Measuring producer welfare under output price uncertainty and risk non-neutrality

Procedures to measure the producer welfare effects of changes in an output price distribution under uncertainty are reviewed. Theory and numerical integration methods are combined to show how for any form of Marshallian risk-responsive supply, compensating variation of a change in higher moments of an output price distribution can be derived numerically. The numerical procedure enables measurement of producer welfare effects in the many circumstances in which risk and uncertainty are important elements. The practical ease and potential usefulness of the procedure is illustrated by measuring the producer welfare effects of USA rice policy.     

Trends in Agricultural Incomes: An Analysis at the Select Crop and State Levels in India

India's agricultural sector is at a crossroads, facing challenges of stagnation in crop yields, non‐remunerative prices, falling crop incomes and tardy responses from public service systems. There are reports of peasant suicides due to non‐profitability of farming. However, scant empirical evidence is available on changes in real income and wages in the Indian agricultural sector. The present study uses data from the National Accounts Statistics and Cost of Cultivation Surveys to analyse the changes in real income and discusses the underlying reasons. The study reveals that the purchasing power of farmers has remained low and has worsened over recent years. The value of crop output has increased, but a disproportionate rise in input costs has resulted in a fall in crop incomes in several states, with the agriculturally developed Punjab being an exception. Interestingly, real wage rates for agricultural labour have shown an increasing trend, indicating improvement in the welfare of labour.     

The distributional effect of a large rice price increase on welfare and poverty in Bangladesh

This paper studies the distributional effect of a sharp rice price increase on welfare and poverty in Bangladesh. We employ household consumption data and include the indirect effect of price responses to estimate the welfare loss. Our findings suggest that the estimated welfare effect can be misleading if household responses to rice consumption and production are ignored. This study further supports the hypothesis that the poor are the main victims of such a shock. Our examination also indicates that a higher rice price may increase or decrease the poverty head‐count ratio, depending on the choice of the poverty line, but worsens the country's poverty situation when it is measured by the per capita consumption gap. Our analysis reveals that the government can play a central role to prevent and mitigate such shocks, particularly in the medium to long run. On the methodological side, we observe that consumption provides a more consistent outcome across different methods of analysis than household income.     

Impacts of agricultural price support policy on price variability and welfare: Evidence from China's soybean market

China is a predominant soybean importer; thus, its domestic soybean policies have a large impact on world soybean market dynamics. We develop the first aggregate structural econometric model of China's soybean market and link it to the rest of the world (ROW), which allows us to analyze the impacts of China's soybean price support policy that ran from 2008 to 2013. We investigate the impacts of China's policy on the variability of their domestic and world soybean prices, and adopt a Monte Carlo simulation to evaluate the effects on distributional and aggregate welfare. Our results indicate: (a) after China's soybean price support policy, price transmission elasticity decreases, China's domestic price variability decreases, and world price variability increases; (b) China's producer surplus increases, consumer surplus decreases and the net welfare change in their domestic market is negative; and (c) although soybean exporting countries in the ROW experience significant welfare gains, the world net welfare change is negative.     

Microeconomic Efficiencies and Macroeconomic Inefficiencies: On Sustainable Fisheries Policies in Very Poor Countries

Simple macro-models are used in a two good output spaces to show that, under certain conditions that occur in very poor countries, fisheries policies aimed at concentrating rent and rationalizing excess capacity may result in declines in economic growth. In cases where displaced labour has nowhere else to go, such policies may be welfare decreasing for the country as a whole. The second best policy in these cases would be to encourage open access fishing with controls on overall output. An example based upon information gathered on the shrimp fishery in Madagascar describes the relations between the relative price between artisanal and industrial fishing sectors, and differential effects of the leakage of rents through the net exports equation due to policies favouring capacity rationalization.     

Labour on the family farm: a theory under uncertainty – an extension

In a framework developed by P.J. Dawson, the effects of output price risk on the family labour supply and its demand for hired labour are investigated. In particular, the effects of changes in autonomous income, expected output price, family composition, and farm size-are studied. Comparative statics is used to sign these effects, revealing the importance of the behavior of the measures of absolute, relative and partial risk aversion in determining them. It is shown that some of the effects may be determined only via empirical research.     

DYNAMIC INTERRELATED DEMAND FUNCTIONS FOR FACTORS OF PRODUCTION AND THE AGGREGATE PRODUCTION FUNCTION IN UNITED KINGDOM AGRICULTURE

Taking the price situation as given in product and factor markets, a non-linear differential equation model of gross output, employment, capital accumulation, and gross input for united Kingdom agriculture is derived by incorporating internal adjustment cost functions into the representative decision-maker's objective function, and estimated using a discrete approximation. The results are consistent with efficient use of resources, but further incentives for capital investment and a greater exodus of labour could upset this. Adjustment costs as estimated account for 2.6 per cent of the value of output; those associated with net investment for 1.8 per cent, and those associated with employment and gross input for 0.57 and 0.23 per cent respectively.     

南水北调中线骨干工程水价合理标准与收费制度研究

南水北调中线工程供水目标为工业城市为主,兼顾农业和环境,兼有经营性和公益性,国家投巨资兴建,目的是最大限度地发挥工程综合效益。在考虑工程公益性和用水户水价承受能力的前提下,分析了骨干工程合理水价构成,指出两部制水价存在的问题,研究了水价补贴政策,按照"还本付息、保证运行"的原则,测算了骨干工程合理水价标准,并提出"足量供水定额收费"的制度建议。     

AN ANALYSIS OF WILLINGNESS-TO-PAY FOR CROP INSURANCE*

In this paper a method for estimating a producer's willingness-to-pay for crop insurance is presented. The method includes formulae to capture the impact of crop insurance on the producer's expected income and variance of income. These impacts are evaluated in the context of a model of producer welfare which features both price and yield uncertainty, as well as risk aversion on the part of the producer. The method is applied to the Australian wheat industry and estimates of willingness-to-pay are shown to be relatively sensitive to the levels of coverage and yield variability.     

Total factor productivity change in hog production and Quebec's revenue insurance program

Quebec's hog industry is supported by a revenue insurance program that guarantees a minimum price, but it also faces strict environmental constraints. Under price volatility, risk-averse farms may contract their output enough to produce under increasing returns. We show that the subsidy and downside risk reduction effects of the revenue insurance program tend to stimulate output and increase the likelihood of production under increasing returns. Environmental constraints that raise the cost of manure management and limit areas under cultivation also increase the likelihood of decreasing returns. Scale efficiency and technical efficiency measures are obtained through a parametric decomposition of total factor productivity (TFP) obtained from the estimation of an output distance function. As in hog studies pertaining to other countries, we found a TFP average annual growth of 5.2% between 2004 and 2012. Scale efficiency is much lower than in other countries, as per our prior about the program's distortions and environmental constraints. Integrating annual TFP gains into the setting of the minimum guaranteed price could reduce program costs by $12 million per year. About $70–80 million per year could be saved by investing in extension activities that would bring increase the level of technical efficiency of inefficient farms to the provincial average. A metatechnology frontier approach allowing for an endogenous input was also implemented to assess the robustness of the scale efficiency results.     

Futures markets and price stabilisation: An analysis of soybeans markets in North America

The objective of this paper was to determine whether the futures markets have a stabilising or destabilising impact on soybean's spot prices in North America. Directed acyclic graphs (DAGs) are used to test for causality between futures prices, spot prices and ending stocks, followed by time series econometric analysis. The DAGs point to the two-way causal link between futures and spot prices and a lack of a causal link between inventory/stocks and spot price volatility. Time series results, including cointegration, vector error correction, impulse response and variance decomposition analysis, indicate a large impact from futures markets on the level and volatility of soybean spot prices in both the short and long run. These results have potentially important implications, as the impact of commodity price volatility is typically asymmetric across different actors. Farmers, for example, unlike speculators, utilise price risk management (PRM) instruments such as futures markets to mitigate price risks and appear to suffer from intensified volatility precisely because of their use of these instruments. Therefore, additional policies to cope with commodity price volatility, such as direct price controls or mitigation of consequences, can have critical stabilising functions supporting farmers' welfare and regional (rural) development.     

Modeling the Reforms of the Common Agricultural Policy for Arable Crops under Uncertainty

The size of the insurance and wealth effects of a change in the Common Agricultural Policy (CAP) for arable crops is estimated. The impact of price uncertainty is accounted for in the specific decision-making structure of the European Union (EU) arable crop producers under nonlinear mean-variance risk preferences. A system of output supply, input demand, and land allocation equations is estimated on a sample of Italian specialized arable crop farms. The simulation of the impact of the recent reforms confirms that farmers' output responses are consistently affected by the size of the insurance and wealth effects.     

Are we overestimating the negative impact of higher food prices? Evidence from Ghana

Most studies of the welfare impact of higher food prices adopt Deaton's approach, based on the first‐order effect of prices changes using income and expenditure survey data. This paper explores the impact of higher maize and food prices in Ghana and considers the sensitivity of results to changes in several assumptions. If second‐order effects are included, incorporating household response to price changes, the welfare impact of food price increases is more positive, but only modestly so. However, if we assume that marketing margins are constant in real terms rather than proportional to prices, the welfare impact is substantially more positive. These findings highlight the need for more research on the behavior of marketing margins under volatile prices.     

Output and Price Determination in the Canadian Chicken Industry: Which Should Come First?

Bilateral bargaining between chicken producers and processing firms determined chicken prices in Ontario from 1995 to 2002. A significant reform in 2003 introduced a formula‐based live price that is a function of chicken producers' costs. The latter pricing mechanism reduces the risk faced by processing firms and producers because the chicken price is known when output decisions are made. However, the pricing formula also involves some risk in that the cost components may be far removed from actual costs when production is carried out. Expected farm prices under the two different pricing mechanisms are also not identical. The producers' and processors' expected utility of profits under each pricing mechanism is computed. The bargaining pricing mechanism generally yields higher expected utility for producers than the formula‐based price. Conversely, processing firms obtain a higher expected utility under the formula‐based pricing than under the bargaining framework. These conclusions critically hinge on the size of the producers' margin component in the formula‐based price. In that sense, the formula‐based pricing mechanism did not lessen the significance of relative bargaining strengths in establishing the distribution of welfare in the chicken industry. Des négociations bilatérales entre les producteurs de poulet et les entreprises de transformation déterminaient le prix du poulet vivant en Ontario de 1995 à 2002. Une formule de prix établie en fonction des coûts de production des producteurs de poulet fut introduite en 2003. Ce mécanisme réduit le risque auquel sont confrontés les transformateurs et les producteurs parce que le prix du poulet vivant est connu lorsque les décisions de production sont prises. Cependant, la formule de prix comporte aussi un risque dans le sens où la composante du coût dans la formule de prix peut être différente des coûts réels de production du poulet vivant. Les prix espérés du poulet vivant sont aussi différents dans les deux systèmes de prix. L'utilité espérée des profits pour les producteurs et les transformateurs de poulet est calculée dans les deux mécanismes. Le modèle fondé sur la négociation génère une utilité espérée des profits plus élevée pour les producteurs que la formule de prix. À l'inverse, les transformateurs obtiennent une utilité espérée des profits plus élevée selon la formule de prix que selon le modèle fondé sur la négociation. Ces conclusions sont étroitement liées à la taille de la marge des producteurs utilisée dans le calcul de la formule de prix. Dans ce sens, l'introduction d'un nouveau mécanisme de détermination des prix n'a pas modifié l'importance du pouvoir relatif de négociation dans la distribution du surplus économique au sein de la filière canadienne du poulet.     

OPTIONS FOR REDUCING INPUTS TO AGRICULTURE: A NON-ECONOMIST'S VIEW

By adopting new (higher output) technology farmers have largely compensated for the steady fall in ‘real’ EEC farm prices: as a result food production is in surplus. Because immediate price cuts adequate to curb production are unlikely, further restriction on farm output (e.g., milk quotas) appears unavoidable. Farmers must then aim to reduce their input costs so as to produce their ‘quota’ as cheaply as possible. The paper examines options for reducing inputs, and concludes that more research on lower-input production systems is urgently needed, and that the economic discipline must be closely integrated with this research. It notes that a shift towards ‘less intensive’ farming would be in line with public concern on the environment, food quality and animal welfare.     

The potential impact of climate change on Taiwan's agriculture

This paper intends to estimate the potential impact of climate change on Taiwan's agricultural sector. Yield response regression models are used to investigate the climate change's impact on 60 crops. A price‐endogenous mathematical programming model is then used to simulate the welfare impacts of yield changes under various climate change scenarios. Results suggest that both warming and climate variations have a significant but non‐monotonic impact on crop yields. Society as a whole would not suffer from warming, but a precipitation increase may be devastating to farmers.     

Welfare Effects of Selected Food-grain Policies in India

Government's policy interventions in the market for food-grains affect supply as well as demand. In this paper, the welfare effects of certain food-grain policies are analysed while taking into account the interdependence of the various sectors in the economy. Adequate structure is built into the model in order to study the effects of a dual price structure on farmers' supply response, and also the effects of public distribution schemes on the aggregate demand for food-grains. Policy implications are derived by computing the market clearing prices and their movement under alternative assumptions regarding the nature of the market.     

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.     

Increasing returns,individuality and use of the common pool

A model of monopolistic competition is suggested to study common‐pool resource use. Individuals extract an input from the pool to produce a consumption good under decreasing average costs. The equilibrium output and population sizes are obtained under two types of usage conjectures. Somewhat counter‐intuitively, a cooperative equilibrium results in a larger population of harvesters but lower welfare than the noncooperative one. Some degree of population heterogeneity helps minimise the welfare gap between the two equilibria, but the size of heterogeneity may be a determinant if the resource pool becomes subsequently depleted. The model's potential for policy analysis is illustrated by considering how governance via institutional arrangements and transaction costs may be incorporated and inferred.     

AGRICULTURAL TRADE AND MCA's: A SPATIAL EQUILIBRIUM ANALYSIS

The purpose of this paper is to demonstrate how some aspects of agrimonetary system of the Common Agricultural Policy may be analysed using spatial equilibrium diagrams, modified to include foreign exchange sectors. The model analyses the effects of monetary compensatory amounts on intra-Community trade. The results are: first, when the intervention price is below the market price, both the importing and the exporting country gain in social welfare; and second, when the intervention price is effective, only the importing country gains. In each case the cost of the MCA's exceeds these welfare gains. From a budgetary viewpoint there is a trade-off between the cost of intervention buying and the cost of the trade subsidy.