Nutrient effects in consumer demand systems: evidence from panel data

This papers aims to analyse the demand for main food groups in Spain. Apart from the traditional economic factors (prices and income), our theoretical framework incorporates the nutrient composition of food into a demand model in the form of food attributes, as a proxy to take into account the rising consumer concern about the relationship between diet and health. A CBS functional form is chosen for the empirical model, which is estimated using a complete panel data set. Ten broad categories, nine nutrients and the most relevant socio-economic variables have been considered. Finally, after employing an appropriate selection strategy, the chosen model is used to calculate expenditure, price and nutrient elasticities, as well as the main socio-demographic effects. Results indicate that the introduction of nutrient-based determinants generates elasticities that differ from those obtained when only economic factors are included, particularly in the case of price elasticities. As the nutrients effect is incorporated in the model through adjusted prices, unhealthier food groups (cereals, white meat and eggs, dairy and sugar) become more inelastic as they are associated with higher perceived prices.     

Inter‐ and intra‐seasonal crop acreage response to international food prices and implications of volatility

Understanding how producers make decisions to allot acreage among crops and how decisions about land use are affected by changes in prices and their volatility is fundamental for predicting the supply of staple crops and, hence, assessing the global food supply situation. This study makes estimations of monthly (i.e., seasonal) versus annual global acreage response models for the world's principal staple food crops: wheat, corn, soybeans, and rice. Primary emphasis is given to the magnitude and speed of the allocation process. Estimation of intra‐annual acreage elasticity is crucial for expected food supply and for input demand, especially in the light of the recent short‐term volatility in food prices. The econometric results indicate that global crop acreage responds to crop prices and price risks, input costs as well as a time trend. Depending on respective crop, short‐run elasticities are about 0.05 to 0.40; price volatility tends to reduce acreage for some of the crops; comparison of the annual and the monthly acreage response elasticities suggests that acreage adjusts seasonally around the globe to new information and expectations. Given the seasonality of agriculture, time is of an essence for acreage response. The analysis indicates that acreage allocation is more sensitive to prices in the northern hemisphere spring than in winter and the response varies across months.     

Price supply response of vegetable growers in the Sultanate of Oman

Information on supply price elasticities has been acknowledged as being very important for decision makers at the macro and micro levels. This paper presents an empirical investigation of vegetable growers' responses to prices in Oman. It develops a single supply response function incorporating adaptive expectation model for prices. Results indicate that growers adjust relatively fast to changes in expected prices. However, these adjustments tire rather low for some crop in the short-and long-run. Growers' production decisions have also shown a significant response to prices of other products competing for farm space and other production resources. These results will support efforts aimed at market development and crop enhancement programs.     

Dairy productivity and climatic conditions: econometric evidence from South‐eastern United States

Climate change and food security have become critical issues in the agricultural policy agenda. Although global warming is expected to increase both the frequency and severity of heat stress on dairy cattle, there are very few economic studies focusing on this issue. This paper contributes to the literature by integrating the frontier methodology, commonly used in applied production economics, with heat stress indexes used by animal scientists but largely ignored by economists. Our econometric models are useful to quantify gross benefits expected from adaptation to climatic conditions represented by the Temperature Humidity Index (THI) and alternatively by the Equivalent Temperature Index (ETI). Stochastic production frontier analysis is used to measure technical efficiency for an unbalanced panel of 103 dairy farms located in Florida and Georgia. Five alternative model specifications are evaluated. The results reveal that both THI and ETI have a significant nonlinear negative effect on milk production. The climatic indexes when incorporated in the frontier specification absorb some of the output shortfall that otherwise would be attributable to inefficiency. The results indicate that using fans combined with sprinklers is an effective adaptation to offset output losses stemming from heat stress conditions.     

Agricultural Supply Response: A Survey

This paper surveys the literature on agricultural supply response to prices in developing countries. Empirical estimates of elasticities depend both on the methodology adopted and on country-specific factors relating to technology, economic structure and macro constraints. The paper seeks to establish some general conclusions on supply responsiveness within these limitations. Supply response to output prices at the aggregate and at the crop levels is considered first. Crop-specific acreage elasticities range between zero and 0.8 in the short run while long-run elasticities tend to be higher — between 0.3 and 1.2. Yield elasticities are smaller and less stable than acreage elasticities. Clearly, inter-crop pricing can be relied upon to effect shifts in the commodity composition of agricultural output. Evidence also suggests that supply elasticities vary systematically with such factors as price and yield risks, multiple-cropping, the importance of the crop, farm incomes, farm size, tenancy and literacy. The most controversial and important aspect of supply response is the effect on aggregate agricultural output of agriculture's terms of trade. Conventional time-series estimates range from 0.1 to 0.3. A major cross-country study reports an aggregate elasticity as high as 1.66. It is argued that cross-country estimates are apt to exaggerate aggregate responsiveness while time-series studies underestimate it somewhat. For LDCs, a tentative range of 0.4 to 0.5 seems plausible. Hence, the distributive effects of the terms of trade are likely to be more significant than the allocative effects. Asian evidence shows that only a third of the inter-country differences in fertilizer use can be attributed to fertilizer price policies. Provided new technologies and infrastructure are in place, fertilizer subsidies can help in technology diffusion and in overcoming credit constraints. The choice between price supports and input subsidies will depend on a variety of country- or situation-specific factors. Nevertheless, a significant general factor favoring price supports is that they can more easily be coupled with price stabilization goals than input subsidies. Though sparse, the available evidence on the response of marketed surplus suggests that price policy is not a reliable instrument for regulating inter-sectoral trade.     

Canadian Hog Supply Response: A Provincial Level Analysis

Canada's hog sector has faced two decades of tumultuous growth, yet there are no recent estimates of supply response. This study uses state‐space methods to account for a multiplicity of autonomous structural changes impacting the sector and determines if the fundamental relationship between supply response and hog prices has changed from previous estimates. The results are consistent with prior research but offer the reader previously unavailable estimates of supply response with respect to feed prices and the variability of hog and feed prices. Feed price elasticities are somewhat larger than hog price elasticities. The effects of price risk for supply response appear quite muted but the impacts of feed price risk are greater than for hog price risk.     

A MODEL OF SUPPLY RESPONSE IN THE AUSTRALIAN ORANGE GROWING INDUSTRY*

A model of the Australian orange growing industry to explain changes in plantings, removals, the number and age composition of trees and orange production is developed and estimated. Most of the variation in plantings is explained by the expected profitability of growing oranges, the current stocks of bearing and nonbearing trees, and removals of trees last year. Estimates of the elasticities of response of plantings and production to price changes are low and there are long time lags. An illustrative application of the model projects future developments in the industry for alternative assumptions about the profitability of growing oranges.     

Economic and environmental effects of decoupled agricultural support in the EU

This article reports findings from a simulation model representing the European farming system disaggregated at different scales. This modeling experiment explores the effects of various decoupling options associated with the 2003 European agreement on gross margins, land use, shadow cost of land, and greenhouse gas emissions. Our results show increases in the farmers’ gross margins when decoupled support is maintained equal to the amount of direct aid previously attributed to agricultural production, assuming unchanged prices. Land used for pasture increases at the expense of land used for cereals and protein crops. The extent to which these effects materialize depends on the policy options selected by Member States when implementing the Luxembourg agreement. When they opt for some recoupling of support, adverse net economic impacts occur for producers. Regional differences in impacts are more pronounced than the analysis aggregated at European and national scales suggests. This highlights the need for further work based on geostatistical downscaling.     

DISTRIBUTED LAGS AND BARLEY ACREAGE RESPONSE ANALYSIS

The need to incorporate production response lags in agricultural supply models is established, and two such lags are considered: the familiar adaptive expectations geometric lag, and a more general polynomial lag. These distributed lag supply response models are applied to Australian barley data for the period 1946-47 to 1968-69. A number of statistical problems associated with the adaptive expectations model are discussed, and in particular it is concluded that lags both in the formation of price expectations and in acreage adjustment should be considered when using geometric lag models. While the polynomial lag model does not provide useful results in the present study, its simplicity and flexibility suggest it may be useful in other studies requiring distributed lag models. The short run and long run price elasticity of barley supply estimates are compared with Gruen et al. [14] supply elasticities for the other major rural commodities, from which it appears that barley has a higher short run elasticity but a lower long run elasticity than wheat, wool and meat.     

Fertilizer demand in Greece

Limiting fertilizer use is becoming an important policy objective world-wide. However, the debate on appropriate policy measures is far from settled and evidence on fertilizer demand elasticities is still insufficient. Past studies on fertilizer demand leave several methodological and empirical issues open. This paper aims to contribute to the debate on the methodology of estimating fertilizer demand using single-equation methods. Dynamic aspects are also considered using error-correction modelling methodology and cointegration techniques. The model is applied using data front Greece. Short-run and long-run price elasticities of fertilizer demand with respect to own price and to output prices show significant response to price changes and the adjustment coefficient of fertilizer use to the error-correction term was found to be fairly rapid. The main policy conclusion of the paper is that reducing agricultural support may be an alternative and, perhaps, more effective way of reducing fertilizer demand than increasing fertilizer prices.     

Commodity Prices and Unit Root Tests

Price theory suggests that commodity prices should be stationary series. Yet, tests for unit roots rather frequently imply that these prices are not stationary. This seeming inconsistency is investigated by applying alternative specifications of unit root tests to prices of corn, soybeans, barrows and gilts, and milk. The preponderance of evidence suggests that nominal prices do not have unit roots, but the results are sensitive to the specification of the test equation. Accounting for a structural change that shifts the mean appears to be an important issue in unit root tests.     

THE DEMAND FOR LDC EXPORTS OF PRIMARY COMMODITIES: THE CASE OF THE PHILIPPINES*

The economic case for taxing exports rests on the elasticity of demand for the exports concerned, but the true values of these elasticities are controversial. The international demand for Philippine exports of coconut products is examined in this paper. The hypothesis that the Philippines is a 'small country' exporter of coconut products is rejected using the specification of a price-normalised demand equation and the implications of this finding are discussed.     

A MODEL OF THE COMMON AGRICULTURAL POLICY

Several efforts have been made since 1980 to estimate the costs and benefits of the European Community's Common Agricultural Policy (CAP). This paper summarises the approach and method adopted in developing one such effort, which aims to provide results at country, commodity and interest group level both for the CAP as a whole, and for changes in it. Economic analysis of the effects of price changes in the CAP is carried out with the use of direct and crossprice elasticities of supply and demand for sixteen major commodities, using base levels of production, consumption, and gross trade flows in each member state, along with rest-of-world data. A number of CAP instruments, such as subsidies, levies, quotas and ‘green’ exchange rates, are built into the calculations and can be varied, along with support prices, to produce new situations in domestic markets and in world price levels. Both financial (budgetary) and welfare (economic surplus) effects of such exogenous price changes can be calculated. Certain policy changes, such as a move to ‘free’ markets, involve endogenous calculation of equilibrium prices. Trend projections subject to a priori constraints are used to produce results for years beyond the extent of data currently available. The types of model run commonly carried out are discussed, along with several strategic judgments that became necessary in carrying out the research. Finally, questions concerning the future development and use of the model are addressed.     

Crop Insurance Valuation under Alternative Yield Distributions

Considerable disagreement exists about the most appropriate characterization of farm-level yield distributions. Yet, the economic importance of alternative yield distribution specifications on crop insurance valuation has not been well documented. The results of this study demonstrate that large differences in expected payouts from popular crop insurance products can arise solely from the parameterization chosen to represent yield distributions. The results suggest that the frequently unexamined yield distribution specification may lead to economically significant errors in crop insurance policy rating and assessment of expected payouts from policies.     

Agriculture and climate change in global scenarios: why don't the models agree

Agriculture is unique among economic sectors in the nature of impacts from climate change. The production activity that transforms inputs into agricultural outputs involves direct use of weather inputs (temperature, solar radiation available to the plant, and precipitation). Previous studies of the impacts of climate change on agriculture have reported substantial differences in outcomes such as prices, production, and trade arising from differences in model inputs and model specification. This article presents climate change results and underlying determinants from a model comparison exercise with 10 of the leading global economic models that include significant representation of agriculture. By harmonizing key drivers that include climate change effects, differences in model outcomes were reduced. The particular choice of climate change drivers for this comparison activity results in large and negative productivity effects. All models respond with higher prices. Producer behavior differs by model with some emphasizing area response and others yield response. Demand response is least important. The differences reflect both differences in model specification and perspectives on the future. The results from this study highlight the need to more fully compare the deep model parameters, to generate a call for a combination of econometric and validation studies to narrow the degree of uncertainty and variability in these parameters and to move to Monte Carlo type simulations to better map the contours of economic uncertainty.     

Modeling the demand for alcoholic beverages and advertising specifications

In this paper, the demand for beer, wine, spirits and soft drinks in Ontario is modeled in two parts: an equation is specifiec to endogenize group expenditures and a demand system is set up to allocate budgeted group expenditures across types o beverages. Advertising is allowed to influence both the level of group expenditures and its allocation. Three popula advertising specifications are compared using theJ‐test and the likelihood dominance criterion. Even though all threi specifications fitted well according to standard criteria, the calculated expenditure, price and advertising elasticities wen sensitive to the manner with which advertising is specified. This clearly highlights the need to rely on a sound criterion t< identify a dominant specification. From the identified dominant specification, we found that advertising has very subtle effect on expenditures on alcoholic beverages (group and individual beverages). Thus, advertising is not effective in enlarginj markets and this suggests that firms (especially breweries) use advertising to compete in zero‐sum market share games. From i public policy perspective, our results are comforting but future research should investigate whether the neutral effect o advertising on aggregated expenditures hide substantial offsetting changes in the drinking habits of individuals.     

Estimating the supply response of cotton and cereal crops in smallholder production systems: recent evidence from Mali

Cotton is one of the most important crops in West Africa and is a major catalyst of economic development in rural areas, but the sector has suffered from a decline in the world cotton price after 1999. This article exploits an unusual data set following 82 farmers over 14 years, from 1994 through 2007, to estimate a Nerlovian supply response model for cotton, maize, sorghum, and millet in long-term rotation. The resulting system of equations is estimated with two-stage least squares (2SLS), showing that this sample of Malian cotton producers have responded to prices in a relatively inelastic manner, with supply elasticities only about one-half of those estimated for producers in developed countries. Policy reforms could help producers respond more easily to prices changes, as well as to raise average productivity levels.     

An Error Corrected Almost Ideal Demand System for Crustaceans in the United States

We have employed an error-corrected almost ideal demand system (ECAIDS) for major crustaceans at a disaggregated level in the United States. The proposed model can provide short- and long-run price elasticities. This article makes an important empirical contribution by reporting a set of reliable, policy-relevant estimates of the elasticities of demand for crustaceans in the United States. The habit formation behavior was significant only for crayfish. The value pricing strategy and the promotional pricing strategy are expected to benefit the domestic shrimp industry. Increasing prices through various marketing strategies can benefit domestic producers of lobsters and crabs.     

CANADIAN WHEAT ACREAGE RESPONSE*

In spite of the criticisms which have been levied against statistical estimation of supply response, it is used in this study to determine the factors causing yearly fluctuations in Canadian wheat acreage. The estimates are derived from 1947–1966 time series data. In formulating price expectations, both the traditional and distributed lag models are used.
It was found that wheat acreage response is not a random process. From a statistical standpoint, wheat and flax prices, wheat stocks on farms, and export sales did affect farmers' wheat acreage decisions. Among the elasticities computed, those for wheat prices were the largest but generally less than one. Barley prices, rainfall prior to seeding, and cattle prices were also considered but did not appear to have a serious influence on wheat acreage.     

THE DEMAND FOR MEAT — AN EXAMPLE OF AN INCOMPLETE COMMODITY DEMAND SYSTEM*

Equations describing the demand for beef and veal, mutton, lamb, pork and chicken are estimated using the full information maximum likelihood estimator. Elasticity estimates are presented and the double logarithmic model is compared with a demand system which is derived from the indirect translog utility function. Estimates of the direct price and income elasticities are not particularly sensitive to model specification but the estimated cross-price elasticities are sensitive to the choice of functional form. The results indicate that the double logarithmic specification may be less satisfactory than the alternative presented in cases where restrictions on the parameters are imposed during estimation.