PRODUCT MARKET DISTORTIONS AND THE RETURNS TO BROILER CHICKEN RESEARCH IN CANADA

The economic returns to Canadian federal broiler chicken research between 1968 and 1984 were estimated using the economic surplus approach. The impact of distortions in the product market and of the excess burden of taxes on the net benefits of research and the distribution of gross benefits between producers and consumers were assessed. Rates of return to research investments at the margin over this period were estimated to be between 52% and 60%. All of the benefits of this research have accrued to consumers, and producers have actually been made worse off by broiler research under the existing regime of supply management.     

Profitability of incremental generic promotion of Australian dairy products

The motivation for this study rests on two factors. First, Australian dairy farmers spend around $20 million annually on generic promotion and estimates of the returns from this expenditure are required to facilitate efficient investment decisions. Second, while the Australian dairy industry has been highly regulated, there has been a substantial reduction in assistance over the past decade and farm‐gate milk prices were deregulated on 1 July 2000. The profit potential of promotion may vary with the degree of regulation, so past estimates of the returns from promotion may not hold in the competitive environment of the future. Hence, the aim of this study is to examine the effects of government intervention on the profitability for dairy farmers of incremental changes in generic dairy promotion expenditure using a perfectly competitive market as a reference point. Competitive market price and quantity outcomes for the Australian dairy industry are estimated. The impacts of increments in dairy product and competing product generic promotion expenditures on dairy farmers’ profits are assessed using equilibrium displacement modelling. Finally, graphical procedures are used to examine the effects of dairy industry regulation on the profitability of dairy promotion.     

The Rate of Return to Agricultural Research in a Small Country: The Case of Beef Cattle Research in Canada

The net economic benefits of Canadian federal beef cattle research programs were estimated using the economic surplus approach. The internal rate of return to research expenditure from 1968 to 1984 was found to be 63% at the margin, indicating substantia] underinvestment in technological change. Rates of return indicative of underinvestment were found even when an adjustment was made to research costs to reflect the marginal excess burden of taxation. Most of the benefits of beef cattle research conducted during this time period accrued to Canadian beef producers. Les bénéfices économiques nets des programmes de recherche fédéraux Canadiens sur le boeuf sont estimés en utilisant ?approche du surplus économique. Le taux interne de rendement des défenses de recherche effectuées de 1968 à 1984 est établi à 63%, indiquant un sous-investissement substantiel dans le changement technologique. Même en incluant la perte de bien-être due à ?imposition ?une taxe, ?étude montre un sous-investissement dans la recherche. La plupart des bénéfices de la recherche sur le boeuf effectuée durant cette période ont profité aux producteurs agricoles.     

Comovement of dairy product futures and firm value: returns and volatility

This study investigates the exposure of dairy firm stock prices to the prices of dairy product futures, in terms of returns and volatility, from May 2013 to April 2018. Stock price returns are regressed against an index of the futures price returns to four dairy products – milk, cheese, butter and dry whey – to isolate the effects of the dairy futures price returns. Dairy product futures price returns are found to be significant in the regression in the first three years of the sample period, with a mean coefficient of ?0.024. Using the Diebold‐Yilmaz volatility spillover method of forecast error variance decomposition, we show that the volatility of the four dairy product futures accounted for an average of 5.49 per cent of the volatility of dairy stock prices. These results suggest that the prices of dairy firms have minimal exposure to dairy product futures prices. This has implications for dairy firms and investors, who seek to understand volatility and returns in the dairy products and the stocks they trade in, and for policymakers, who seek to control or mitigate undesirable dairy product price volatility.     

Technology choice and efficiency on Australian dairy farms*

Deregulation of the Australian dairy industry, specifically the removal of price subsidies to ‘market milk’, as well as ongoing drought in many dairy regions, has placed considerable pressure on farm cash income and a search for ways in which dairy farms can be made to operate more efficiently. Using traditional farm survey data and a unique biannual data set on farm technology use, this paper estimates a stochastic production frontier and technical efficiency model for dairy farms in New South Wales and Victoria, determining the relative importance of each input in dairy production, the effects of key technology variables on farm efficiency, and overall farm profiles based on the efficiency rankings of dairy producers. Results show that production exhibits constant returns to scale and although feed concentration and the number of cows milked at peak season matter, the key determinants of differences in dairy farm efficiency are the type of dairy shed used and the proportion of irrigated farm area. Overall farm profiles indicate that those in the ‘high efficiency group’ largely employ either rotary or swing‐over dairy shed technology and have almost three times the proportional amount of land under irrigation.     

Returns from research in economies with policy distortions: hybrid sorghum in Sudan

Conventional estimates of the economic return to agricultural research use market prices for the values of products and inputs; on this basis, economic rates of return are typically well above the cost of capital, suggesting that more investment in research would be socially desirable. But these estimates may be incorrect if, as is often the case, market prices are distorted by market failures or government policies and hence do not reflect social values. This paper presents a simple, partial-equilibrium methodology with which to improve the measurement of social returns to research by taking account of multiple distortions in the market prices of products, inputs and foreign exchange. The method also takes account of variation in domestic and world prices, making a product tradable in some years and nontradable in others. The method is applied to the case of Hageen-Dura 1 (HD-1), Sub-Saharan Africa's first commercially successful hybrid sorghum. HD-1 was released in the Sudan in 1983. From the start of research in 1979 to 1992, the HD-1 breeding program had an estimated IRR of 97% when all major policies in the sorghum market, the fertilizer market, and the exchange rate are taken into account. The high rate of return to HD-1 research was due to the program's low cost and rapid payoff, pointing to the potential value of small adaptive research programs, taking full advantage of foreign technology and genetic material to produce locally-appropriate crosses in a short period of time. Even in the highly distorted economies of Africa, such programs can yield very high payoffs.     

Markups,organic agriculture and downstream concentration at the example of European dairy farmers

A competitive environment, highly concentrated processing and retailing sectors as well as increasing decoupling of direct payments from production volumes and the area under cultivation incentivizes farmers to find alternative ways to improve their bargaining position towards downstream companies. This article explores the possibilities of organic agriculture to enhance the bargaining power of farmers along with the role of concentration in downstream industries. Using a dataset with more than 200,000 observations from approximately 40,000 dairy farms, I estimate markups of price over marginal cost in dairy farming as a measure of market power in the EU. The results show that organic farmers achieve a significant markup premium over conventional farmers. With increasing market shares of organic milk in total milk production markups of conventional farmers diminish whereas those of organic farmers are unaffected. Farm-level markups decrease with increasing market shares of medium-sized dairy processors and increase with increasing market shares of large processors. The presence of large multinational retail chains shows an adverse impact on farmers’ markups.     

An Economic Analysis of the Returns to Canadian Swine Research: 1974–97

This paper reports a new set of estimates of the returns to swine research in Canada. These estimates are obtained using Agriculture and Agri‐Food Canada's Canadian Regional Agricultural Model (CRAM). Positive Mathematical Programming is incorporated into the model for use in this study. The CRAM allows the effects of supply shifts from technological change in the hog industry to interact with product and factor market conditions in the rest of Canadian agriculture. Extensive sensitivity analysis is conducted to examine the robustness of the return estimates under variations in some of the key assumptions employed in the analysis. The costs of public and private sector swine research are estimated. Public sector research costs are inclusive of the marginal excess burden of taxation. Overall, the estimated benefits from Canadian swine research are high relative to the estimated costs for the time period considered. Previous estimates of the returns to Canadian swine research were obtained by Huot et al. (1989) with a partial equilibrium model that did not allow for intra‐sectoral resource use adjustments. The estimated returns obtained in the present study are generally higher than those obtained by Huot et al. For example, the estimates obtained from the direct application of the econometrically estimated supply function in this study gave an internal rate of return of about 124% and a benefit‐cost ratio of 22.4 to 1. Huot et al reported comparable estimates of about 43% for the internal rate of return and 6–7 to 1 for the benefit‐cost ratio. The differences in returns are not solely attributable to the use of a multi‐market versus a single‐market partial equilibrium approach. There are also differences in the estimates of the marginal excess burden of taxation between the two studies. L'analyse que void présente une nouvelle série d'estimations quant au rendement de la recherche porcine au Canada. Ces estimations dérivent du Modèle d'analyse régionale de l'agriculture du Canada (MARAC) du ministère canadien de l'Agriculture et de l'Agroalimentaire. Aux fins de la présente étude, on avait intégré au modèle une programmation mathématique positive. Le MARAC autorise l'interaction entre les retombées d'une modification de l'offre attribuable au virage technologique de l'industrie porcine et les conditions du marché des produits et des facteurs dans le reste de l'agriculture canadienne. Les auteurs ont effectué une analyse de sensibilité poussée en vue d'établir la robustesse de leurs estimations quand variaient quelques‐unes des principales hypotheses de l'analyse. On a estimé le coût de la recherche sur les pores poursuivie par les secteurs public et privé. Dans le secteur public, le coût de la recherche incluait une charge fiscale légérement excessive. Dans l'ensemble, la recherche sur les porcs entreprise au Canada a rapporté beaucoup comparativement à ce qu'elle a coûté pendant la période à l'étude. Les estimations antérieures, établies par Huot et ses collaborateurs (1989), venaient d'un modèle àéquilibre partiel ne permettant aucun ajustement pour l'utilisation intra‐sectorielle des ressources. Les revenus estimés ici sont généralement plus élevés que ceux de Huot et de ses collaborateurs. Ainsi, une application directe de l'offre estimée par des méthodes économétriques à l'analyse donne un taux de rendement interne d'environ 124 % et un indice de rentabilité de 22,4 pour 1. À titre de comparaison, Huot et ses collaborateurs rapportent des résultats d'environ 43 % pour le taux de rendement interne et de 6 à 7 pour 1 en ce qui concerne l'indice de rentabilité. Pareil écart ne résulte pas uniquement du choix d'un modèle àéquilibre partiel reposant sur plusieurs marchés au lieu d'un seul; on relève aussi des variations dans l'estimation du léger excès de la charge fiscale entre les deux études.     

Effects of subsidies in Russian dairy farming

This study develops a microeconometric model of specialized dairy farms in the Moscow region using panel data over the period 1995–2001. The model is used to analyze the role of subsidies on profit as well as input and output allocation. Theoretical conditions for short‐term profit maximization are not rejected by the data. Differences between farms allow for a fixed‐effect specification. The dairy producers in the region demonstrate a low responsiveness to market signals, but technology change becomes important. Labor, land, and livestock had low shadow prices. Although subsidies have a distorting effect on the input–output mix, this study shows they relieve the credit constraints on dairy farms and have an important positive influence on farm profit.     

A Comparison of Ex Post and Ex Ante Measures of Producers' Surplus in Estimating the Returns to Canadian Federal Sheep Research

The returns to Canadian federal sheep research expenditures between 1968 and 1984 are estimated using the economic surplus approach. Ex post and ex ante measures of the change in producers' surplus are compared. Regression analysis is used to estimate the lag structure of the effects of research on the national supply function, facilitating the estimation of returns on average and at the margin. The effect of the excess burden of tax collection on returns to sheep research is investigated. The internal rate of return to sheep research has been about 25% at the margin exclusive of the effects of the excess burden. This rate of return falls to 20% when the costs of an excess burden of 20 cents on the dollar is assumed. Nous calculons le rendement estimatif des défenses consacrées à la recherche sur le mouton par le gouvernement du Canada entre 1968 et 1984 à ?aide ?une méthode fondée sur les surplus économiques. Nous comparons les mesures objectives (ex post) et subjectives (ex ante) des changements survenus au chapitre des excédents à la production. ?analyse de régression nous permet ?estimer la structure de retard des effets de la recherche sur la fonction de ?approvisionnement national, ce qui facilite ?évaluation du rendement moyen et du rendement à la marge. Nous examinons également les effets du fardeau excessif de ?impôt sur le rendement de la recherche sur le mouton. Le taux interne de rendement de la recherche portant sur le mouton a été évalué à environ 25% à la marge, en excluant les effets du fardeau excessif. Ce taux de rendement est abaissé à 20 % lorsqu'on tient compte ?un coût présumé du fardeau excessif de 20 cents par dollar.     

EVALUATING THE LEVEL AND DISTRIBUTION OF BENEFITS FROM DAIRY INDUSTRY RESEARCH

A model and associated formulae are developed to estimate the size and distribution of benefits generated by different types of research for the Australian dairy industry. Particular attention is given to the influence of policy interventions on the estimates. The estimates of aggregate research benefits differ for free market assumptions versus current policy assumptions, but quantitatively the differences are small. By contrast, estimates of the distribution of benefits between different groups of consumers and farmers are significantly altered by the policy interventions.     

Enhancing productivity on suburban dairy farms in China

Dairy farms in China's suburban areas have been playing an important role in providing urban markets with fresh milk. With the rising demand for fluid milk and dairy products in the cities, there is a perception that small and scattered dairy farms in China's provinces are gradually disappearing and more concentrated dairy cattle farming is being formed near suburban areas. This article uses farm‐level survey data and stochastic input distance functions to make estimates of total factor productivity (TFP) on suburban dairy farms, as well as for the entire dairy sector. The results show that over the past decade TFP growth has been positive on suburban dairy farms, and this rise in productivity has been driven mostly by technological change. However, at the same time we find that, on average, the same farms have been falling behind the advancing technical frontier. We also find one of the drivers of the suburban dairy sector is the relatively robust rate of technological change of these farms, which has been more rapid than on farms in the dairy sector as a whole. The results suggest that efforts to achieve greater adoption of new technologies and better advice on how to use the technologies and manage production and marketing within the suburban dairy sector will further advance productivity growth in the sector.     

DISTRIBUTION OF RESEARCH GAINS UNDER DIFFERENT MARKET STRUCTURES: THE IMPACT OF TECHNOLOGICAL CHANGE WITHIN THE UK DAIRY INDUSTRY

This paper describes a model for assessing the aggregate level and distribution of benefits within the UK dairy industry from research aimed at reducing the costs of dairying equipment and machinery. The effect of the market structure of the farming and processing sectors is examined. It is shown, in this model, that the machinery sector always loses from a technological advance. The benefits and losses to the other sectors depend on the organisational structure of farmers and processors. Finally, the effect of imposing a levy on farmers to pay for research is discussed. The losses are shown not to be distributed in the same way as the research gains. The results have direct implications for the funding of research.     

Testing for Processor Market Power in the Markets for Cattle and Hogs in Canada

Deviations of livestock input prices from processor marginal value product are usually interpreted as an indication of the application of market power by the meat packing industry. However, market power depends on economic conditions that can influence the behavior of meat packers in the market for cattle and hogs. An industry-level translog profit function is applied to data on the Canadian finished cattle and hog markets and industry-wide oligopsony market power functions are estimated. The estimates suggest beef packers exercised a small but sustained amount of market power in the Canadian finished cattle market from 1978 to 1997. This is not the case in the market for hogs, which was competitive from 1960 to 1997. Application of market power in packers'purchases of farm animals decreased with increases in the utilization of domestic supply of slaughter animals and with increased levels of livestock exports. Livestock productivity increases appear to have significantly enhanced oligopsony power in packers'purchases of farm animals. The analysis suggests that beef processors may exert market power when cattle prices are relatively higher.     

Capitalization of Farm Policy Benefits and the Rate of Return to Policy-Created Assets: Evidence from California Dairy Quota

The rate of return to ownership of California dairy quota is about 27% per year—well above that of typical financial assets, but in line with other measured returns to agricultural quotas. Ownership of dairy quota does not contribute positively to total variation of typical portfolios, including those of dairy farm assets, and so contributes little or no portfolio risk. A plausible alternative hypothesis for the high rate of return is that quota owners see significant risk of policy change that would reduce future quota values. That is, they face default risk in quota ownership.     

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.     

Publicly-funded UK agricultural R&D and 'social' total factor productivity

Most studies concerned with measuring the rate of return to publicly‐funded agricultural R&D investment have found high returns, suggesting under‐investment, and calls for increased expenditure have been common. However, the evaluation of returns tends to measure the effect of research expenditure against growth in total factor productivity (TFP), based on market inputs and outputs. When compared against growing public unease over the environmental effects of pursuing agricultural productivity growth, TFP indices become a misleading measure of growth. This paper integrates some non‐market components into the TFP index. The costs of two specific externalities of agricultural production, namely fertiliser and pesticide pollution, are integrated in a TFP index constructed for the period 1948–1995. This adjusted, or ‘social’, TFP index is measured against UK public R&D expenditures. The rates of return to agricultural R&D are reduced by using the ‘social’ as opposed to the traditional TFP index. Whilst both remain at justifiable levels, previous studies appear to have over‐estimated the effect of agricultural R&D expenditures. Furthermore, with changes in policy towards more socially acceptable but non‐productivity enhancing outcomes, such as animal welfare, rural diversification and organic farming, the future framework for analysing returns to agricultural R&D should not be so dependent on productivity growth as an indicator of research effectiveness.     

Demand for dairy products in Mexico

Mexico is the world's largest importer of non-fat dry milk (NFDM) and imports of cheese, fluid milk, and whey have increased rapidly in the past four years. In the wake of GATT and the NAFTA, as well as recent economic developments in Mexico, world dairy markets will be affected as a result of changes in the Mexican dairy sector. The study analyzes both domestic and import demand for dairy products in Mexico to determine price and income elasticities as well as import elasticities. The results indicate that the demand for fluid milk is the most responsive to price changes and NFDM demand is inelastic with respect to its own price. There is little subtitution between fluid milk and non-fat dry milk, although fluid milk is relatively elastic, which suggests the existence of other substitutes for fluid milk. Estimation of import demand equations reveal similar trends in response to price changes, but income elasticity of imports was highest for fluid milk which suggests that Mexico will import possibly more fluid than dry milk as incomes rise. The exchange rate was the most significant variable influencing all dairy product imports.     

Impacts of trade liberalization in Canada's supply managed dairy industry

Trade is an integral part of the Canadian economy. The main institutional drivers governing trade are bilateral and multilateral agreements outlining permissible trade distorting measures. Since its inception in 1972, Canada's supply management system has remained protected throughout trade negotiations. The system appears, by any economic measure, to be having an increasingly disproportional influence in recent trade negotiations. However, trade agreements serve not only to maximize social surplus, but also to maximize some measure of political welfare. Canada has recently negotiated three prominent trade agreements: the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) came into effect in the latter part of 2017; the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) came into effect at the end of 2018; and the Canada-United States-Mexico Agreement (CUSMA) could come into effect in 2020. Collectively, these agreements have guaranteed increased market access for fresh and processed dairy products. We build a spatial partial equilibrium model of the Canadian dairy industry consisting of three regions and 10 commodities to assess the individual and cumulative effect of these trade agreements. We pay particular attention to the institutional drivers within today's dairy sector: milk protein isolates; component pricing, including Class 7; and differential demand growth. We find that the aggregate impacts are: (a) a 1.4% decrease in the marginal retail price; (b) a 4.8% decrease in the blended producer price; and (c) an overall increase in social welfare of 7.8%. Worth noting, the decrease in producer surplus varies from 0.7% in the western region to 1.5% in Ontario. Our results may be relevant to future negotiations as well as the publicly promised compensation package for dairy producers.