Incentives to Efficient Investment Decisions in Agricultural Cooperatives

Recent studies have questioned the competitiveness of agricultural cooperatives in an industrialized food system, based on empirical results and economic theory. New organizational institutions have been proposed to overcome the cooperative main weaknesses (the so called new generation cooperatives). In this paper, we provide a simple model based on a financial approach to address the issue of cooperative competitiveness and to assess the investment efficiency of both traditional and new generation cooperatives. The main conclusions of the analysis are: i) cooperatives (both traditional and new generation ones) may have incentive to adopt projects that do not maximize the Net Present Value of the firm ii) the institutions of new generation cooperatives are not sufficient to ensure net present value maximization, even though they address some of the main concerns of traditional cooperatives iii) traditional cooperatives may have a competitive advantage in businesses that require the aggregation of a large number of farmers.agricultural cooperatives, investment efficiency, Agribusiness, Agricultural Finance, Q13, Q14,

The Crisis of Small Farms in Central Italy: Can Farmer Turnover Slow Down the Downfall?

We use original data to assess if the current incentives to farmer turnover may help the competitiveness of small farms in the Lazio Region (central Italy). Our results show that substantial changes in the policy may be needed. The paper analyzes sharp declining trend in small farm number, discusses its causes and evaluates the policies that have been adopted to stop or slow down this downfall. The regional policy makers consider the ageing of the farmers is a key determinant of the decline of small farms. Consequently, they have designed an incentive policy to generational turnover mainly based on installation payments. Given our empirical findings we conclude that this policy may fail to achieve the stated objectives. Firstly, farms that had a generational turnover in the last seven years do not show higher propensity to investment than the control group. These results suggest that farmers’ turnover per se may fail to increase the competitiveness of small farms. Secondly, in almost half of the cases the change in ownership is the result of a long process. Thus the timing of the policy may be wrong. Thirdly the policy is difficult to monitor and opportunistic behavior is possible.Generational turnover in Agriculture, Installation payments, Agricultural and Food Policy, Q10, Q18,

Modeling Processor Market Power and the Incidence of Agricultural Policy: A Non-parametric Approach

Agribusiness, Agricultural and Food Policy,

Is Inverse Demand Perverse?

Our non-representative sample of 245 undergraduates had significantly lower scores on questions presented in the standard heterogeneous form (i.e., Direct Demand equation and Inverse Demand graph) than on questions presented in non-standard homogenous forms. This result, which holds for advanced students, highlights one reason why 95 percent of students in economics principles classes do not enter the major---economics can be gratuitously mathematical. We argue that the Inverse Demand standard hurts rather than helps economics when it is used in early courses, but that professors have no incentive to change their methods. We recommend that early classes use either no graphs or a homogenous combination of graph and equation. The standard should be introduced later, when benefits outweigh costs.Demand and Price Analysis,

Our products are safe (don't tell anyone!). Why don't supermarkets advertise their private food safety standards?

Large retail chains have spent considerable resources to promote production protocols and traceability across the supply chain, aiming at increasing food safety. Yet, the majority of consumers are unaware of these private food safety standards (PFSS) and retailers are not informing them. This behavior denotes a pooling paradox: supermarkets spend a large amount of money for food safety and yet they forget to inform consumers. The result is a pooling equilibrium where consumers cannot discriminate among high quality and low quality products and supermarkets give up the potential price premium. This paper provides an economic explanation for the paradox using a contract-theory model. We found that PFSS implementation may be rational even if consumers have no willingness to pay for safety, because the standard can be used as a tool to solve asymmetric information along the supply chain. Using the PFSS, supermarkets can achieve a separating equilibrium where opportunistic suppliers have no incentive to accept the contract. Even if consumers exhibit a limited (but strictly positive) willingness to pay for safety, advertising may be profit-reducing. If the expected price margin is high enough, supermarkets have incentive to supply both certified and uncertified products. In this case, we show that, if consumers perceive undifferentiated products as “reasonably safe”, supermarkets may maximize profits by pooling the goods and selling them as undifferentiated. This result is not driven by advertising costs, as we derive it assuming free advertising.Agribusiness, Food Consumption/Nutrition/Food Safety,

ALTERNATIVE ITALIAN AGRICULTURAL COOPERATIVE SYSTEMS IN THE CHANGING EU FOOD SYSTEM

The European food system is undergoing significant change driven both by global competitive forces and local conditions. Market globalization and technological innovation are interacting with the reform of EU's agricultural policies (CAP) and a renewed interest by the European society in the social and environmental functions of agriculture. These factors have created a new and challenging economic environment both for farmers and the food industry across Europe (Tarditi, 1997).Agribusiness,

MEMBERS' FINANCIAL EVALUATION AND COOPERATIVES' DECISION PROCESSES

The paper presents an analysis of cooperative investment decision based on the coalition theoretical framework (Staatz 1983, 1987, 1989). According to this framework, cooperatives can be considered as coalitions of groups with different interests. The behavior of any cooperative is determined by the interaction of its many groups (different types of farmers, managers, lenders, input suppliers, buyers, etc.) with different objectives. The group that can impose its will on the coalition will determine the cooperative's strategy. The other parties may accept this leadership, leave the cooperative or try to use their bargaining power to modify the final outcome. The paper discusses the impact of group bargaining on cooperatives' decision process. In particular, the paper addresses the issues related to the consequences of members' heterogeneity on cooperative efficiency. The proposed model utilizes tools from financial theory already successfully applied in the literature (Peterson 1992, Hendrikse 1998) providing a more detailed insight into the determinants of the cooperative decision process. The paper shows that cooperatives evaluate investments differently from IOFs due to the unique characteristics of their patrons compared to other types of investors.Agribusiness, Agricultural Finance,

ESTIMATION OF SUPPLY AND DEMAND ELASTICITIES OF CALIFORNIA COMMODITIES

The primary purpose of this paper is to provide updated estimates of domestic own-price, cross-price and income elasticities of demand and estimated price elasticities of supply for various California commodities. Flexible functional forms including the Box-Cox specification and the nonlinear almost ideal demand system are estimated and bootstrap standard errors obtained. Partial adjustment models are used to model the supply side. These models provide good approximations in which to obtain elasticity estimates. The six commodities selected represent some of the highest valued crops in California. The commodities are: almonds, walnuts, alfalfa, cotton, rice, and tomatoes (fresh and processed). All of the estimated own-price demand elasticities are inelastic and, in general, the income elasticities are all less than one. On the supply side, all the short-run price elasticities are inelastic. The long-run price elasticities are all greater than their short-run counterparts. The long-run price supply elasticities for cotton, almonds, and alfalfa are elastic, i.e., greater than one. Policy makers can use these estimates to measure the changes in welfare of consumers and producers with respect to changes in policies and economic variables.Consumer Economics: Empirical Analysis, Agricultural Markets and Marketing, Agriculture: Aggregate Supply and Demand Analysis, Prices, Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Crop Production/Industries, Demand and Price Analysis, Marketing, D120, Q130, Q110,

Modelling Pricing Behavior with Weak A‐Priori Information: Exploratory Approach

In the absence of reliable a priori information, choosing the appropriate theoretical model to describe an industry’s behavior is a critical issue for empirical studies about market power. A wrong choice may result in model misspecification and the conclusions of the empirical analysis may be driven by the wrong assumption about the behavioral model.This paper develops a methodology aimed to reduce the risk of misspecification bias. The approach is based on the sequential application of a sliced inverse regression (SIR) and a nonparametric Nadaraya/ Watson regression (NW). The SIR‐NW algorithm identifies the factors affecting pricing behavior in an industry and provides a nonparametric characterization of the function linking these variables to price. This information may be used to guide the choice of the model specification for a parametric estimation of market power.The SIR NW algorithm is designed to complement the estimation of structural models of market behavior, rather than to replace it. The value of this methodology for empirical industrial organization studies lies in its data driven approach that does not rely on prior knowledge of the industry. The method reverses the usual hypothesis testing approach. Instead of first choosing the model based on a priori information and then testing if it is compatible with the data, the econometrician selects a theoretical model based on the observed data. Thus, the methodology is particularly suited for those cases where the researcher has no a priori information about the behavioral model, or little confidence in the information that is available