Economics

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Prairie Swine Centre is an affiliate of the University of Saskatchewan


Prairie Swine Centre is grateful for the assistance of the George Morris Centre in developing the economics portion of Pork Insight.

Financial support for the Enterprise Model Project and Pork Insight has been provided by:



Modeling Pork Supply Response and Price Volatility: The Case of Greece

Posted in: Economics by admin on January 1, 2009 | No Comments

The development of the global pork production
has been very dynamic in recent decades. Between
1990 and 2004, global meat production
increased from 180 million tons to almost 260
million tons, and the contribution of pork to
global meat production was about 38% in 2005. The objective of this paper is to explore the
supply response in the pork industry. Several
parameters, such as expected pork producer
price, price volatility, and cost factors, are used
to specify the appropriate supply response
model and describe producers’ risk. The empirical analysis used the GARCH process to model producers’ expectations
about expected price and expected
price volatility and the supply response equation
estimated jointly with the price equation
using the FIML econometric approach. It was found that price uncertainty appears to have a strong
negative effect on Greek pig producers, which
might be an important constraint in their attempt
to expand their farm size and invest in
more productive technologies. Also, it seems that pork industry in a small
country like Greece faces serious problems to
adapt successfully to open market conditions
and achieve high level performances in an increasing
level of international competition. Therefore, the
Greek government should further assist pork
producers to participate in specialized investment
programs, financed jointly by the Greek
government and the EU, providing them with
subsidized capital appropriate for modernization
and growth.

Manage Volatility, Manage Risk

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Economists’ predictions that 2008 would be a tough year for pork producers turned out to be an understatement.
The meltdown of the financial community and the resulting loss of investment funds in the commodity markets have made the situation even more dire for every American businessperson, including US. pork producers. To survive, we must all learn to live in a very volatile world, and that means doing a better job of managing risk. The most important mantra for pork producers to learn is — marketing is absolutely everything. Without a plan to assure your marketing
objectives, it doesn’t make sense to spend time and money on finishing a hog to 265 lb. With a good set of financial and performance figures, completing a plan is not that difficult, but a systematic approach is extremely important.
The plan must include three fundamental factors: Knowledge. Evaluate the risk present in your business. Know your
costs (variable and fixed). Have a sound knowledge of the tools available and packer/investment community
terminology. Structure. Develop and complete a well-designed and structurally sound, written plan. Anticipate hog and grain price changes as much as 18 to 24 months into the future. Design a strategy to counteract any adverse volatility.
Discipline. Have the professional discipline to execute the plan as designed. Review the results. Keep records that will help make management decisions in the future. It is concluded that nothing is forever, not even a rally
in the hog futures, and if a profit is available, it should be exercised. In turn, a “structured” plan allowed us to capture what we could of the 2008 summer rally. And, “discipline” gave us the confidence to position our clients for some much-needed profit in 2009.

Political Precaution, Pandemics and Protectionism

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In the H1N1 pandemic of 2009, a new form of protectionism has come to the
fore which calls into question the commitment of governments to the rule of law in
international trade and considerably increases the risks firms face in the international
commercial environment. This paper finds that countries certainly have the option to bring a complaint forward to the WTO’s dispute settlement system, as the H1N1-related import bans were imposed without a scientific justification or a risk assessment.10 The WTO disputes process, however, takes too long and is too cumbersome to deal with this type of capricious imposition of import bans. The damage has been done to exporters, and it is likely that the bans will be lifted long before a formal dispute could wind its way through the WTO disputes system. In any case, the WTO disputes system was not designed to deal with this type of trade policy making. Governments largely live up to their
international commitments – flagrant flouting of the rules has been the exception. The rules, however, were agreed when scientific expertise was better respected and before the revolution in electronic media technology. Thus, no restraints on the exercise of political precaution were built into the rules. Trade policy makers and those with an interest in engaging in international commercial activities should be worried because, once it becomes apparent that barriers to imports can be imposed despite a scientific consensus to the contrary, the progress achieved in international trade rule making since the inception of the GATT may have been considerably eroded. The balance between the strong rules of trade desired by firms wishing to engage in international commerce and the need, at times,
for politicians to respond to requests for protection may be changing in favour of more protection.

Evaluating Animal Welfare with Choice Experiments: An Application to Swedish Pig Production

Posted in: Economics by admin on January 1, 2008 | No Comments

The objective of this study is to evaluate animal welfare attributes and animal
friendly production standards in the Swedish pig production. These may be
attributable to the voluntary rules stipulated in ‘‘the Swedish model’’ or are practiced
experimentally. The willingness to pay (WTP) for animal welfare attributes among costumers that buy pork fillet is estimated by applying a random parameter logit (RPL) model. This model also allows
for individual ranking of WTP, which makes it possible to estimate the distribution
of WTP and hence detect its diversity.

The Relationship between Supply Chain Coordination and Quality Assurance Systems: A Case Study Approach on the German Meat Sector

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The quality assurance (QS) standard has achieved a widespread acceptance in the meat sector and already forms an
appropriate framework for safe production and efficient traceability. We have found empirical evidence that the company currently evolves from a classical certification standard owner to a supply chain coordinator. As central conclusions of our case study we can stress the following perspectives for the red meat sector in general, especially if QS further expands its scope of coordination. 1) more efficient and flexible response to market changes; 2)integration of heterogeneous IT, process and quality assurance standards 3)assurance of access to export markets and expansion of export opportunities 4) complete and efficient traceability across stages 5) creation of problem awareness and collective problem solving 6)reduction of opportunistic behavior; 7)improvement of food quality and safety; 8) professional PR and food crisis management; and 9) sustainable re-establishment of consumer trust.

Farm Animal Welfare and Quality Verification

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Existing empirical evidence suggests that farm animal welfare may not be a top-of-mind issue for many consumers in North America. Nevertheless, there is pressure from animal welfare groups on food retailers and processors to implement more stringent requirements for their suppliers. Is the demand for more stringent animal welfare protocols primarily determined by a subset of consumers with very strong preferences or by an underlying change in consumer and societal preferences? Who do consumers trust for credible quality assurances with respect to farm animal welfare attributes? This paper provides a basis for further analysis of these issues. The roles of different stakeholders in delivering farm animal welfare quality assurances to consumers are first discussed. Then a social welfare analysis of the Canadian market for animal friendly pork is presented under different scenarios with respect to the strength of consumer preferences and the existence of voluntary standards versus mandatory standards. The analysis suggests that a situation of voluntary labelling that is reasonably credible is desirable as it maximizes the welfare that accrues to all players on the market. Furthermore, this scenario allows heterogeneous consumers to choose between different combinations of price and quality according to their preferences. The paper concludes with suggestions for further research.

Feed Grains and Livestock: Impacts on Meat Supplies and Prices

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In this article we attempt to explain what is happening to feed costs, including the likely consequences of the recent ethanol boom on these costs and how the different sectors—beef, dairy, pork, and poultry—are adjusting to higher costs. Importantly, speed of adjustment will vary significantly as industries with shorter production cycles, such as poultry, are able to respond in a matter of months whereas adjustments in industries with longer production cycles, such as beef, can take a period of several years.

Implementation of Mandatory Country of Origin Labeling (MCOOL) in the Pork Industry

Posted in: Economics by admin on | No Comments

The impetus for MCOOL came from northern plains beef producers as far back as the mid–1990s. The stated idea was that U.S. consumers deserve full information about the foods that they purchase and eat—an idea that is difficult to argue with. The underlying concerns, however, were growing imports of beef, pork, cattle and hogs from Canada and their perceived negative impact on U.S. markets. MCOOL is far less onerous for the pork industry than for the beef industry
for several reasons. First, Canada is the only source of imported pigs and market hogs. No hogs are presently
imported from Mexico due to animal disease restrictions. Second, all–in all–out production systems
keep pigs in defined, closed groups from early in life until slaughter in order to prevent the introduction of
disease. There is little or no comingling of animals as there is in the beef industry. This means that the origin
of an individual animal is the same as the origin of its group. Whether U.S. pig production increases
depends on the ultimate reaction of consumers, primarily to the multicountry labels. U.S. consumers
have a very positive view of things Canadian, though, so the negative impact may be small and will almost
certainly be smaller than consumers’ reactions to the presence of other countries such as Mexico, Brazil and
Uruguay on beef labels. If consumer reaction is not negative, Canada will continue to supply weaner and feeder pigs to U.S. feeders depending primarily on the exchange rate between the two countries’ currencies.

Information Content in Deferred Futures Prices: Live Cattle and Hogs

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The informational content in live cattle and hog deferred futures prices is assessed using a direct test of incremental forecast ability for two to twelve month horizons. For 1976-2007, the results indicate that hog futures prices add incremental information at all horizons, but unique information in live cattle prices declines quickly beyond the eight-month horizon with no incremental information at the twelve month horizon. The contrast in performance is likely attributable to differences in the quality of public information and the nature of production process.

Information Sharing in Food Supply Chains

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Vertical information sharing has posed a sensitive strategic challenge among retail firms who, by their location at the end of the supply chain, possess the most valuable segment of the information real estate and one that is valuable to all members of the supply chain. The challenge is this: on one hand information sharing increases the efficiency of the retailers by better coordinating supplies and orders, and on the other hand, it may compromise the bargaining power of the retailers, opening them to opportunistic behavior on the part of suppliers. Nowhere is this dilemma more apparent than in the food sector. Basing its analysis onthe Supermarket Panel Data conducted by the University of Minnesota’s Food Industry Center, this paper examines this issue. It was found that there appears to be a “digital divide in information sharing” between the two types of market structures. This divide, however, is distinct from the issue of cost of IT adoption and the question of its affordability. Rather, it is based on the concept of incomplete markets, as it relates to the incompleteness of the information flow.

 
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