Estimating Structural Change with Smooth Transition Regressions: an Application to Meat Demand

This paper explores the role of structural change in systems of demand equations. Specifically, we adapt the time—varying regression framework of Lin and Teräsvirta (1994), which in turn is related to the dynamic smooth transition models introduced by Teräsvirta (1994). Unlike previous efforts at modeling structural change in demand systems, we do not impose the nature of the change to be monotonic—several non-monotonic alternatives are considered. An application is presented using the Almost Ideal Inverse Demand System (IAIDS) applied to U.S. meat demand data, 1960-2004. Results show the importance of modeling structural change and that, moreover, the best-fitting model is associated with a form of symmetric, non-monotonic structural change.Inverse Almost Ideal Demand System; Meat Demand; Structural Change; Time-Varying Regression

The Effect of the Northeast Dairy Compact on Producers and Consumers, with Implications of Compact Contagion

Balagtas andSumnermodel and measure the effects of the Northeast Dairy Compact on prices, quantities, and producer and consumer welfare, underscoring the distribution of these effects across regions and among producer and buyers. Using 1999 as a base year, simulations show that the Compact raised the farm price of milk in the Northeast by $0.45/cwt., lowered the farm price of milk in the rest of the country by$0.02/cwt., and transferred income from producers outside the Compact region and buyers in the Compact region to producers in the Compact region. Non-Compact producer losses exceeded Compact producer gains. Similar results are found for a scenario of Compact contagion, extension of the Compact to include additional states. In both cases, the Compact changed the distribution of the costs and benefits of price discrimination as practiced by milk marketing orders. The implication is that the regional distribution of the Compact's welfare effects raises again the question of the organization of a government-sponsored milk marketing plan such as the federal milk marketing order system.Health and Safety, Regulatory Reform

Estimating Structural Change with Smooth Transition Regressions: an Application to Meat Demand

This paper explores the role of structural change in systems of demand equations. Specifically, we adapt the time—varying regression framework of Lin and Teräsvirta (1994), which in turn is related to the dynamic smooth transition models introduced by Teräsvirta (1994). Unlike previous efforts at modeling structural change in demand systems, we do not impose the nature of the change to be monotonic—several non-monotonic alternatives are considered. An application is presented using the Almost Ideal Inverse Demand System (IAIDS) applied to U.S. meat demand data, 1960-2004. Results show the importance of modeling structural change and that, moreover, the best-fitting model is associated with a form of symmetric, non-monotonic structural change

The Impact of COVID-19 on United States Meat and Livestock Markets

This paper assesses the COVID-19–related disruptions to meat and livestock markets in the United States. We provide a data-based description of the COVID-19 impact, including the shutdown of the food service sector, costs associated with packing plants’ efforts to move product across supply chains, and meat-packing plant closings

Theme Overview: Agricultural Market Response to COVID-19

The articles in this Choices Theme issue evaluate the main short-term impacts of the COVID-19 epidemic for key food and agricultural markets and discuss potential longer-term implications. Topics examined include farm income, federal pandemic payments to producers, fruit and vegetables, dairy, livestock, consumer expenditures, and trade

Impact of the Fruit and Vegetable Planting Restriction on Crop Allocation in the United States

WP 2012-14 November 2012JEL Classification Codes: Q13; Q18Eligibility requirements for farm payments include restrictions from planting certain horticultural crops on base acres, and there has been pressure to remove such restrictions in recent Farm Bill discussions and as part of World Trade Organization negotiations. We measure the effects of the planting restriction on acres planted to horticultural and program crops using U.S. county-level data from the Censuses of Agriculture taken before and after the initial policy was introduced in 1990 using a difference-in-difference estimator. Our results indicate that the planting restriction has crowded out fruit and vegetable acreage nationally and most notably in selected Sunbelt states, a region that specializes in horticultural crop production

Capacity constraint and spatial competition in agricultural markets

We adopt a game theoretic framework to model key features of agricultural procurement markets in order to explore the interaction between capacity constraints and spatial competition and the implications for input pricing by processing plants. A key finding is that the Lofgren’s (1986) equivalence between uniform delivery and FOB pricing for profit-maximizing firms extends to a capacity-constrained monopsonist. Our results also show that the relative dominance of alternative pricing strategies and the efficacy of capacity constraints as a collusion mechanism is not impervious to market structure asymmetries. When plants can procure inputs from areas with different market structures, capacity constraints greatly influence the optimal pricing strategy, the total surplus, and the fraction of such surplus appropriated by processing firms. In particular, when operating under binding constraints, firms “escape” competition by procuring more inputs from less competitive areas, while still benefiting from the “collusion-like” benefits of fixed output. Therefore binding constraints and asymmetric market structures reinforce each other to increase the fraction of total surplus appropriated by processing firms