Identifying Strategies to Mitigate Handling Risks in the Canadian Grain Supply Chain

The introduction of new generation agricultural products has generated an increased need for efficient and accurate product segregation across a number of Canadian agricultural sectors. As a key component of wheat handling in the Canadian grain industry, grading of wheat for value‐added blending has historically been accomplished by visual identification. As of 2008 in Canada, visual identification was eliminated for all primary classes of wheat and replaced by an alternative system of wheat declaration. Given the high costs of testing each truck and railcar for quality assurance, the declaration system must rely on incentives and trust as there is now considerable potential for accidental or opportunistic misrepresentation throughout the grain supply chain. This research attempts to identify cost‐effective handling strategies and policies so as to maintain the integrity of the supply chain under the new declaration system. An agent‐based simulation model is developed to capture the effects of individual heterogeneity as well as behavioral adaption to the declaration system within the modern wheat supply chain. The simulated results are used to identify superior testing strategies for handlers, along with the relative risks and costs associated with each of the testing strategies.     

Optimal supplier testing and tolerance strategies for genetically modified (GM) wheat

A stochastic optimization model was developed to determine optimal testing strategies, costs, and risks for dual marketing of genetically modified (GM) and non‐GM wheat in an export supply chain. The optimal testing strategy is derived that minimizes disutility of additional system costs due to testing and quality loss. Cost components were estimated including those related to testing, quality loss, and a risk premium to induce shippers to undertake dual marketing as opposed to handling only non‐GM crops. Uncertainties were incorporated for adventitious presence and commingling, variety declaration, and test accuracy. Sensitivities were performed for effects of variety risks and declaration, penalty differentials, buyer tolerances, risk aversion, and GM adoption. Results indicate testing and segregation can be performed at a relatively low cost and risk to buyers.     

Yield quality and irrigation with saline water under environmental limitations: the case of processing tomatoes in California

Irrigation with saline water has a positive impact on some quality indices of processing tomatoes, but with concomitant reductions in output quantity. This article studies the impact of the trade‐off between these two factors on optimal water management under waterlogging and costly drainage‐disposal conditions. The focus is on the content of total soluble solids as a quality measure affecting prices paid by California processors to tomato growers. A function relating quality to water and salinity applications and a quality hedonic‐price function are estimated and introduced into a static, field‐level mathematical programming model. The model calculates optimal water management under environmental regulations associated with drainage disposal in California. Findings indicate that only when the quality effect is taken into account does blending fresh surface‐water with saline drain‐water become an optimal strategy. Management and policy implications on the regional scale are discussed.     

Contracting for Canola in the Great Plains States

Canola has become an important crop in the last decade in the United States. Production of canola is risky and competes with other crops that have varying risk reduction mechanisms. Processors develop and offer contracts with varying specifications that allow growers to reduce risk and attract canola production. In this study, preplant contracting strategies were evaluated in terms of risk and return for growers and processors. Alternative contracts include fixed‐price‐variety‐specific with and without act‐of‐God provisions, and an oil‐premium contract. Grower returns and processor gross margins were simulated and resulting distributions were evaluated using stochastic efficiency with respect to a function. In the dominant growing region, growers would prefer fixed‐price‐variety‐specific contracts versus contracts with oil premiums. The latter would only be preferred by crushers that are highly risk averse. The results vary regionally suggesting that contract types should vary by region to be acceptable to a broader range of growers and processors.     

UNDERWRITING ASSISTANCE TO THE AUSTRALIAN WHEAT INDUSTRY — AN APPLICATION OF OPTION PRICING THEORY

For the ten crop seasons 1979-80 to 1988-89, returns to producers in the Australian wheat industry were underwritten by a government-guaranteed price floor. Similar schemes operate in other rural industries (dairy, apples and pears, dried fruits). Although the underwriting provisions have only been triggered once (in the 1986-87 season), the provision of this scheme has acted to reduce the risk normally associated with returns to producers of wheat in all years of its operation. This reduction in risk has been granted free-of-charge by the Commonwealth Government. The guaranteed price can be viewed as a put option taken out by the Government on behalf of growers — it gives growers the option to sell to the Australian Wheat Board at this floor price. The aim of this paper is to apply to this underwriting arrangement the Black-Scholes formula for valuing options, in order to estimate the cost that growers would otherwise have had to pay to obtain cover (through put options) equivalent to the guaranteed price. We also estimate the magnitude of this form of assistance to the industry, which (until now) has not been taken into account unless the returns to growers fell below the guaranteed price.     

An economic approach to soil fertility management for wheat production in north-eastern Australia

Soil fertility decline and soil management for crop production are important economic issues for grain growers in north-eastern Australia. In that region, there is evidence of soil fertility decline which is attributed to past crop management practices. The questions addressed in this article are first, whether components of soil fertility can be improved by better management and second, by how much soil fertility would change. Soil fertility for crop production is considered in terms of soil organic carbon and nitrogen. A stochastic dynamic economic analysis of soil fertility management for wheat production is presented. A sequential analysis of first deriving the optimal nitrogen stock and application rates is followed by an assessment of tillage, stubble, and fertilizer strategies to obtain an optimal level of soil organic carbon. The recommended management practices are consistent with emerging management trends in the region. The derivation of optimal levels of soil fertility for agricultural purposes has other policy implications, which we discuss.     

Supply Chain Management in Cereal Grains: A Case Study from the U.S. Milling Wheat Industry

This paper studies supply chain management in the grain industry by investigating the effects of wheat quality on marketing arrangements between wheat producers, grain handling companies and processors. Wheat quality is defined by many different characteristics, broadly categorized into physical and intrinsic quality attributes. The complexity of wheat quality places limitations on the effectiveness of industry grading schemes in assuring end-use quality. In the U.S., wheat grading factors mostly reflect physical characteristics. Moreover, the U.S. wheat industry does little to regulate the intrinsic quality of new cultivars. Consequently, there is functional quality uncertainty in the U.S. wheat market, encouraging some individual processors to segregate wheat based on their own quality specifications. The costs and benefits of wheat segregation are illustrated with a case study of wheat procurement taken from the U.S. flour industry. Pendleton Flour Mills Inc. operates a stringent testing program to segregate wheat supplies with specific intrinsic quality attributes from the U.S. wheat market. The paper concludes that the inadequacy of the U.S. grading system in guaranteeing functional quality provides some processors with an incentive to manage the supply chain for milling wheat.     

Factors influencing adoption of conservation tillage in Australian cropping regions*

The purpose of this research is to improve understanding of conservation tillage adoption decisions by identifying key biophysical and socio‐economic factors influencing no‐till adoption by grain growers across four Australian cropping regions. The study is based on interviews with 384 grain growers using a questionnaire aimed at eliciting perceptions relating to a range of possible long‐ and short‐term agronomic interactions associated with the relative economic advantage of shifting to a no‐tillage cropping system. Together with other farm and farmer‐specific variables, a dichotomous logistic regression analysis was used to identify opportunities for research and extension to facilitate more rapid adoption decisions. The broader systems approach to considering conservation tillage adoption identified important determinants of adoption not associated with soil conservation and erosion prevention benefits. Most growers recognised the erosion‐reducing benefits of no‐till but it was not an important factor in explaining whether a grower was an adopter or non‐adopter. Perceptions associated with shorter‐term crop production benefits under no‐till, such as the relative effectiveness of pre‐emergent herbicides and the ability to sow crops earlier on less rainfall were influential. Employment of a consultant and increased attendance of cropping extension activities were strongly associated with no‐till adoption, confirming the information and learning‐intensive nature of adopting no‐till cropping systems.     

Assessing Producer Stated Preferences for Identity Preservation in the Canadian Grain Handling and Transportation System

Agricultural biotechnology will create a new set of challenges for the bulk grain handling and transportation system (GHTS) in Canada. The implementation of a credible grain identity preservation system to segregate genetically modified (GM) from non‐GM grain remains an important and unresolved issue for the industry. Furthermore, the attitude of producers toward the design of an identity preserved grain supply chain is not well understood. Using a 2003 survey of Saskatchewan grain farmers developed by the authors, we employ conjoint analysis to evaluate producer attitudes and trade‐offs among four hypothetical grain handling systems. The results indicate that farmers in the region will require significant economic incentives to adopt on‐farm segregation methods when compared to methods that segregate grain at the elevator level. Les biotechnologies agricoles vont engendrer de nouvelles préoccupations pour le système de manutention et de transport du grain (SMTG) en vrac au Canada. La mise en uvre d'un système de ségrégation des céréales génétiquement modifiées (GM) et non génétiquement modifiées (NGM) demeure un problème important non résolu pour l'industrie. De plus, l'attitude des producteurs envers la mise en place d'une chaîne d'approvisionnement de céréales à identité préservée n'est pas bien comprise. À l'aide d'un sondage que nous avons mis au point et effectué auprès des producteurs de céréales de la Saskatchewan, nous utilisons l'analyse conjointe pour évaluer l'attitude et les options des producteurs par rapport à quatre systèmes hypothétiques de manutention des céréales. Les résultats ont montré que les producteurs de la province exigeront d'importants stimulants économiques pour adopter des méthodes de ségrégation à la ferme comparativement aux méthodes de ségrégation en vigueur aux silos à céréales.     

An Evaluation of the Compensation Required by European Union Cereal Growers to Accept the Removal of Price Support

Motivated by the policy trend of exposing European Union farmers to more market risk by reducing price support, this paper evaluates the compensation required by EU cereal growers to accept the complete removal of price support. Additional considerations are whether this policy change also includes the removal of set‐aside, or features only a partial removal of price support. A model is developed which captures the main on‐ and off‐farm factors influencing grower perceptions of the impact of this policy change. This model is subjected to a numerical analysis which shows that divergent assessments of the expected profitability of releasing to production land previously set‐aside mean growers are unlikely to agree whether compensation is even required. It is concluded that the retention of set‐aside for environmental purposes is likely to mean growers are more united in their perception of the need for, and amount of, compensation to accept the removal of price support.     

Seasonal variability,land values and willingness–to–pay for a forward wheat contract with protein premiums and discounts

This article investigates the impact of a protein premiums and discounts system on the income stream from growing wheat. Based on a biological relationship between protein and yield in uncertain seasonal conditions, it shows that such a system reduces the expected level and variability of wheat income. It is subsequently argued, using a numerical analysis, that protein payments affect both the attraction to wheat growers of forward contracts and the value of land used for wheat. The nature of both of these impacts is related to the level of seasonal variability affecting the land. Consequently, wheat growers in the more unreliable regions of the wheatbelt may have been particularly disadvantaged by the system.     

Implications of biotech traits with segregation costs and market segments: the case of Roundup Ready(R) Wheat

Roundup Ready^® Wheat (RRW) is one of the first geneticallymodified (GM) traits for the wheat sector. We develop a spatialpartial equilibrium model of the higher-protein hard wheat marketand assess the changes in the distribution of welfare associatedwith release and adoption of RRW. It incorporates segments forGM aversion in each market and segregation costs for each segment.In the most likely scenario, producer and consumer welfare increasesby $301 and $252 million, respectively. Producers of hard redspring wheat in the US and Canada gain. There are welfare lossesto hard red winter wheat growers in the US and to EU consumerswho have to import at a higher cost.     

Price shock transmission: evidence from the wheat‐bread market value chain in Ethiopia

This study assesses the degree of vertical price transmission along the wheat‐bread value chain in Ethiopia. This is pursued by applying a vector error correction model and an impulse response analysis using monthly price data for the period 2000–2015. Our analysis considers transmission of price shocks across different market levels, including from the international and domestic wheat grain markets at the upstream to the domestic wheat bread market at the downstream of the value chain. The empirical findings indicate that significant cointegration exists across prices of the different market stages. There is a transmission from international prices to domestic prices at downstream markets, in particular to flour and bread prices. Prices at upstream markets are largely influenced by the domestic wholesale market. In general, the speed of adjustment is quite slow with a half‐life of about one year for restoring the equilibrium price relationship. As price margins between the different market stages in the value chain have substantially decreased in the last 15 years, higher transmission, and thus exposure to international market shocks, can be expected in the future. The results also show that causal relationships exist between prices at different market stages—with the wholesale market identified as the key market level where prices and price expectations are formed.     

Quality Uncertainty, Procurement Strategies, and Grain Merchandising Risk: Vomitoxin in Spring Wheat

This study analyzes implications of a random quality factor, vomitoxin, on spatial flows and merchandising risk. Vomitoxin poses major risks for grain traders because of contract specifications, regulatory limits, sampling difficulties, and imprecise measurement. The effect of these were analyzed using crop quality and market data for the U.S. spring wheat crop, which has been severely affected by vomitoxin infestations during the 1990s. The analysis was structured as a blending problem with the objective of maximizing the net value of wheat sales. Relationships among market price spreads and contract specifications are interesting and their effects are demonstrated through simulations.     

Factors Influencing Organic and Fair Trade Coffee Growers Level of Engagement with Cooperatives: The Case of Coffee Farmers in Mexico

We study the factors influencing the percentage of organic and fair trade certified coffee sold through a cooperative by growers of five cooperatives in Mexico. The percentage of coffee sold through the cooperative was used as a proxy of growers’ engagement with a cooperative. Using factor analysis and a fractional probit regression, we evaluated the proposition that the level of engagement can be explained by transaction cost economics, social norms and connections, and farmer and farm business characteristics. We found that farm size, uncertainty regarding cooperative time of payment to the members and cooperative commitment on price to be paid negatively influence the level of engagement. In contrast, asset specificity, relational commitment, and price have a positive impact on engagement. Our results may help cooperatives and policy makers to build strategies aiming to increase this level of engagement. This is relevant because lower grower engagement has been found to be positively correlated with weak performing cooperatives.     

A Note on the Market Valuation of Grain Quality Characteristics

The issue addressed in this paper is whether the grain quality factors used by the Federal Grain Inspection Service in determining the quality grades of wheat exported by the United States including test weight, dockage, moisture content, percentage of foreign material, percentage of shrunken and broken kernels, and protein content are characteristics that influence the price of wheat for export. Using shiplot data on the transactions price for hard red winter wheat, hard red spring wheat, and soft white wheat and the associated quality characteristics covering the period January 1990 through October 1991 and exported to 63 countries, the results suggest that only the test weight and the protein content are characteristics consistently valued by the market.     

参与电商会促进猕猴桃种植户绿色生产技术采纳吗?——基于倾向得分匹配的反事实估计

本文利用陕西、四川两省686户猕猴桃种植户的调查数据,在采用变异系数法度量猕猴桃种植户绿色生产技术采纳程度的基础上,利用倾向得分匹配法构建反事实框架,实证分析参与电商对猕猴桃种植户绿色生产技术采纳的影响效应。结果表明:猕猴桃种植户绿色生产子技术的重要性依次为测土配方施肥技术、物理防治技术、套袋技术、无公害农药使用技术、有机肥施用技术;在控制样本选择偏差后,参与电商对猕猴桃种植户绿色生产技术采纳有显著的正向影响;参与电商对不同资本禀赋的猕猴桃种植户绿色生产技术采纳的促进效应存在差异;参与电商通过提升产品价格预期、提升经济收益水平、提升信息获取能力、追求正向社会评价四条路径来影响猕猴桃种植户的绿色生产技术采纳。     

Price-Predicting Ability of Farm Managers: Empirical Findings with Flower Producers in the Netherlands

Differences in income among horticultural growers producing under similar conditions are known to be substantial. Production policy, including cultivar choice, plays an important role. Both price variation over time and price differences among cultivars provide valuable management information to growers to adapt their production policy. This study focuses on price-predicting skills of specialized chrysanthemum growers. The study, based on a survey among 26 participants, shows that growers who predict absolute prices well for one period do not have a higher chance of predicting well for other periods. With respect to predicting relative price positions (relative to other cultivars or other firms), evidence is found, however, that this is a skill, especially for estimating the relative market position. Also, evidence is provided that price differences among cultivars are nonrandom in time, and it is concluded that growers could adapt their production planning and cultivar choice to benefit from expected price variations.     

The impact of geographic reputation on the value created in Champagne

With asymmetric information, consumers need to rely on the reputation of wine to define quality before the purchasing. Amongst the tools available for underlining reputation, geographic location is considered to offer high potential. Today, some wines benefit from a country's reputation, some from the renown of a region and some from the local reputation of one specific vineyard, whilst conversely some providers suffer from a weak geographic reputation. There can be a split between producers within one vineyard or region based on varying geographic reputation. This kind of split appears in Champagne, with a range of well‐known and less well‐known brands and is particularly significant to the small growers who sell wine. This study used a representative sample of these growers to examine how their location impacts on their reputation. The results show that their selling price is influenced by the local system of grading vineyard quality, their distance from traditional regional centres and the presence in their village of growers cited in a national guide.     

An econometric analysis of U.S. vital wheat gluten imports

In light of the wheat wet milling industry's development in the E.C. and of the prominent role U.S imports play in the international market for wheat gluten, this paper discusses the international market for wheat gluten, an important component of processed grain products. An econometric analysis of the U.S. import demand for wheat gluten is undertaken. The price of flour, income, and the U.S. value of wheat protein are found to be important determinants of wheat gluten imports.