate.     

Estimating Farm Equipment Depreciation: Which Functional Form Is Best?

Farm equipment depreciation has been the focus of research in economics and engineering for more than 60 years. Using data from 16 years of auction sales, depreciation functions were estimated for 17 types of equipment, including tractors, combines, swathers, planters, discs, and trucks. The Box–Cox function did the best job of explaining variability in these various sales data bases and in forecasting prices in an out-of-sample data set. Nevertheless, the much less complicated double square root and sum-of-year's digits functions performed nearly as well. Simplified double square root estimates are provided for practitioners interested in forecasting equipment depreciation.     

Refining the real estate pricing model

Investment theory dictates that capitalisation (cap) rates for freehold real estate should be determined by the risk-free nominal rate of return plus the risk premium (RP) less the expected growth rate, with an allowance for depreciation. However, importing the concept of the RP from the capital markets fails to guide investors through the complexities of the asset, or enable exploration of purchaser preferences and behaviour. A refined pricing model for real estate is proposed, based on a concept termed a risk scale, to distinguish between macro (market) and micro (stock) determinants of risk and growth within the RP. This pricing model is estimated for a major global investment market, using a cross-sectional inter-temporal framework, with a data-set of 497 transactions in the London office sector over 2010 Q2–2012 Q3. Average cap rates are estimated at just over 5%, with asset-specific attributes dominating yield determination, with submarket quality and tenant covenant most important; and unexpired term insignificant, surprising during the ‘flight to safety’ characterising the period. International investors bought at lower cap rates, despite the ongoing economic and financial instability of the study period. Improving understanding of pricing behaviour and market transparency is important and may be advanced through the pricing model.     

NET INVESTMENT IN AGRICULTURAL TRACTORS

This essay considers investment in agricultural tractors in the UK, and examines and compares econometric models of investment. A net investment series is calculated from quality-adjusted gross investment figures, showing limited negative net investment over time but with substantial variability. Four time-series modelling techniques are compared as representations of the demand for tractors over the period 1964 to 1990; these are the accelerator (clay-clay), neo-classical (putty-putty), expectations augmented neo-classical (putty-clay) and ad hoc models. Model results support the use of an expectations augmented, neo-classical model of net investment in a partial adjustment framework. Future expectations of agricultural policy are considered as a major influence on investment, an aspect that backwards-looking expectations models only partially represent.     

Quantifying the structure of food demand in China: An econometric approach

This article examines food demand structure and its dynamics for 11 commodities in urban China. The analysis is based on household‐level expenditure survey data for two cross‐sectional surveys of Chinese households pertaining to food expenditure patterns during 1995 and 2003. Pre‐committed components of commodity demands, that are insensitive to economic variables, are explored. We use the generalized quadratic almost ideal demand system (GQAIDS) for its empirical superiority to the generalized almost ideal demand system (GAIDS), and estimate the associated parameters via full information maximum likelihood procedure (FIML) accounting for endogeneity of total expenditures on food for home consumption (FAH). We also use quality‐adjusted commodity unit values to control for quality differences resulting from commodity aggregation and food choice. Furthermore, we derive GQAIDS elasticity formulas, and estimate income elasticities without restrictions. The results partially support the hypothesis that an average Chinese household has incorporated elements of Western diet (fine grains) into traditional Chinese food diet over time. Moreover, the outcome of a simple test developed here points to possible preference changes for a majority of food staples under study.     

The impact of climate change on labour demand in the plantation sector: the case of tea production in Sri Lanka

Limited opportunities for crop switching and lengthy preharvesting periods make the plantation sector particularly vulnerable to climate change. Surprisingly, however, the economic consequences of climate change on plantation crops are seldom analysed. Drawing on a unique primary panel data set from a representative cross section of 35 tea estates in Sri Lanka over the period 2002–2014, this study implements a structural model of estate profit maximisation to estimate the elasticity of labour demand with respect to different components of weather. Results indicate a negative relationship between labour demand and rainfall in the south‐west monsoon, the north‐east monsoon and the second inter‐monsoon. A positive relationship is found between labour demand and rainfall in the first inter‐monsoon. Overall, predicted changes in rainfall by 2050 are anticipated to reduce labour demand by approximately 1,175,000 person‐days per year across Sri Lanka's tea plantation sector. This is likely to have considerable social and welfare implications, particularly for the Indian Tamil women who comprise the majority of the sector's workforce.     

城郊休闲农业景观地游憩价值估算——以武汉市石榴红农场为例

研究目的:以石榴红农场为例,对城郊休闲农业景观地的游憩价值进行估算。研究方法:在对样本游客及农庄调查的基础上,应用TCM的两种基本模型ZTCM和ITCM进行估算。研究结果:(1)ITCM和ZTCM两种模型对环境资源游憩效益的估算存在一定差异。本案例中,ZTCM估算的游憩价值界于ITCM线性需求函数和半对数需求函数的估计值之间,其中ITCM线性需求函数的估计值低于ZTCM的估算值,仅是后者的68.81%;而半对数旅游需求函数对游憩效益的估计值则高于ZTCM的估计值,两者的比值为1.55∶1。(2)同一模型(ITCM)中,不同旅游需求函数设定下所估算出的游憩效益显著不同,需求函数的选择直接关系估计值的高低。本研究中,ITCM的半对数旅游需求函数估算出的消费者剩余是4345.4元/人,高于线性需求函数的估算值,是线性需求函数估计值的2.25倍。(3)取估算均值为准,可粗略地估算出石榴红农场2006年总的消费者剩余在5453.33万元,游客人均消费者剩余(consumer surplus,CS)3029.63元,农业景观地年均游憩价值361078元/hm2。研究结论:农业景观地年均游憩效益是传统种植收益的15.7倍,是休闲农场目前土地经营性收入的6倍,农业景观地的游憩价值远远高于其通过市场显现的经济产值,是农地资源价值构成中无法忽略的重要组成部分。     

Food Demand in Russia: Heterogeneous Consumer Segments over Time

The Russian food system has undergone substantial changes. However, knowledge on how economic transition has affected the structural parameters of food demand is lacking. Based on a two‐stage LES‐LA/AIDS model and annual panel data from the Russia Longitudinal Monitoring Survey (1995–2010), we provide a comprehensive set of food demand elasticities for Russia along two dimensions. First, we estimate demand parameters for three characteristic time periods in order to trace changes during transition. Second, to account for the Russian population's diversity, we derive elasticities for five different consumer segments. These groups are established by a cluster analysis based on households' food purchases. Our findings suggest that demand for food is far from satiated in Russia. We find generally high unconditional expenditure and own‐price elasticities for food. Both expenditure and own‐price elasticities show slight decreases in absolute terms over time. Low expenditure elasticities for staple foods like bread or cereals and high values for luxury goods such as meat, alcohol and tobacco suggest considerable changes in the composition of food baskets with further income growth. Results indicate that food production at home loses in importance while more affluent households in particular increase their demand for food consumption away from home.     

Estimating preference change in meat demand in Saudi Arabia

The purpose of this paper is to investigate the preference change in the demand for meat subject to random coefficients in Saudi Arabia. A Fortran 77 program has been designed to estimate the demand function for meat using Kalman filtering techniques and maximum likelihood approach. The initial values of the coefficient and covariance estimates are an essential prior information in the Kalman filtering techniques. Results provide substantial random coefficients in red meat, implying important structural change occurs in red meat more than poultry and fish demand.     

Efficiency and Technical Change in the Philippine Rice Sector: A Malmquist Total Factor Productivity Analysis

Regional differences in total factor productivity, efficiency, and technological change in the Philippine rice sector are examined for the post-Green Revolution era. Malmquist productivity indices were constructed for 1971–90 and were decomposed into efficiency and technological change. The average annual Malmquist productivity growth was only slightly positive. Productivity growth was negative during the early 1970s, and was followed by a period of positive growth. Growth was negative again in the late 1980s. The period of positive growth coincided with the introduction of new rice varieties while the declines are likely to have been caused by intensification of rice production in lowland farming systems. Certain regions such as Central Luzon, Western Visayas, and Southern and Northern Mindanao had higher rates of technological change than others. This may be due to higher investments in infrastructure and education, increased adoption of tractors, and a better agroclimatic environment.     

Demand for Fresh Fruits in Scotland: Potential Implications from Brexit

The need to improve the quality of the diet of Scottish consumers has increased the interest and efforts to understand the determinants of fruit and vegetables, as they may help to prevent a range of diet-related health problems. The purpose of this paper is to analyze the demand for fresh fruit in Scotland, with particular emphasis on the contribution of Mediterranean areas. A further motivation comes from depreciation of the GB Pound with respect to the Euro and the US Dollar following the UK’s decision to exit the European Union (Brexit). This is particularly important in the case of fruit because about 80% of the fruit consumed in the United Kingdom is of foreign origin and therefore depreciation of the currency may increase the price of imported fruit. The demand for fruit was modelled as a two-stage budget to include fruit origin. The results indicate that the demand for fresh fruit is sensitive to changes in prices and the pass-through of GBP depreciation may impact negatively on the Scottish demand for fruit and the country’s nutrition goals.     

Macroeconomics versus environmental‐macroeconomics*

When environmental macroeconomic frameworks replace standard macroeconomic frameworks differences in policy outcomes ensue. The non‐recognition of real environmental capacity constraints could explain the inability of standard frameworks to deliver on certain macroeconomic goals. Herein, environmental capital depreciation is internalised into analytic frameworks of factor utilisation, aggregate demand and aggregate supply. The analyses reveal that restricted income and wage domains alongside limited environmental capacity constrain economic performance. Hence, environmental capacity expansion and initiatives towards sustainability warrant specific attention. Illustrations are made with reference to the Australian economy and her response to the 2008–2010 global financial crisis.     

SOME ILLUSTRATIONS OF CHAOS IN COMMODITY MODELS

This paper develops three commodity models which exhibit chaotic behaviour. The examples chosen are a demand system and two cobweb supply and demand models. The latter differ from the standard forms in that they include risk aversion and a new specification for the formation of price expectations. Simulation of the model highlights three implications of chaos: such systems generate complex time-paths even if the exogenous variables within the model are held constant; the simulated time path is critically sensitive to the starting value of variables, and parameter values; and the average behaviour of the system is critically sensitive to parameter and exogenous variable values. ‘Critically sensitive’ means that very small changes in parameter or starting values leads to substantial changes in the time paths of the variables in the model. These results suggest that if real commodity sectors can be characterised as chaotic systems, then the ability to conduct forecasting and policy analysis of such sectors will be severely curtailed.     

Pricing Sydney water*

The paper estimates an aggregate daily water demand for Sydney using rainfall, temperature, and price data from 2001 to 2005, and a dummy variable to account for reductions in demand following the introduction of water restrictions in October 2003. Analyses based on the estimated price elasticity, and also values one and two standard errors above and below this estimate, are used to model the effects of different pricing and water supply scenarios. The simulations indicate that without a fundamental change in water policy (pricing and supply) Sydney faces the possibility of critical water shortages in the short- to medium-term should there be a continuation of low rainfall events.     

The role of access to finance in disaster recovery: Evidence from coastal communities in India

Natural disasters affect economic activities and welfare of small-scale producers in developing countries, but may also offer opportunities to reinvest in productive asset, economic capital, and new technologies for future economic prospects. This paper investigates the impacts of a livelihood recovery project that provided access to finance and rehabilitated communal infrastructures in the coastal communities of Tamil Nadu, India which were severely affected by the 2004 tsunami. We replicate the project's eligibility criteria to build the counterfactual to identify control households based on the validation of secondary data and administrative records. Using data from a carefully designed primary survey, we estimate the impacts of providing access to finance and rehabilitating communal infrastructures on economic and livelihood outcomes. Results indicate positive and significant impacts on income, asset and food security. These impacts are mainly driven by improved access to finance provided and participation in groups. Findings highlight the importance of ensuring access to finance for sustainable economic recovery among small-scale producers, particularly in the aftermath of natural disasters.     

Actuarial Fairness of Crop Insurance Rates with Constant Rate Relativities

Increased availability and demand for low-deductible crop insurance policies have increased focus on crop insurance rating methods. Actuarial fairness cannot be achieved if constant multiplicative factors are used to determine how premiums change as coverage levels increase. A comparison of premium rates generated by the factors used by the two most popular crop insurance products with those generated by a standard yield distribution shows that the popular insurance products overcharge for low-deductible policies in most counties. This overpricing may explain why large premium subsidies were required to induce farmers to move from low-deductible to high-deductible policies beginning in 2001.