PRICE VARIABILITY AND FINANCIAL RISK FOR SUGAR BEET GROWERS

This paper develops a portfolio framework to characterize and analyze the impact of price risk faced by sugar beet growers in the Red River Valley and derives implications for capital markets. Other sources of risk incorporated in the analysis are yields and production cost. Results from stochastic simulation analysis reveal that sugar beet growers incur significant price and financial risk. The hypothesis that the loan rate for sugar truncates the distribution of net returns and protects growers against declining beets prices was not validated.Financial risk, total risk, price variability, stochastic simulation of net return, default risk, Agricultural Finance, Crop Production/Industries,

FOOD SAFETY RISK PERCEPTION AND CONSUMER CHOICE OF SPECIALTY MEATS

Consumer perception issues and recent microbial outbreaks in the livestock industry continue to stifle demand for specialty meats in the United States. This study was designed to explore impacts of risk perception issues on consumer choice of bison meat. A stated preference discrete choice random utility model, a joint risk perception/product choice model, and a probability of frequency method to aggregating risk scenarios, were used for a range of food safety/certification regimes. Perceived risk reduces bison consumption, but its effect declines with shifts to more regulatory control inherent in the different certification regimes.food safety, bison, specialty meat, nested logit model, risk perception, product choice, discrete choice experiment, probability of frequency method, Food Consumption/Nutrition/Food Safety, Livestock Production/Industries,

THE IMPACT OF HACCP ON FACTOR DEMAND AND OUTPUT SUPPLY ELASTICITIES OF RED MEAT

This study uses firm-level data during the hazard analysis critical control point (HACCP) implementation period (1997 - 2000) to analyze the impact of HACCP on input demand and output supply elasticities of firms in the red meat industry and derive implications for efficiency and moral hazard issues associated with the implementation of HACCP systems. The results show that HACCP causes factor demand for labor, material, and capital to be less inelastic while the elasticity of output supply did not change significantly. The interdependent relationships among HACCP and input prices and output result in efficiency gains.HACCP, factor demand, elasticities of substitution, output supply elasticities, translog cost function, efficiency, red meat, Food Consumption/Nutrition/Food Safety,

Food Risks and Type I & II Errors

The IFAMR is published by (IFAMA) the International Food and Agribusiness Management Review. www.ifama.orgFood safety, food defense, error based disruption, control oriented supply networks, Agribusiness, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, Risk and Uncertainty, Q130,

Economic Impact of Fusarium Head Blight in Malting Barley: Blending Margins and Firm-Level Risk

FHB and DON present significant challenges to producers, grain elevators, and the brewing industry. Yield reductions and price discounts incurred by producers in North Dakota, Minnesota, and South Dakota averaged about $45.3 million annually during the years 1998 through 2000. Losses are more substantial when secondary economic impacts are considered. For every$1 of scab losses incurred by the producer, $2 in losses are incurred in other areas of rural and state economies. One way of mitigating these losses is to blend barley with DON and barley without DON. Results from the grain blending model show a sharp decline of DON discounts and losses after blending. The average discount fell from$0.57/bu to $0.17/bu in 1998,$0.48/bu to $0.14/bu in 1999, and$0.38/bu to $0.15/bu in 2000. However, producers may not benefit from blending margins (gains from improved quality less blending costs) because these margins are the primary source of revenue for grain elevators. It should also be noted that the aggregate costs of DON to grain handlers are difficult to estimate because DON is subject to an unusual amount of measurement uncertainty, and penalties for excess DON pose an unusual level of risk.Crop Production/Industries,

IMPACTS OF DON IN THE MALTING BARLEY SUPPLY CHAIN: AGGREGATE COSTS AND FIRM-LEVEL RISKS

DON is a toxic byproduct of fusarium head blight (FHB), a fungal disease of small grains. Beginning in 1993, a prolonged outbreak of FHB occurred in the Upper Midwest, the traditional source of most six-rowed malting barley produced in the United States. Price discounts associated with DON in barley have been significant. This paper has two objectives. The first is to estimate the impact of DON on the value of malting barley grown in the Upper Midwest. Using crop quality data, we use a linear programming model to derive optimal blends of barley supplies, given discount schedules and the distribution of quality factors. The premise is that blending activities, on a regional scale, allow a larger fraction of the crop to be sold as malting. The second objective is to assess the risks associated with DON in the context of a firm-level blending model. We frame a nonlinear optimization problem in which an elevator seeks to maximize the expected sales value of the barley in its bins. Price discounts for several quality factors are incorporated in the analysis, along with probability distributions for DON. Treating DON as a random quality factor adds some interesting complexity to the standard grain blending problem. Attachments: <a href="/Data/ndsu/aem187a.xls">aem187a.xls</a> <a href="/Data/ndsu/aem187a.xls">aem187b.xls</a> <a href="/Data/ndsu/aem187a.xls">aem187c.xls</a> <a href="/Data/ndsu/aem187a.xls">aem187d.xls</a>barley, malt, DON, fusarium head blight, grain quality, blending, Production Economics,

VALUE-AT-RISK AND FOOD SAFETY LOSSES IN TURKEY PROCESSING

Food safety risks and microbial outbreaks have significant health impacts on society as a whole, as well as economic loss to food processing firms. According to the U.S. Centers for Disease Control (CDC), an estimated 76 million foodborne illnesses occur each year in the United States. Of these cases, 325,000 hospitalizations and 5,000 deaths occur each year (Mead et al., 1999). The U.S. Department of Agriculture, Food Safety and Inspection Services (USDA-FSIS) (1996) estimated that approximately 4,000 deaths each year are attributed to contamination in meat and poultry products. For food processing firms, microbial outbreaks often result in significant economic losses: food recalls, lost market share, and decreased consumer confidence. The intangible nature of aggregate economic losses makes it difficult for firm managers to predict firm-level economic impacts of food safety losses and adopt effective risk mitigation strategies. Developments in Value-at-Risk (VaR) methods provide an analytical framework to resolve this problem. This report develops VaR models to predict food safety risks in turkey processing, under alternative risk mitigation strategies. The FSIS records of food recalls from 1994 to 2003 indicated that as much as $1.35 billion in losses were realized in the turkey industry. The objective of this report is to determine the firm-level risk reduction capabilities and performances of Pathogen Reduction/Hazard Analysis and Critical Control Point (PR/HACCP) systems using VaR and out-of-sample testing for robustness of findings. The VaR results suggest that characteristic turkey processing plants, on average, were losing$0.06905 per lb not more than 5% of the time in any given month in the period prior to PR/HACCP implementation. However, after PR/HACCP implementation, turkey processing plants were losing $0.04936 per lb. In the period after PR/HACCP implementation, losses incurred under generic and augmented PR/HACCP for the small turkey processing plant were not significantly different. The out-of-sample tests indicated that VaR was adequate in predicting firm-level food safety economic losses. The results of this report provide private and public policymakers with alternatives to improve PR/HACCP implementation.PR/HACCP, Value-at-Risk, Salmonella, Turkey Processing, Food Consumption/Nutrition/Food Safety,

ECONOMIC IMPACT OF SCAB WITH ALTERNATIVE RISK MANAGEMENT STRATEGY: THE CASE OF CROP QUALITY INSURANCE IN BARLEY

Managing quality risks, especially grain quality, has been a challenge facing farmers, grain merchandisers, and policymakers for many years. With the advent of genetically modified organisms (GMOs), food safety, and identity preservation, this is even more challenging today. In this paper, an equilibrium crop insurance model was developed and used to analyze the impact of quality risks on equilibrium coverage levels and risk premiums that suppliers of insurance and barley producers would be willing to provide when yield and revenue insurance instruments explicitly incorporate quality risks. The asking price concept and sensitivity analysis were used to evaluate farmers' behavior after they purchase crop quality insurance and to provide guidance and direction in the development of risk-efficient quality insurance instruments.crop insurance, equilibrium coverage levels, Fusarium Head Blight, premium rates, quality risks, risk aversion, Crop Production/Industries,

Stochastic Dominance in Wheat Variety Development and Release Strategies

Variety development and release decisions involve tradeoffs between yields and characteristics valued by end-users, as well as uncertainties about agronomic, quality, and economic variables. In this study, methods are developed to determine the value of varieties to growers and end-users including the effects of variability in economic, agronomic, and quality variables. The application is to hard red spring (HRS) wheat, a class of wheat for which these tradeoffs and risks are particularly apparent. Results indicate two experimental varieties provide improvements in grower and end-user value, relative to incumbents. Stochastic dominance techniques and statistical tests are applied to determine efficient sets and robustness of the results. A risk-adjusted portfolio model, which simultaneously incorporates correlations between grower and end-use characteristics, is also developed to compare the portfolio value of varieties.end-user value, grower value, portfolio value, stochastic dominance, tradeoffs, variety development, wheat, Crop Production/Industries,

State-Branded Programs and Consumer Preference for Locally Grown Produce

Revitalization of state brands is deemed important to several constituencies. Stated preference with choice experiment methods were used to elicit consumer preferences for two locally grown products: spinach, which has had a well-publicized food safety incidence, and carrots, which have had no such incidence in recent history. A full factorial design was used to implement the choice experiment, with each commodity having four identical attributes varying at different levels. Findings reveal that consumers are willing to pay a premium for locally grown spinach marked with the Arizona Grown label over locally grown spinach that was not labeled. This premium was higher than the premium that would be paid for state-branded carrots. This difference highlights consumers’ perceptions of “locally grown†as an indicator of safety in their food supply. Findings have important implications with respect to providing consumer value and point to differentiated positioning strategies for state-branded produce.state-branded produce, certification, food safety, traceability, discrete choice models, Agribusiness, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, Marketing,