Decision-making Criteria for Purchasing Milk Quota at the Individual Farm Level: A Comment

In a recent article in this journal, Stonehouse and MacGregor outlined several elements of the farm level decision to purchase milk quota. They provide a useful reminder that, because quota is an asset, decisions regarding its purchase or sale should be undertaken and analyzed with capital budgeting techniques. More specifically, they describe procedures for calculating the net flow return from additional quota under different cost circumstances and the subsequent bid price which that farm could pay for the quota asset. It is the purpose of this comment to show that errors of both commission and omission have found their way into the paper. In addition, there is a problem of inconsistency because the text and the actual calculation formulae are sometimes contradictory.     

The Simple Analytics of Transferable Production Quota: Implications for the Marginal Cost of Ontario Milk Production

Using a competitive dynamic optimization model, the difference between unused and used industrial milk quota values is shown to give an exact measure of the annual rental rate of production quota. Knowledge of the rental rate of production quota and output price can be used to impute the marginal cost of industrial milk production. However, if there is a transfer tax on production quota sales, the imputation of the equilibrium rental value of quota depends on the elasticity of demand and supply for quota as well as the level of the transfer assessment. The marginal cost of Ontario milk production is estimated for each year from 1980–81 to 1994–95, based on unused and used quota values. However, the imputed marginal cost estimates are not totally satisfactory. The results suggest that caution should be exercised in using the difference between unused and used quota prices as a measure of the rental rate of industrial milk production quota.     

Farm bankruptcy risk as a link between direct payments and agricultural investment

The European Union is increasingly relying on direct paymentsto support farm incomes. Recent research has shown that a directpayment may increase production and investment by risk-aversefarmers via a link between wealth, risk aversion and decisionmaking. This paper shows that, even in the absence of risk aversion,a direct payment may stimulate farm investment. With lendersusing a standard insolvency rule for determining bankruptcy,the direct payment raises the expected value of marginal investmentbecause it reduces the risk of bankruptcy over the farmer'soperating time horizon. The investment response to the directpayment is larger for a farmer with an intermediate versus lowor high level of equity, and for a farmer with a long versusshort-time horizon.     

The nature of the research-induced supply shift

Differences among firms in a competitive industry can affect the shape of the industry supply curve. It is necessary to know how both production costs and rents are affected by research. Industry response to research will be different depending upon whether entry occurs. If the effect of entry is ignored, then the price decline from research will be overstated. Industry marginal returns can be positive with purely yield-increasing research, even when industry demand is inelastic. Standard formulas for calculating producer surplus based on linear industry supply and demand curves are strictly valid only if the analysis is restricted to short-run equilibrium behaviour.     

The Value of Dairy Quota under a Commercial Export Milk Program

This paper argues that under a commercial export milk program, the market value of quota will be determined by the spread between the domestic market price and the export price, rather than the conventional wisdom that it is determined by the spread between the domestic milk price and the marginal cost of production. Under this new economy, it is argued that ultimately the market price of dairy quota will be priced independently of firm marginal costs, which implies that low-cost (or high-margin) producers will not hold an economic advantage in bidding for quota over higher-cost producers. Regression results are consistent with the hypothesized positive relationship between quota values and the difference between domestic and export milk price. The average export price has generally increased over time and is approximately equal to the marginal cost for an average producer. The results have implications for a World Trade Organization (WTO) challenge. New Zealand and the United States feel the domestic program acts as an export subsidy by cross-subsidizing production of commercial export milk. The results here suggest that the prices for the filled export contracts are approximately the marginal cost of production for the average producer and not lower, as suggested by the challenge. Export contracts were found to have higher price risk than domestically produced milk. The risk is compounded by the short-term nature of most export contracts. The increase in risk for the commercial export milk program (CEM) implies that it is unlikely many farmers will greatly diversify into CEM contracts unless the uncertainty is reduced.     

Group heterogeneity and the economic effect of farmer organisation participation: Empirical evidence from Taiwan

We explore the effects of different farmer organisations on smallholder farmers' economic performance. The average treatment effect of switching between different farmer organisations is examined. In addition, based on the premise that a higher level of social capital is accumulated through participation in multiple farmer organisations, we also investigate how the economic consequences of farmer organisation membership vary with the intensity of participation. Our conceptual model explicitly includes social capital to provide a micro-foundation and a theoretical justification for the linkage between farmer organisation participation and the economic outcome. This indicates that participating in different types of farmer organisations is beneficial for farm households only when the returns from social capital investment outweigh the time cost of participation. Our empirical results suggest that membership of farmer organisations that are more homogeneous in terms of member specialty and similarity in production and marketing activities results in a significant increase in farm sales revenue and net returns. This result supports the view that technological proximity accentuates knowledge spillovers within the farmer organisations, and thus leads to better economic outcomes. In line with the prediction of the theoretical model, the average treatment effect of participation is found to increase with the number of organisations that farmers belong to. Moreover, results from the quantile regression provide empirical evidence supporting increasing returns to social capital accumulated through participation in several farmer organisations.     

A LINEAR PROGRAMMING SOLUTION TO SOME MARKET ALLOCATION PROBLEMS

Certain market allocation problems involving linear average net revenue functions can be solved by linear programming. The technique can be applied to an objective function derived from linear marginal net revenue functions, the objective being to force each marginal net revenue as near to zero as possible given the constraint set. If a particular problem is suited to a linear programming solution, researchers may prefer to use this technique rather than more sophisticated optimization methods.     

Supply Management and Productivity Growth in Alberta Dairy

Specification of quota licenses as quasi-fixed inputs in a multi-variate flexible accelerator model of dynamic input adjustment reveals supply management's effect on Alberta dairy investment patterns and, thereby, on total factor productivity growth. Estimates of a dynamic dual model of Alberta dairy, using panel data from 1975–91, show that strong complementarity between cattle and quota licenses results in short-run cattle adjustments that are opposite in direction from the long-run adjustments. A model of total factor productivity growth under dynamic input adjustment shows that the distortions to cattle investment caused by investing in quota licenses adversely affects productivity growth. As a result, there is likely to be a significant understatement of single-period estimates of the cost of supply management in the dairy sector.     

THE VALUE OF A FUNGICIDE ADVISORY PROGRAMME FOR CEREALS

An estimate is made of the benefits resulting from the implementation of a proposed fungicide advisory programme for Kent wheat farmers. The programme has a value by providing information which enables improved spraying decisions to be made by farmers. The expected annual value for Kent is found to be £106,000. A closer examination is made of both the returns and costs of one component of the scheme, viz, the training of farmers to recognise the disease (caused by Septoria spp.) in their fields. An average benefit/cost ratio of 8/1 is calculated to result from the provision of farmer training programmes. However, if the decision by farmers to attend courses is made upon the criteria of expected gain to themselves, then initial courses would have a much higher benefit/cost ratio. There would be diminishing returns to additional courses, but only those Kentish wheat growers with the smallest areas of crop would lack the financial incentive to attend.     

Determinants, differentiation, and development of short-term marginal costs in dairy production: an empirical analysis for selected regions of the EU

This work provides evidence on the determinants, cost differentiation, and development of short‐term marginal costs of dairy farms in important production regions of the European Union. The empirical study is based on the estimation of multi‐input multi‐output Symmetric Generalized McFadden cost functions using an unbalanced panel data set of the European Farm Accountancy Data Network. The results show considerable regional differences in the impact of the outputs, input prices, and fixed factors on marginal costs. Strong evidence can be found that marginal costs decrease over time and is further underlined by the development of derived regional aggregated short‐term supply curves. Marginal cost elasticities and correlation coefficients validate the hypotheses that a high degree of farm specialization, large milk output, and low milk prices are associated with lower marginal costs. Furthermore, the marginal cost spread in the data sample is analyzed. We show that milk output, milk yield, herd size, labor input, and fodder production can be attributed to significant marginal cost differentiation of farms, whereas for crop and animal output, grassland, stock of other animals, and depreciation only minor differentiation can be found.     

全国苹果种植收益波动特征及其影响因素分析——基于1991～2014年苹果种植收益数据的实证分析

[目的]文章依据1991~2014年全国苹果种植成本收益的年度数据,在对苹果种植收益波动特征进行描述性分析的基础上,选取苹果单位面积净收益、 单位面积物质与服务费用、 单位面积产量和单位产品出售价格这些变量来研究对苹果种植收益的影响.[方法]通过构建VAR模型,并运用脉冲响应函数和方差分解来分析苹果种植收益的影响因素.[结果]苹果种植产值和净收益总体上呈上升的态势,成本利润率呈现出M型的波动趋向.苹果种植净利润的增长主要得益于产值的增加高于总成本的增加,而产值的增加又得益于苹果单产的提高和出售价格的上涨.单位产品出售价格对苹果种植净收益的影响最大,其次是单位面积产量和单位面积物质与服务费用.[结论]完善苹果价格形成机制,逐步实现苹果定价机制的市场化和定价水平的合理化;增强农业基础设施建设的投入,加强苹果种植综合生产的能力;抑制农资成本和价格的过快增长,降低种植成本是增加苹果种植净收益的重要手段.     

The Optimal Length of an Agricultural Carbon Contract

In this paper, we present the economic determinants of the optimal length of a carbon offset contract. We find that because of a declining capacity of the soil to sequester carbon, the optimal length of the carbon contract is finite (the marginal benefit of remaining in the contract is declining over time, whereas marginal opportunity cost is rising). We also explore the effect of varying key parameter values on the optimal length in the contract. If the contract requires the farmer to sequester at a higher rate, the farmer chooses the contract for a shorter length of time, and this may decrease rather than increase social welfare. If society places a higher value on carbon accumulation, the contract is chosen for a longer length of time. Finally, if both the farmer and society have a higher discount rate, the model provides a somewhat surprising result. The overall time in the contract, and benefits from carbon accumulation are higher when the common discount rate is higher.     

Impacts of Norwegian Milk Quotas on Output Growth: A Modified Distance Function Approach

Quota regulations that prevent output expansion of farms and reallocation of output between farms can cause lower growth in output and productivity. The aim of this study was to explain the output growth rate of Norwegian dairy farms since 1976, and to decompose it into output, input, socioeconomic and technical change components. Instead of using the standard distance function approach for multi‐output technologies, we use a growth rate formulation, which automatically removes the farm‐specific effects. This formulation also helps to impose non‐negativity constraints on marginal products of inputs (input elasticities), which are often violated for many observations, especially when flexible functional forms are used. The farm‐level panel data cover three periods: before the quota scheme was introduced (1976–1982); the period with the most output‐restricting quota scheme (1983–1996); and the period with a more flexible quota scheme (from 1997 onwards). Results show that the milk quota regulations had a significant constraining effect on output growth, in particular on milk output in the period 1983–1996. Furthermore, the output mix has shifted towards meat production for the average farm. What emerges from this study is that output growth and technical change are negatively influenced by policy aims where productive performance has not been the primary objective, and that there is scope for increased farm growth if the quota regime is liberalised.     

Abolition of Raw Milk Quota in the European Union: A CGE Analysis at the Member Country Level

This paper discusses a generic approach to implementing production quotas in an applied general equilibrium framework. The quota rent is interpreted as additional primary factor payments. We analyse the abolition of the raw milk quota and the elimination of export subsidies for dairy products in the European Union at a member country level. The raw milk output increases in Denmark, Ireland, Italy, Luxembourg, the Netherlands and Spain, while it declines in Germany, Greece, Portugal and Sweden. The EU‐wide effect for raw milk production is an output increase of 3% and a price decline of 22%. To assess the robustness of the critical assumption about the raw milk quota rent we apply Arndt and Pearson's Systematic Sensitivity Analysis.     

森林限额采伐制度的经济学分析

用新制度经济学的制度成本—制度收益的制度绩效分析方法,引入斯密德的状态、结构、绩效(SSP)分析范式,对中国森林限额采伐制度的绩效进行分析。通过对该制度成本和收益的比较得出:森林限额采伐制度的成本大于收益,制度设计与目标产生了背离。建议对生态公益林政府要进一步加强管治,而对商品林逐步取消森林限额采伐制度,推进市场化改革。     

Prices paid for farmland in Ontario: Does buyer type matter?

In the wake of the substantial increases in farmland values that have occurred in Ontario since 2008, concerns have been expressed regarding the potential influence of nonfarmer buyers, such as investment companies and foreign buyers, on prices paid for farmland. To examine whether these concerns may be warranted, this paper estimates the impact of nonfarmer buyers on sale prices for farmland in Ontario, using a hedonic approach and farmland sales data from 2002 to 2016. Analysis is also conducted to determine whether marginal implicit prices of specific farm attributes differ between farmer buyers and nonfarmer buyers. The results indicate that nonfarmer buyers have paid higher prices for farmland, but only in near‐urban areas. In addition, differences in marginal implicit prices for farmland attributes are found, where farmer buyers value more highly attributes related to the agricultural productivity of the property while nonfarmer buyers value more highly attributes related to nonagricultural use. These results imply that the higher prices paid by nonfarmers may be attributable to the bid‐rent theory, as nonfarmers may be bidding more than farmers for farmland in near‐urban areas due to higher expected returns from future urban use of the land.     

Technology and efficiency in a panel of Italian dairy farms: an SGM restricted cost function approach

This article employs a short‐term specification of the symmetric generalised McFadden (SGM) cost function capable of accommodating quasi‐fixed factors and variable returns. Temporary equilibrium and scale economies are investigated while maintaining the consistency of the estimated model with microeconomic theory and approximation properties. It also makes use of a two‐step procedure to estimate first the technology parameters and then time‐varying efficiency at farm level. No distributional assumptions are required on efficiency as we consider a fixed effect model. A balanced panel of Italian dairy farms during the years from 1980 to 1992 serves as the case study. The results suggest a rigid productive structure during the pre‐ and post‐quota period. Moreover, Italian milk producers are found to exhibit considerable excess capacity and rather low input technical efficiency.     

Gains to Research in the Presence of Intellectual Property Rights and Research Subsidies

The influx of private investment into crop research, which has accompanied the establishment of intellectual property rights (IPRs) and the introduction of biotechnology, suggests high rates of return. However, the empirical analysis of the canola research sector shows a decline in the total net return to research during a period of increased investment, indicating that net marginal returns to research have been negative. The indication of immiserizing research suggests that the combined effect of IPRs and public incentives has driven the quantity of research beyond the socially optimal level.     

马尾松脂材两用人工林经济效益分析与评价——以广西国有派阳山林场为例

采用项目投资的财务效益评估手段,以脂材两用经营模式16a生马尾松采脂林为对象,对其经济效益进行了分析评价。结果表明:在该经营模式下,采脂林分总产值、净收益、净现值(NPV)、内部收益率(IRR)分别为147 173.1元.hm-2、85556.9元.hm-2、15 587.7元.hm-2、37%,比未采脂林分提高194.5%、214.1%、342%、76.2%;采脂林分动态投资回收期为10.6a,比未采脂林分缩短4.8a。运用该模式经营马尾松人工林能获得极高的经济收益和在较短时间内收回投资成本,提高资金的利用效率。     

CAPITAL BUDGETING,INTERTEMPORAL PROGRAMMING MODELS,WITH PARTICULAR REFERENCE TO AGRICULTURE

Investment decision processes typically involve the selection of projects, the timing of their initiation and the determination of the amount to be invested in each time period. A linear programming model considered appropriate for solving such models is described, in which the multi-dimensional criterion function is expressed as a linear combination of the appropriately-weighted objectives. An empirical application is then discussed, the objectives of the firm being the maximization of tax-free cash and assets on hand at the end of the planning period. Finally, the appropriate length of the planning horizon, and some approaches to capital budgeting under non-certainty, are discussed.