The Impact of Price Stabilizing Policies on the Risk Efficient Crop/Fallow Decisions of Wheat Farmers in the Brown Soil Zone of Saskatchewan

The micro-linkages between the crop/fallow decision and price-induced risk are examined for wheat producers located on the brown soils of Saskatchewan. Three generic price stabilization policies are defined. Based on a bio-economic simulation model, the risk-efficient FLEXCROP decision rules are selected, and their corresponding cropping patterns are assessed for each generic price stabilization policy. Assuming no subsidy component within the mandatory price stabilization program:
• risk lovers reduce cropped acreages by 0% to 4%, depending upon both the risk-aversion level and the stabilizing program and
• risk-averse producers increase cropped acreage from 10% to 35% over no price stabilization.     

Incentive-Compatible Pollution Control Policies under Asymmetric Information on Both Risk Preferences and Technology

This article proposes a method to accommodate asymmetric information on farmers' risk preferences in designing voluntary environmental policies. By incorporating stochastic efficiency rules in a mechanism design problem, the government can find incentive-compatible policies by knowing only the general class of risk preferences among farmers. The model also accounts for hidden information on technology types and input use. The method is applied empirically to simulate a pollution control program in New York. Results suggest that participation incentives would be inadequate for many risk-averse producers if the government does not account for the diversity in risk preferences.     

A latent class approach to investigating demand for genetically modified banana in Uganda

This study explores consumer acceptance and valuation of a genetically modified (GM) staple food crop in a developing country prior to its commercialization. We focus on the hypothetical introduction of a disease‐resistant GM banana variety in Uganda, where bananas are among the most important staple crops. A choice experiment is used to investigate consumer preferences for various attributes related to the banana (such as bunch size, technology, producer benefit, and price) and examine their opinions on GM foodstuff. Choice data come from 421 banana‐consuming households randomly selected from three regions of Uganda. A latent class model is used to investigate the heterogeneity in consumers’ preferences for selected attributes related to the banana and to profile consumers who are more or less likely to accept GM bananas. Our results reveal that there is significant heterogeneity in consumer preferences across our sample. GM bananas are valued the most by poorer households located in the rural areas of the Eastern region. These food‐insecure households would experience the highest benefits (i.e., welfare gains) from the commercial release of GM bananas. In contrast, urban consumers are less accepting of GM bananas, and they would experience significant welfare losses if GM banana is released. According to our welfare estimates, both the total welfare benefits acquired by the gainers and the total welfare losses borne by the losers of this technology are significant and large. These results suggest the need for further investigation of the overall welfare effects of the introduction of GM bananas on the Ugandan society as a whole.     

Cow‐Calf Producer Preferences for Voluntary Traceability Systems

This article identifies preferences of US cow‐calf producers for voluntary traceability systems to better identify the potential success of alternative voluntary traceability systems. Results suggest that notable heterogeneity exists between cow‐calf producers in their preferences and the welfare effects of mandating traceability adoption. Producers are sensitive to price, managing entity and information requirements. We provide forecasts of voluntary participation rates under different price premium and discount scenarios that producers may face. This analysis has policy implications as success of voluntary traceability systems hinges critically upon cow‐calf producer preferences.     

Preferences, Technology, and the Environment: Understanding the Environmental Kuznets Curve Hypothesis

We derive a simple expression for the income-pollution path using the standard static model of the environmental Kuznets curve (EKC). This expression makes it straightforward to identify the general characteristics of utility and pollution functions that lead to such a curve. We show that suitable preferences can always lead to an EKC while there is no technology that yields an EKC for all types of preferences, and we derive a sufficient condition for technology that leads to an EKC for almost all types of preferences. Our results hold for a model with multiple goods with different pollution intensities and for a production economy with nonconstant relative price of consumption and environmental effort. We derive our results without assuming specific functional forms and we encompass several other models as special cases.     

Grain price stabilization in India: Evaluation of policy alternatives

Stabilization of prices is an important element of food policy in India as in most other countries — both developing and eveloped. However, since the magnitude of grain stocks held for this purpose as well as the costs of physical storage have become prohibitively high, there is now a need for finding cost-effective alternatives including non interventionist and market-oriented methods for price stabilization. In this paper we consider the case of rice and wheat which are staple foodgrains in India. We make a comparison between alternative price stabilization policies including that of holding buffer stocks in terms of their impact on domestic price stability, producer and consumer welfare and government costs. A multi-market equilibrium framework is used where private storage, consumption, supply and prices of rice and wheat are determined simultaneously. Indian exports and imports are assumed to affect world prices. The alternative price stabilizing mechanisms are ranked according to both the criteria, welfare and price stability achieved. The main findings are as follows. The ranking of alternatives varies with the criterion used. Greater price stability need not necessarily imply greater welfare. The option of variable levies on private external trade turns out to be the most inexpensive and that of domestic buffer stocks the costliest in achieving price stability. Further, the efficacy of buffer stocks and subsidy to private storage in stabilizing prices is lower under free trade as compared to the case where the economy is closed to private external trade.     

Joint estimation using revealed and stated preference data: An application using a national forest

We combine contingent behaviour with travel cost data to estimate the change in the recreational use value of a National Forest due to quality and price changes. Instead of the usual improvement scenario, a hypothetical deterioration in the conditions of the forest due to a fire is considered. A dataset containing five observations for each respondent enabled the estimation of three models for which the number of scenarios differed. The results show that visitors are sensitive to price and quality changes and that in the forest fire scenario the intended number of trips would be reduced and that respondents would experience a welfare loss. Signs of inconsistency between preferences expressed by revealed and intended behaviour were found. This research also provides some indications that strategic bias affects answers to price changes.     

Optimal Markup Decisions under Demand Uncertainty

This article examines the consistency with economic theory of a rule of thumb in which a risk-averse firm facing demand uncertaintly sets its price based on a percentage over the price paid to farmers. A testable set of comparative static results determines how the optimal markup is influenced by shifts in key parameters affecting the firm: expected demand, demand uncertainty and average variable costs. The model is tested using data from the wholesale markets for organic lettuce, broccoli and carrots. The results demonstrate that risk-averse wholesalers raise markups as expected demand increases and reduce them as uncertainty increases, consistent with risk-averse behavior. The empirical models show that produce marketing agents monitor shifts in expected demand and demand variability when adjusting markups. Expected demand has a greater impact on markups than demand variability.     

Activists and Animal Welfare: Quality Verifications in the Canadian Pork Sector

Animal welfare is an emotive topic. Although most governments legislate against outright animal cruelty, animal welfare organisations have actively lobbied for more stringent farm animal welfare regulations. Food retailers and restaurant chains have faced pressure from animal welfare organisations to implement more stringent animal welfare requirements for their suppliers. Is the demand for more stringent farm animal welfare protocols primarily determined by a subset of consumers with very strong preferences or does it signal a more fundamental underlying change in societal preferences? Given the credence nature of farm animal welfare, whom do consumers trust for credible quality assurances? This article analyses the role of quality verification in a market characterised by consumers with heterogeneous preferences for animal welfare. Of particular interest are the relative strength of preferences for humane animal treatment assurances and the credibility of these quality claims. Using data from a Canadian survey targeted at two distinct samples – a general population group and members of animal welfare organisations – a discrete choice experiment is used to assess consumer attitudes towards animal welfare assurances for pork products. The credibility of quality verification by public sector, private sector and third party agents is assessed. Evidence confirms that consumer preferences for farm animal welfare assurance and the source of verification are indeed heterogeneous. Although a portion of consumers remain largely indifferent to pork products with animal welfare assurances, a group of highly motivated consumers exist with an economic incentive to lobby for tougher animal welfare standards.     

The estimated ex ante economic impact of Bt cowpea in Niger,Benin and Northern Nigeria

Genetically modified (GM) crops could increase economic growth and enhance living standards in Africa, but political issues have slowed the use of biotechnology. This is the first study that assesses the potential impact of GM crops in Africa while considering the preferences of producers and consumers towards GMOs as well as the income and price risks they face. The study uses a choice experiment to estimate the ex ante economic impact of a novel technology, Bacillus thuringiensis (Bt) cowpea, on producers and consumers in Benin, Niger and northern Nigeria. The experiment involves the simulation of a market transaction similar to those in open air markets in West Africa. During the market simulation, respondents are informed about the advantages and disadvantages, including health risks, of Bt cowpea. The results from the study suggest that cowpea growers and consumers in Benin and northern Nigeria prefer Bt to conventional cowpea for health safety reasons. The results estimate that social welfare in Benin, Niger and northern Nigeria would increase by at least US$11.82 per capita annually with Bt cowpea, if seed sectors are operating smoothly. With inefficiencies in seed sectors and the potential for cowpea acreage increase, the estimated social welfare increase in the region would be about US$1.26 per capita annually.     

Estimating Intertemporal Preferences for Natural Resource Allocation

In this article, we show how the degree of risk aversion, discounting, and preference for intertemporal substitution for a natural resource manager can be structurally estimated within a recursive utility framework. We focus on the management of a reservoir in California, and test the data for consistency with a recursive utility model specification versus standard time-additive separability. The results show that the data are consistent with a risk-averse manager with recursive preferences. The data also reject time-additive separability, with or without risk aversion, such as the standard constant relative risk aversion utility model. The improvement in model fit when recursive preferences are used is notable.     

Consumers' Preferences for Nanotechnology in Food Packaging: A Discrete Choice Experiment

We examine consumers' preferences for chickens under different levels of foodborne health risk, animal welfare and pric attributes. We analyse how their preferences vary according to the risk reduction method. Our comparison is between risk reductions achieved by conventional improvements in the meat supply chain system (e.g. more stringent regulations and inspection regimes), and risk reductions achieved by food packaging nanosensors. Our comparison uses a two‐treatment discrete choice experiment in which each treatment sample is only presented with one of the risk reductions: either nanotechnology or conventional methods. We also investigate heterogeneity in preferences for two consumer groups: (i) consumers who usually buy conventional raw, whole chickens, and (ii) consumers who usually buy niche, welfare‐improved chickens, such as free‐range and organic. Our results show evidence of heterogeneity in preferences and willingness‐ to‐pay values of the both consumer groups. We find that consumers, on average, prefer raw, whole chicken with a lower risk of food poisoning, better animal welfare, and lower costs, regardless of the presence of nanosensors. Although consumers in general showed no strong preferences towards or resistance to nanotechnology, those who buy chickens with better animal welfare, on average, showed higher WTP for food risk reduction and animal welfare relative to conventional chicken consumers.     

Compensated optimal response under uncertainty in agricultural household models

This study derives the qualitative properties of a household's optimal consumption, family labour, hired labour and non-labour input choices under price and/or output risk through a Slutsky-type compensation without imposing any restriction on risk preference structure or production technology. These compensated responses provide the underpinning for welfare analysis in agricultural household models under risk. The framework for the evaluation of welfare effects of product and factor price interventions in a setting of output and price risk is developed. The paper also outlines an empirical model for estimation of the compensated demand and supply responses and for validation of the paper's analytical results.     

Genetically Modified Crops: Their Market and Welfare Impacts

A framework is developed for examining price and welfare effects of the introduction of genetically modified (GM) products. In the short run, non-GM grain generally becomes another identity-preserved product. However, more profound market effects are observed under some reasonable parameterizations. When calibrated to reflect the U.S. corn market, introducing GM technology increases aggregate welfare over a wide range of scenarios, unless the corresponding production cost savings are small and consumers are seriously concerned about GM products. The possibility that GM technology may reduce aggregate welfare is interesting because the model assumes rational agents and does not include regulatory constraints.     

Global market shocks and poverty in Vietnam: the case of rice

World food prices have experienced dramatic increases in recent years. These “shocks” affect food importers and exporters alike. Vietnam is a major exporter of rice, and rice is also a key item in domestic production, employment, and consumption. Accordingly, rice price shocks from the world market have general equilibrium impacts and as such, their implications for household welfare are not known ex ante. In this article, we present a framework for understanding the direct and indirect welfare effects of a global market shock of this kind. We quantify transmission of the shock from global indicator prices to domestic markets. Then we use an applied general equilibrium model to simulate the economic effects of the price changes. A recursive mapping to a nationally representative household living standards survey permits us to identify in detail the ceteris paribus effects of the shock on household incomes and welfare. In this analysis, interregional and intersectoral labor market adjustments emerge as key channels transmitting the effects of global price shocks across sectors and among households.     

Production technology option value: the case of rbST in Michigan

Agricultural producers are increasingly required to adjust production practices to satisfy retailer, and ultimately consumer, preferences. This article highlights the option value that underlies decisions related to production technologies using the case of Michigan dairy farmers and recombinant bovine somatotropin (rbST). Welfare impacts were calculated for dairy producers when milk production systems which allowed the use of rbST were eliminated from the producer choice set. Those dairy producers using rbST just before its elimination realized a higher welfare loss than those not using the technology. However, significant welfare impacts were found for all dairy producers indicating that all producers valued the option to use this production technology.     

Productivity and Producer Welfare in the Presence of Production Risk

Production risk is an inherent characteristic of agriculture and changes in production risk will affect the welfare of risk‐averse producers. Using standard concepts from the literature on uncertainty, we introduce a welfare measure which comprises total factor productivity (TFP), production risk and farmer risk preferences, and which reflects the impact on producer welfare of changes in production technology. An empirical application is carried out using data from a sample of Spanish dairy farms which shows how the positive impact of increases in TFP on welfare can be offset by increases in the risk premium (‘cost of risk’) to the point where welfare may decrease.     

Consumer Attitudes toward GM Food and Pesticide Residues in India

Bacillus thuringiensis (Bt) vegetables will likely be commercialized in India soon. The technology could reduce pesticide residues in foods. Yet it is unclear whether consumers will appreciate this health advantage, or whether potential GM crop risks will dominate their attitudes. Using contingent valuation methods and a sample of urban households, we find that almost 60% of consumers would purchase Bt vegetables at current conventional vegetable prices, indicating a high acceptance level. The rest would purchase at a certain price discount. Strikingly, the required discount increases for people particularly concerned about pesticide residues, demonstrating that risk-averse consumers do not easily offset technology benefits against perceived risks.     

Stochastic Technology, Risk Preferences, and Adoption of Site-Specific Technologies

A model of farmer decision making is developed to determine the extent to which uncertainties about soil fertility and weather affect the value of site-specific technologies (SSTs) using jointly estimated risk and technology parameters. Uncertainty can lead risk-averse farmers to apply more fertilizers and generate more pollution than in the certainty case. Ignoring uncertainty and risk aversion would overestimate the economic and environmental benefits of SSTs and underestimate the subsidy required to induce adoption. Accounting for uncertainties and risk preferences might explain the low observed adoption rates of SSTs. Improving the accuracy of SSTs would increase the incentives for adoption.     

The effects of a large discrete maize price increase on the distribution of household welfare and poverty in rural Kenya1

This study estimates the effects of a large discrete maize price increase on the welfare of a sample of rural Kenyan households. The usual first‐order welfare approximation formula is extended to a second‐order formula that allows for supply and demand responses to the price change. Results show that many rural households are not affected greatly by the price change, and there are about as many gainers as losers. However, these full sample results mask important differences across regions. Welfare gains generally take place in major production areas while losses are in areas where most households are net buyers of maize. Semiparametric methods are used to investigate the relationship between income and the size of the welfare effect, and poverty dominance techniques are applied to study the impacts of the maize price increase on rural poverty.