THE CHINESE MARKET FOR U.S. PORK EXPORTS

China feeds twenty-two percent of the world's population on seven percent of its arable land. In contrast, the U.S. and Canada own seventeen percent of the world's arable land, but feed only five percent of its people. As China's income increases, its people will demand more livestock products, including poultry, dairy, beef, and eggs, and more alcohol. Potential Chinese import demand for pork is examined in this paper. The question facing Chinese policymakers is whether to follow their current policy of food self-sufficiency or allow imports of pork muscle and variety meats. Projections of Chinese production and consumption indicate that, by the year 2007, China could import up to 9.1 million metric tons (product weight equivalent) of pork. The current Chinese government is very opposed to food imports of any kind. However, China has applied for entry into the World Trade Organization. Negotiations on China's entry could include access to China's pork market, and it is most likely that access could be gained to the variety meat market. The implications of two opposing scenarios are examined in this paper: first, China continues its policy of self-sufficiency; or second, China allows imports of pork variety meats. Self-Sufficiency Scenario: The anticipated increase in livestock production will cause feed grain consumption in China to increase more rapidly than production. Once China becomes a permanent net importer of feed grains, its prices will rise to reflect world feed grain prices plus transportation costs. This development will make China's pork products more expensive than imports. This simple line of argument means that China is about to modernize and expand the world's largest pork industry in the wrong place. Expanding pork production in China instead of allowing imports from efficient producers will cause an enormous misallocation of world resources. The Chinese people would benefit more if China concentrated on labor intensive crops and allowed for the free importation of livestock products. Import Access Scenario: Where the pork market is concerned, U.S. and Chinese consumers complement each other. Chinese people like variety meats, whereas U.S. consumers prefer pork muscle meats. Because of its dominance in the world market, China would be able to determine world prices if it allowed free importation of variety meats. The drop credit, which is the value of the pork variety package, is estimated to increase by 45 percent. However, the increase in the value of the pork variety package would not imply an increase in prices in the U.S. domestic market which largely consumes pork muscle meats. Implications for U.S. Producers: Even if China does not allow imports of pork, U.S. producers will still benefit from increased Chinese demand. Due to projected increased consumption over the next ten years, it is likely that China will stop exporting its current level of 150,000 to 200,000 tons of pork muscle meat. If China does allow free importation of pork variety meats, the increased value of the U.S. drop credit would add $4.72 to the value of each hog carcass or about$1.90 per hundredweight. For the U.S. pork industry, the net annual benefit of access to the Chinese market would be approximately $300 million per year. Hayes argues that opening this market may be feasible as part of negotiations over China's entry to the World Trade Organization. Regardless of how Chinese pork market policy evolves, the demand for U.S. feed grain will increase, causing some movement of land in the U.S. from wheat production into feed grain production.China trade, livestock, feedgrains, meat, International Relations/Trade, F1,

Impact of Ethanol Production on U.S. and Regional Gasoline Prices and On the Profitability of U.S. Oil Refinery Industry

Using pooled regional time-series data and panel data estimation, we quantify the impact of monthly ethanol production on monthly retail regular gasoline prices. This analysis suggests that the growth in ethanol production has caused retail gasoline prices to be $0.29 to$0.40 per gallon lower than would otherwise have been the case. The analysis shows that the negative impact of ethanol on gasoline prices varies considerably across regions. The Midwest region has the biggest impact, at $0.39/gallon, while the Rocky Mountain region had the smallest impact, at$0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit margin of the oil refinery industry. The results are robust with respect to alternative model specifications.crack spread, crude oil prices, ethanol, gasoline prices, Resource /Energy Economics and Policy,

Yield and Area Elasticities. A Cost Function Approach with Uncertainty

This paper develops a method to jointly estimate crop yield elasticities and area elasticities with respect to output prices based on a theoretically consistent model. The model uses a duality theory approach for the multi-output and multi-input firm, and introduces uncertainty in the level of target output which conditions the cost minimization problem, in the output prices and in the conditional input demand functions. The underlying production technology is conditioned on fixed inputs, both allocatable and non-allocatable. Up to our knowledge, there have been no theoretical developments of this type of models for multioutput technologies. Our approach is also novel because no previous model of this type has introduced the effects of allocatable fixed inputs. We provide an empirical application of this theoretical framework using State-level data and approximating the dual cost function by a normalized quadratic flexible functional form. We derive expressions for the elasticities of interest conditional on the function specification assumed.yield elasticities, area elasticities, duality theory, cost function, uncertainty, Production Economics,

Empirical Minimum-Variance Hedge (The)

Decision making under unknown true parameters (estimation risk) is discussed along with Bayes' and parameter certainty equivalent (PCE) criteria. Bayes' criterion incorporates estimation risk in a manner consistent with expected utility maximization. The PCE method, which is the most commonly used, is not consistent with expected utility maximization. Bayes' criterion is employed to solve for the minimum-variance hedge ratio. Empirical application of Bayes' minimum-variance hedge ratio is addressed and illustrated. Simulations show that discrepancies between prior and sample parameters may lead to substantial differences between Bayesian and PCE minimum-variance hedges.

LAND ALLOCATION IN THE PRESENCE OF ESTIMATION RISK

Estimation risk occurs when parameters relevant for decision making are uncertain. Bayes'Â’ criterion is consistent with expected-utility maximization in the presence of estimation risk. This article examines optimal (BayesÂ’') land allocations and land allocations obtained using the traditional plug-in approach and two alternative decision rules. BayesÂ’' allocations are much better economically than the other allocations when there are few sample observations relative to activities. Calculation of certainty equivalent returns (CERs) with estimation risk is also discussed and illustrated. CERs are typically (and incorrectly) calculated with the plug-in approach. Plug-in CERs may be extremely misleading.Land Economics/Use,