Household‐level Impacts of Dairy Cow Ownership in Coastal Kenya

This study uses heteroskedastic Tobit and Censored Least Absolute Deviations models to examine the impacts of dairy cow ownership on selected outcomes for a sample of 184 households in coastal Kenya. The outcomes examined include gross household cash income, gross non‐agricultural income, consumption of dairy products, time allocated to cattle‐related tasks, number of labourers hired and total wage payments to hired labourers. The number of dairy cows owned has a large and statistically significant impact on household cash income; each cow owned increased income by at least 53% of the mean total income of households without dairy cows. Dairy cow ownership also increases consumption of dairy products by 1.0 litre per week, even though most of the increase in milk production is sold. The number of dairy cows has no significant effect on total labour for cattle‐related tasks. However, in contrast to previous studies, labour allocation to cattle by household members decreases and labour requirements for dairy cows are met primarily by an increase in hired labour. Dairy cow ownership results in relatively modest increases in payments to hired labourers and the number of hired labourers employed. The large positive impacts on income and the substitution of hired for household labour in cattle care suggest that intensification of smallholder dairying can be beneficial as a development strategy in the region if disease and feed constraints are addressed.     

Measuring Farm and Market Level Economic Impacts of Improved Maize Production Technologies in Ethiopia: Evidence from Panel Data

While it is often recognised that agricultural technology adoption decisions are intertwined and best characterised by multivariate models, typical approaches to examining adoption and impacts of agricultural technology have focused on single technology adoption choice and ignored interdependence among technologies. We examine farm‐ and market‐level impacts of multiple technology adoption choices using comprehensive household survey data collected in 2010/11 and 2012/13 in Ethiopia. Economic surplus analysis combined with panel data switching endogenous regression models are used to compute the supply shift parameter (K‐shift parameter), while at the same time controlling for the endogeneity inherent in agricultural technology adoption among farmers. We find that our improved technology set choices have significant impacts on farm‐level maize yield and maize production costs, where the greatest effect appears to be generated when various technologies are combined. The change in maize yield and production costs results in an average 26.4% cost reduction per kilogram of maize output (the K‐shift parameter). This increases the producer and consumer surpluses by US$ 140 and US$ 105 million per annum, respectively. These changes in economic surplus help to reduce the number of poor people by an estimated 788 thousand per year. We conclude that deliberate extension efforts and other policies that encourage integration of technologies are important for maize technologies to yield their full potential at both farm and market levels.     

Credit constraints and smallholder dairy production in the East African highlands: application of a switching regression model

Accurate assessment of farmers' credit constraint condition is important in order to understand the circumstances under which credit would have its greatest impact. In this study a switching regression model was used to determine the impact of credit on smallholder dairy farms in the East African highlands using farm level data from Ethiopia and Kenya. Farmers were classified as credit constrained or credit non-constrained based on their responses from the farm level surveys. No consistent relationship was found between farmers' credit constraint condition and their borrowing status. Most of the variation in milk output per farm was explained by the number of crossbred milking cows in the dairy herd. As credit is likely to facilitate investment in crossbred dairy cows it will have substantial impacts on smallholder dairy farms especially if it is targeted to credit constrained farms.     

Gains and structural effects of exploiting scale-economies in Norwegian dairy production

In this paper, we present calculations of the economic gains in terms of reduced costs by exploiting scale‐economies in dairy production in Norway, and the effect this would have had on the number of farms. We also explore whether or not optimal scale and unexploited scale‐economies change over time due to scale‐augmenting technical change. The analysis is based on homothetic cost functions estimated by means of data for individual dairy farms for the period 1972–1996. For 1972, we find that, by full exploitation of scale‐economies, the costs could have been reduced by almost 40%, while the number of farms would have been reduced by more than 85%. The number of small farms has been substantially reduced in the period considered. This fact, combined with small scale‐augmenting technical change, implies that the gains and structural effects of exploiting scale‐economies have decreased over time. In 1996, costs could have been reduced by close to 30% by full exploitation of scale‐economies, while the number of farms would have been reduced by slightly more than 70%. Thus, both gains and structural effects are substantially less than in 1972. Nevertheless, the calculated gains for 1996 make almost 5 billion NOK. This corresponds almost exactly to the total public support to the dairy farms in 1996. The unexploited scale‐economies are largely due to the agricultural policy. Thus, a substantial share of the same can be considered as part of the‘price’ the Norwegian society has to pay for this policy. In addition, there are likely to be large hidden costs of this policy due in particular to the quota system and other direct production regulations. They imply that technical innovations and other efficiency‐improving investments requiring increased production to be profitable are not carried out. This is the more likely explanation for the extremely poor efficiency development in Norwegian dairy production in the period studied.     

Tracing the evolution of the aggregate U.S. milk supply elasticity using a herd dynamics model

The U.S. dairy sector is characterized by increasing volatility of milk prices, and consolidation in production as evidenced by declining number of dairy farms with an increasingly larger share of milk supplied from a small number of very large farms. Using aggregate national data, we build a mixed‐frequency herd dynamics econometric model of the U.S. milk supply that updates and substantially amends the model first proposed by Chavas and Klemme. We implement a dynamic residual‐based bootstrap technique that can be used in testing for changes in nonmarginal simulated long‐run supply responsiveness, and trace the evolution of long‐run milk supply elasticity from 1975 through 2010. Several papers in the past have suggested that long‐run supply elasticity increases with dairy farm size, which implies that increased importance of large farms would increase aggregate long‐run supply responsiveness. Contrary to this conclusion, we find a declining trend in long‐run supply elasticity from 1975 through 2005. Persistence of such a decline would be a major cause for worry, as ever larger price swings would be needed to equilibrate the market in face of demand shocks. However, we find that milk supply is becoming more responsive since 2005 both to milk and feed price changes. Increasing responsiveness to feed prices further justifies focusing the next generation of the dairy policy instruments on managing dairy profit margins rather than just revenue streams.     

Supply and demand for commodity components: implications of free trade versus the AUSFTA for the US dairy industry*

During the negotiations on the Australia–US free trade agreement (AUSFTA), the US dairy industry vigorously opposed opening the US market to imports of Australian dairy products on the grounds that the US industry would be devastated. Subsequently, the agreement signed in February 2004 made an exception for dairy, providing for only limited quota expansion and no free trade, even at the end of the long implementation period. This paper presents a simulation model of world dairy markets, represented by supply and demand equations for fat and non‐fat components of milk and manufactured dairy products. We use the model to analyse the effects on US milk markets of both a hypothetical agreement, allowing free bilateral trade in dairy products, and the actual AUSFTA. An important contribution to the literature is the derivation of explicit supply and demand relationships for milk components. The components model allows an analysis of long‐term production, consumption, and trade patterns that is not tied to specific, fungible products. Simulations indicate that increased imports from Australia resulting from bilateral trade liberalisation would have resulted in small reductions in US milk prices and production. The much smaller increases in Australian access to the US market under the actual AUSFTA will have even smaller, almost negligible, impacts.     

Assessing the Potential Impact of Avian Influenza on Poultry in West Africa: A Spatial Equilibrium Analysis

We analyse the potential economic impacts of avian influenza (AI) in Nigeria, using a spatial equilibrium simulation model. Depending on the size of the affected areas, the direct impact of the spread of AI along the two major migratory bird flyways would be a loss of about 4% of national chicken production. However, the indirect effect – consumers’ reluctance to consume poultry if AI is detected, causing a decline in chicken prices – is generally larger than the direct effect in our simulation. We estimate that Nigerian chicken production would fall by 21% and chicken farmers would lose US$250 million of revenue if the worst‐case scenario occurs. The negative impact would be unevenly distributed in the country, and some states and districts would be seriously affected. The study shows that, while most attention has focused on preventing a global influenza pandemic, preventive measures are also needed at the national, regional and local levels, because AI could potentially have a major negative impact on the poultry industry and the livelihood of smallholder farmers in many regions in West Africa.     

The U.S. Dairy Sector without Price Supports

Under legislation approved in 1996, the U.S. dairy price support program would end on 31 December 1999. While U.S. dairy markets would continue to be protected by import tariffs and export subsidies, the previous floor under market prices would be removed. Given the prospective market situation, model results indicate that removing the price support program would have only modest impacts on the U.S. dairy industry. Prices of nonfat dry milk may be lower without the price support program than they would be if the program continued, but the net impact on milk prices and production would be small. Unless world demand is substantially stronger than projected or unless U.S. supplies are much larger, unsubsidized U.S. exports of products such as butter and nonfat dry milk appear unlikely. Niche markets and changes in relative values of milk components, however, may offer other U.S. dairy export opportunities. En vertu d'une loi agricole approuvée par les États-Unis en 1996, le régime de soutien des prix des produits laitiers devait se terminer le 31 décembre 1999. Même si les marchés laitiers américains continueraient àêtre protégés par des tarifs douaniers à l'importation et par des subventions à l'exportation, le prix plancher en place serait enlevé. Vu la situation prospective du marché, les résultats modélisés font voir que le retrait du régime de soutien des prix n'aurait que des impacts modestes sur le secteur laitier américain. Les prix de la poudre de lait écrémé seraient peut-être plus bas que si le régime avail été maintenu, maisl'impact net sur les prix du lait et sur la production laitière serait faible. À mains que la demande mondiale n'augmente sensiblement plus que prévu ou que les stocks américains ne soient beaucoup plus importants, il est peu probable que des exportations non subventionnées de produits comme le beurre et la poudre de lait écrémé voient le jour dans le proche avenir. Toutefois, le développement de certains créneaux du marché et les changements affectant les valeurs relatives des composants laitiers pourraient se traduire par d'autres possibilitiés d'exportation pour les produits laitiers américains.     

USING INPUT DEMAND AND PRODUCTION FUNCTION MODELS TO ASSESS THE NET BENEFITS OF DAIRY HERD IMPROVEMENT

Two methods of evaluating (the net social benefits of the dairy herd-improvement scheme operated by the New South Wales Department of Agriculture are described. The first involves derivation of 'an input demand' function for the herd-recording aspect of the scheme and use of this function to estimate the economic surplus (net of both private and public costs) provided by the service. The second approach involves deriving a production function for milk from which it is possible to estimate the contribution herd-recording and artificial breeding have made to increasing milk yields per cow. Social benefits are shown to have been less than social costs for herd-recording, however dairy farmers have made net private gains. The herd-recording scheme has contained a regressive subsidy element. The production function approach show that artificial breeding and herd-recording were profitable complements in production.     

Internal and contextual drivers of dairy restructuring: evidence from French mountainous areas and post‐quota prospects

The end of the milk quota system in Europe has resulted in substantial structural changes to the dairy industry, calling its future into question, especially in mountainous areas. This study analyzes the internal and contextual factors that influence dairy restructuring in French mountainous areas. Three complementary logit models are used to specify farmer decisions (e.g., dairy production exit, stability, and growth). Original and exhaustive geo‐located administrative datasets are combined to create a farm longitudinal dataset and characterize farm‐restructuring patterns on a fine geographical scale. Farm size, corporate legal status, and specialization are positively associated with farm growth. Viable diversification strategies through either farm processing or agro‐environmental scheme contracting are also highlighted. Farm sustainability is supported by the economic success of the local industry and the propensity to adopt extensive practices. With respect to public policy, dairy policy appears to have the strongest impact. Thus, the liberalization of dairy policy threatens the future of dairy farming, particularly in areas with low milk density and no production under labels. This work calls for a policy that promotes the collective dimension of dairy farm performance. The current rural development policy alone may be insufficient to support farms’ long‐term sustainability.     

The Potential for Increased Trade in Milk and Dairy Products between Canada and the United States under Trade Liberalization

Controversy surrounds the effect of free trade in milk and dairy products between Canada and the United States. A static, nonspatial, synthetic, partial equilibrium model is used to explore this issue. The results show that under any reasonable set of parameter estimates, net trade between Canada and the United States would be small, or zero. Free trade would be accompanied by large welfare losses for the current owners of Canadian milk production quota, but new entrants to the industry would earn more producer surplus under free trade than if they paid the full rental value for production quota under the current supply management policy.     

Land use and economic effects of alternative biofuel policies in Brazil and the United States

Being the two largest ethanol producers in the world, biofuel policies in Brazil and the United States affect both their domestic markets and the global food and biofuel economy. In this article we develop a price endogenous mathematical programming model to simulate and analyze the impacts of biofuel mandates and trade distortions on land use, agricultural commodity and transportation fuel markets, and global environment. We find that an 80% increase in total biofuel production from its 103 billion liter baseline level to the mandated 183 billion liter level in 2022 can be achieved with less than 2% increase in total cropland use in both countries. In the United States, this would occur with cellulosic biofuels meeting nearly half of the biofuels consumed and produced largely on cropland pasture and corn ethanol meeting the rest of the mandate and resulting in a 2% increase in corn price. In Brazil, the expansion in sugarcane production would be achieved by reducing land under pasture and a marginal increase in intensification of livestock production. In the aggregate, biofuel policies increase economic surplus in both countries by 1% and redistribute the benefits from agricultural consumers to agricultural producers and the fuel sector. Finally, we also find that full implementation of the mandates in North America, China, and the European Union would reduce the global life‐cycle global greenhouse gas emissions by about 5%.     

Economic Analysis of the Policy for Accreditation of Dairy Farms Free of Bovine Brucellosis and Tuberculosis: Challenges for Small and Large Producers in Brazil

One of the cornerstones of the National Program for Control and Eradication of Bovine Brucellosis and Tuberculosis in Brazil is the voluntary accreditation of free herds. We developed a stochastic cost–benefit analysis model for two types of dairy herds (high yield Holstein‐Zebu crossbred females and lower productivity smaller scale herds) to identify the technical and economic constraints of this process. The initial prevalence of infected animals and the impact of the disease in the structure and performance of the herd were derived from secondary data. Information on the costs and benefits of herd sanitation were compiled into a cost–benefit model at the herd level. The last step consisted of a scenario simulation to evaluate the impact of alternative policies to the certification process. For each scenario, we calculate the probability over time of a Benefit–Cost Ratio greater than 1 and of an Internal Rate of Return above 1% (the discount rate used in the model). Results show that larger and more intensive dairy farms, and also herds affected by brucellosis compared with tuberculosis‐positive herds, are more likely to achieve financial gains from the certification investment. The compensation for culled animals is important in the initial phase of herd sanitation and the premium payment on milk would help farmers to achieve a return on the investment over time. The model can be adapted to different and dynamic production, epidemiological and economic settings.     

The influence of weather conditions on dairy production

Relatively little attention has been paid in the economics literature to the effects of meteorological conditions on milk production. Meteorological variables can be expected to affect milk production through their impact on the productivity of cows and the production of foodstuff. Rather than including meteorological variables as inputs in the milk production process, we propose a production function where these variables affect the productivity of cows and the production of forage, thereby indirectly affecting milk production. Using production and meteorological data from the Spanish region of Asturias corresponding to 383 dairy farms observed during a six‐year period from 2006 to 2011, the results from our estimated production function show that meteorological variables have a significant impact on milk production. We find that milk production is higher under warm weather conditions due to improvements in forage production.     

Cost‐Effective Control Strategies for Johne's Disease in Dairy Herds

Johne's disease (JD), or paratuberculosis, is an incurable and infectious disease of ruminants, caused by infection with Mycobacterium avium ssp. paratuberculosis (MAP), and costing an estimated CAD$15 million in Canada and US$200–$250 million in the United States. This study examines the economic and epidemiological consequences of various MAP control options in the context of controlling JD in dairy herds. A discrete optimal control model is developed utilizing the disease‐specific animal compartment model and maximizing the net present value of a dairy operation. The results identify the optimal control option together with the associated herd dynamics and optimal culling rates of cows in different infection states. The results show that comprehensive, effective, and profitable JD control programs can be developed for dairy farms.     

Short‐ and Long‐Run Policy Evaluation: Support for Grassland‐Based Milk Production in Switzerland

Following the abolition of the milk quota in 2008, farmers in Switzerland strongly increased the use of concentrate feed in milk production. Against this background, the Swiss government introduced the voluntary grassland‐based milk and meat (GMF) programme in 2014, which combines economic incentives with feeding restrictions to reduce the reliance on concentrate feed and increase the use of grass feed. We analyse the economic and ecological impacts of the GMF programme at the farm and at the sector level in the short‐ and long‐run. We use a difference‐in‐differences approach (ex‐post) and an agent‐based simulation model SWISSland (ex‐ante) to construct counterfactual states to evaluate the programme's impacts. We find that the GMF programme reduces the use of concentrate feed and increases the use of grass feed in Swiss milk production. Whereas the programme has a positive effect on economic indicators such as the farm income, we find no effect on ecological indicators such as the N surplus. Our analysis suggests that feeding restrictions on concentrate feed are not enough to achieve a reduction in the N surplus. Additional feeding restrictions on grassland are necessary. Furthermore, the GMF programme has a dampening effect on sectoral milk supply, and leads to a higher milk price.     

Estimation of input-oriented technical efficiency using a nonhomogeneous stochastic production frontier model

Technical inefficiency can be modeled as either input‐oriented (IO) or output‐oriented (OO). However, in the estimation of parametric stochastic production frontier models which use maximum likelihood method only the OO measure is used. In this article we consider a simple nonhomogeneous production function and estimate it with both IO and OO specifications. A sample of 80 Spanish dairy data (1993–1998) is used to estimate both models. We consider one output (liters of milk) and four variable inputs (viz., number of cows, kilograms of concentrates, hectares of land, and labor [measured in man‐equivalent units]). We find that returns to scale (RTS) and technical efficiency results derived from these models are different because either estimated technologies are different, or they are evaluated at different points. Using a Monte Carlo analysis we show that if RTS is close to unity differences in the estimates of RTS and technical efficiency are smaller. This holds true for estimates of both RTS and technical efficiency.     

Domestic and trade impacts of foot‐and‐mouth disease on the Australian beef industry

Australia is the sixth largest producer of beef and the second largest exporter of beef. Average beef exports from Australia are approximately 65 per cent of the total amount of beef produced, about 1.3 million tonnes. Australia is particularly vulnerable to diseases that are not endemic to the country and could close or disrupt its export markets for beef. In this study, we construct a bioeconomic optimisation model of the Australian beef industry that captures production and consumption decisions, domestically and internationally, and the impacts on the beef industry of a potentially catastrophic disease, foot‐and‐mouth disease (FMD). This study analyses localised to large‐scale outbreaks and suggests that changes in economic surplus because of FMD range from a positive net gain of $57 million to a net loss of $1.7 billion, with impacts on producers and consumers varying depending on the location of the outbreak, control levels and the nature of any trade ban.     

Expected Economic Effects of BST in The Netherlands

The calculated profitability of using Bovine Somatotropin (BST) on typical dairy farms in The Netherlands ranges from Dfl.160 to 300 per cow per year, assuming 1985 prices and circumstances, and ignoring the costs of BST. A 20% increase in milk production and no change of the feed/milk relation were used for the calculations. BST is more profitable on intensive farms or on farms with more opportunities for alternative uses of land, buildings and labour. The quota system, however, leads to a considerable reduction of profitability. At a national level, and with an unchanged milk price, a 28% adoption rate of BST would increase national income about Dfl.120 million. However, the cost of BST or any decrease in milk price could reduce this amount, even to below zero. It is apparent that some dairy farmers who apply BST will earn more income whereas others will lose income.     

The Effects of NAFTA on Trade and Welfare in the U.S. Fresh Tomato Industry

Abstract

The purpose of this study was to measure NAFTA's impact to date and quantify how the producers and consumers of fresh tomatoes in the United States, Canada and Mexico have benefited or lost. Changes in consumer and producer surpluses were calculated in 2001 US dollars based on simulations of two scenarios. The analysis found that U.S. consumers captured $12.1 billion more surplus than they would have captured had NAFTA not been enacted. Mexican fresh tomato producers gained an additional $2.08 billion in surplus due to NAFTA. In contrast to Mexican growers, U.S. and Canadian producers appear not to have benefited economically from NAFTA. Findings suggest that U.S. producers would have earned $3.29 billion more if NAFTA had not gone into effect. Canadian producer surplus with NAFTA was estimated to be approximately $20 million less with NAFTA, and the total net benefit from NAFTA was found to be a positive $10.87 billion.