Appraising agricultural greenhouse gas mitigation potentials: effects of alternative assumptions

There is interest in society in general and in the agricultural and forestry sectors concerning a land‐based role in greenhouse gas mitigation reduction. Numerous studies have estimated the potential supply schedules at which agriculture and forestry could produce greenhouse gas offsets. However, such studies vary widely in critical assumptions regarding economic market adjustments, allowed scope of mitigation alternatives, and region of focus. Here, we examine the effects of using different assumptions on the total emission mitigation supply curve from agriculture and forestry in the United States. To do this we employ the U.S.‐based Agricultural Sector and Mitigation of Greenhouse Gas Model and find that variations in such factors can have profound effects on the results. Differences between commonly employed methods shift economic mitigation potentials from –55 to + 85%. The bias is stronger at higher carbon prices due to afforestation and energy crop plantations that reduce supply of traditional commodities. Lower carbon prices promote management changes with smaller impacts on commodity supply.     

Assessing CAP Reform: Sensitivity of Modelling Decoupled Policies

The European Union reformed farm policy in June 2003 towards the decoupling of farm income support instruments. Available impact studies find that this reform reduces production incentives substantially for beef and to a lesser extent for arable crops. However, these studies assume that the previous reform, under Agenda 2000, already decoupled arable crop direct payments to a considerable extent, while beef premiums were linked more closely to production. Our main objective in this paper is to test the sensitivity of these results to this questionable modelling of Agenda 2000 direct payments, which neglects eligibility rules and land market imperfections. Our analysis reveals that the effects of the reform on both arable crop and beef production are always negative, however the Agenda 2000 direct payments are modelled. On the other hand, we show that, when the eligibility rules and land market imperfections are acknowledged, the production reducing effects may be much larger for arable crops than for beef. Policy implications of these results are noted.     

Impacts of Decoupled Agricultural Support on Farm Structure,Biodiversity and Landscape Mosaic: Some EU Results

The decoupling of direct payments from production represents a substantial reform of the Common Agricultural Policy (CAP). Farmers are no longer required to produce commodities to be entitled to support but only to keep land in Good Environmental and Agricultural Condition. If output declines as a result, there is concern that landscape services produced jointly with commodities will also decline. The aim of this paper is to assess the long‐term effects of the 2003 reform on farm structure, landscape mosaic and biodiversity for a sample of EU regions. Impacts are quantified using a spatial agent‐based modelling approach by simulating agricultural development with links to indicators of landscape value. Our results demonstrate that eliminating the link between support payments and production has possible negative consequences for the landscape, but only under particular circumstances. It is shown that these effects could be offset by strengthening (Pillar II) agri‐environmental schemes. Further the single payment scheme results in higher land rental prices which reduces its ability to achieve its goal of providing income security for farmers. Implications of these results for the direction of continued CAP reform are discussed.     

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.     

Are "Decoupled" Farm Program Payments Really Decoupled? An Empirical Evaluation

This analysis utilizes farm-level data to evaluate the extent to which U.S. farm program benefits, particularly direct payments, bring about distortions in production. The issue is important in WTO negotiations and in the debate over the distortionary effects of decoupled ("green-box") payments. Our results suggest that the distortions brought about by AMTA payments, though statistically significant in some cases, are very modest. Larger effects are implied for market loss assistance payments. Probit models suggest that AMTA payments do not influence the likelihood that agents will acquire more land. Our results are reinforced using an aggregate county-level acreage model.     

The impact of decoupled payments on U.S. cropland values

An extensive literature has shown that various farm programs may influence the value of farmland, but other studies have not examined the cropland price effects of direct, or decoupled, payments separate from countercyclical payments. This study uses nationally representative confidential field‐level panel data with farmer‐reported per‐acre land values. We analyze the impact of decoupled and other farm program payments on farmland values. Using a fixed effects model and controlling for various factors that influence farmland values, we find that an additional dollar of decoupled payments has a large and statistically significant impact on farmland values of about $18 per acre. These results are comparable with similar studies undertaken in Europe.     

Home Bias in Primary Agricultural and Processed Food Trade: Assessing the Effects of National Degree of Uncertainty Aversion

This study investigates the effects of national degrees of uncertainty aversion (unfamiliarity avoidance) on the magnitude of bias towards domestic products rather than imports. The empirical analysis is implemented for primary agricultural and processed food products, using a panel dataset covering trade between and within OECD countries. Primary agricultural products are often blended and associated with reference prices. Conversely, processed food products exhibit higher levels of product differentiation. The empirical results confirm expectations by emphasizing the magnifying effects of uncertainty aversion on home bias in the case of processed food products but not in the case of primary agricultural products. These magnifying effects are primarily associated with processed food products destined for final household consumption. Other results reveal significant variations between different countries (based on geo‐economic and national income categories). Our results also indicate that home bias and uncertainty aversion effects on home bias have not decreased over time. The empirical results remain robust under different estimation methods.     

Applying cointegration and error correction to measure trade linkages: maize prices in the United States and Mexico

The impact of U.S.‐grown maize on Mexican markets is a subject of heated debate, and is complicated by limited substitution between white and yellow maize as well as regional price differences within Mexico. This article improves on previous analyses using a detailed data set of white maize prices reported weekly in 11 states across Mexico from 1998 through 2005. Using cointegration analysis and the error‐correction model, we find that prices between the United States and Mexico do not share a common long‐run relationship. Within Mexico, prices in Michoacán and Oaxaca are only weakly related with prices in neighboring states, whereas prices in Sinaloa and Jalisco exert considerable influence on prices elsewhere in Mexico. We conclude that, despite North American Free Trade Agreement (NAFTA), white maize prices in Mexico are determined by local conditions including particularly the degree of integration to other regions within Mexico.     

The capitalization of coupled and decoupled CAP payments into land rental rates

This article explores the extent to which payments under the Common Agricultural Policy (CAP) are capitalized into land rents in Ireland with implications for the transfer efficiency of such payments, since subsidies may not benefit targeted recipients if they are capitalized into input prices. Capitalization in the years preceding and following the "decoupling" of agricultural support payments from agricultural production is explored. In the period prior to decoupling, direct support (Pillar 1) payments were highly capitalized into Irish agricultural rents (67–90 cents per euro of subsidies), while in the post‐decoupling period capitalization appears to have declined somewhat.     

Effects of redistributing policy support on farmers’ technical efficiency

The objective of this article is twofold: first, investigating the relationship between technical efficiency and decoupled direct payments of a sample of Italian farms prior to the application of the 2014–2020 Common Agricultural Policy reform; second, evaluating possible implications of alternative scenarios about distribution of direct payments on technical efficiency. To these aims, a stochastic frontier analysis is adopted. Results indicate that direct payments produce significant effects on technical efficiency in specialized farms, which received higher levels of support. However, effects are contrasting. Moreover, results show that redistribution of policy subsidies may negatively impact on technical efficiency to an extent depending upon the criterion of redistribution applied. Finally, some policy suggestions are given.     

Lomé to Cotonou conventions: trade policy alternatives for the Senegalese groundnut sector

The signing of the Cotonou Convention in June 2000 established a new trading relationship between the European Union and African, Caribbean, and Pacific States. Negotiations to establish new trading arrangements have already commenced and will lead to the establishment of economic partnership agreements or other viable alternatives. In this study, the economic impact on the Senegalese groundnut sector is assessed for the case in which Senegal enters into an economic partnership agreement with the European Union, or into an enhanced form of the Generalized System of Preferences. The preferred choice depends on whether Senegal's economic status classifies it as a least developed country (LDC) or not, as well as on other external trading arrangements. Findings indicate that as a non‐LDC, the best option for Senegal would be to enter into an economic partnership agreement. As a LDC, the best option would be to move to the enhanced generalized system of preferences, thereby allowing Senegal to retain Lomé‐style trade preferences. Furthermore, increased development funding under the Cotonou Convention could help shield the Senegalese groundnut sector from adverse economic impacts arising from either trading option.     

Do U.S. citizens support government intervention in agriculture? Implications for the political economy of agricultural protection

The persistence of agricultural protectionism throughout the world is intriguing given the widely recognized benefits of free trade. The political economy literature over the last decades has considered groups’ interest, politicians’ preferences, and their interactions within domestic politics as the primary forces driving agricultural protection. Yet, a growing body of studies suggests that it would be judicious to weigh in consumers’ or taxpayers’ perspectives in deciphering the nature of agricultural protection. This study examines U.S. citizens’ preferences about government intervention in agriculture and trade. Results show that they are in strong support of agricultural protection and their perceptions of national food security, family farms, environmental sustainability, and multifunctionality of agriculture play a significant role in shaping their support/opposition toward government intervention. The conventional political economy literature theorizes that consumers or taxpayers would oppose public policies that increase their tax burden; however, in the case of the farm sector, they have little incentive to voice their objections given the costs of farm programs are spread across a large number of consumers and taxpayers. U.S. citizens’ support for government involvement in agriculture as reported in this and other prior studies does not lend support for such political economy explanation.     

Bias from Farmer Self‐Selection in Genetically Modified Crop Productivity Estimates: Evidence from Indian Data

In the continuing debate over the impact of genetically modified (GM) crops on farmers of developing countries, it is important to accurately measure magnitudes such as farm‐level yield gains from GM crop adoption. Yet most farm‐level studies in the literature do not control for farmer self‐selection, a potentially important source of bias in such estimates. We use farm‐level panel data from Indian cotton farmers to investigate the yield effect of GM insect‐resistant cotton. We explicitly take into account the fact that the choice of crop variety is an endogenous variable which might lead to bias from self‐selection. A production function is estimated using a fixed‐effects model to control for selection bias. Our results show that efficient farmers adopt Bacillus thuringiensis (Bt) cotton at a higher rate than their less efficient peers. This suggests that cross‐sectional estimates of the yield effect of Bt cotton, which do not control for self‐selection effects, are likely to be biased upwards. However, after controlling for selection bias, we still find that there is a significant positive yield effect from adoption of Bt cotton that more than offsets the additional cost of Bt seed.     

Evidence of climate change impacts on crop comparative advantage and land use

Relative agricultural productivity shocks emerging from climate change will alter regional cropland use. Land allocations are sensitive to crop profits that in turn depend on yield effects induced by changes in climate and technology. We develop and apply an integrated framework to assess the impact of climate change on agricultural productivity and land use for the U.S. Northern Great Plains. Crop-specific yield–weather models reveal crop comparative advantage due to differential yield impacts of weather across the region's major crops, that is, alfalfa, wheat, soybeans, and maize. We define crop profits as a function of the weather-driven yields, which are then used to model land use allocation decisions. This ultimately allows us to simulate the impact of climate change under the RCP4.5 emissions scenario on land allocated to the region's major crops as well as to grass/pasture. Upon removing the trends effects in yields, climate change is projected to lower yields by 33–64% over 2031–2055 relative to 1981–2005, with soybean being the least and alfalfa the most affected crops. Yield projections applied to the land use model at present-day input costs and output prices reveals that Dakotas’ grass acreage will increase by up to 23%, displacing croplands. Wheat acreage is expected to increase by up to 54% in select southeastern counties of North Dakota and South Dakota, where maize/soy acreage had increased by up to 58% during 1995–2016.     

Post-War Productivity Patterns in U.S. Agriculture: Influences of Aggregation Procedures in a State-Level Analysis

Annual data for forty-eight states are used to account for changes in the composition of input and output aggregates over space and time, and thereby to obtain new evidence on changes in inputs, outputs, and productivity in U.S. agriculture. The measures change significantly when we use state-specific rather than national prices and when we allow for changes in the composition of the aggregates, especially of labor and capital inputs. We compare our estimates and those reported by Ball et al. ( American Journal of Agricultural Economics 81(1999):164–79). The national estimates are similar but substantial differences are found in state-level productivity growth.     

U.S. food aid and American exports to recipient countries during the Cold War

In this article, we test to what extent the food aid granted by the U.S. during the Cold War was strategically motivated and used to promote U.S. interests. Using the data for the period 1971–1990, we investigate whether U.S. wheat aid had an effect on recipient countries’ total import of American products. The evidence we provide suggests a positive and robust relationship and thus it is consistent with the argument that U.S. food aid helped to create larger markets for U.S. producers.     

Induced technical change in centrally planned economies

It has generally been assumed that the inferences of the induced technical change model with respect to the direction of technical change could not be expected to hold for the centrally planned economies. In this paper we test three hypotheses generated from the induced technical change hypotheses against the experience of centrally planned economies: (a) if land becomes increasingly scarce new technology will be biased in a land-saving direction; (b) if labor becomes increasingly scarce new technology will be biased in a labor-saving direction; and (c) changes in the land-labor ratio have been induced by changes in relative factor endowments. The results suggest a bias toward mechanical and against biological technology regardless of factor endowments. This is consistent with the well known ideological or policy bias in a number of centrally planned economies toward a capital-intensive development strategy.     

Small U.S. dairy farms: can they compete?

The U.S. dairy industry is undergoing rapid structural change, evolving from a structure including many small farmers in the Upper Midwest and Northeast to one that includes very large farms in new production regions. Small farms are struggling to retain competitiveness via improved management and low‐input systems. Using data from USDA's Agricultural Resource Management Survey, we determine the extent of U.S. conventional and pasture‐based milk production during 2003–2007, and estimate net returns, scale efficiency, and technical efficiency associated with the systems across different operation sizes. We compare the financial performance of small conventional and pasture‐based producers with one another and with large‐scale producers. A stochastic production frontier is used to analyze performance over the period for conventional and pasture technologies identified using a binomial logit model. Large conventional farms generally outperformed smaller farms using most economic measures—technical efficiency, various profitability measures, and returns to scale.     

Exchange rate alignment and producer support estimates (PSEs) for India

This article examines the effects of exchange rate alignment during 1985–2002 on agricultural producer support estimates (PSEs) for India. Based on several time series techniques, the equilibrium exchange rate of the Indian rupee and the corresponding misalignment of the actual rate are estimated and applied to recent PSE calculations. Our results show that the exchange rate was substantially misaligned before a financial crisis and macroeconomic reform in the early 1990s, with subsequent indirect effects on the PSEs. We find a relatively high pass‐through of exchange rate movements to domestic agricultural prices, so that removal of the exchange rate misalignment would have improved incentives to Indian farmers during this period. More recently, this indirect exchange rate effect is smaller than the direct effect in the PSEs, indicating the dominance of sectoral‐specific policies over economy‐wide policies.     

Farmland cash rents and the dollar

We explore whether the U.S. exchange rate could have an influence on cash rental rates for farmland in five U.S. cornbelt states. We find that farmland cash rents have a fairly strong, positive correlation with the U.S. dollar, in terms of its real value relative to major agricultural trading partners. One explanation for the correlation is that a strong dollar lowers the price of key inputs and thus has purchasing power effects. A strong dollar may therefore be associated with higher net returns, and the payment of higher cash rents by farmers. We find support for this hypothesis through a series of econometric models.