MODELLING THE DYNAMICS OF PRODUCTION ADJUSTMENT TO SHORT-TERM MARKET SHOCKS

Models of agricultural economics typically operate at an annual basis or in a static equilibrium framework where inputs, outputs and their prices may change considerably. Production dynamics, however, imply that models relying on spatial and temporal aggregation do not capture the effects of biological constraints in the short run. This paper examines short and long-term impacts of demand and production cost shocks in the pig sector. The analysis is carried out with a dynamic programming model which takes into account changes in export and domestic demand and market clearing price. It optimizes the supply of piglets on a monthly basis. Econometric techniques are used to estimate demand functions. Short-term negative market shocks can already have significant income effects to agricultural producers. We simulated effects of pig meat export bans of different degrees due to livestock epidemics. Full closure of export markets for six months cost pig sector €21 million.pig, demand, dynamic programming, export, livestock epidemics, price, supply, Demand and Price Analysis, Livestock Production/Industries, Production Economics, Risk and Uncertainty,

Designing coordination contracts to support efficient flow-scheduling in pork chain

Risk management and efficient, well coordinated, flow-scheduling have an increasingly important role in the competitive pork production networks. Changes in input and output prices have resulted in distortions in the Finnish pig markets during the last years. The goal of this study is to estimate how different price or quantity-fixing contracts affect the values of pig and sow space unit under price risk. The values are estimated with two stochastic dynamic programming models. The results suggest that a contract which is able to control both the pattern of changes in piglet prices and the option to suspend production temporarily has a value and it can help to improve the competitiveness of the pig sector. However, it is feasible to have incentives towards the contract commitment when market situation upon accepting the commitment is favourable.vo

Price volatility and return on pig fattening under different price- quantity contract regimes

The goal of this study is to estimate how different price or quantity fixing contracts affect the value of pig space unit in pig fattening. The value of pig space unit is estimated with a stochastic dynamic programming algorithm. The model maximises the value of pig space unit by using four decision variables. The input-output ratios are endogenous and the option to suspend production temporarily is taken into account in the model. The results suggests that the smooth functioning of markets in Finland can be promoted by ensuring that price changes are transmitted smoothly between input and output markets, and that producers are compensated for giving up the option to suspend production temporarily in the event if unfavourable market situation. Instead of fixing only the price of output, the contract should aim at reducing the risk associated with gross margin.Demand and Price Analysis, Livestock Production/Industries,

Market implications of FMD epidemics in the Finnish pig sector: Does market structure matter?

This paper examines the role of market coordination and market distortions caused by a hypothetical FMD outbreak in the Finnish pig sector. By using stochastic dynamic programming, it simulates the consequences of two outbreak scenarios (large vs. small) under two distinct market regimes (competitive market vs. monopoly in the domestic supply). Simulated losses depend on the magnitude of outbreak and expected duration of possible turndown of meat exports, whereas market regime has a limited impact.Foreign trade, livestock epidemics, dynamic programming, Livestock Production/Industries,

Insure or Invest in Green Technologies to Protect Against Adverse Weather Events?

This paper analyses investments in green technologies when insurance is also an option. Green technologies are defined to have the power to increase productivity and decrease volatility of future revenues. The insurance options involve the scale and coverage either in a yield insurance or in an index insurance. The stochastic process is a combination of insurable stationary short-run process and non-stationary long run process. The optimal decision rules are solved numerically by stochastic dynamic programming. The results suggest that the index insurance maintains market based incentives to invest in green technologies whereas a yield insurance substantially decreases investments, as expected. An actuarially fair yield insurance decreases investments at high productivity firms. By contrast if the insurance premiums are supported to the extent that the net loading becomes negative, firms with the lowest productivity have strong incentives to collect the benefits of the subsidized insurance rather than invest in higher productivity and lower risks. The yield insurance is the most attractive for low productivity firms while the index insurance is the most attractive for high productivity firms. Nevertheless, the demand for actuarially fair index insurance is reduced also amongst the high productivity firms, when the correlation between the yield and the index falls below 50%.investment, insurance, uncertainty, dynamic programming, green technology, Agribusiness, Agricultural Finance, Financial Economics, Risk and Uncertainty,

A dynamic programming model for optimising the timing of replacement of sows

Replaced with revised version of poster 07/20/10.Farm Management, Research and Development/Tech Change/Emerging Technologies,

The productivity and financial impacts of eight types of environmental enrichment for broiler chickens

Reduced mobility in broilers can contribute to leg health problems. Environmental enrichment has been suggested as one approach to combat this through stimulating increased physical activity. Past studies have tested the effect of environmental enrichments on bird behaviour, health and welfare, but few have estimated their financial impacts. This study tested the impact of eight types of environmental enrichment on enterprise net margin, accounting for direct intervention costs plus indirect effects via changes to bird mortality, weight, feed intake, feed conversion ratio, and foot pad dermatitis. The trial used 58 pens each containing approximately 500 broilers (Ross 308) at a stocking density of 40 kg/m2. The environmental enrichments were: roughage, vertical panels, straw bales, elevated platforms (5 and 30 cm), increased distances between feed and water (7 and 3.5 m) and stocking density reduced to 34 kg/m2, plus a control group. Mortality was recorded daily and feed intake and weight weekly. Footpad dermatitis was assessed on day 35. Only one intervention improved financial performance (3.5 m between feed and water) above the control, suggesting that most environmental enrichment would have a negative financial impact due to the additional intervention costs, unless consumers were willing to pay a price premium

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