Using proportional modeling to evaluate irrigator preferences for market‐based water reallocation

Irrigators’ policy preferences for water reallocation programs usually take the form of proportional data, where one option will be relatively more or less favored than another in the composition of a government's total budget apportionment to address water reform. This study applies a zero‐one inflated beta regression to model Murray–Darling Basin irrigators’ preferences for market‐based water policy programs. Market‐based arrangements are more likely to provide efficient solutions to water reallocation problems, particularly where future uncertainty and appropriate pricing induce irrigator preferences for such programs. Our modeling of drivers of irrigator preferences for government expenditure on market‐based programs identified different determinants of zero (a corner solution) and proportional outcomes for the reallocation of Murray–Darling Basin water. In addition, the proportional modeling identifies some variables (namely, state regional influences, the type of farm production and recent debt, low income, or water allocation stressors) that increase engagement with market‐based programs. Interestingly, while price variables are important and statistically significant, they appear to be less relevant to program engagement than other influences.     

Motivations to grow energy crops: the role of crop and contract attributes

Perennial energy crops are a promising source of bioenergy whose production involves production risks, long‐term commitment of land and need for crop‐specific investments without the coverage of crop insurance potentially available for conventional crops. We conduct a choice experiment in five states in the Midwestern and South‐central regions of the U.S. to examine the effect of crop‐contract attributes on the joint discrete‐continuous choice decisions to adopt an energy crop and convert acres to it from a status quo use, while controlling for the effect of various farmers’ risk and time preferences, sociodemographic characteristics, and availability of crop insurance for conventional crops. We find robust evidence that high discount rates, high upfront establishment costs and need for crop‐specific investments create disincentives for adoption and allocation of land to energy crop production. The effects of riskiness of returns and risk aversion are less robust across specifications. The effect of conventional crop insurance on the energy crop adoption decision differs across types of insurance; in particular, farmers with revenue insurance are statistically significantly less likely to adopt an energy crop. Our results have implications for the design of effective contracts and policy incentives to induce the production of energy crops.     

Analysis of a supply-control program under uncertainty and imperfect competition: Chinese cabbage in Taiwan

Researchers have often attributed the farm–wholesale price spread, after adjusting for marketing costs, as compensation for marketing firms' risk bearing. However, price spreads in excess of marketing costs can also be due to marketing firms' exercise of market power. In settings where both imperfect competition and marketer risk aversion are plausible, a modeling framework must be sufficiently general to accommodate both types of behavior. This article develops and estimates such a model in the context of fresh produce marketing and develops the implications for analysis of supply‐control programs. The model is applied to the production and marketing of Chinese cabbage in Taiwan and specifically to the analysis of supply‐control programs implemented in this industry by the Taiwanese government. The empirical results provide little support for the hypothesis that marketing firms exhibit risk averse behavior, but they do show that marketing firms exercise oligopsony power in procurement of the product from farmers, and that this power is positively related to the quantity supplied in each market period. This provides a heretofore unexplored impetus for supply controls intended to raise producer incomes. However, such controls are also rendered less effective by imperfect competition because marketing firms capture part of the benefits from supply reduction.     

A model of shifting cultivation: can soil conservation reduce deforestation?

Shifting cultivators manage soil not only by adjusting soil use on already‐cleared lands, as in continuous cultivation, but also by clearing forests to obtain new fertile soils. This study examines the crucial link between on‐farm soil conservation and deforestation in shifting cultivation by modeling forest clearing as an investment in soil for a private farmer. More generally, by doing so the study attempts to integrate deforestation and soil conservation models which have been separately developed in the literature. Our policy goal is to arrest tropical deforestation—as destruction of global commons—caused by land degradation in shifting cultivation while improving the well‐being of poor shifting cultivators. Our integrated approach enables joint policy analyses of deforestation and land degradation. Three welfare‐enhancing policies are considered. The first is agricultural and nonagricultural subsidies affecting farm and nonfarm income opportunities. The second is fiscal and tenure policies affecting discount rates. Our question is whether the link between forest clearing and soil fertility alters the outcomes of these two standard macroeconomic policies commonly found in the literature. The third policy (or program) is various soil conservation measures affecting soil regeneration and erosivity on already‐cleared lands. This article examines a very important question which has received little attention in previous theoretical works: can soil conservation reduce deforestation? This study confirms anti‐deforestation effects of the promotion of nonfarming activities—a common and often emphasized finding in previous works—among shifting cultivators. More importantly, it also demonstrates that improving various soil conservation measures not only discourages forest clearing among shifting cultivators but also tends to have greater effects on forest protection than promoting nonfarming activities. Contrarily, agricultural price subsidy or technological progress gives rise to the opposite outcome, and lowering the farmer's discount rate or improving tenure security encourages him/her to clear more forests just to accumulate soil.     

Farmers’ risk preferences and pesticide use decisions: evidence from field experiments in China

China faces health and environmental problems associated with the use of agricultural chemicals, including pesticides. While previous studies have found that risk aversion affects pesticide use in China, they have focused primarily on commercial cotton farmers. In this study, we consider the case of smaller, semisubsistence and subsistence farmers in a poor and landlocked province of China (Yunnan). We use a field experiment to measure risk aversion and collect detailed data on farm production and input use to specifically ask whether risk aversion affects pesticide use, and whether this effect differs for subsistence farmers producing exclusively for home consumption versus semisubsistence farmers who produce both for home and the market. We find that risk aversion significantly increases pesticide use, particularly for subsistence farmers and for market plots by semisubsistence farmers. Further, this effect of risk aversion significantly decreases with farm size for subsistence farmers, but not for semisubsistence farmers, implying that pesticide use may be used to ensure sufficient food supply for home consumption. Finally, we find barriers to the use of pesticides for subsistence farmers, both in terms of financial constraints and economies of scale. This finding implies that risk‐mitigation strategies, such as crop insurance, may not target food security concerns of subsistence farmers. Given these different motivations for pesticide use, policymakers may wish to consider effective tools to support rural food security for farmers in the poorer regions of China in order to decrease pesticide use.     

Comparing heterogeneous consumption in U.S. and Japanese meat and fish demand

This article uses national, quarterly data to conduct an empirical analysis of pre‐committed meat and fish demand by U.S. and Japanese households using the generalized almost ideal demand system (GAIDS). Pre‐committed demand represents the component of demand that is insensitive to both income and price adjustments. U.S. consumers are found to hold significant positive pre‐committed demand for beef and pork, while Japanese consumers appear to possess significant, positive pre‐committed demand for beef and fish. This provides evidence to partially explain observed differences in Japanese and U.S. consumer reactions to nonprice and nonincome effects in beef, pork, poultry, and fish. In addition, based on in‐ and out‐of‐sample performance, the more general GAIDS is preferred to the almost ideal demand system (AIDS) for both the U.S. and Japanese demand systems. Results lend to improved demand modeling efforts and more complete understanding of true market forces at hand in meat and fish markets for these culturally diverse consumer groups.     

Analysing Production Technology and Risk in Organic and Conventional Dutch Arable Farming using Panel Data

This paper compares the production technology and production risk of organic and conventional arable farms in the Netherlands. Just–Pope production functions that explicitly account for output variability are estimated using panel data of Dutch organic and conventional farms. Prior investigation of the data indicates that within variation of output is significantly higher for organic farms, indicating that organic farms face more output variation than conventional farms. The estimation results indicate that in both types of farms, unobserved farm‐specific factors like management skills and soil quality are important in explaining output variability and production risk. The results further indicate that land has the highest elasticity of production for both farm types. Labour and other variable inputs have significant production elasticities in the case of conventional farms and other variable inputs in the case of organic farms. Manure and fertilisers are risk‐increasing inputs on organic farms and risk‐reducing inputs on conventional farms. Other variable inputs and labour are risk increasing on both farm types; capital and land are risk‐reducing inputs.     

Evaluating the impact of agricultural extension on farms' performance in Crete: a nonneutral stochastic frontier approach

This article attempts to integrate the production‐ and the efficiency‐based approaches for evaluating the impact of extension on farms' performance. For this purpose the nonneutral production frontier model is used, and the empirical analysis refers to a sample of farms from Crete, Greece. The empirical results support the proposed formulation instead of either the production‐ or the efficiency‐based formulations as extension was found to have a statistically significant effect on closing both the technology and management gaps. Public and private extension services were found to be competitive in the production function and complementary in the technical inefficiency effect function. In addition, farms using both public and private extension services achieved a higher degree of technical efficiency than those using either public or private extension services, and farms with no extension services were found to be the least efficient.     

Tenure security, resource poverty, public programs, and household plot-level conservation investments in the highlands of northern Ethiopia

Land degradation poses a serious problem for the livelihoods of rural producers. Furthermore, there is rarely enough private investment taking place to commensurate the scale of the problem. This article examines the role of tenure insecurity, resource poverty, risk and time preferences, and community‐led land conservation on differentiated patterns of household investment in land conservation in northern Ethiopia. We control for biophysical, household characteristics, market access conditions, and village level factors. Investments in soil bunds and stone terraces are specifically studied so as to capture the link between these various factors and the durability of conservation investments. We introduce the distinction between the determinants of the decision to invest and how much to invest in conservation. Regression results show that publicly led conservation programs seem to significantly stimulate private investment. A host of plot‐level variables and household perceptions of returns on conservation investments, expressed in terms of perceived improvements in land quality and increased crop yields, were found to be critical to the decision to invest and intensify soil conservation. The evidence on the significance of households' attitudes toward risk aversion suggests the important role of risk and the household's risk‐bearing capacity in the decision to intensify conservation measures. At the same time, tenure security indicators and households' resource endowments (resource poverty) had weaker effects in increasing willingness to invest and the level of investment made. The policy implications of these results point to the importance of agricultural research and extension efforts that target technologies which reduce household risk and poverty while enabling sustainable investments in conservation measures by individual households.     

Optimal supplier testing and tolerance strategies for genetically modified (GM) wheat

A stochastic optimization model was developed to determine optimal testing strategies, costs, and risks for dual marketing of genetically modified (GM) and non‐GM wheat in an export supply chain. The optimal testing strategy is derived that minimizes disutility of additional system costs due to testing and quality loss. Cost components were estimated including those related to testing, quality loss, and a risk premium to induce shippers to undertake dual marketing as opposed to handling only non‐GM crops. Uncertainties were incorporated for adventitious presence and commingling, variety declaration, and test accuracy. Sensitivities were performed for effects of variety risks and declaration, penalty differentials, buyer tolerances, risk aversion, and GM adoption. Results indicate testing and segregation can be performed at a relatively low cost and risk to buyers.     

Stages and determinants of fertilizer use in semiarid African agriculture: the Niger experience

Fertilization is a stepwise decision in Niger. Survey data from a representative sample of 100 households were utilized with individual and joint estimation to evaluate the determinants of fertilizer use at its three different stages: manure alone and two different types of inorganic fertilizer application. The fertilizer price relative to the millet price was always a highly significant determinant of fertilizer adoption. Farmers' experience in seeing the results of fertilization in the field was a principal factor influencing the use of manure and of the micro‐fertilization. Other studies in semiarid regions have emphasized risk, liquidity, or fertilizer responsiveness under harsh conditions but the shift to the micro doses of inorganic fertilizer was statistically associated here with the demonstration trials and the price ratios (fertilizer/millet). A variable reflecting the millet price recovery approximately 6 months after harvest was the most important factor in the decision to raise further inorganic fertilizer use with side dressing. Policy implications were focused on the importance of demonstration trials and improvements in the economic conditions (millet–fertilizer price ratios).     

On the market risk of securitized timberlands

Over 10 million acres of timberlands in the United States have been securitized through Real Estate Investment Trusts (REITs) in recent years. Publicly traded timber REITs have better liquidity and tax efficiency than private ownership, but at the same time, they are exposed to higher market risk as public firms. In this study, copula modeling is employed to assess the joint distribution between daily returns of five timber REITs and a stock market index. Both constant and time-varying symmetrized Joe-Clayton copulas are estimated to evaluate the dependence of timber REITs on the equity market from 1994 to 2010. In most cases, there exist lower tail dependence for market stresses, upper tail dependence for market booms, and tail asymmetry between individual firms and the market. On average, the dependence measure becomes larger after a firm is converted into a REIT. Each firm has smaller volatility of tail dependence after the conversion, except for Plum Creek. These findings reveal that the REIT structure has introduced non-diversifiable market risk into its ownership, and thus the diversification benefit of publicly traded timber REITs in a portfolio may be limited.     

Empirical measurement of credit rationing in agriculture: a methodological survey

Empirical analysis of rural credit market failure has been of key scientific and political interest in recent years. The aim of this article is to give an overview of the various methods for measuring credit rationing that are employed in the literature. Furthermore, the methods are subjected to a comparative evaluation of their specific strengths or shortcomings. Six approaches are distinguished: measurement of loan transaction costs, analysis of qualitative information collected in interviews, analysis of quantitative information collected in interviews using the credit limit concept, analysis of spill‐over effects with regard to secondary credit sources, econometric household modeling, and the econometric analysis of dynamic investment decisions. An explicit comparison with a first‐best solution is impossible in the first three approaches, since they essentially rely on a subjective assessment of borrowers' access to credit, based on qualitative or quantitative indicators. The fifth and sixth approaches allow a rigorous interpretation in the framework of neoclassical equilibrium theory. The fourth approach takes an intermediate position, since spill‐over on segmented loan markets reveals a willingness to pay with regard to the supposedly less expensive but rationed primary source. The approaches are fairly data demanding in general, usually requiring specific data on loan transactions. Even so, most approaches are applicable to cross‐sectional household data. With the exception of the first, all methods surveyed might plausibly be used to empirically detect credit rationing.     

Land degradation, drought and food security in a less-favoured area in the Ethiopian highlands: a bio-economic model with market imperfections

This paper presents a bio‐economic model of Andit Tid, a severely degraded crop‐livestock farming system with high population density and good market access in the highlands of Ethiopia. Land degradation, population growth, stagnant technology, and drought threaten food security in the area. Drought or weather risk appears to have increased in recent years. The bio‐economic model is used to analyse the combined effects of land degradation, population growth, market imperfections and increased risk of drought on household production, welfare and food security. We find that the indirect effects of drought on household welfare through the impact on crop and livestock prices are larger than the direct production effects of drought. Provision and adoption of credit for fertiliser, although risky in itself, may lead to increased grain production and improved household welfare and food security. Provision of credit may have a negative effect on conservation incentives but this effect may be mitigated by linking a conservation requirement to the provision of credit for fertiliser.     

Structural adjustment and soil degradation in Tanzania A CGE model approach with endogenous soil productivity

In this paper, a model of the nitrogen cycle in the soil is incorporated in a Computable General Equilibrium (CGE) model of the Tanzanian economy, thus establishing a two‐way link between the environment and the economy. For a given level of natural soil productivity, profit‐maximising farmers choose input levels – and hence production volumes – which in turn influence soil productivity in the following years through the recycling of nitrogen from the residues of roots and stover and the degree of erosion. The model is used to simulate the effects of typical structural adjustment policies like a reduction in agro‐chemicals’ subsidies, reduced implicit export tax rate etc. After 10 years, the result of a joint implementation is a 9% higher Gross Domestic Product (GDP) level compared to the baseline scenario. The effect of soil degradation is found to represent a reduction in the GDP level of more than 5% for the same time period.     

Use of Compliance Rewards in Agri‐environmental Schemes

Ensuring that farmers comply with the terms of agri‐environmental schemes is an important issue. This paper explores the use of a ‘compliance–reward’ approach under heterogeneous net compliance costs with respect to cost‐share working lands programmes such as the Environmental Quality Incentives Program (EQIP) in the United States. Specifically, we examine the use of a reward under asymmetric information and output price uncertainty. We examine two possible sources of financing under the assumption of budget neutrality: (i) funds obtained by reducing monitoring effort; and (ii) money saved by reducing the number of farmers enrolled. We discuss the advantages and disadvantages of each source of funding and analyse these numerically for both risk‐neutral and risk‐averse farmers. We also examine the trade‐off between increased expenditure on monitoring effort and compliance rewards when additional budgetary resources are available. We show that under certain conditions a compliance reward can increase compliance rates. For risk‐averse farmers, however, conditions that ensure a positive outcome become more restrictive.     

Risk and marketing behavior: pricing fed cattle on a grid

A seven‐year comparative study of grid pricing versus average pricing of slaughter cattle was conducted to evaluate carcass quality market signals. The primary objectives of the study are to determine: (1) if market signals sent through the grid pricing system indicate an improvement in the grid incentive mechanism over time, (2) how changes in the grid premium and discount structure associated with carcass quality affect the market risk premium, and (3) if changes in price risk (variance) affect producer marketing decisions. An Exponential‐Autoregressive‐Conditional‐Heteroskedasticity‐in‐Mean (EARCH‐in‐Mean) modeling procedure was adopted. Empirical results suggest that the grid premium and discount structure is slowly adjusting carcass quality market signals to encourage marketing on a grid and discourage marketing by the pen. The inclusion of the conditional variance in the empirical model indicates that variance associated with the carcass quality risk premium adds financial risk associated with the adoption of grid pricing.     

Spatial dependence in agricultural land prices: does it exist?

Trade-offs arise between spatial dependence and choice of functional form in agricultural land price hedonic models. We discuss these trade-offs and how they can create spurious spatial dependence. Using a land sales dataset with apparent spatial dependence, we implement a semiparametric approach avoiding potential problems with the functional form. The results show that in addition to being nonlinear, the impacts are also characterized by significance thresholds that are difficult to capture in a parametric model. More importantly, we fail to detect any spatial dependence demonstrating that inappropriate functional form can indeed be responsible for finding spatial dependence in hedonic models.     

Does sustainable intensification of maize production enhance child nutrition? Evidence from rural Tanzania

Food insecurity, child malnutrition, and land degradation remain persistent problems in sub‐Saharan Africa. Agricultural sustainable intensification (SI) has been proposed as a possible solution to simultaneously address these challenges. Yet there is little empirical evidence on if agricultural management practices and inputs that contribute to SI from an environmental standpoint do indeed improve food security or child nutrition. We use three waves of data from the nationally‐representative Tanzania National Panel Survey to analyze the child nutrition effects of rural households’ adoption of farming practices that can contribute to the SI of maize production. We group households into four categories based on their use of three soil fertility management practices on their maize plots: “Nonadoption”; “Intensification” (use of inorganic fertilizer only); “Sustainable” (use of organic fertilizer, maize–legume intercropping, or both); and “SI” (joint use of inorganic fertilizer with organic fertilizer and/or maize–legume intercropping). The results from multinomial endogenous treatment effects models with the Mundlak–Chamberlain device suggest that use of practices in the “SI” category is associated with improvements in children's height‐for‐age and weight‐for‐age z‐scores relative to “Nonadoption,” particularly for children aged 25–59 months. These effects appear to come through improvements in both crop income and productivity.     

Risk aversion in agricultural water management investments in Northern Ghana: experimental evidence

Sub‐Saharan Africa (SSA) is one of the regions in the world most affected by food price volatility and production variability. Poor small‐scale farmers in this region are particularly vulnerable to this variability. As a result, households may be reluctant to adopt new agricultural water management (AWM) technologies when they involve more risk than what they mitigate. Despite risk's role in AWM investments, there have been few attempts to estimate the magnitude and nature of risk aversion in relation to this type of farm decisions. To partially close this gap, this article uses an experimental approach applied to 137 households in Northern Ghana. We find that more than 70% of households are moderately or slightly risk averse. This contrasts with other studies in SSA, where most household decision‐makers exhibit severe to extreme risk aversion. We also find that households that stand to lose as well as gain something from participation in games are less risk averse than households playing gains‐only games. This result suggests that most farmers’ current wealth put them at risk of falling into a poverty trap. Thus, the losses from the riskiest investments on AWM technologies may fall more heavily on the poor, suggesting that additional efforts be given to the creation of viable insurance mechanisms.