HOW MUCH DO FARMERS VALUE THEIR INDEPENDENCE? ESTIMATING THE RISK AND AUTONOMY PREMIA ASSOCIATED WITH PRODUCTION CONTRACTS

A farmer's decision to contract or produce independently depends on the distribution of income under both arrangements, and on attributes associated with both business arrangements. Risk-averse farmers should be willing to pay a risk premium for the reduction in price risk provided by a contract. Farmers with a preference for "autonomy" should be willing to pay a premium for certain attributes associated with independent production, such as the right to make management decisions and own the commodity they produce. The benefits to growers from contracting (such as risk reduction) may be over-estimated if the non-pecuniary benefits enjoyed by independent producers are not accounted for. This study uses national survey data to estimate the risk premium, the change in expected income, and the autonomy premium associated with hog production contracts.agricultural contracts, autonomy, nonpecuniary benefits, risk, Farm Management,

Manure Application Standards and EQIP Payments: The Distribution of Economic and Environmental Costs and Benefits across US Hog Farms

Implementation of new CAFO regulations and EQIP payments could have important implications for the structure of the hog sector. This study uses a farm-level positive mathematical programming model to estimate the distribution of the economic and environmental effects of these new policies across regional and scale typologies.Environmental Economics and Policy,

Agricultural Contracting and the Scale of Production

This study presents evidence that contracting is positively associated with the scale of production for six major U.S. agricultural commodities. Specifically, contract producers tend to operate at a larger scale than do independent producers, and the likelihood of an operation contracting increases with its scale. This relationship is strongest in the cattle and hog sectors, where it persists even among large commercial operations. Six theoretical explanations for the observed correlation between scale and contracting are proposed, including imperfect capital markets, contractor transaction costs, input leverage, grower risk aversion, asset specificity, and technological change. Information from five annual national surveys is used to examine the validity of three of the proposed mechanisms.Production Economics,

The Potential Effects of Climate Change on the Productivity, Costs, and Returns of U.S. Dairy Production

Climate change could affect the costs and returns of livestock production by altering the thermal environment of animals thereby affecting animal health, reproduction, and the efficiency by which livestock convert feed into retained products (especially meat and milk). In the United States, concentrated livestock operations are located in a variety of climatic regions, suggesting that the industry could adapt to future changes in temperature and weather patterns resulting from global warming. However, this adaption could be costly. We use nationally representative data on dairy producers coupled with finely-scaled climate data to empirically examine how producers’ costs, returns, and production systems vary across U.S. regions as a function of the local climate.climate change, dairy, temperature humidity index, economics, Agricultural and Food Policy, Environmental Economics and Policy, Livestock Production/Industries, Production Economics, Q5,

RISK AND STRUCTURAL CHANGE IN AGRICULTURE: HOW INCOME SHOCKS INFLUENCE FARM SIZE

Farm-level Census data and county-level income shock data reveal that past unexpected income shocks affect the rate of change in average farm size. Average farm size increases more quickly in counties experiencing negative income shocks as compared to counties experiencing positive income shocks. This result cannot be explained by perfect-market models, which predict farm size should adjust according to changes in the relative prices of labor and capital. We posit a model wherein cash flows affect liquidity, which in turn affects farm borrowing and capital costs. In the model, farms that do not face liquidity constraints benefit from negative income shocks because they reduce land values, so these farms expand while liquidity-constrained farms contract. Observed farm consolidation patterns and farm exit rates are consistent with a model wherein liquidity constraints affect small farms more than large farms.farm size, farm structure, income shocks, liquidity constraint, risk, Agricultural Finance, Industrial Organization,

Multiple Environmental Externalities and Manure Management Policy

Livestock waste pollutes multiple environmental media along multiple dimensions. This study explores the economic and environmental implications of single-medium and coordinated multi-media policies for reducing manure-related externalities, with particular attention paid to tradeoffs that occur when policies designed to correct an externality in one medium ignore externalities in other media.Environmental Economics and Policy,

DOES CONTRACTING RAISE FARM PRODUCTIVITY? THE IMPACT OF PRODUCTION CONTRACTS ON HOG FARM PERFORMANCE

The costs and benefits of policies designed to regulate the use of production contracts will depend in part on the impact of these contracts on farm productivity. In this paper we measure the impact of contracting on 1) partial and total factor productivity and 2) the production technology for 479 US hog operations. A sample selection model accounts for the fact that unobservable variables may be correlated with both the decision to contract and farm productivity. Results also identify determinants of farmers' decisions to contract and factors influencing farm productivity.Livestock Production/Industries, Productivity Analysis,

FACTORS AFFECTING CONTRACTOR AND GROWER SUCCESS IN HOG CONTRACTING

This study analyzes a national survey of U.S. hog producers within a principal-agent framework in order to examine factors affecting contractor and grower success in hog contracting. Several factors had differential impacts on contractor and grower returns. Results suggest that there may be a role for public policy in ensuring that contract arrangements are conducted fairly.Livestock Production/Industries,

Local Monopsony Power in the Market for Broilers - Evidence from a Farm Survey

The exercise of monopsony power by broiler processing firms is plausible because production occurs within localized complexes, which limits the number of integrators with whom growers can contract. In addition, growers face distinct hold-up risks as broiler production requires a substantial investment in specific assets and most production contracts do not involve long-term purchasing commitments by integrators. This paper provides an initial exploration of the links between the local concentration of broiler integrators and grower compensation under production contracts using data from the 2006 broiler version of USDA’s Agricultural Resource Management Survey. Results of this preliminary study, which accounts for characteristics of the operation and specific features of the production contract, suggest a small but economically meaningful effect of concentration on grower concentration. Limitations of the current analysis and future possible model extensions are discussed.poultry, broilers, market power, monopsony, production contracts, Livestock Production/Industries, Marketing,

Commodity Payments, Farm Business Survival, and Farm Size Growth

In the last 25 years, U.S. crop farms have steadily declined in number and grown in average size, as production has shifted to larger operations. Larger farms tend to receive more commodity program payments because most payments are tied to a farm’s current or historical production, but whether payments have contributed to farm growth is uncertain. This study uses farm-level data from the census of agriculture to determine whether there is a statistical relationship between farm commodity program payments and greater concentration in production. The analysis indicates that, at the regional level, higher commodity program payments per acre are associated with subsequent farm growth. Also, higher payments per acre are associated with higher rates of farm survival and growth.agricultural payments, farm size, farm survival, concentration, consolidation, government payments, commodity programs., Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development, Crop Production/Industries, Farm Management,