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An econometric analysis of orchard replanting in the British Columbia apple industry Calissi, James Joseph 1995

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AN ECONOMETRIC ANALYSIS OF ORCHARD REPLANTING IN THE BRITISH COLUMBIA APPLE INDUSTRY by JAMES JOSEPH CALISSI B.Sc,  The U n i v e r s i t y  of B r i t i s h Columbia, 1986  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE  in THE FACULTY OF GRADUATE STUDIES Department of A g r i c u l t u r a l Economics  We accept t h i s t h e s i s as conforming to the r e q u i r e d standard  THE UNIVERSITY OF BRITISH COLUMBIA April  1995  ® James Joseph C a l i s s i , 1995  In  presenting  degree freely  at  this  the  thesis  in  partial  fulfilment  University  of  British  Columbia,  available for reference  copying  of  department publication  this or  thesis by  of this  for  his thesis  and  study.  of  or  her  for  representatives.  financial  requirements  I agree that the  I further  scholarly purposes  the  agree  may  be  It  is  gain shall not  be  permission.  Department  of  /^f <  The University of British Vancouver, Canada  Date  DE-6 (2/88)  Cfoflfafo/'(^{t^^^y Columbia  >4&/ 2-//ftr  that  for  an  advanced  Library shall make  permission for  granted  by the  understood  that  allowed without  head  it  extensive of  copying  my or  my written  Abstract  The B r i t i s h Columbia Apple i n d u s t r y , p r i m a r i l y l o c a t e d i n the Southern I n t e r i o r  of the p r o v i n c e , has undergone v a r y i n g  l e v e l s of t r e e removal and r e p l a n t i n g as growers attempt maximize p r o f i t s .  to  T h i s study models t h e i r behaviour by u s i n g  econometrics i n a supply response model.  The economic environment The v a r i a b l e s a f f e c t i n g r e p l a n t i n g of new  of the f r u i t i n d u s t r y i s d e s c r i b e d . acreage responses to removals  and t r a d i t i o n a l apple v a r i e t i e s  and  are  e s t i m a t e d u s i n g O r d i n a r y Leased Squares i n t h r e e s e p a r a t e equations. level. test  Data are pooled and aggregated a t the r e g i o n a l  S e v e r a l v e r s i o n s of the o r i g i n a l model are run t o  f o r robustness of the v a r i a b l e s and of the o r i g i n a l  model.  The econometric models i l l u s t r a t e d that the p l a n t i n g s o f  new  varieties  i n c r e a s e s when expected p r o f i t s from v i n t a g e t r e e s  decline.  However, p l a n t i n g and removals of  varieties  are p o s i t i v e l y  traditional  r e l a t e d to excepted p r o f i t s  from  v i n t a g e t r e e s and t h i s does not f o l l o w a p r i o r i e x p e c t a t i o n s .  More s t r i k i n g i n the model i s the r e g i o n a l d i f f e r e n c e s t h e i r r e s p o n s i v e n e s s to removals and r e p l a n t i n g . w i t h younger, b e t t e r educated farmers r e p l a n t to ii  and  Regions new  v a r i e t i e s a t a f a s t e r r a t e than o t h e r r e g i o n s .  Replant programs a r e shown t o have a n e g a t i v e e f f e c t on the rate of replanting. for  their e l i g i b i l i t y  acres replanted.  These programs m a i n t a i n b a s i c c r i t e r i a t o funding and seemingly  decreased the  I n c r e a s i n g the monetary v a l u e o f the  r e p l a n t g r a n t s r e s u l t s i n the e f f e c t of i n c r e a s i n g the acreage  of t r a d i t i o n a l v a r i e t i e s being planted.  P o l i c y i m p l i c a t i o n s a r e examined i n a p o s t m o d e l l i n g analysis.  The e f f e c t s of top l o a d i n g subsidy e f f e c t s a r e  shown t o have decreased  the acreage  o f t r e e s r e p l a n t e d over  time. These e f f e c t s are shown to cause a dead weight l o s s t o s o c i e t y o f approximately  $13 m i l l i o n over 2 0 y e a r s .  iii  Table of Contents Page Abstract  i i  T a b l e of Contents  iv  L i s t of T a b l e s  vii  L i s t of F i g u r e s  viii  Acknowledgements  ix  Chapter 1  Introduction 1.1 Problem S e t t i n g  1 1  1.2  O b j e c t i v e o f the Study  2  1.3  Research Procedure  2  1.4  T h e s i s Guide  4  1.5  A b r i e f H i s t o r y of the BC Apple Orchards  4  1.5.1 1.5.2  An Overview o f the Present BC Apple I n d u s t r y  5  Land  8  1.6  Recent P o l i c y Developments  13  1.7  Changes i n P r o d u c t i o n Technology i n the Past 10 Years  16  1.8  Apple P r i c i n g P o l i c i e s i n the BC Tree F r u i t I n d u s t r y  2  21  1.9  Support Payments  27  1.10  R e g i o n a l P l a n t i n g Responses  30  L i t e r a t u r e Review  33  2.1  33  Past Endeavors iv  3  French and B r e s s l e r  34  2.1.2  French and Mathews  36  2.1.3  Jaramillo  41  2.1.4  H a r t l e y , Nerlove and P e t e r s  45  2.1.5  Zvi Griliches  48  2.2  Other Approaches  51  2.3  F i n a l Comments  52  Theory  54  3.1  The Investment P o r t f o l i o  55  3.2  P r o d u c t i o n Inputs  56  3.2.1  Variable  56  3.2.2  C a p i t a l Investments  56  3.2.3  Land  57  3.3  3.4 4  2.1.1  Inputs  Mathematics of P r o f i t Maximization  57  3.3.1  59  Land C o n s t r a i n t s  Winter I n j u r y  The E m p i r i c a l  61  Model  63  4.1 4.2  Data S t r u c t u r e The Dependent V a r i a b l e 4.2.1 Costs  64 66 67  4.3  P l a n t i n g s of New Apple V a r i e t i e s  69  4.4  P l a n t i n g s of T r a d i t i o n a l V a r i e t i e s  70  4.5  Removals o f V i n t a g e Trees  71  4.6  Regression Results  72  4.6.1  P l a n t i n g s o f New V a r i e t i e s  74  4.6.2  P l a n t i n g s of T r a d i t i o n a l V a r i e t i e s 81  4.6.3  Removals o f T r a d i t i o n a l V a r i e t i e s v  85  4.7  5  E m p i r i c a l Values  87  4.7.1  87  The E f f e c t s o f F I I and NTSP  Summary Conclusions  and P o l i c y I m p l i c a t i o n s  90  5.1  Summary and Conclusions  90  5.2  P o l i c y Implications  92  5.3  Government P o l i c y  93  5.3.1  Ad Hoc Payments  94  5.3.2  Replant S u b s i d i e s  95  5.3.3  Regional  95  Differences  Bibliography  97  Appendix A  100  Appendix B  101  Appendix C  105  Appendix D  106  Appendix E  109  Appendix F  110  vi  L i s t of T a b l e s 1.1 1.2  1.3  Page  Weather C o n d i t i o n s i n the Southern I n t e r i o r F r u i t Growing Regions 1960 t o 1990  8  Real (1991) P r i c e s of Red D e l i c i o u s , Mcintosh, Gala, and Jonagold During the P e r i o d 1985 to 1991  19  Comparison of Revenues per A c r e : A Young vs Old Block of Trees  1.4  Acreage  of Aging Apple Trees by Region  2.1  Correlation  30  C o e f f i c i e n t s on the  Crop R e p o r t i n g D i s t r i c t L e v e l  49  V a r i e t i e s Regression C o e f f i c i e n t  74  4.1  New  4.2  T r a d i t i o n a l V a r i e t i e s Regression Coefficient Removals Regression C o e f f i c i e n t  4.3  23  vii  81 85  L i s t of F i g u r e s  Page  1.1  Map  o f the Study Area  1.2  Cumulative Cash P o s i t i o n  20  4.1  Demographics and R e g i o n a l Responsiveness of P l a n t i n g s of New V a r i e t i e s  79  viii  6  Acknowledgements I would l i k e to thank the members o f my t h e s i s committee, Mary Bohman, R i c k B a r i c h e l l o and Norm Looney. In p a r t i c u l a r my main a d v i s o r , Mary f o r her c o u n t l e s s hours o f a s s i s t a n c e and enthusiasm. Thanks a r e a l s o due t o Boyd Porteous and Tyrone G u t h r i e a t the Okanagan V a l l e y Tree F r u i t A u t h o r i t y f o r p u t t i n g t o g e t h e r data from t h e i r GIS data system. I would a l s o l i k e t o thank the packinghouses i n the i n d u s t r y f o r s u p p l y i n g me w i t h much needed r e g i o n a l p r i c e d a t a . S p e c i a l thanks t o my w i f e L i s a f o r her h e l p and support.  ix  INTRODUCTION  1.1  The  Problem S e t t i n g  British  producer,  Columbia  apple  i s constantly  industry,  changing  a t the l e v e l  as growers  o f the  introduce  new  v a r i e t i e s and new p r a c t i c e s i n response t o p r i c e s , c o s t s , and new  technology.  density  In p a r t i c u l a r the e f f i c i e n c i e s  plantations  cultivars  1  blocks.  and  the advent  o f more  of  higher  valuable  new  have l e d many growers t o re-examine t h e i r m a r g i n a l As w e l l ,  prices  f o r lower  grades  of  traditional  v a r i e t i e s have dropped to a p o i n t where v a r i a b l e c o s t s a r e no longer  covered. These market  f o r c e s have made r e p l a n t i n g an  a t t r a c t i v e o p t i o n f o r many growers and c r e a t e d a g r e a t d e a l o f d i s c u s s i o n i n the a g r i c u l t u r a l community.  The  B.C. apple  industry  has been  the s u b j e c t  o f numerous  r e s e a r c h s t u d i e s and government p o l i c y i n i t i a t i v e s i n t e n d e d t o foster  greater  qualifying old,  and competitiveness.  growers have been e l i g i b l e  lower  desired)  efficiency  density  t o new  orchards  varieties.  f o r grants  to higher Growers,  Since 1987, to replant  densities industry  and ( i f  bodies  and  government departments a r e i n t e r e s t e d i n b e i n g a b l e t o f o r e c a s t  l  . The terms c u l t i v a r and v a r i e t y a r e o f t e n  interchangeable.  the b e n e f i t s of such orchard  1.2  Objective  The  objective  renovation  initiatives.  of the Study  of  this  study  i s to  construct  an  econometric  model which estimates the extent to which the apple o r c h a r d i s t s in  the  Southern I n t e r i o r of  replanting  (or opt  British  Columbia w i l l  engage i n  to r e p l a n t ) , h e r e i n r e f e r r e d to r e p l a n t i n g  behaviour.  The  sub-objectives  1.  To d e s c r i b e  2.  To  f o r t h i s study are:  the B.C.  estimate,  using  apple i n d u s t r y . an  econometric  supply response of apple producers. include  government  programs) w i l l be 3.  To  and  a c t i v i t i e s and  To  the  regional  V a r i o u s i n p u t s , which  intervention  policies  (subsidy  examined.  examine government p o l i c y r e l a t e d to  industry,  1.3  model,  illustrate  its  the f u t u r e of the  the  effects  on  tree  fruit  replanting  industry.  Research Procedure  explore  these o b j e c t i v e s , a supply  response model w i l l  c o n s t r u c t e d which models the removal of v i n t a g e 2  t r e e s , and  be the  plantings will  of new  be  and  estimated  traditional varieties.  separately  using  Three  equations  Ordinary  Least  availability  exist  Squares  (OLS) .  Differences Therefore,  i n climate  and  land  r e p l a n t i n g i s analyzed  in  on a r e g i o n a l b a s i s .  B.C.  Due  the f a c t t h a t r e g i o n s d i f f e r i n s i z e , the acres r e p l a n t e d be  d i v i d e d by  region.  the  The  total  total  land planted  area  of  tree  to  tree  fruit  denominator s i n c e l a n d s u i t a b l e f o r other  fruits  was  will  for  the  as  the  used  t r e e f r u i t crops i n  the Southern I n t e r i o r i s a l s o s u i t a b l e f o r apple p r o d u c t i o n c o u l d be  replanted  of a b l o c k  the  model  to  model was  of apples.  traditional varieties.  The  used to c a l c u l a t e the  P r i c e expectations  calculate a  p r o d u c t i o n model was  NPV  for planting  For v i n t a g e b l o c k s  r e p l a n t i n g behaviour.  constructed For  example,  d i f f e r e n c e s and p r o f i t e x p e c t a t i o n s Using  effects  how  of  expectations are  the  were v a r i e d i n of  both  new  and  removed, a c o s t  of  and  was  used  to  the  e f f e c t s of  examine regional  on r e p l a n t i n g behaviour are  r e s u l t s of  government  and how  2 0 year  taken from an e s t a b l i s h e d i n d u s t r y model.  e m p i r i c a l model was  explained.  and  to apples i f economic c o n d i t i o n s d i c t a t e .  A c o s t of p r o d u c t i o n NPV  to  policy  the  empirical  impacts  model,  growers,  the their  t h i s a f f e c t s growers' r e p l a n t i n g d e c i s i o n s  discussed.  3  1.4 The  T h e s i s Guide l a y o u t and procedure  Chapter  1 i s a d e s c r i p t i o n and  industry  i n the  comprehensive  Southern  include  modern  review  of  of  B.C.  supply  Chapter  apple  2  response  is a  work  on  Works i n c l u d e some of the p i o n e e r i n g work,  some of  supply  economic h i s t o r y of the  Interior  literature  perennial crops. and  of the study i s as f o l l o w s :  the  response  classical  s t u d i e s which  modelling.  Chapter  3  covers  fundamentals of theory surrounding supply response Particular attention  i s focused on  formulate the  modelling.  theory which accommodates  s u p p l y response under a l a n d c o n s t r a i n t s i t u a t i o n . c o n t a i n s the e m p i r i c a l model and r e s u l t s .  Chapter  4  Chapter 5 d i s c u s s e s  the r e s u l t s of the e m p i r i c a l model i n the s e t t i n g of the apple industry.  The behaviour of o r c h a r d i s t s i s examined.  As w e l l ,  the p a s t a g r i c u l t u r a l p o l i c i e s are looked a t i n l i g h t f i n d i n g s of t h i s  A B r i e f H i s t o r y of B.C.  The  first  1843. did  the  study.  1.5  Columbia  of  reported occurred  on  Apple  commercial Vancouver  Orchards  apple  production  Island, at  Fort  in  British  Victoria  Orchard p l a n t i n g s i n the i n t e r i o r of B r i t i s h  in  Columbia  not occur u n t i l the Caribou g o l d r u s h i n the 1860's (p. 2  Dendy,  1989).  The  first  orchard 4  planting  in  the  Okanagan  V a l l e y o c c u r r e d a t Okanagan M i s s i o n  (now p a r t o f the c i t y o f  Kelowna) by the C a t h o l i c m i s s i o n a r y , Father Pandosy.  From these humble beginnings, the t r e e f r u i t i n d u s t r y expanded a c r o s s the Southern early  orchards  I n t e r i o r of B r i t i s h Columbia.  were  developed  on l a n d w i t h  L a t e r , l a n d companies developed and  sold  land  Most o f the  adjacent  water.  water systems and s u b - d i v i d e d  t h a t c o u l d be i r r i g a t e d .  During  the e a r l y  1900's, the m a j o r i t y o f these buyers were o f B r i t i s h  descent.  A f t e r the f i r s t and second world wars o t h e r European immigrants took many  up o r c h a r d i n g i n the B.C. I n t e r i o r . new  o r c h a r d i s t s have  been  In r e c e n t  of Asian  decades  (mainly  Indian)  descent.  1.5.1  Apple  An Overview o f the Present B.C. Apple  production  concentrated along masses  fertile  in  British  i n the Southern benches  ameliorate  cold  near  Columbia  Interior. rivers  winter  Industry  continues  to  be  Orchards a r e l o c a t e d  and l a k e s .  and hot summer  These  water  temperatures.  G e o g r a p h i c a l l y , orchards a r e l o c a t e d from the Canada/USA border to  as f a r n o r t h  Similkameen,  as Kamloops and Salmon Arm.  and Kootenay v a l l e y s  growing r e g i o n s  of the Southern  b e i n g the l a r g e s t of the t h r e e .  5  The Okanagan,  a r e the predominant  Interior,  with  apple  the Okanagan  The  climate  o f the Southern  semi-desert  with  centimetres.  annual  Irrigation  Interior  rainfall  varying  i s required  from from  desert to 30  to  60  i n a l l r e g i o n s o f the  Southern  Interior.  Celsius.  Winter temperatures hover a t the f r e e z i n g p o i n t , w i t h  predictable  shorter  Summer  ranges  temperatures  periods of colder  often  exceed  temperatures.  35  In a  normal w i n t e r , temperatures drop to -10 C e l s i u s f o r up t o two weeks and o c c a s i o n a l l y f a l l t o below -20 C e l s i u s . temperature w i l l  This  latter  cause economic damage t o t r e e s o r f r u i t buds  depending on the time o f year and p r e v i o u s a c c l i m a t i o n .  These  r i s k s a r e s i m i l a r t o those experienced by producers elsewhere where h i g h f r u i t q u a l i t y i s a c h a r a c t e r i s t i c o f the i n d u s t r y .  However,  because  orchards  vary  p r o x i m i t y t o b o d i e s of water, considerably.  i n altitude,  latitude  and  o r c h a r d m i c r o - c l i m a t e can v a r y  The c l i m a t e o f Vernon i s v a s t l y d i f f e r e n t  t h a t o f Osoyoos and as such the mix o f f r u i t  than  commodities and  v a r i e t i e s produced i n the two r e g i o n s i s d i f f e r e n t .  T a b l e 1.1  i l l u s t r a t e s some of the c l i m a t i c v a r i a t i o n between r e g i o n s i n the  Southern I n t e r i o r :  7  T a b l e 1.1 Weather C o n d i t i o n s i n the Southern Growing Regions District  Mean Winter D a i l y Min Temperature  Interior  Fruit  1960 to 1990 Mean Summer D a i l y Max Temperature  Mean T o t a l Snowfall  Mean T o t a l Precip.  (celsius)  (celsius)  (centimetres)  (centimetres)  Vernon  -9.4  27 .3  108.7  39.3  Kelowna  -8.5  27.8  85.9  33 .6  Oliver  -7.1  30.0  56.9  29.9  145.8 53 .3 Creston -7.4 27 .5 Source: B.C. M i n i s t r y of A g r i c u l t u r e Weather Reports  The  above  table  illustrates  that  regional  c l i m a t e do e x i s t i n the Southern I n t e r i o r .  differences i n  For example, Vernon  i n the North Okanagan, experiences c o l d e r w i n t e r than o t h e r r e g i o n s .  Creston i s l e s s a r i d  temperatures  than r e g i o n s i n the  Okanagan and Similkameen v a l l e y s and experiences c o o l e r w i n t e r and  summer  temperatures.  Oliver,  i n the south  Okanagan,  r e c e i v e s l e s s p r e c i p i t a t i o n , i s warmer i n the w i n t e r and h o t t e r i n the summer.  1.5.2  Land  There i s l i t t l e l a n d a v a i l a b l e f o r expansion o f the B.C. apple industry.  New p l a n t i n g s  o f apples occur on l a n d 8  previously  dedicated  to s o f t f r u i t  o r (to a l e s s e r degree) wine  grape  acreage. There i s no i d l e l a n d o r s i g n i f i c a n t acreage o f l a n d dedicated  t o other crops o r l a n d use that i s s u i t a b l e f o r apple  production  t h a t can be converted t o orchards.  As d i s c u s s e d e a r l i e r , the l a n d base o f the t r e e f r u i t i s spread across an area t h a t c o n t a i n s a m u l t i t u d e growing  regions,  profits  from  influence Orchards  micro-climates,  current  soil  production.  the i n v e n t o r y  of trees  i n some r e g i o n s  types, Each  that  of d i f f e r e n t  land  r e n t s and  these  factors  e x i s t i n any  orchard.  have a h i g h e r  of  industry-  proportion  of older  apple t r e e s , w h i l e some may have a h i g h e r p r o p o r t i o n o f other fruit  crops  anticipated  such that  as  peaches  these  replanting  decisions.  proportion  of older  and  cherries.  c h a r a c t e r i s t i c s have  I t can be an  impact  For example, producers w i t h a  (vintage)  on  higher  trees of u n p r o f i t a b l e c u l t i v a r s  may be i n an economic s i t u a t i o n where an a c c e l e r a t e d  rate of  r e p l a n t i n g must occur.  Alternative  land  uses,  including  development, and a e s t h e t i c value land  value.  Buyers  may  be  potential  future  urban  (view l o t s ) , w i l l a f f e c t the  land  speculators,  o r may  be  i n d i v i d u a l s who do not need t o d e r i v e a d i r e c t p r o f i t from the a g r i c u l t u r a l p o t e n t i a l o f the l a n d i t s e l f , the way a commercial orchardist  must.  Instead,  the l a n d 9  rent  may  be  skewed t o  realize use.  i t s market v a l u e  In  certain  from i t s a e s t h e t i c s or  regions,  land  become l i m i t e d i n a v a i l a b i l i t y . the r e g i o n to e s c a l a t e .  future  f o r n o n - a g r i c u l t u r a l use  i s not  urban  use  to  say  Orchard l a n d p r i c e s have a l s o v a r i e d  that  freely.  has  T h i s has caused l a n d p r i c e s i n  as l a n d s p e c u l a t o r s view i t f o r expansion i n f u t u r e  This  urban  Most  orchard  land  orchard  can  land  years.  become changed  is  contained  in  to the  A g r i c u l t u r a l Land Reserve (ALR), c r e a t e d w i t h the A g r i c u l t u r a l Land A c t of 1973.  T h i s p r o v i n c i a l l y l e g i s l a t e d a c t zones most  o r c h a r d l a n d as a g r i c u l t u r a l .  These lands cannot be  subdivided  i n t o s m a l l e r l o t s , and a grower cannot s e l l i n t o urban uses a l l or  a  portion  profitable  of  to  difficulty.  the  orchard  him/her,  or  when  if  the  a  block  grower  Only small areas of the ALR  is  no  faces  longer  financial  are r e l e a s e d each year  from the l a n d r e s e r v e , mostly f o r urban development.  Some b e l i e v e the ALR edge  of  urban  development  p o t e n t i a l value true p r i c e  of  holds down l a n d p r i c e s i n r e g i o n s because  cannot be urbanized. land  i n these regions  s i n c e the small amounts of ALR t r u e market p r i c e . lands  currently  municipal Interior  land  of  on  extremely  high  Others b e l i e v e t h a t i s not  accurately  the  the  known  l a n d r e l e a s e d each y e a r masks a  As w e l l , urban and commercial expansion on  outside  of  the  ALR  i s often  constrained  by  zoning and because l a r g e l a n d masses i n the Southern adjacent  to the  towns are 10  contained  i n the ALR  and  non-ALR l a n d i s n o t o v e r l y abundant. f o r c e s up p r i c e s o f non-ALR l a n d .  This constraint c l e a r l y  Often l a n d i s t r a n s a c t e d a t  p r i c e s which a r e f a r i n excess o f t h a t which o r c h a r d i n g can  itself  finance.  When l a n d i s o c c a s i o n a l l y r e l e a s e d from the ALR, i t s v a l u e i s o f t e n h i g h s i n c e p a r c e l s a l e s a r e t r a n s a c t e d under a s c a r c i t y of supply. there  In some cases, the ALR lands a r e r e l e a s e d o n l y when  i s a housing  surrounding becomes  boom  the farm  physically  i n the r e g i o n ,  land  i s so h i g h l y  impossible  urban/farm i n t e r f a c e problems.  to  farm  o r when developed the  land  ownership o f orchard  the a g r i c u l t u r a l  to  f o r and  f o r them as w e l l .  l a n d i n the Southern I n t e r i o r can be  viewed as a p o r t f o l i o of investments. in  due  o f what t h e i r l a n d would be worth i f the  l a n d r e s e r v e would be l i f t e d  The  that i t  Farmers i n r e g i o n s removed from  urban development observe what these p r o p e r t i e s s e l l develop e x p e c t a t i o n s  the l a n d  P a r t o f the p o r t f o l i o i s  p o t e n t i a l of the l a n d  a n n u a l l y w i t h p r o f i t s from f r u i t s a l e s .  and i s r e a l i z e d  The o t h e r p a r t o f the  p o r t f o l i o i s a r e a l e s t a t e investment and i t s p o t e n t i a l c a p i t a l gain.  Regional present.  d i f f e r e n c e s i n the s i z e and mix o f the p o r t f o l i o a r e In some  regions  ( i n p a r t i c u l a r the Kelowna and  P e n t i c t o n areas) l a n d values have i n c r e a s e d f a s t e r than 11  other  regions.  As  well,  in  some  regions  (eg  P e n t i c t o n ) o r c h a r d l o t s i z e s are small and  Summerland  tend to m a i n t a i n a  h i g h v a l u e s i n c e they can be s o l d as hobby farms. may will  and  O f t e n what  happen w i t h h i g h v a l u e d l a n d h o l d i n g s i s t h a t an o r c h a r d i s t sell  instead  the  of  purchases  land,  realizing  replanting  the  the  capital  orchard.  gain  The  new  i n the owner  often  the l a n d f o r uses other than commercial t r e e  production  (eg  a  hobby  farm)  and  tends  not  to  land  fruit  replant  the  orchard.  T h i s e n t r y / e x i t behaviour  t h a t takes p l a c e on h i g h p r i c e l a n d  can reduce the r a t e of o r c h a r d r e n o v a t i o n . s o l d i n more t r u l y r u r a l areas i n d i v i d u a l who  has  land  (eg Cawston) w i l l o f t e n be to an  wishes to operate a commercial farm, s i n c e l o t  s i z e s tend to be orchard  Conversely,  not  l a r g e r , and  the area i s more r u r a l .  seen some r e p l a n t i n g , the new  I f the  operator  will  o f t e n i n v e s t i n c a p i t a l improvements (eg r e p l a n t i n g ) to improve the f u t u r e p r o f i t a b i l i t y of the farm. may  be to a younger farmer, who  r i s k and r e p l a n t u s i n g new higher  may  Often the l a n d t r a n s f e r  be more w i l l i n g to take on  technology such as new  plantation densities.  v a r i e t i e s or  E n t r y / e x i t behaviour  n a t u r e would tend to i n c r e a s e o r c h a r d r e n o v a t i o n s .  12  of  this  1.6  Recent P o l i c y Developments  In the mid-1980's, a s i t u a t i o n developed  where many  orchards  needed to be r e p l a n t e d but growers were u n w i l l i n g to commit the c a p i t a l necessary to do so. Intense l o b b y i n g by the B.C.  Fruit  Growers A s s o c i a t i o n (BCFGA) r e s u l t e d i n the implementation a  r e p l a n t i n g grant  grant  was  for tree f r u i t  administered  Agriculture  by  Fisheries  the  and  producers  British  Food  i n 1987.  Columbia  (BCMAFF)  this  renovate  grant  t h e i r orchard.  g r a n t s f o r up with  10  growers  acres  property.  The  could  receive  and  Growers were e l i g i b l e  to 3 0% of t h e i r acreage. could  $2000  receive grants  grant was  to  This  M i n i s t r y of funded  A g r i c u l t u r a l Regional Development Subsidy Agreement Under  of  per  by  (ARDSA). acre  to  for replanting  For example, a grower renovate  3  acres  w e l l r e c e i v e d and many growers  of took  advantage of the program.  Although essential,  replanting  was  viewed,  some i n d i v i d u a l s f e l t  important and needed a d d r e s s i n g .  at  the  time,  as  being  t h a t o t h e r elements too were These i s s u e s were examined i n  the Commission of I n q u i r y i n t o the Tree F r u i t I n d u s t r y i n The  Inquiry  practices,  suggested  that  the  industry  improve  become " l e a n e r and meaner", become l e s s  upon top l o a d i n g subsidy programs l i k e 13  Farm Income  1990.  orchard dependent Insurance  (FIT.) and the N a t i o n a l T r i p a r t i t e S t a b i l i z a t i o n Program (NTSP) see  section  production  1.9)  and  and  improve  their  competitive  2  position in  marketing.  As a s p i n o f f from the I n q u i r y , the Okanagan V a l l e y Tree F r u i t Authority  (OVTFA) was  formed i n 1990.  T h i s p r o v i n c i a l crown  c o r p o r a t i o n took over the r e s p o n s i b i l i t y of r e p l a n t i n g programs ( i n c l u d i n g grants) increased  to  from ARDSA.  $3000  per  The maximum v a l u e of the  acre.  This  increase  was  accompanied by changes to the e l i g i b i l i t y g u i d e l i n e s . plantation minimum  densities  of  trellising)  one  and  acre) ,  larger support  minimum systems  and h i g h q u a l i t y nursery  replant for  grant  the  also Higher  areas  (eg  trees  (eg  t r e e s were the major  new  requirements.  In 1992, fast  i t was  felt  enough r a t e and  t h a t r e p l a n t i n g was  not  occurring at  a r i c h e r r e p l a n t program would  a  escalate  the l e v e l s of r e p l a n t i n g . Consequently, the OVTFA g r a n t s were i n c r e a s e d to $3500 per acre p l u s an a d d i t i o n a l grant of $1500 per  acre,  p a i d i n equal  payments of $500 per  y e a r s f o l l o w i n g the p l a n t i n g year.  annum f o r  As w e l l , growers i n s t a l l i n g  an i r r i g a t i o n system w i t h the c a p a c i t y of i n j e c t i n g along with  the  i r r i g a t i o n water  three  (considered  fertilizers  a more  efficient  These two programs p a i d cash s u b s i d i e s to growers i n y e a r s when the i n d u s t r y was unable to meet t h e i r c o s t s of p r o d u c t i o n . Payments were made based on p r i c e s r e c e i v e d and a n e g o t i a t e d c o s t of p r o d u c t i o n . For a b e t t e r e x p l a n a t i o n o f F I I and NTSP see s e c t i o n 1.9. 2  14  way t o u t i l i z e f e r t i l i z e r s ) q u a l i f i e d  f o r g r a n t s o f up t o $500  per a c r e .  In 1994, an a d d i t i o n a l grant o f up to $250 p e r acre f o r s o i l f u m i g a t i o n was added t o the l i s t of e l i g i b l e g r a n t s .  In 1994,  a grower c o u l d r e c e i v e a t o t a l o f $5750 p e r acre i n g r a n t s , o r r o u g h l y 1/3 - 1/2 of the c a p i t a l  15  c o s t of r e p l a n t i n g .  1.7  Changes i n P r o d u c t i o n Technology  In the Past 10  The  advent  existing  of  improved  a f f e c t e d the way  strains  of  3  t r e e f r u i t s are produced  Years  varieties  has  i n the p r o v i n c e .  Red  D e l i c i o u s p r o d u c t i o n has been g r e a t l y enhanced by the s e l e c t i o n of r e d s t r a i n s . the 1950's was  The  Starking Delicious strain,  introduced i n  the f i r s t of many r e d s t r a i n s of t h i s  cultivar.  L a t e r , i n the 1960's and 1970's, the development of ever more highly  coloured  strains  and  the  advent  of  spur-type  D e l i c i o u s enhanced the p r o d u c t i o n of t h a t p a r t i c u l a r  Red  variety.  A spur-type s t r a i n of apple e x h i b i t s a more compact t r e e w i t h a  more  productive  especially  and  important  manageable since  canopy.  growers  could  Spur-types plant  d e n s i t i e s without compromising f r u i t q u a l i t y . of p r o d u c i n g  Delicious  apples was  slightly  at  were higher  Thus, the c o s t  reduced.  During  t h i s same p e r i o d , spur-type Mcintosh apples were d i s c o v e r e d and widely  planted.  This  allowed  Mcintosh  to  have  advantages  s i m i l a r to those experienced by the Red D e l i c i o u s v a r i e t y .  In  the  1970's and  1980's,  Washington S t a t e developed  acreage of h i g h c o l o u r e d spur-type Red D e l i c i o u s .  their  The l a c k of  A s t r a i n i s a s e l e c t i o n of a p a r t i c u l a r v a r i e t y t h a t has a t t r i b u t e s which are d i f f e r e n t than those t y p i c a l f o r t h a t v a r i e t y . These s e l e c t i o n s a r e u s u a l l y mutations o f the o r i g i n a l v a r i e t y . Improved c o l o u r and t r e e growth h a b i t have been predominant s e l e c t i o n c h a r a c t e r i s t i c s i n r e c e n t y e a r s . 3  16  a l a n d c o n s t r a i n t allowed growers to p l a n t new  s t r a i n s of  Red  D e l i c i o u s on v i r g i n land, w h i l e keeping t h e i r l e s s p r o f i t a b l e older  trees  i n the  that production  ground.  of new  Plantings  onto new  land  ensured  s t r a i n s c o u l d develop q u i c k l y , without  compromising e x i s t i n g acreage.  In 1987,  the apple p r o d u c t i o n  m i l l i o n boxes f o r the being  Red  Delicious.  production, crop.  The  sharply Red  first  roughly  of Washington S t a t e reached time,  This  the m a j o r i t y  was  an  of  astounding  this  100 crop  level  of  10 times as l a r g e as B.C.'s 10 m i l l i o n  box  l a r g e supply of Red D e l i c i o u s caused p r i c e s to drop  (see Table 1.4).  Delicious,  such  Growers p r o d u c i n g o l d e r c u l t i v a r s of  as  cover v a r i a b l e c o s t s .  the  Starking  strain,  were unable  Only newer spur-type Red  Delicious  to and  other apple c u l t i v a r s were p r o f i t a b l e .  This  sudden  atmosphere  drop in  expectations increasing  in  the  of group  apple apple  future of  prices  created  growing  profits  growers  appeared  d i s m a n t l e the a g r i c u l t u r a l l a n d r e s e r v e  growers.  In  hindsight,  this  was  pessimistic  community  pressured  o r c h a r d l a n d without r e s t r i c t i o n s .  a  bleak. the  growers An  ever  government  to a l l o w them to  I t was a  as  a confusing  turning  point  to sell  time f o r for  the  industry.  Growers who  did replant  wanted a v a r i e t y t h a t 17  could  not  be  s u c c e s s f u l l y c u l t i v a t e d i n Washington any  State.  They d i d not see  sense i n p l a n t i n g a v a r i e t y which appeared p r o f i t a b l e i n  the s h o r t  run to have i t s f u t u r e p r i c e  supply i n Washington.  lowered by  increased  Mcintosh was c o n s i d e r e d to be a v a r i e t y  which c o u l d not be s u c c e s s f u l l y produced south of the border, however some growers had concerns that BC's acreage was  already  adequate and a d d i t i o n a l acreage c o u l d r e s u l t i n lower p r i c e s . Thus o t h e r v a r i e t i e s were examined.  Gala and Jonagold v a r i e t i e s were commercially i n t r o d u c e d B r i t i s h Columbia i n the l a t e 1980's. varieties (Table 1.2)  were  produced  Even though these two  i n Washington  State,  their  into new  prices  r e l a t i v e to o t h e r v a r i e t i e s , made them tempting to  growers who wished to gamble on new v a r i e t i e s . D e l i c i o u s was  low due  I n t e r e s t i n Red  to poor s h o r t term and l o n g term p r i c e  expectations.  18  Table  1.2  Real  (1991) P r i c e s o f Red D e l i c i o u s ,  Gala  and Jonagold  1991  ( c e n t s / l b farm  gate)  Gala  During  the P e r i o d , 1985 t o  Year  Red D e l .  Mcintosh  1985  19.1  19.3  1986  19.4  23.0  30.7  1987  5.2  22 .0  60.7  12 .1  1988  13.2  22.0  86 .7  41.3  1989  7.3  15.1  83 .7  46.9  1990  14.8  21.1  65.5  29.9  14.2 BCMAFF  17.0  67.2  39.6  1991 Source:  The  introduction  o f new  varieties  Mcintosh,  Jonagold  i n the mid  1980's  was  accompanied by the expanding use of f u l l y dwarfing r o o t s t o c k s . Such r o o t s t o c k s enabled growers t o keep the t r e e s i z e s m a l l , achieve  early production  (precocity),  and a l l o w t r e e s t o be  p l a n t e d t o g r e a t e r d e n s i t i e s than i n the p a s t . i n t e r e s t i n u s i n g h i g h d e n s i t y technology.  Growers showed  A t the same time,  the farm gate p r i c e s o f new v a r i e t i e s i n c r e a s e d from 30 c e n t s per pound t o over 80 cents p e r pound.  T h i s p r i c e i n c r e a s e was p e r c e i v e d t o compensate f o r the r i s k s a s s o c i a t e d w i t h p l a n t i n g new v a r i e t i e s . introduction growers.  of a replanting  Consequently,  grant  Higher p r i c e s and the  instilled  confidence i n  a s i t u a t i o n developed where i t appeared 19  to be p r o f i t a b l e to r e p l a n t .  P r o g r e s s i v e growers u t i l i z i n g new  v a r i e t i e s and h i g h d e n s i t y p l a n t i n g s were a b l e t o r e c o v e r the c o s t o f r e p l a n t i n g to new v a r i e t i e s i n 5 years i n s t e a d o f the 8 t o 10 y e a r s normally a n t i c i p a t e d w i t h low d e n s i t i e s .  The graph below i l l u s t r a t e s  the cash p o s i t i o n a grower would  experience g i v e n 3 d i f f e r e n t management d e c i s i o n s :  1.  Leaving i n a one acre b l o c k t h a t c o n s i s t e n t l y l o o s e s $500 p e r year  2.  (no change),  R e p l a n t i n g the b l o c k t o new v a r i e t i e s , which r e t u r n s 55 cents p e r pound t o the grower, o r  3.  R e p l a n t i n g the b l o c k t o t r a d i t i o n a l v a r i e t i e s which r e t u r n s 18 cents p e r pound t o the grower.  F i g u r e 1.2 Cummulative Cash Flow  Cummulative Cash P o s i t i o n Over 2 0 Years on One Acre of Orchard  for Different Management  Options  120000 100000 80000 +  Replant to Traditional Varieties  w  60000  No Change  o Q  40000 |  Replant to New Varieties  20000 0 -20000 Year  20  The above graph i l l u s t r a t e s the accumulation o f money a farmer would experience over 20 years by choosing 3 separate The  results  for positive  a r e cumulative and i n c l u d e  actions.  a 7% i n t e r e s t  accounts and a 10% i n t e r e s t  factor  factor  f o r negative  accounts.  1.8  Apple P r i c i n g P o l i c i e s i n the B.C. Tree F r u i t I n d u s t r y  Apple p r i c i n g p o l i c i e s s e t by i n d u s t r y i t s e l f , revenue growers r e c e i v e f o r a pound o f a p p l e s . experienced Interior;  by  BCFGA  growers  i s uniform  which i n f l u e n c e s  replanting  Apple  i s dominated  marketing  Pricing  f o r the  however, t h e r e a r e some r e g i o n a l  due t o brands, grades and v a r i e t y mixes.  determine the  price  policy  Southern  differences  These a f f e c t  revenue,  decisions.  by the grower  owned B.C. Tree  F r u i t s L t d . (BCTF). Growers p r o d u c i n g apples t o be s o l d through t h i s agency d e l i v e r t h e i r f r u i t There  to c o o p e r a t i v e packinghouses.  a r e s i x c o o p e r a t i v e packinghouses  members o f the BCFGA. Packinghouses source  the m a j o r i t y o f  proximity  their  o f the packinghouse.  whose growers  are r e g i o n a l l y  fruit  from  based and  orchards  i n the  F o r example, Okanagan North  Growers C o o p e r a t i v e would source most of i t s f r u i t 21  are  from the  Winfield/Oyama/Vernon a r e a s . northern  fringes  I t may source some f r u i t from the  o f Kelowna but would n o t source f r u i t  from  areas south o f t h a t .  Fruit  received  at  the packinghouse  i s either  packed f o r  immediate s a l e , s t o r e d i n c o l d storage, o r s t o r e d i n c o n t r o l l e d atmosphere  (CA)  Packinghouses  and  packinghouse w i l l their much  storage BCTF  to  be  packed  negotiate  be s o l d .  will  market under  later  fruit  date.  from then  each  receive  The p r o r a t e determines how  sell  market through the s e l l i n g season. the  when  a  Packinghouses w i l l  ' p r o r a t e ' from t h i s system. each packinghouse  at  into  each  time p e r i o d and  F r u i t i s then d e l i v e r e d t o  i n d i v i d u a l packinghouse brands.  Individual  packinghouses r e c e i v e the revenues from t h e i r r e s p e c t i v e s a l e s .  Varieties,  grades and s i z e s o f each grower's  a p p l e s a r e kept  s e p a r a t e and a r e r e c o r d e d i n the form o f a 'packout'. from  the s a l e  o f each v a r i e t y ,  grade and s i z e  Profits  of apple are  d e l i v e r e d to the grower based on t h e i r packout i n the form o f a  pool  price.  F o r example,  a l l growers  in a  particular  packinghouse w i l l r e c e i v e the same p r i c e f o r box s i z e 100 f a n c y Mcintosh.  The grower  does not have  the o p t i o n  h i s / h e r f r u i t e a r l y o r l a t e i n the season. set  by  the board  packinghouse returns,  of d i r e c t o r s  develops  packinghouse  i t s own costs,  price  and board  selling  The p o o l p r i c e s a r e  o f the packinghouse. pool  22  of  based  policies.  on  Each market Hence,  different  grower  pool  a c r o s s the d i f f e r e n t  The  prices  prices  f o r separate  items  can  exist  packinghouses.  paid for different  grades  have an e f f e c t  on the  p r o f i t a b i l i t y o f d i f f e r e n t orchards and i n d i r e c t l y on removals and  replanting  example, quality  of  as apple fruit  different  blocks  i n each  t r e e s age, the p e r c e n t  diminishes.  region.  packout  An o l d e r Mcintosh  For  of higher  t r e e may  only  produce 30% fancy grade, w h i l e a r e l a t i v e l y younger t r e e o f the same s t r a i n w i l l example  of  (assuming  produce 70% fancy grade a p p l e s .  revenue  per  acre  from  two  different  35,000 l b s p e r acre) i s shown below:  T a b l e 1.3 Comparison o f Revenues p e r a c r e : A Young vs O l d Block o f T r e e s . Young B l o c k 70%  fancy  15%  commercial  5,250 l b s @ $0 .01 = $  15%  cull  5,240 l b s @- $0 .03 =-$ 158  Total  24,500 l b s @' $0 .18 = $4410  35,000 l b s  53  $4305  Old  Block  30%  fancy  40%  commercial 14,000 l b s @ $0 .01 = $ 140  30%  cull  Total  10,500 l b s @ $0 .18 = $1890  10,500 l b s @- $0 .03 =-$ 315 35,000 l b s  =  23  $1715  A  typical packouts  Growers who remove o l d Mcintosh t r e e s and r e p l a n t t o the same variety  receive  higher prices  s t r a i n s and younger t r e e s .  from packouts due t o improved  There i s no p r i c e  differentiation  f o r the fancy grade f r u i t produced from younger t r e e s , so t h e r e i s no o t h e r way o f i n c r e a s i n g revenue t o cover c a p i t a l c o s t s o f replanting packouts  o t h e r than  from  increased  revenue  from  improved  (as i l l u s t r a t e d above).  Approximately  1/4 o f the apple crop i s sent  f o r processing.  Sun-Rype L t d . , a company t h a t arose from B.C. Tree F r u i t s L t d . , i s by f a r the l a r g e s t apple p r o c e s s o r i n B r i t i s h Columbia and has the c a p a c i t y t o p r o c e s s 40,000 tons a n n u a l l y . are  n o t o f h i g h enough q u a l i t y t o be s o l d onto the f r e s h market  w i l l be sent t o Sun-Rype.  Only packinghouses  BCFGA o r not) can d e l i v e r BC apples t o Sun-Rype. not  Apples which  (whether i n the Sun-Rype does  c o n t r a c t d i r e c t l y w i t h i n d i v i d u a l apple growers.  In  f a c t , growers never r e c e i v e a d i r e c t payment from Sun-Rype  or  any o t h e r p r o c e s s o r when they c o n t r a c t w i t h a packinghouse.  Money from p r o c e s s o r s i s sent t o packinghouses o r t o B.C. Tree Fruits.  T h i s money i s used t o cover the o p e r a t i n g c o s t s o f  these o r g a n i z a t i o n s .  When p r o f i t s from Sun-Rype a r e low,  the  revenues packinghouses r e c e i v e a r e a l s o low. O f t e n i t i s n o t h i g h enough t o r e c o v e r the c o s t o f h a n d l i n g f r u i t d e s t i n e d f o r p r o c e s s o r s and growers may be b i l l e d the  p r o c e s s i n g grade f r u i t .  by the packinghouse f o r  When Sun-Rype p r o f i t s 24  are high,  packinghouses r e c e i v e a h i g h e r p r i c e f o r p r o c e s s i n g grade f r u i t and  this  i s passed  processing  fruit  determined  by  onto  the grower.  are d e l i v e r e d  the boards  packinghouses  and  B.C.  of  Tree  to  How  the p r o f i t s  the grower  directors Fruits.  of How  is  the much  of  entirely  individual profit  is  r e t a i n e d by Sun-Rype products i s determined by the board o f d i r e c t o r s o f Sun-Rype p r o d u c t s .  I f a grower has apples w i t h no f r e s h market v a l u e , they may be d e l i v e r e d to the packinghouse to be c l a s s i f i e d as " d i v e r s i o n " . This  fruit will  system  and be  packinghouse. is  by-pass  separate  the c o n v e n t i o n a l s t o r i n g and p a c k i n g  delivered  directly  to  the p r o c e s s o r by the  The grower w i l l r e c e i v e a d i v e r s i o n p r i c e which from  a  melded  fresh/processing  price.  The  d i v e r s i o n p r i c e i s determined by the board of d i r e c t o r s of the i n d i v i d u a l packinghouses. the it  The d e c i s i o n t o ' d i v e r t ' i s made by  grower a t the time of d e l i v e r y t o the packinghouse, b e f o r e i s p l a c e d i n t o s t o r a g e . In some y e a r s the d i v e r s i o n  may be so low that  i t may not cover grower's  price  h a r v e s t i n g and  t r a n s p o r t a t i o n c o s t s and growers w i l l n o t h a r v e s t t h i s type o f fruit. hail, fruit  Examples of d i v e r s i o n f r u i t would be t h a t damaged by disease, that  insect,  has  fruit  previously  of p a r t i c u l a r l y poor c o l o u r , o r fallen  to  the ground  prior  to  harvest.  In 1993, the ownership s t r u c t u r e of Sun-Rype p r o d u c t s changed. 25  Since  i t s establishment  i n the  l i m i t e d company owned by BCFGA.  The  Profits  the  packinghouses and Rype f e l t food  shares  company  were  were members of  i n trust  f o r the  distributed  to  the  the  then to the growers v i a p o o l r e t u r n s .  and  marketing  distributed  a  facilities.  the' shares  p o r t i o n of  tonnage shipped  Sun-  of  the  To  do  the  shares  this,  company back  based  on  the  to  the  total  apple  to t h e i r packinghouse s i n c e Sun-Rype began to i n r e t a i n e d e a r n i n g s . Nine  d o l l a r s i n new  r a i s e d from o u t s i d e i n v e s t o r s .  c a p i t a l was  million  S i n c e the ownership change, Sun-Rype pays o n l y the w o r l d processing  Washington  apples.  State  transportation  the  Each grower  accumulate the $5 m i l l i o n  for  a  growers.  back  growers, based on $5 m i l l i o n i n r e t a i n e d e a r n i n g s . received  been  i t needed a l a r g e i n j e c t i o n of c a p i t a l to expand i n  processing  company  Sun-Rype has  the growers who  BCFGA h e l d the  from  1950's,  In  price  costs.  Sun-Rype's for  Any  this  processing  profits  r e t u r n e d to grower/shareholders  case,  the  price  is  apples  company  the plus  makes  are  i n the form of share v a l u e s or  dividends.  The  pooling  of  apple  p r i c e s has  an  impact  on  profits  a f f e c t s r e p l a n t i n g d e c i s i o n s , s i n c e the p o o l p r i c e s form growers'  expectations  expectation. between  higher  Pricing and  of p r i c e apples  lower  and  so  quality  26  i t s corresponding  there  is a  apples  large  will  and the  profit  divergence  stimulate  the  removals  of  older  trees  since  these  aging  blocks  produce  r e l a t i v e l y l e s s higher p r i c e d f r e s h f r u i t and a g r e a t e r amount of lower q u a l i t y , lower p r i c e d p r o c e s s i n g  1.9  fruit.  4  Support Payments  D u r i n g the study p e r i o d (1985 support  programs  added  Farm  Income  Columbia. Tripartite  Stabilization  to  - 1992)  there were two  growers'  Insurance Program  revenues  (FII)  and  (NTSP)  government in  the  British National  provided  direct  support payments to growers when apple p r i c e s were low.  They  were t r i g g e r e d when f r u i t p r i c e s f e l l below a n e g o t i a t e d  cost  of p r o d u c t i o n growers  eventually  negotiated  NTSP was basis.  and made s i z a b l e c o n t r i b u t i o n s to the p r i c e t h a t received  (see  Appendix  C) .  FII  on a p r o v i n c i a l p r i c e and c o s t of p r o d u c t i o n  negotiated  on a n a t i o n a l p r i c e and c o s t of  was  basis.  production  Often the NTSP program t r i g g e r e d a payment to growers  i n B r i t i s h Columbia when the n a t i o n a l p r i c e was though f r u i t p r i c e s were p r o f i t a b l e i n  depressed, even  B.C.  In l a t e r y e a r s of these programs, F I I and  NTSP payments were  I t i s important to note t h a t p r i c e p o o l i n g i s , i n many cases, r e g i o n a l s i n c e the packinghouses r e c e i v e f r u i t from growers i n a r e g i o n a l f a s h i o n . For example, a l l BCFGA growers i n Vernon w i l l r e c e i v e p r i c e s based on the same p o o l i n g formula s i n c e they s h i p through one packinghouse i n t h a t r e g i o n . The formula may be d i f f e r e n t than t h a t f o r growers i n the Kelowna a r e a , who ship through a packinghouse l o c a t e d i n t h a t r e g i o n . 4  27  not  adequate  special  ad  payments  to meet the  hoc  payments  negotiated have  been  cost made  of p r o d u c t i o n , to  top  up  and  support  (see Appendix C).  Growers argue  that  support payments are  apples i n the  s u b s i d i s e d world market.  contend t h a t  support payments are  Land Reserve  (ALR)  and  subsidy  necessary  to  In a d d i t i o n ,  market growers  l i n k e d to the A g r i c u l t u r a l  payments are,  i n part,  partial  compensation by governments f o r c o n s t r a i n i n g t h e i r a b i l i t y  to  u t i l i z e t h e i r l a n d f o r n o n - a g r i c u l t u r a l purposes.  C r i t i c s argue that d i r e c t payments of t h i s s o r t mask growers' t r u e i n t e r p r e t a t i o n of the market p l a c e . based on c o s t of p r o d u c t i o n  Subsidy payments were  and were p a i d based on the pounds  of commercial or fancy grade apples produced, r e g a r d l e s s of the v a r i e t y . T h i s type of p o l i c y d i r e c t e d new  market s i g n a l s to the  farmers.  Removing  reduced  pounds  apples  of  unprofitable  and  the  corresponding  support payments.  Marginally  profitable,  marginally  profitable. produce due  and As  trees  eligible  p r o f i t a b l e trees unprofitable  w e l l , v a r i e t i e s that may  the  overall level  became trees  of  truly became  have been r i s k y to  to annual v a r i a t i o n i n p r i c e were made l e s s r i s k y .  R e g a r d l e s s whether one  i s f o r or a g a i n s t  direct agricultural  support payments, i t i s safe to conclude t h a t support payments  28  r a i s e growers e x p e c t a t i o n s of p r i c e s from v i n t a g e apple t r e e s , by making  u n p r o f i t a b l e apple  production p r o f i t a b l e .  which would have been r e p l a n t e d without maintained.  A priori,  one would expect  a subsidy program are support  h i n d e r the removal of b l o c k s of v i n t a g e t r e e s .  29  Blocks  payments  to  1.10 R e g i o n a l R e p l a n t i n g Responses  Differences  i n pooling policies,  grower  age  and  education  l e v e l s and t r e e f r u i t commodity composition (eg make up o f s o f t f r u i t and apple acreage) a f f e c t s the v i n t a g e s o f t r e e s i n each region.  T a b l e 1.4  Acreage  of Aging Apple Trees by Region  Acres o f Apples, a l l ages  Acres o f tree fruits  District  Acres o f apple trees older than 2 0 Years (Percentage o f a l l tree fruits)  Vernon  1330 (34)  3798  3936  Kelowna  2798 (38)  6128  7402  Summerland  427 (24)  1359  1770  Penticton  410 (21)  1374  1865  Oliver  467 (15)  1769  3166  Osoyoos  439 (18)  1485  2471  Caws ton  495 (24)  1512  2046  Creston  161 (21)  640  759  Total 6527 (28) Source OVTFA Survey (1991)  18065  23415  The  above t a b l e  acreage  shows t h a t  dedicated  percentage  to o l d e r  of o l d e r  there i s a s i g n i f i c a n t t r e e s i n each  t r e e s v a r y i n g by  30  amount o f  region, with  area.  Part  of  the this  variance  i s due  to  d i f f e r e n t regions.  the  range  of  tree  fruits  grown  i n the  For example, the southern r e g i o n s have more  s o f t f r u i t as a percentage of t h e i r l a n d base.  Consequently,  i t appears that o l d e r apple t r e e s make up a s m a l l e r p o r t i o n of the t o t a l t r e e f r u i t acreage, r e l a t i v e to more n o r t h e r n  regions  where apples predominate.  R e g i o n a l d i f f e r e n c e s i n removals and p l a n t i n g s illustrated  i n Appendix  A.  These  graphs  l e v e l s of r e p l a n t i n g i n each r e g i o n .  of a p p l e s are  illustrate  annual  The d i f f e r e n c e s i n each  r e g i o n i l l u s t r a t e the responses to economic c o n d i t i o n s i n each region.  The  .  fact  that  regional  no  two  differences  graphs  are a l i k e  exist.  Such  suggests t h a t  differences  economic f a c t o r s such as f r u i t p r i c e s , or c l i m a t i c For example, to  fewer  seasonal  temperatures addition, climate trees.  one r e g i o n may heat  deter  climate  units,  or  of  speed up  i s responsible  could  be  in  conditions.  not f u l l y adopt a new v a r i e t y due  plantings may  strong  f o r poor  because  unproven  the r a t e fruit  extreme  winter  varieties.  of removals  q u a l i t y from  In  i f the vintage  For example, a r e g i o n may have h o t t e r temperatures from  l a t e August  and mid  September,  causing  poor  fruit  colouring  c o n d i t i o n s . A grower p r o d u c i n g a poorer c o l o u r i n g s t r a i n on a vintage  t r e e may  r e c e i v e a poorer packout compared t o a grower  growing the same type of t r e e i n a r e g i o n which has a 31  climate  which i s more conducive  to b e t t e r c o l o u r i n g c o n d i t i o n s .  R e g i o n a l d i f f e r e n c e s i n farmer exist larger  (see Appendix group  D) .  age and e d u c a t i o n l e v e l s  The more  southern  o f younger, more educated  r e g i o n s i n the n o r t h .  regions  growers  than  also  have a do the  Older o r l e s s educated growers a r e l e s s  apt t o take on r i s k by r e p l a n t i n g orchards, and i n p a r t i c u l a r , r e p l a n t i n g u s i n g new technology i n the form o f h i g h e r d e n s i t i e s and new v a r i e t i e s .  32  Chapter 2  L i t e r a t u r e Review  T h i s chapter covers a s e l e c t i o n of the l i t e r a t u r e w r i t t e n on the  s u b j e c t of  supply  response  modelling.  Supply  response  m o d e l l i n g i s a contemporary method of econometric m o d e l l i n g of farmers'  behaviours  perennial crops.  surrounding  the p l a n t i n g  and  removal  Other methods can and have been used t o model  these b e h a v i o u r s . Some are w e l l out of the scope of t h i s (eg Knapp and Kazim 1991,  and Kalaitsandonakes and  2.1  such as  study  Shonkwiler  1992), w h i l e o t h e r s appear too s i m p l i s t i c and do not u s e f u l elements  of  generate  elasticities.  Past Endeavors  Supply response l i t e r a t u r e dates back to French and B r e s s l e r ' s work of 1962 crops  including  peaches, papers  (see 2.1.1) and covers a v a s t a r r a y of p e r e n n i a l  apples  lemons, and  tea, rubber,  asparagus.  coffee,  It i s a  selection  t h a t o f f e r s background to the proposed  i s examined i n t h i s chapter.  33  raisin  grapes, of  these  t h e s i s work and  2.1.1  French and B r e s s l e r  M o d e l l i n g of p e r e n n i a l crop  supply response  has  i t s economic  r o o t s embedded i n work c a r r i e d out by French and B r e s s l e r w i t h their  Nerlov  Type  Model  of  the  (French and B r e s s l e r , 1962) .  California  Lemon  Industry  T h i s model, simple by comparison  to modern essays, serves as the b u i l d i n g b l o c k f o r contemporary work.  It  examines  the  long  run  profitability  of  lemon  p r o d u c t i o n , t r e e ages, and a l t e r n a t i v e c r o p s .  Nt/B,,.! = S  0  + SJTYi + S n\ -i + * a  ft  3  (A°t-i/B -i> t  where: N B 11%.! n _ use A t  = = = =  t  t  e  t  x  Area p l a n t e d B e a r i n g area Long run p r o f i t e x p e c t a t i o n s f o r lemons Long run p r o f i t e x p e c t a t i o n s f o r a l t e r n a t i v e l a n d  = Area of t r e e s w i t h d e c l i n i n g p r o d u c t i v i t y = Time p e r i o d  0  French  and  Bressler  felt  that  the  ratio  o r c h a r d to b e a r i n g o r c h a r d was  determined  run  and  profitability  previous  season,  of and  lemons the  amount  of  lemon  by the expected  alternative of  planted  orchard  crops with  in  long the  declining  profitability.  In  essence,  this  work  takes 34  into  account  important  h o r t i c u l t u r a l economic c o n s i d e r a t i o n s which t a i l o r the p l a n t i n g of new lemon o r c h a r d s . crops  Bear i n mind t h a t growers of p e r e n n i a l  ( i n t h i s case, lemons) need a c e r t a i n amount o f b e a r i n g  acreage However,  to  generate  lemon  revenues  as  a  component  trees decline i n p r o f i t a b i l i t y  to  profits.  with  age (or  v i n t a g e ) and the area of d e c l i n i n g p r o d u c t i v i t y has a d i r e c t bearing  on  the  expectations  profitability  o f lemon p r o f i t s  p l a n t i n g of lemons.  of  lemon  production.  have a d i r e c t  The  bearing  on the  T h i s i s not n e c e s s a r i l y a d i r e c t  profit  shown i n the p e r i o d i n q u e s t i o n , but the net p r e s e n t v a l u e o f the stream of p r o f i t s i n the l i f e of the t r e e .  In a d d i t i o n , as  w i t h any p r o f i t maximizing d e c i s i o n , a l t e r n a t i v e crops must be included  i n the model  to  express  opportunities f o r other  ventures.  The  expected  profit  i s actually  a  running  average o f the  p r o f i t a b i l i t y i n the p r e v i o u s 5 y e a r s , i e :  t-5  n.% =  (1/5) E  n  ±  i =t-l  Removals are expressed i n another l i n e a r  R /B t  t  = oc + 0  approximation:  oc (A° /B ) + oc (A /B ) u  +  2  where:  35  t  t  3  t  t  R n A  = Area lemon o r c h a r d removed = Expected short-term p r o f i t a b i l i t y = Area removed to accommodate f o r urban  t s t u t  expansion  T h i s l i n e a r approximation accounts f o r the removal of t r e e s due to t h e i r v i n t a g e and a l s o a l l o w s f o r the removal due pressure.  During  expansion  onto  the  i n the model.  physical  variable  and  in  the  significant  U n f o r t u n a t e l y , i t was not  as  an  model, and  had  urban to  be  i n c l u d e d as  economic v a r i a b l e  a  (ie land  U s i n g l a n d as a r e n t a l v a r i a b l e would have a l l o w e d the  authors  to examine l a n d  showing how  2.1.2  examined  lemon orchards was  included  rent).  years  to urban  r e n t when c a l c u l a t i n g  changes i n l a n d r e n t a f f e c t e d  elasticities,  removals.  French and Mathews  L a t e r , French and Mathews extend the o r i g i n a l work c a r r i e d out by  French  Mathews, period  and  Bressler  1971) .  on  T h i s work  experienced  by  work w i t h  asparagus  identifies  perennial  crops,  the the  (French  extended long  and  output  gestation  p e r i o d and the g r a d u a l d e t e r i o r a t i o n of p r o d u c t i v i t y .  French  and Mathews go on to say that growers have a l o n g - r u n  normal  p r o f i t per u n i t of output i n mind.  T h i s normal or e q u i l i b r i u m  r a t e of p r o f i t a b i l i t y covers a l l c o s t s p l u s normal p r o f i t s . In a d d i t i o n to t h i s e q u i l i b r i u m p r o f i t , growers form long-run p r o f i t  e x p e c t a t i o n s , based  y e a r s p r i c e s and y i e l d s .  Keeping  on  the  conditional  expected c u r r e n t  these two elements  i n mind,  the grower w i l l a d j u s t output a c c o r d i n g l y , i n o r d e r to a c h i e v e 36  a normal o r e q u i l i b r i u m r a t e o f p r o f i t a b i l i t y .  Producers a r e aware o f o t h e r farmers' r e a c t i o n s t o p r i c e s and output.  This  develops  a  notion  (although  not n e c e s s a r i l y  c o r r e c t ) w i t h each grower, o f the t o t a l change i n p r o d u c t i o n t o be expected w i t h any change the farmer may make and the e f f e c t of t o t a l p r o d u c t i o n changes a f f e c t i n g p r i c e s and p r o f i t a b i l i t y . These p r o f i t  maximizing  production  will  conditional  and normal p r o f i t ,  years  prices  be  concepts  altered  and y i e l d s  determine  f o r any  how much deviation  which would occur  differ  from  what  a  desired between  i f current  grower  would  c o n s i d e r a normal y e a r .  Q* = Q\-i + b n ( n t  e t  - n\) + b ( i r 12  At  - n* ) + At  M l t  where: Q* Q . n n* n H* t  e  b  e  t  t  e  A t  At  Li  lt  The  x  = = = = = = =  D e s i r e d output i n p e r i o d t Expected average p r o d u c t i o n i n the p r e v i o u s p e r i o d Long r u n p r o f i t a s s o c i a t e d w i t h 0%.! Normal l o n g r u n p r o f i t f o r the commodity o f concern Long run p r o f i t f o r the a l t e r n a t i v e l a n d use Normal l o n g r u n p r o f i t f o r a l t e r n a t i v e l a n d use D i s t u r b a n c e term  linear  approximation which d e s c r i b e s the output  suggests  t h a t the c u r r e n t y e a r ' s d e s i r e d p r o d u c t i o n (which s e r v e s as an element o f t h a t y e a r ' s c o n d i t i o n a l p r o f i t ) expected  output  i s a function of  i n the p r e v i o u s season and a f u n c t i o n o f the 37  d i f f e r e n c e between the expected and c o n d i t i o n a l p r o f i t f o r the crop  under  review  expectation  of  and  alterative  long run p r o f i t s  crops.  relative  Changes to normal  in  the  long  run  p r i c e s w i l l change the output of the crop.  L a t e r , the expected p r o f i t of the a l t e r n a t i v e crops was i n t o the d i s t u r b a n c e term due proper  alternative  f e l t t h e r e was  crop.  to the i n a b i l i t y  T h i s was  placed  to i d e n t i f y  done because  the  a  authors  too wide a range of a l t e r n a t i v e c r o p s .  Even i f  they c o u l d p r o p e r l y i d e n t i f y these crops, they would  probably  not have had  Dividing  s u f f i c i e n t degrees of freedom to model them.  the  above equation by  the  expected  yield  gives  the  bearing area. Note:  t-i  t-i +-b.n ( n  e  t  - n* )  + b  t  Y\  Y  1 2  (n  e  A t  - n* )  t  or: B*  t  = BYi + s (n\ 3  - n* ) t  where: —  ye I  t  -  ye  X ,t - 1  38  +s (n 4  e  A t  At  Y\  e  - n* ) At  + s gY% 5  + ^it  From t h i s , d e s i r e d new p l a n t i n g s a r e d e r i v e d : N* = B* t  -  t+k  + R  - Nfc.t.!  e k<t  where: N* k R Nfc,..! t  e  k t  = = = =  A c r e s o f d e s i r e d new p l a n t i n g s Time needed t o b r i n g p l a n t s i n t o b e a r i n g Area expected t o be removed d u r i n g the next k y e a r s T o t a l area p l a n t e d a f t e r year t-k-1  T h i s i s the amount o f new p l a n t i n g s a grower would contend w i t h i n order (N ) t  t o achieve a normal p r o f i t .  The a c t u a l new p l a n t i n g  i s a f u n c t i o n o f the c o n d i t i o n a l new p l a n t i n g s i n the same  p e r i o d and the p r e v i o u s  N  t  period:  = ocN* + " S ( l - c c ) N , t  t  1  +e  t  where: oc fi  = C o e f f i c i e n t o f adjustment and 0«x^l = A term i n t r o d u c e d t o a l l o w f o r some dampening o f r e s i d u a l e f f e c t s o f u n a t t a i n e d p a s t d e s i r e d p l a n t i n g s and  0<&<1  I f E=l then the Nerlove type adjustment i s expressed where new p l a n t i n g s a r e p a r t i a l l y based on a lagged e f f e c t o f p r i c e s . I f S=0 then the d e c i s i o n t o p l a n t i s s o l e l y based on e x p e c t a t i o n s of  prices  decisions  i n that  p a r t i c u l a r period.  to replant  must  be made  F o r 6 t o equal immediately.  n u r s e r y stock, l a n d and other resources, be r e a d i l y a v a i l a b l e . rarely  happens.  zero,  That i s ,  i n c l u d i n g c a p i t a l must  In the case o f h o r t i c u l t u r a l crops t h i s  F o r example,  i t i s normal  that  nursery or  p l a n t i n g stock must be ordered one t o three y e a r s i n advance. French and Matthew's argue that £ can be zero 39  i f the p l a n t i n g  p e r i o d i s d e f i n e d i n the same p e r i o d as when r e s o u r c e s , such as n u r s e r y stock, a r e ordered.  i s the case, and & = 0  If this  then the new p l a n t i n g equation can be d e f i n e d a s :  N  =  t  + b  b ( n % - n* ) +b (n 5 1  t  52  e At  - n* ) At  gY% +b A° _i - b ^ N ^ ^ +b A _ /x  5 3  S4  t  56  t  1+  5t  Removals:  Removals  a r e expected  to occur  on  blocks  with  declining  p r o d u c t i v i t y , but a r e a l s o a f u n c t i o n o f o t h e r f a c t o r s such as (1) i n s t i t u t i o n a l and p h y s i c a l f a c t o r s such as urban or w i n t e r i n j u r y , short  expansion  (2) s h o r t run p r o f i t e x p e c t a t i o n s , s i n c e h i g h  run p r o f i t  e x p e c t a t i o n s may  defer  removals  and  visa  v e r s a , and (3) other random f a c t o r s a s s o c i a t e d w i t h p r o d u c e r s ' p l a n s and a c t i o n s .  R  French and Mathews d e s c r i b e d removals a s :  = b  t  + b A °(n 63  t  + b A ° + b A °(n  6 0  61  8 At  t  62  t  - n* ) + b z At  6 4  t  a t  - n *) t  + b A 65  t  + n  t  where: R A° n t  t  t  n  s  n *, n* t  A t  At  = Acreage removed a t the end o f p e r i o d t = Acreage o l d e r than a p a r t i c u l a r age i n y e a r t = Short run p r o f i t e x p e c t a t i o n s p e r u n i t o f p r o d u c t h e l d i n year t o r year t+1 = Short run p r o f i t e x p e c t a t i o n s p e r u n i t o f product h e l d i n year t f o r the a l t e r n a t i v e l a n d use i n p e r i o d t+1 = Long run normal p r o f i t a b i l i t y p e r u n i t o f product as o f year t 40  Z  = V a r i a b l e to account f o r i n s t i t u t i o n a l or p h y s i c a l f a c t o r s of importance = Bearing acreage i n t = D i s t u r b a n c e term  t  A fj. t  t  It  was  felt  by  the  authors  that  A °, t  i f i t were  relatively  l a r g e , would be roughly p r o p o r t i o n a l to acres removed, i n t h a t growers  are  always  productivity.  apt  to  remove  in  with  declining  I f A ° were r e l a t i v e l y small i t would have  short  run  profit  e f f e c t on removals due  the authors b e l i e v e d t h a t  expectations  would  to the long g e s t a t i o n  t h a t as acreage  i t s r e s u l t i n g supply) i n c r e a s e s ,  (and  a l t e r n a t i v e crops  declining Conversely,  blocks a  look  rise,  priori  and b  63  favourable. removals  expectations  are  are p o s i t i v e , i n  65  As  would that  little  period.  are that b , 61  b ,  have  A p r i o r i expectations  for  little  t  e f f e c t on normal removals. Obviously, changes  blocks  the be b  62  profits  acreage  of  intensified. is  negative,  because removals would be d e f e r r e d i f s h o r t run p r o f i t s  looked  attractive.  2.1.3  Jaramillo  J a r a m i l l o expands on French and Mathews work i n a study of Columbian c o f f e e i n d u s t r y .  J a r a m i l l o separates new  the  plantings,  r e p l a n t i n g , removals and stumping of e x i s t i n g c o f f e e p l a n t i n g s . He  identifies  institutional  constraints 41  such  as  a  land  constraint  and  technologies expected  incorporates  into  prices  the and  different  model.  This  wages.  In  coffee  work uses  addition,  a  the  growing notion  variable  of  which  examines the presence of s u b s i d i z e d c r e d i t i s i n c l u d e d i n  the  work.  In t h i s model's b a s i c form, the author d e s c r i b e s of  whether  present  the  farmer w i l l  replant  v a l u e of revenues and  j VC IC r t  d t j  The  t  = = = = =  comparison  Ed+rJ"' {lC t  J  where:  a  decision of  net  costs:  E d + r t ) ' - ' {P Q t> t  t  as  the  j  + Q VC }, j  t  j  t  t  M a r g i n a l technology Variable costs Investment c o s t s Interest rate Time p e r i o d  o b j e c t i v e of the c o f f e e grower i s to maximize p r o f i t s .  such, the grower w i l l  i n v e s t i n a new  positive  value  net  present  revenue and c o s t s .  based  p l a n t i n g i f there  on  a  stream  of  As  is a  expected  In the same manner, the grower w i l l examine  an e x i s t i n g b l o c k of c o f f e e t r e e s and determine i f i t i s b e t t e r to remove the t r e e s s i n c e there i s no f o r e s e e a b l e p r o f i t i n the block.  Prices  come i n t o d i r e c t  grower's  ability  to  play  with  forecast 42  into  such an the  equation  future  is  since  a  strongly  weighted by  the  current  price structure.  p e r i o d s where p r i c e s are low may that  a new  block  block  may  not  be  A  s e r i e s of  spark the grower i n t o f e e l i n g  a p r o f i t a b l e venture,  or an  (with lower y i e l d s or h i g h v a r i a b l e c o s t s ) may  good c u r r e n t investment.  Low  time  old  not be  p r i c e s would, i n p a r t , encourage  the development of a s i t u a t i o n where r e p l a n t i n g i s lower removals are  a  and  increased.  J a r a m i l l o a l s o notes t h a t Columbian growers produce c o f f e e w i t h a land constraint. no new in  T h i s c o n s t r a i n t i s i n p l a c e s i n c e there i s  or unused l a n d which i s s u i t a b l e f o r c o f f e e  the  country.  examine  blocks  present  values  This  land  within  the  constraint orchard  compete a g a i n s t  forces  to  have  each other  the  the  production grower  block's  f o r the use  of  to net the  land, i e  Ed+r,)"' { P Q ° t t  t  - IC  c  - VC J C  t  >  H{l+r )- {P Q\ t  t  b  t  - IC  T  - VC J T  t  where: c and T r e p r e s e n t  two  types of technology  In t h i s p a r t i c u l a r s i t u a t i o n , the grower must decide whether to use  technology c or  T,  or whether to r e p l a n t  at a l l .  This  s i t u a t i o n i s analogous to t h a t faced by growers i n the Okanagan when  considering  replanting  to  different  varieties.  Like  c o f f e e growers, Okanagan o r c h a r d i s t s must decide what v a r i e t y 43  of a p p l e s to p l a n t , or whether to r e p l a n t a t a l l .  The  binding  area  constraint  also  forces  immediately r e p l a n t f o l l o w i n g a removal. the d i s c o u n t e d  grower  to  In such a s i t u a t i o n ,  marginal revenue product of c a p i t a l of the  planting  must  planting  as  counter  well  production.  the  as  balance the  the  costs  opportunity  of  cost  new  removing  of  the  and  removed  In the long run i t can be assumed t h a t t h i s  type  of c o f f e e grower would o n l y remove o l d e r t r e e s w i t h d e c l i n i n g profitability.  In the  will  a  lead  opportunity  to cost  short  run,  postponement of  keeping  increases of  the  replanting,  block  stream of f u t u r e p r o f i t s of the new  i n coffee  prices  where  i s greater  the  than  block.  In a d d i t i o n , there are no a l t e r n a t i v e uses f o r the l a n d than f o r c o f f e e p r o d u c t i o n . the  production  The  topography of the l a n d  of a l t e r n a t i v e crops to  that  crops d e s t i n e d  for local  consumption.  From t h i s ,  concludes  a  solution exists  that  corner  produce c o f f e e or nothing  In  Jaramillo's  coffee  theory  grower w i t h  of  and  In  a  will  chapter,  Jaramillo  a p l a n t i n g which  change optimal  situation  where  an  a  other limits  few  minor  Jaramillo  grower  will  at a l l .  points  i s of  the  out  relatively  v i n t a g e w i l l not remove t r e e s i f p r i c e s d e c l i n e . operator  the  44  stock  is  a  young  Instead,  i n p u t s of f e r t i l i z e r and tree  that  the  labour.  declining  in  productivity  due  to  replanting.  This  age,  infers,  drops as  in  was  prices  pointed  will  out  result  by  French  B r e s s l e r ' s model, that the amount of d e c l i n i n g acreage be  included  as  a  p e r e n n i a l crops,  2.1.4  variable  when  s i n c e i t has  H a r t l e y , Nerlove and  modelling  a bearing  on  in and  should  replanting  of  removals.  Peters  In t h i s contemporary work, the authors examine the S r i Lankan rubber  industry.  There  r e p l a n t i n g and new  are  two  separate  equations  p l a n t i n g s of rubber e s t a t e s .  New  are those t h a t have come from a l t e r n a t i v e crops. are a f u n c t i o n of e x p e c t a t i o n s the v i n t a g e  H a r t l e y , Nerlove and  Peters'  plantings  Replantings  of p r i c e s , wages, s u b s i d i e s  of e x i s t i n g t r e e s .  for  and  5  r e p l a n t i n g equation i s  described  below.  R  t  where: R = P = P _! = w = S = AGE = t  t  e  t  t  t  t  = oc + 0  a i  (P  t  - P"^)  + oc P% + oc w + oc S + oc AGE + fi 2  3  t  4  t  5  t  t  Acres r e p l a n t e d i n p e r i o d t Current p r i c e s and near term e x p e c t a t i o n s i n p e r i o d t Longer term p r i c e e x p e c t a t i o n s i n p e r i o d t-1 Wages i n p e r i o d t Subsidies i n period t V i n t a g e of e x i s t i n g t r e e s  I t i s important to note t h a t the farms m o d e l l e d by H a r t l e y , N e r l o v e , and P e t e r s are c o n s t r a i n e d by the a v a i l a b l e l a n d space and p l a n t i n g s can o n l y o c c u r i f removals are preceded. 5  45  Growers w i l l compare c u r r e n t p r i c e s and near-term  expectations  P  i n order  t  with  longer-term  expectations  of  prices P  e t  to  d e c i d e whether to uproot and r e p l a n t a g i v e n stand. Near-term p r i c e e x p e c t a t i o n s are those they expect time The  a newly r e p l a n t e d stand begins higher  the  current  prices  to r e c e i v e up to the  to y i e l d  and  significantly.  near-term  expectations  r e l a t i v e to the normal p r i c e s , the l e s s r e p l a n t i n g w i l l Of course,  occur.  the r e v e r s e i s t r u e when c u r r e n t p r i c e s and  near-  term e x p e c t a t i o n s are low r e l a t i v e to normal p r i c e s . T h i s type of behaviour are no new  i s a r e s u l t of a l a n d c o n s t r a i n t , i n t h a t t h e r e  acres to expand onto and growers must uproot p l a n t s  b e f o r e r e p l a n t i n g can take p l a c e .  The  authors  found  modelling  the  age  spectrum  a  difficult  v a r i a b l e to accommodate without s a c r i f i c i n g degrees of freedom. Taking  this  modelled years  into  account,  likewise.  and  trees  More s p e c i f i c a l l y  aged  separate v a r i a b l e s .  t r e e s were c l a s s i f i e d  35  to  40  years  by  age  a c r e s of t r e e s over were  i n c l u d e d as  I t i s a n t i c i p a t e d t h a t t r e e s i n these  and 40 two age  b r a c k e t s would p r o b a b l y be d e c l i n i n g i n p r o f i t a b i l i t y and would be s l a t e d f o r r e n o v a t i o n b e f o r e t r e e s of a l e s s e r v i n t a g e .  New  p l a n t i n g s were modelled  in a different  assumed t h a t f o r growers to be  format.  It  encouraged to p l a n t rubber  was on  l a n d d e d i c a t e d to o t h e r crops they would need to examine rubber yields,  and  c u r r e n t and  expected 46  p r i c e s and  wages.  This i s  different now  than the r e p l a n t i n g equation, i n t h a t growers would  have to a n t i c i p a t e y i e l d s , p r i c e s and wages s i n c e t h e r e  no c r o p p i n g h i s t o r y to f o l l o w . to  In a d d i t i o n ,  c o n s i d e r a v i n t a g e aspect of e x i s t i n g  N  = e  0  t  + e Q\ ±  + e p\ 2  + ew + e 3  t  was  there i s no need  trees.  t  where: N  = Newly p l a n t e d acreage  t  Q*  t  i n year t  = P o t e n t i a l output i n year t  The authors f e l t the e s t i m a t i o n r e s u l t s from t h i s e q u a t i o n were not e m p i r i c a l l y good s i n c e l i t t l e new p l a n t i n g s o c c u r r e d i n the estimation period.  Aside the  from new  the data d i f f i c u l t i e s  planting  r e p l a n t i n g equation.  equation  i n m o d e l l i n g new  differs  considerably  plantings, from  the  While both models i n c l u d e expected p r i c e s  and wages, the new p l a n t i n g equation c o n s i d e r s p o t e n t i a l output and has  little  r e g a r d f o r the p r o f i t s of e x i s t i n g c r o p s .  The  r e p l a n t i n g equation does not c o n s i d e r p o t e n t i a l output but does account f o r the p r o f i t a b i l i t y of e x i s t i n g o r c h a r d ( e x p l a i n e d i n the AGE  v a r i a b l e ) and the l e v e l of s u b s i d i e s .  47  2.1.5  Zvi Griliches  In t h i s paper, the author works w i t h an annual crop, the  lag  States  i n uptake from  1932  of to  hybrid 1956.  corn Both  technology logistics  in  explaining the  United  correlation  and  m u l t i p l e r e g r e s s i o n techniques were used to e x p l a i n  different  aspects  sectional  of  the  corn  producing  industry  grower responses to p r o f i t a b i l i t y .  The  and  cross  author worked a t both  the s t a t e and d i s t r i c t l e v e l , running separate c o r r e l a t i o n s and r e g r e s s i o n s f o r both. Observations i l l u s t r a t e t h a t s t a t e s , l i k e Iowa, were more p r o g r e s s i v e and adopted h y b r i d corn  production  f a s t e r than s t a t e s such as Texas and Alabama.  P a r t of the d i f f i c u l t y of adapting h y b r i d corn i s t h a t there i s no one h y b r i d l i n e that can be p l a n t e d i n a l l r e g i o n s and can  show improved y i e l d s .  districts  must  introduced. lines,  The  be  Instead,  developed,  Farmers may  be  s i n c e the l i n e s may  author  district  illustrated  was  dependent  hybrid lines for s p e c i f i c tested  apprehensive  and to  commercially plant  not be as p r o d u c t i v e  that  the  upon  rate  farm  of  as  unproved  expected.  adaption  structure  the use  of h y b r i d s  e a r l y , and  h y b r i d corn used.  48  the  genetic  of  (farm  importance of corn p r o d u c t i o n ) , whether the r e g i o n had to  that  make up  each size,  adopted of  the  Table  2.1  C o r r e l a t i o n C o e f f i c i e n t s on the Crop R e p o r t i n g D i s t r i c t L e v e l N = 31  x  b  3  .35 .52  X  Xio  4  - .62 - .89 .82 .77 .55 - .39 .46 .28 - .36 .68 - .51 - .79  where: Y = X  ±  Date of O r i g i n . The date an area reached 10 per cent c o r n acreage p l a n t e d to h y b r i d c o r n .  = Market D e n s i t y . For s t a t e s : average c o r n acreage 1937-46 times the maximum percentage of l a n d which can i s s u i t a b l e to h y b r i d corn p l a n t i n g ( r e f e r r e d to as K by the a u t h o r ) , d i v i d e d by l a n d i n farms i n 1945. S i m i l a r f o r crop r e p o r t i n g d i s t r i c t s but averaged over d i f f e r e n t p e r i o d s , depending on the a v a i l a b i l i t y of d a t a .  b =  The s l o p e of the l o g i s t i c transform. A measure of expected r a t e of acceptance i n d i f f e r e n t areas  X  "Corn B e l t i n e s s " The p r o p o r t i o n of a l l i n b r e d l i n e s accounted by "Corn B e l t " l i n e s i n the p e d i g r e e s of recommended h y b r i d s by areas.  4  =  X = 10  the  E a r l i e s t date of o r i g i n i n the immediate neighbourhood.  The development of h y b r i d s began i n the h e a r t of the Corn B e l t and size  spread of  towards the  a market  fringes.  T h i s was  for a particular  p a r t l y due  h y b r i d and  the  to  the  marketing  c o s t s of d e v e l o p i n g s a l e s f o r a g i v e n a r e a .  Areas i n the Corn B e l t were more apt to d e d i c a t e more s p e c i f i c resources  on  research  and  development 49  towards  hybrid  corn  development s i n c e the economies of those reliant fringe  on  the corn i n d u s t r y .  In c o n t r a s t , farm  areas were o f t e n c o n s i d e r e d  producing  areas,  and  the  r e g i o n s were h i g h l y  true  l a n d i n the  to be more m a r g i n a l  economic  benefits  of  corn corn  p r o d u c t i o n would never be a t t a i n e d even i f a "good" s t r a i n  was  developed.  In some cases, the author e x p l a i n e d t h a t a farmer i n a m a r g i n a l corn  area  may  have  little  or  no  animal  production.  p r o d u c t i o n may be f o r human consumption, feed f o r d r a f t or  for a  producing  few  chickens.  The  farmer  a s e t amount of corn to f i l l  is  interested  Corn animals  in  only  those needs, and o f t e n  i t i s produced on the poorest land, u s i n g l e f t - o v e r r e s o u r c e s , or on i d l e  land.  Producing more corn v i a the use  of h y b r i d s  would not be i n the farmers' economic i n t e r e s t .  In a s i d e note,  the author says t h a t r e g i o n a l d i f f e r e n c e s are  not o f t e n c l e a r cut and are not f u l l y d e s c r i b e d by a h a n d f u l of variables.  He  sociological  variables  technology.  It  acceptance  goes  on  to  have  say an  is difficult  of h y b r i d corn  in  impact  to  in a  that  the  on  separate  "poor c o r n  short  the  uptake  whether  the  area" was  run, of slow  due  to  "poor people" or o t h e r economic f a c t o r s .  It  can  be  expected  t h a t the  hybrid corn industry w i l l  regional effects  offer 50  d e s c r i b i n g the  some e x p l a n a t i o n of r e g i o n a l  d i f f e r e n c e s i n the apple i n d u s t r y of B r i t i s h Columbia.  There  are poor apple growing areas and v a r i a b i l i t y i n the competence of  apple  orchardists;  this  will  offer  some  e x p l a n a t i o n of  d i f f e r e n c e s i n r e p l a n t i n g behaviour.  Zvi  Griliches  author b r i n g s the element of r i s k  t h a t a f f e c t farmers' p e r c e p t i o n s of r i s k . importance of c o r n as a crop and how  and  factors  Corn B e l t i n e s s ,  the  such elements a f f e c t e d the  r a t e of acceptance of h y b r i d c o r n i n any r e g i o n , were i n c l u d e d as v a r i a b l e s i n the model. apple produces  L i k e the a d a p t i o n of h y b r i d corn,  i n the Southern  Interior  of B r i t i s h  Columbia  experience d i f f e r e n c e s i n t h e i r r a t e s of r e p l a n t i n g and r a t e of a d o p t i o n to new  2.2  varieties.  Other Approaches  A l l of the models examined i n t h i s chapter use an approach  to m o d e l l i n g supply response.  Knapp and 1992, to  their  Konyar 1991,  and  Kalaitsandonakes  use a Kalman F i l t e r approach  modelling  underlying differs  supply  response  assumptions  from  econometric  w i l l not be used i n t h i s  Two  in  and  approach  crops.  this  of  type  by  Shonkwiler  perennial  supply response  51  modern essays  and a State-Space  surrounding  thesis.  econometric  The  modelling  m o d e l l i n g , hence i t  2.3 F i n a l Comments  In a d d i t i o n t o these papers, there use  econometric  supply  a r e many o t h e r papers  response  modelling  methods.  papers i n c l u d e many o f the same models d e s c r i b e d examined  in  supporting  this  chapter.  Note  that  that These  i n the works  while  the  theory  these models i s w e l l developed, data can become a  l i m i t i n g f a c t o r i n the s o p h i s t i c a t i o n of the models.  As such  some authors (eg French and Mathews) have t o r e s o r t t o u s i n g an assumption surrounding a c e r t a i n a c t i o n i n s t e a d o f b e i n g to model a c t i v i t i e s u s i n g assumed there time  evidence.  These authors  t o be no adjustment p e r i o d r e q u i r e d between the  the d e c i s i o n  occurs.  empirical  able  to replant  i s made  and the time  planting  There a r e no good data a v a i l a b l e to make an e m p i r i c a l  estimation  and a reasonable assumption was made.  T h i s i s not  to say t h a t models should be o v e r l y c o m p l i c a t e d when i n f a c t a s i t u a t i o n i s simple o r degrees o f freedom a r e l i m i t e d .  These works o f f e r i n s i g h t i n t o the development o f a r e p l a n t i n g model f o r a p p l e s . and  Independent v a r i a b l e s should i n c l u d e  c o s t s due t o economic theory but h o r t i c u l t u r a l c o n d i t i o n s  should d i c t a t e the s t r u c t u r e of v a r i a b l e s such as t r e e and that  prices  w i n t e r i n j u r y i n t o account. exist  regionality variables.  i n the Southern should  be  Due t o r e g i o n a l  Interior  accounted  of B r i t i s h  for i n  the  vintage  differences Columbia, independent  Grants o r s u b s i d i e s were important i n J a r a m i l l o ' s 52  work and  they, too, p l a y a r o l e i n t h i s  thesis.  I t i s f a v o u r a b l e to use data a t a l e v e l which compliments s t r u c t u r e of the i n d u s t r y b e i n g examined, but data can  o f t e n make  this  a  luxury.  Most  of  the  the  limitations  papers  in  the  l i t e r a t u r e use data t h a t are h i g h l y aggregated and nuances t h a t occur  at  less  aggregated  levels  are  often  missed  in  the  m o d e l l i n g p r o c e s s , even though they c o n t r i b u t e g r e a t l y to the overall  behaviour  being  modelled.  By  accounting  for  these  v a r i a b l e s i n s t e a d of d i s m i s s i n g them i n the d i s t u r b a n c e term, confidence arising  i n the model i s enhanced and  from  supply  response  modelling  i n d u s t r y and the a g r i c u l t u r a l community. the r e g i o n a l behaviours  agricultural better  policy  serves  the  An example would be  of Z v i G r i l i c h e s ' work  and how  they  became woven i n t o a model to c r e a t e a b e t t e r understanding the s u b j e c t s a t hand.  53  of  Chapter 3  In  this  Theory  chapter,  a  theoretical  d e s c r i b e d and p r e s e n t e d . t h e o r y which  supply  model  is  The model w i l l examine the economic  surrounds the p l a n t i n g of apple o r c h a r d s i n the  Southern I n t e r i o r of B r i t i s h Columbia. to d e s c r i b e the p l a n t i n g of new apples.  response  Plantings  are  and  broken  Two  equations a r e used  traditional varieties  into  those  of  of  traditional  v a r i e t i e s (eg Mcintosh and Red D e l i c i o u s ) and new v a r i e t i e s (eg Gala and J o n a g o l d ) .  A t h i r d equation i s used to d e s c r i b e the  removals of t r a d i t i o n a l  varieties.  M o d e l l i n g i s c a r r i e d out on an annual r e g i o n a l l e v e l .  There  are b e h a v i o r a l d i f f e r e n c e s that occur i n the r e g i o n s d e s c r i b e d and  i t i s best  dependent  to  account  for  these  differences  in  v a r i a b l e s r a t h e r than i n the d i s t u r b a n c e term.  the Some  reasons f o r these r e g i o n a l d i f f e r e n c e s have been mentioned Chapter there  1 are  and  c e n t r e around  regional  climatic  demographic  differences;  differences  themselves, as i l l u s t r a t e d i n Appendix D. available  to  demographical collected  from  account  for  differences the  annual will  empirical  model  however, farmers  Because d a t a a r e not  changes  be  among  in  in  demographics,  explained using itself.  The  numbers regional  c o e f f i c i e n t v a l u e s are compared to age and e d u c a t i o n d a t a f o r 54  the  specified  regions,  i n a line  graph,  showing  generalized  trends.  3.1  The Investment  Portfolio  An o r c h a r d i s t owns an mixture of investments c o n t a i n i n g b l o c k s of  apple  varieties  commodities, apricots.  such  and as  pears,  The p r o f i t  his/her  investment  block's  profits  ( i n some  cases)  sweet  maximizing  other  cherries,  relative  If  and  examines  the i n d i v i d u a l  to  B l o c k s r e t u r n i n g a n e g a t i v e p r o f i t would need  fruit  peaches,  grower c o n s t a n t l y  i n each b l o c k to see how  a r e performing  tree  alternatives. t o be removed.  t h e r e i s a p r o f i t a b l e use f o r the l a n d once the t r e e s a r e  removed,  i e : replanting  to  apples,  another  tree  fruit  commodity, o r another crop, then those l a n d uses w i l l  occur.  I f the farmer cannot f o r e s e e a p r o f i t a b l e use f o r the l a n d , i t would remain vacant.  Apples  are a  decisions  perennial  have a b u i l t  crop  and by  i n time  factor.  this  nature  Apple  trees  y i e l d t h e i r l i f e ' s p r o f i t i n the year o f p l a n t i n g .  growers' do n o t  Trees take  time come i n t o b e a r i n g and once i n b e a r i n g they w i l l y i e l d a stream o f p r o f i t a b l e  crops over a s u c c e s s i o n o f y e a r s ,  decades.  i t . i s necessary to a p p r e c i a t e t h a t the  From t h i s ,  grower must  see p r o f i t s  i n the form 55  even  of a n e t p r e s e n t v a l u e  i n s t e a d of a p r o f i t i n any  single period.  3.2  Production  Any  p r o f i t s d e r i v e d from growing f r u i t w i l l r e q u i r e  levels  of  Inputs  investments  or  inputs.  In  the  different  t h e o r e t i c a l model,  p r o f i t w i l l depend on three i n p u t s c a t e g o r i e s : v a r i a b l e i n p u t s , c a p i t a l investment i n p u t s , and  3.2.1  land.  V a r i a b l e Inputs  V a r i a b l e i n p u t s f o r the most p a r t are i n p u t s the grower needs to produce the c u r r e n t year's crop. They i n c l u d e items such as harvest  labour,  chemicals and  f e r t i l i z e r s but  do  not  include  items t h a t would be used to generate a f u t u r e crop, such as  new  trees.  3.2.2  C a p i t a l Investment  Capital  investment  inputs  expected p r o f i t s and  are  are  items used  to generate  items which must be  time.  These items are  trees.  Input items here would i n c l u d e labour  establishing support and  soil  of a new  blocks),  (trellising)  associated  new  trees,  with  discounted  v a r i e t y , how  to grow i t and how  of  ( f o r p l a n t i n g and  systems, l a n d c l e a r i n g and Included  over  planting a block  irrigation  fumigation.  future  systems,  tree  preparation,  i n t h i s i n p u t i s the knowledge  56  w e l l s u i t e d i t i s to  a particular  region.  c a p i t a l may  In c e r t a i n circumstances t h i s "know-how"  have u p - f r o n t c o s t s i n on-farm r e s e a r c h ,  travel  o t h e r growing r e g i o n s , e t c . , which needs to be d i s c o u n t e d time.  It  is  investment  important  i s sourced  grower's own  equity  to  from  i n the  note two  that  some  sources.  of  The  the  over  capital  first  form of p h y s i c a l c a p i t a l  is  and l a b o u r .  second  i n the  from government  sources  the  (money,  machinery e t c . ) , knowledge, management s k i l l s , i s generated  to  form  The of  subsidies.  3.2.3  The  Land  value  This  is  of  the  the  land input  opportunity  himself/herself  to  use  i s the cost  the  land  rental the  for  c o s t of  grower apple  must  be  viewed  expectations  of  as  an  the  opportunity land  cost  f o r producing  based  land. charge  production.  r e n t a l c o s t of l a n d i s not n e c e s s a r i l y a cash c o s t . may  the  on  crops.  The  Instead i t  the  growers'  The  value  of  l a n d r e n t i s what a l a n d owner would charge a farmer to r e n t l a n d t h a t would have no c a p i t a l  improvements.  3.3  Mathematics of P r o f i t Maximization  Due  to the p e r e n n i a l nature of the crop, the farmer r e a l l y sees  a sum of expected p r o f i t s d e r i v e d from h i s p o r t f o l i o of b l o c k s . Hence f o r each i n d i v i d u a l  block: 57  E (l+r)- n t  t  where: r t  Land  = = = = = = = =  t  e t  = E (l+r)- (P Q -VC -IC -Land ) t  t  e  e  t  t  e  t  t  t  Interest rate Time p e r i o d E x p e c t a t i o n s of p r o f i t s P r i c e expectations i n p e r i o d t Q u a n t i t y produced i n p e r i o d t Expected v a r i a b l e c o s t i n p e r i o d t Expected investment c o s t i n p e r i o d t Expected l a n d c o s t s i n p e r i o d t  An e x i s t i n g b l o c k w i t h an expected  negative net present  value  (as d e f i n e d by J a r a m i l l o ) would be removed. T h i s c o u l d come about through or expected  expected  low p r i c e s , e x p e c t a t i o n s o f low y i e l d s  high costs.  When a grower d e c i d e s  to replant a  b l o c k t o apples o r t o an a l t e r n a t i v e commodity, the new b l o c k must  be expected  (NPV) .  t o generate  I f the grower cannot  a positive  net present  see a p o s i t i v e  value  NPV from a new  b l o c k ( i n c l u d i n g examining an a l t e r n a t i v e crop) but a n t i c i p a t e s a n e g a t i v e NPV from the o l d b l o c k , the grower w i l l remove the o l d b l o c k and n o t f o l l o w up w i t h r e p l a n t i n g .  T h i s c o u l d occur  where l a n d r e n t a l p r i c e s a r e so h i g h t h a t they overshadow any p o t e n t i a l p r o f i t s t h a t c o u l d be r a i s e d by p l a n t i n g a p p l e s .  The  i s s u e o f l a n d i s an important  apple  orchards  i n B.C. and i s d i s c u s s e d  Introduction. experiencing willing reluctant  to  aspect o f the r e p l a n t i n g o f  Older a high renovate  to s e l l .  rate  growers, o f urban  orchards. T h i s behaviour 58  at length  especially expansion These over  in  regions  i s often  growers time  i n the  are  less often  slows down the  e n t r y and  e x i t of o l d and young farmers.  An o l d e r farmer who portfolio The  long  means  a  of  i s c l o s e to r e t i r e m e n t w i l l manage h i s / h e r  investments  differently  than a younger  gestation  period  between p l a n t i n g  retiring  farmer  may  not  fully  and  the p r o p e r t y  may  renovated o r c h a r d  l a n d and  the r i s k of such an  If  the  (or may  not) the  pay  a higher  retiring  a n t i c i p a t e d value  replant  of  the  s i n c e the p e r c e i v e d  create a negative retiring  land  s a l e s from the  3.3.1  NPV.  i s not  Land  his/her purchaser  price for  high  so  great  that  the farmer w i l l  c o s t of  l a n d r e n t would  A s i m i l a r response would occur i f the  i n t e r e s t e d i n the  o r c h a r d i s t as  profitability  of  a  nonfruit  orchard.  Constraints  i n the  Southern I n t e r i o r of B r i t i s h Columbia  constrained  by  amount of  the  apples or other  before  it  block,  Orchardists  region.  the  o r c h a r d i s t must bear  is  o r c h a r d i s t a n t i c i p a t e s the new  farmer, who  The  yield  occurrence.  overshadows expected revenue from a new not  mature  recapture  investment i n the s e l l i n g p r i c e of the orchard. of  farmer.  This  tree f r u i t s .  land  they are  able  to p l a n t  I d l e l a n d does not e x i s t i n  c o n s t r a i n t f o r c e s growers to remove  they are a b l e to p l a n t to a new 59  block.  Any new  are to any  production planting  must  be  weighed  plantings.  against  the l o s s  of production  from o l d  The grower must expect a zero o r n e g a t i v e NPV i n an  o l d b l o c k b e f o r e a new p l a n t i n g i s c o n s i d e r e d u n l e s s the NPV from the new p l a n t i n g i s g r e a t e r than  from r e t a i n i n g the o l d  planting.  If  the grower  made  the d e c i s i o n  available alternatives w i l l  to r e p l a n t ,  the NPV  compete a g a i n s t each o t h e r .  of For  example,  suppose the grower had the c h o i c e o f r e p l a n t i n g t o  Mcintosh  (a t r a d i t i o n a l v a r i e t y ) o r to Gala  The  (a new v a r i e t y ) .  grower w i t h the l a n d c o n s t r a i n t must choose one w i t h the  h i g h e s t NPV, as d e s c r i b e below:  max ( E ( l + r ) - ( P Q - V C - I C - L a n d ) } i t  t  1.  i  t  where i = Mcintosh Given t h i s ,  e  i  t  i  t  i  t  t  o r Gala V a r i e t i e s  the grower would have the f o l l o w i n g a l t e r n a t i v e s :  No r e p l a n t i n g , no change i n the ALR. yields  continue  P r i c e s and /  to d e c l i n e from v i n t a g e  blocks.  or This  would r e s u l t i n a d e c l i n e i n producing a c r e s o f apples as u n p r o f i t a b l e t r e e s a r e removed, and an e v e n t u a l d e c l i n e i n overall 2.  yields.  Same as (1) but some e x p e c t a t i o n o f the ALR b e i n g r e l a x e d . The  result  would be the same as  (1) .  Expectations of  changes i n the ALR would l e a d t o a r e d u c t i o n i n r e p l a n t i n g 60  due  t o the i n c r e a s e d o p p o r t u n i t y  cost of land.  3.  Replant t o t r a d i t i o n a l  4.  Replant t o new v a r i e t i e s .  5.  Replant t o an a l t e r n a t i v e commodity.  6.  Remove v i n t a g e  3.4  Winter  Winter  varieties.  t r e e s and h o l d  land.  Injury  i n j u r y i s the damage to t r e e s  w i n t e r temperatures. accumulate  caused by severe  cold  The damage caused by w i n t e r i n j u r y can  i n the t r e e .  That  i s , a t r e e may  be  partially  i n j u r e d and may not show economic l e v e l s o f i n j u r y u n t i l more of the t r e e i s damaged i n a subsequent p e r i o d .  I t can be expected that removals of o l d e r t r e e s a r e g r e a t e r i n periods  following a c o l d winter.  By the n a t u r e t h a t removals  occur, r e p l a n t i n g would be i n c r e a s e d  following a cold  winter.  As has been e x p l a i n e d , removals a r e d e l a y e d (lagged) due t o the physiological removals prepare  response  i s also the f i e l d  arrange f i n a n c i n g .  of the t r e e s .  required  because  f o r replanting,  The d e l a y  (lag)  the grower needs order  nursery  in  time t o  t r e e s , and  In a d d i t i o n , the p e r i o d i n which the w i n t e r  i n j u r y o c c u r r e d may be lagged one p e r i o d from r e p l a n t i n g due t o the n a t u r e o f the calender y e a r . November 1990 would be recorded 61  For example, t r e e s i n j u r e d i n as being removed and r e p l a n t e d  in April  1991.  62  Chapter 4  To  The E m p i r i c a l Model  test  the  estimated  The  theory  i n three  discussed,  replanting  Plantings of t r a d i t i o n a l  2.  P l a n t i n g s of new v a r i e t i e s ;  3.  Removals o f v i n t a g e t r e e s .  o f apple  groups.  varieties  have  been  varieties;  planted  One i s the t r a d i t i o n a l  varieties  are  equations:  1.  types  activities  can be s p l i t  variety  commercially  group.  produced  into  two  These a r e  i n the Southern  I n t e r i o r o f B r i t i s h Columbia f o r a p e r i o d o f time l o n g enough to  have  e s t a b l i s h e d a mature  market  and l o n g  enough  that  p r o d u c t i o n r i s k s a r e w e l l known t o the grower.  The  second  unfamiliar  variety to  group  the  characteristics,  includes  regions,  those  have  that  uncertain  and have not been produced  farmers  t o see a t r e n d  treated  as a  new  a r e new  production  long  enough f o r  i n the market. For example,  variety.  I t s winter  or  hardiness,  Gala i s bearing  h a b i t s , f r u i t s i z e , and storage l i f e were n o t f u l l y  understood  by  Currently  growers  market  when  prices  unusually  high  the v a r i e t y  a r e high,  was  first  planted.  but i t i s u n c e r t a i n  prices w i l l  be maintained. 63  Most  how  l o n g the  o f the h i g h  p r i c e s f o r Gala are r e c e i v e d i n a r e l a t i v e l y s m a l l market ( i n t h i s case, Southeast Asia) and i f the market becomes s a t u r a t e d soon, p r i c e s may  4.1  drop.  Data S t r u c t u r e  The data used i n the e s t i m a t i o n of the e m p i r i c a l model i s i n an annual r e g i o n a l form. regions:  Vernon,  Cross s e c t i o n a l data i s used from e i g h t  Kelowna,  Summerland,  Osoyoos, Cawston and C r e s t o n .  Penticton,  Oliver,  Net p r e s e n t v a l u e s f o r new  t r a d i t i o n a l v a r i e t i e s are c a l c u l a t e d f o r each r e g i o n . are weighted i n each r e g i o n to r e f l e c t  Prices  the p a r t i c u l a r mix  v a r i e t i e s p l a n t e d and removed i n each r e g i o n . p l a n t i n g p r i c e of new  and  v a r i e t i e s i n Cawston may  of  For example, the be h i g h e r  than  t h a t of Vernon i n a p a r t i c u l a r year due to the mix of v a r i e t i e s planted.  P r i c e e x p e c t a t i o n s are converted to p r e s e n t v a l u e s . 6  T r a d i t i o n a l apple v a r i e t i e s are c o n s i d e r e d the b e s t a l t e r n a t i v e to  new  apple v a r i e t i e s  and  v i s a versa.  Although  other  f r u i t commodities can be p l a n t e d as an a l t e r n a t i v e to any  tree apple  v a r i e t y , the number of the c h o i c e s i s too l a r g e to model g i v e n the degrees of freedom. other  tree f r u i t  As w e l l ,  the economics o f p l a n t i n g  commodities are not  comparable  in a  simple  A complete d e s c r i p t i o n of d a t a and assumptions used i n the p r e s e n t v a l u e c a l c u l a t i o n are p r o v i d e d i n Appendix B. 6  64  form  as  the  production  gestation  period  planting  The  NPV  the  land constraint  of  substitutes f o r other  t r e e s b e i n g removed i s c o n s i d e r e d  The  growers e x p e c t a t i o n  r e g i o n i s used. a  apples.  important  since can  of t r e e s b e i n g removed i s an replanting  decision.  A v a r i a b l e to account f o r the p e r c e n t of v i n t a g e  in  full  f o r c e s growers to remove b e f o r e they  important f a c t o r i n the removal and  trees  and  i s d i f f e r e n t . A l s o , w i n t e r h a r d i n e s s and o t h e r r i s k  f a c t o r s make them l e s s l i k e l y  replant.  between  t r e e s i n each  T h i s v a r i a b l e i s the p e r c e n t of a c r e s of apple  region  which  are  older  20  than  years  of  ( r e l a t i v e to the acreage of a l l f r u i t t r e e s of the region) . i s expected t h a t a h i g h e r p e r c e n t stock of v i n t a g e  age It  trees i n a  r e g i o n would spur r e p l a n t i n g as growers i n the r e g i o n  step  up  replanting.  E x p e c t a t i o n s of land p r i c e s are not the e q u a t i o n . decision. land more  an  decision. embedded  do  exist,  however,  entry/exit Instead,  in  as a v a r i a b l e i n  They were deemed as not important i n the  I t i s t r u e that r e g i o n a l and  prices to  included  the  land  regional  annual d i f f e r e n c e s i n  these d i f f e r e n c e s  decision values  rather and  replant  than  the  dummy v a r i a b l e s .  a  contribute replanting  entry/exit  remain  Explanation  for  r e g i o n a l d i f f e r e n c e s i n c l u d e an account f o r grower demographics and how  t h i s r e l a t e s to the e n t r y / e x i t behaviour and 65  replanting  decisions.  D u r i n g the study p e r i o d there was one year i n which t h e r e was no  replant  subsidy  available  d i s t i n c t subsidy programs. two  dummy v a r i a b l e s  programs, the ARDSA  t o farmers,  followed  by two  These two programs a r e modelled by  t o account  f o r the two r e p l a n t  (1986 t o 1989)  and OVTFA  subsidy  (1990 t o 1992)  programs. The v a l u e 0 i s used f o r the year 1985, the o n l y y e a r in  the study  available.  period  i n which  replanting  subsidy  was  The a c t u a l amount o f the grant i s i n c l u d e d i n the  net p r e s e n t v a l u e (NPV) formula. account  no  f o r the presence  components,  such  as  The i n t e n t o f the dummy i s t o  o f the programs' non-cash o r g r a n t  farmer  education  programs  and o t h e r  enhanced e x t e n s i o n and communications programs.  A dummy v a r i a b l e was c o n s t r u c t e d t o account w i n t e r temperatures weather.  which f o l l o w e d a p e r i o d o f r e l a t i v e l y warm  The v a l u e  temperatures  1  i s used  The Dependent V a r i a b l e  The  dependent  fruit  to  account  f o r winter  c o l d enough t o cause w i n t e r i n j u r y t o apple t r e e s .  4.2  replanted  f o r extremely low  variable  f o r each  equation  i s the  acreage  (or removed) i n each year d i v i d e d by the t o t a l t r e e  acreage  f o r each r e g i o n . 66  This r a t i o  accounts  f o r the  uneven  distribution  of tree  fruit  acreage  i n each  region.  T o t a l t r e e f r u i t acreage was used as the denominator i n s t e a d o f apple  acreage  t o account  f o r the t o t a l  r e p l a n t i n g , which i n c l u d e s s o f t f r u i t  4.2.1  land  available for  acreage.  Costs  Costs  a r e not modelled  as a separate independent  variable.  There a r e s e v e r a l reasons f o r t h i s : 1.  In  meeting  with  farmers,  they  d i d not  concerns over c o s t s o f p r o d u c t i o n when replanting.  express  considering  P r i c e was more of a m o t i v a t i n g f a c t o r  than c o s t . 2.  The model used  i n the e s t i m a t i o n r e l i e s  on  cross  s e c t i o n a l o b s e r v a t i o n s and times s e r i e s o b s e r v a t i o n s r a t h e r than s o l e l y time s e r i e s over s e v e r a l decades.  3.  Costs between  r e g i o n s i n Southern  BC do not v a r y  a p p r e c i a b l y , and attempting t o account f o r r e g i o n a l p r i c e d i f f e r e n c e s would not add t o the robustness o f the  4  model.  U n l i k e farmers  i n l e s s developed n a t i o n s ,  exchange  r a t e s and i n f l a t i o n r a t e s e x p e r i e n c e d by B.C. farmers do not f l u c t u a t e w i d e l y i n s h o r t p e r i o d s o f time. The macro-economic c o n d i t i o n s faced by B.C. growers a r e 67  relatively annual  s t a b l e and  decision  are  making  u s u a l l y not  process  part  modelled  of in  the this  analysis.  Instead  of c o l l e c t i n g annual r e g i o n a l c o s t i n f o r m a t i o n ,  were i n c l u d e d i n the NPV model was  calculation.  used f o r a l l r e g i o n s  and  c o s t of  then a d j u s t e d  changes u s i n g the Consumer P r i c e Index  68  One  (CPI).  costs  production f o r annual  4.3 P l a n t i n g s o f New Apple  The  f o l l o w i n g equation  Varieties  estimates  the p l a n t i n g o f new apple  varieties.  PLNT  n e wt  =  oc + o c u N P V ^ 10  t  + oc NPV% + oc NPV 12  + oc SUBl + oc SUB2 + 15  +  10  16  REG4 +  + CC-L G r a n t 15  t  13  e tALT  + oc VINT 14  t  oc REGl + oc REG2 + ^ REG3 17  18  9  REG5 + ct^ REG6 + oz REG7 + cc^ Z  1:L  13 1  12  + cr^ t i m e 16  +  14  i  r  1  where: PLNT NPV NPV  n e wt  e remove t  = = =  e t  NPV% ALT VINT  =  N  =  t  SUB1  =  SUB2  =  REG Z Grant time  = = = =  t  R a t i o o f the acres o f new apple v a r i e t i e s p l a n t e d i n p e r i o d t d i v i d e d by the t o t a l t r e e f r u i t acreage i n the r e g i o n . Net p r e s e n t v a l u e o f t r e e s b e i n g removed t o make way f o r the p l a n t i n g . Net p r e s e n t v a l u e o f revenue expected from p l a n t i n g new apple v a r i e t i e s . p r e s e n t v a l u e o f revenue expected from p l a n t i n g t r a d i t i o n a l apple v a r i e t i e s . % o f acres o f t r e e s i n each r e g i o n t h a t a r e o l d e r than 20 y e a r s . Dummy t o account f o r the r e p l a n t s u b s i d y program between 1986 t o 1990. The ARDSA program. Dummy t o account f o r the r e p l a n t s u b s i d y program between 1991 t o 1992. The OVTFA program. Dummy t o account f o r the 8 growing r e g i o n s . Dummy t o account f o r w i n t e r i n j u r y . Net p r e s e n t v a l u e o f r e p l a n t grant i n p e r i o d t . Year e  t  69  4.4  Plantings of Traditional  The  Varieties  f o l l o w i n g equation estimates  apple  the p l a n t i n g o f t r a d i t i o n a l  varieties.  PLNTtrad t  «  +a iNPV  2 0  e  2  cc VINT 24  t  remove  t  cc NPV  + cc SUBl 25  22  + oc NPV  e t  23  + oc SUB2  +  e tAIiT  + oc REGl  26  27  +  cc REG2 + cc REG3 + oc REG4 + oc REG5 + 28  29  210  211  cc REG6 + oc REG7 + cc Z + cc G r a n t 2 12  213  oc t i m e 21 6  2 14  2l s  t  +  + p  2  where: PLNTtrad t NPV  e  remo'  NPV NPV  e t  e  VINT  t  SUB1 SUB2 REGn Z Grant time The  t  price  Acres o f t r a d i t i o n a l apple v a r i e t i e s p l a n t e d i n p e r i o d t d i v i d e d by the t o t a l t r e e f r u i t acreage i n that region. Net present v a l u e o f t r e e s b e i n g removed t o make way f o r the p l a n t i n g . Net present v a l u e o f revenue expected from p l a n t i n g t r a d i t i o n a l apple v a r i e t i e s . Net p r e s e n t v a l u e o f revenue expected from p l a n t i n g new apple v a r i e t i e s . % o f acres o f t r e e s i n each r e g i o n t h a t a r e o l d e r than 20 y e a r s . Dummy t o account f o r the r e p l a n t subsidy program between 1986 and 1990. The ARDSA program. Dummy t o account f o r the r e p l a n t s u b s i d y program between 1991 and 1992. The OVTFA program. Dummy t o account f o r the 8 growing r e g i o n s . Dummy t o account f o r w i n t e r i n j u r y . Net present v a l u e o f r e p l a n t g r a n t i n p e r i o d t . Year expectations  of t r a d i t i o n a l  apple  varieties i s  d e s c r i b e d Appendix F, as i s t h a t o f new v a r i e t i e s .  70.  4.5  Removals o f V i n t a g e  Trees  The  following  estimates  equation  the removals  of vintage  apples.  RMVL  vint t  «3o  +«3iNPV „ . r  cc VINT 34  t  ov  t  + oc SUBl 35  oc NPV% 32  +  oc NPV 33  + oc SUB2 36  tJkM  + cc REGl 37  + +  oc REG2 + oc REG3 + cc REG4 + cc REG5 + 38  10 3  39  X1 3  oc REG6 + oc REG7 + oc Z + a 3 12  oc  3  16  13 3  time  31 4  3 15  Grant  t  +  + fi  3  where: RMVL NPV  e  NPV  e  vint  remo  .  t  NPV*^ VINT  t  SUB1 SUB2 REGn Z Grant time  t  Acres o f apples removed i n p e r i o d t d i v i d e d by the t o t a l t r e e f r u i t acreage i n t h a t r e g i o n . Net p r e s e n t v a l u e of t r e e s b e i n g removed t o make way f o r the p l a n t i n g . Net p r e s e n t v a l u e o f revenue expected from p l a n t i n g t r a d i t i o n a l apple v a r i e t i e s . Net p r e s e n t v a l u e o f revenue expected from p l a n t i n g new apple v a r i e t i e s . % o f acres o f t r e e s i n each r e g i o n t h a t a r e o l d e r than 20 y e a r s . Dummy t o account f o r the r e p l a n t s u b s i d y program between 1986 and 1990. The ARDSA program. Dummy t o account f o r the r e p l a n t s u b s i d y program between 1991 and 1992. The OVTFA program. Dummy t o account for fruit the 8 growing regions. Dummy t o account f o r w i n t e r i n j u r y . Net p r e s e n t v a l u e o f r e p l a n t g r a n t i n p e r i o d t . Year  71  4.6  The  Regression  model was  Results  run u s i n g  the econometrics program Shazam.  The  t h r e e equations were run as independent O r d i n a r y L e a s t Squares (OLS) the  e q u a t i o n s . The model was Durbin-Watson t e s t and  evidence r e g a r d i n g  tested for autocorrelation  showed there  to be  no  using  conclusive  the presence or absence of p o s i t i v e  first-  order s e r i a l c o r r e l a t i o n .  In a d d i t i o n , robustness  the models were changed s l i g h t l y to t e s t f o r  of  the  model.  The  six  reported  models  are  the as  following:  1.  D i s t r i b u t e d l a g , as d e s c r i b e d  2.  D i s t r i b u t e d l a g , as above, but w i t h no was  i n the t e x t of t h i s t h e s i s .  thought t h a t t h i s v a r i a b l e may  time v a r i a b l e .  It  be s t e a l i n g some of  the  e f f e c t s from other v a r i a b l e s . 3.  Distributed  lag,  variables.  I t was  may  be  masking  as  in  1,  but  with  no  regional  thought that these r e g i o n a l some  of  the  1,  but  effects  of  dummy  variables behavioral  variables. 4.  Distributed  lag,  as  in  price  expectations  generated without the a d d i t i o n of ad hoc payments. p r i c e s were deemed as important b e h a v i o r a l t e s t i n g another approach to how 72  were Apple  variables  and  they were c a l c u l a t e d  was  c o n s i d e r e d an a p p r o p r i a t e method of t e s t i n g the robustness of the model. 5.  D i s t r i b u t e d l a g , as i n 1, b u t three dummy v a r i a b l e s were used t o account f o r the r e p l a n t i n g programs.  This  model  uses two dummies ( i n s t e a d o f one) t o account f o r the OVTFA r e p l a n t program. program,  R e c a l l , i n the l a t t e r p a r t o f the OVTFA  the amount  eligibility t h i s model  criteria  o f grant  was  decreased  and the  o f the program were t i g h t e n e d .  three dummy v a r i a b l e s  In  a r e used, as w e l l , the  g r a n t amount i s added t o the NPV v a r i a b l e s and t h e g r a n t variable the  i s eliminated.  robustness  I t was thought t h a t  o f the grant  a test for  and program v a r i a b l e s  was  needed. 6.  This  model  uses the same v a r i a b l e s  as 1, except  price  e x p e c t a t i o n s and t h e i r r e s u l t i n g NPVs a r e c a l c u l a t e d u s i n g a geometric, i n s t e a d o f d i s t r i b u t e d l a g .  I t was thought  t h a t the NPV v a r i a b l e s were important b e h a v i o r a l  variables  and robustness o f the model u s i n g an a l t e r n a t i v e method o f c a l c u l a t i n g the p r i c e l a g s was needed.  73  P l a n t i n g s o f New V a r i e t i e s  4.6.1 T a b l e 4.1  New V a r i e t i e s Regression  Coefficient  1  2  3  4  5  6  -2.3E-4 (-1.8*) [0.03] -1.9E-4 (-1.0) [0.03] 1.0E-5 (0.3) [0.03] -1.66 (-4.9*) 0.79 (0.3) 28.6 (5.8*) 24.5 (4.7*) 0.1 (0.1) -2.7 (-1.5) -16.4 (-4.5*) -6.2 (-2.6*) 9.9 (5.3*) 3.5 (0.8) -113.0 (-1.0) -222.3 (-1.0)  -2.3E-4 (-1.9*) [0.03] -2.5E-4 (-1.4) [0.04] 7.7E-5 (0.3) [0.03] -1.7 (-5.0*) 0.76 (0.3) 28.9 (5.9*) 24.8 (4.8*) 0.2 (0.1) -2.7 (-1.5) -16.8 (-4.7*) -6.2 (-2.7*) 9.7 (5.2*)  -3.0E-4 (-1.7*) [0.03] -8.3E-5 (-0.3) [0.01] 4.7E-5 (0.1) [0.02] -0.1 (-1.4) -2.8 (-0.7)  -25.3 (-1.8*) -47.0 (-1.6)  3.4 (0.5) -59.8 (-0.4) -111.8 (-0.3)  -3.5E-4 (-0.3) [0.02] -5.4E-4 (-2.8*) [0.2] -7.4E-6 (-0.2) [0.02] -1.4 (-4.2*) 0.9 (0.3) 25.9 (5.1*) 21.3 (4.1*) 0.3 (0.2) -1.6 (-0.8) -14.4 (-3.9*) -4.4 (-1.9*) 8.4 (4.5*) -9.9 (-4.8*) 218.6 (5.3*) 441.5 (5.4*)  -2.5E-4 (-1.5) [0.8] -7.2E-5 (-0.2) [0.2] 4.3E-4 (1.0) [0.3] 1.6 (-4.6*) 0.8 (0.3) 27.0 (5.4*) 22 .4 (4.2*) -0.1 (-0.1) -2.1 (-1.1) -15.2 (-4.2*) -5.9 (-2.5*) 10.0 (5.1*) 0.6 (0.1) -0.8 (-0.3) 4.7 (1.6) 1.9 (0.6)  -5.034 (-2.7*) [0.5] 3.2E-4 (1.6) [0.3] 2.8E-5 (1.0) [0.09] -1.6 (-4.1*) -0.4 (-0.1) 24.4 (5.0*) 20.1 (4.0*) -0.6 (-0.4) -2.6 (-1.4) -14.9 (-4.2*) -5.9 (-2.5*) 8.9 (4.7*) -1.9 (-2.3*) 38.2 (4.8*) 82.8 (5.4*)  Grant  0.6 (1.0)  1.3E-2 (1.7*)  3.0E-2 (0.4)  -0.1 (-5.2*)  R  .86  .86  .67  0.84  0.86  .86  Durb. Wat.  1.9  1.9  1.2  2.1  1.8  1.9  Mean  6.5  6.5  6.5  6.3  6.5  6.3  Variance  11.0  9.9  20.9  11.0  10.4  10.0  NPV*  t r e m o v  NPV% NPV  .  t r a d  e tn e w  VINT  t  Z REG Vernon REG Kelown. REG Summer. REG P e n t i c . REG O l i v e r REG Osoyoos REG Cawston time ARDSA OVTFA 1 OVTFA 2  2  NB:  ( *  -2.03-2 (-5.1*)  R e g r e s s i o n c o e f f i c i e n t v a l u e s a r e s c a l e d by a v a l u e o f 1000 f o r presentation. To o b t a i n t r u e c o e f f i c i e n t v a l u e s d i v i d e numbers i l l u s t r a t e d above by 1000. )  = statistic  [  ] = elasticity  = s i g n i f i c a n t a t p =.05 n = 64 o b s e r v a t i o n s  74  The  s i x models  results  described  above,  i n general  f o r the independent v a r i a b l e s ,  statistics  similar.  (mean, v a r i a n c e ,  similar  i n terms o f the s i g n o f  t h e i r c o e f f i c i e n t s and t h e i r s i g n i f i c a n c e . model  express  As w e l l ,  the g e n e r a l  Durban Watson R square) a r e  The o n l y model which i s s t r i k i n g l y d i f f e r e n t  i n this  r e g a r d i s model 3, however the Durban Watson v a l u e i n d i c a t e s high p r o b a b i l i t y the  model  variables  should  of p o s i t i v e  a  f i r s t - o r d e r s e r i a l c o r r e l a t i o n and  not be used.  The  lack  changes the model s i g n i f i c a n t l y .  of regional  dummy  The s i m i l a r i t y o f the  models i l l u s t r a t e s that the model o r i g i n a l l y chosen (model 1) i s robust.  The i n c l u s i o n variables  o f the time v a r i a b l e  alters  the ARDSA and OVTFA  (model 1 vs model 2) and as such appears t o be s t e a l i n g  some o f t h e i r e f f e c t s when i n c l u d e d .  However, the e f f e c t i s o n l y  to make them s t a t i s t i c a l l y s i g n i f i c a n t and does n o t a l t e r  their  sign.  Altering  the way p r i c e  expectations are c a l c u l a t e d  comparing model 1 vs models 4 and 6 ) .  i s t e s t e d by  The NPV f o r removals i s  s i g n i f i c a n t i n model 1 and 6, and NPV f o r t r a d i t i o n a l i s s i g n i f i c a n t i n 4 only. method o f c a l c u l a t i n g  varieties  T h i s suggests t h a t a l t e r a t i o n s  i n the  the p r i c e e x p e c t a t i o n s can a l t e r e m p i r i c a l  results.  Model  1 i s used  i n the e x p l a n a t i o n 75  o f the e m p i r i c a l  results.  T h i s i s the o r i g i n a l model and o f f e r s the b e s t e x p l a n a t i o n of the results.  This  i s partly  because  i t models  the  behaviour  of  growers as understood by t h i s author, r a t h e r than the f i t of the model  relative  significant  The  as  compared  by  its R  square  or  number  of  variables.  d i f f e r e n t models do o f f e r  For example v a r i a t i o n s  some i n s i g h t  i n t o the  i n model 1 vs 2 suggests  variables.  t h a t the  time  f a c t o r i s i n f l u e n c i n g grant and program r e l a t e d v a r i a b l e s .  Growers p l a n t i n g to new the  profitability  of  v a r i e t i e s are r e s p o n s i v e to changes i n  aging  trees  i n need  of  removal.  This  follows a p r i o r i expectations.  Growers are not from  planting  r e s p o n s i v e to the changes i n expected  of new  varieties.  Perhaps,  the  risk  profits  of  prices  dropping as supply e v e n t u a l l y catches up w i t h demand moderates growers d e c i s i o n s .  Growers are not planting  to  r e s p o n s i v e to changes i n p o t e n t i a l p r o f i t s  traditional  growers do not monitor  varieties.  These  data  suggest  varieties.  The v i n t a g e v a r i a b l e i s n e g a t i v e and s i g n i f i c a n t , and when  there  are  that  t r a d i t i o n a l v a r i e t i e s , comparing them as  though they were an a l t e r n a t i v e "crop" to new  that  of  more v i n t a g e 76  trees present  indicates  i n an  area,  growers where  a r e l e s s apt t o r e p l a n t the  are  few  vintage  t o new v a r i e t i e s .  trees  (and  In  replanting  regions i s more  p r e v a l e n t ) , growers a r e r e l a t i v e l y more eager t o r e p l a n t t o new varieties. This  suggests  t h a t growers may be more apt t o r e p l a n t  t o new  v a r i e t i e s i f they have c a r r i e d out r e p l a n t i n g i n the p a s t .  Their  experience w i t h r e p l a n t i n g has somehow made them l e s s r i s k averse compared  t o growers  i n regions  where  little  replanting  has  occurred.  As w e l l , i t c o u l d be t h a t r e g i o n s w i t h younger orchards may be b e t t e r able to finance a d d i t i o n a l r e p l a n t i n g . a  greater  propensity  to  take  on  risk,  T h i s combined w i t h  may  result  i n more  r e p l a n t i n g t o new v a r i e t i e s .  The Z f a c t o r i s not s i g n i f i c a n t and shows t h a t grower's d e c i s i o n s to r e p l a n t t o new v a r i e t i e s a r e u n a f f e c t e d by a c o l d  Neither  winter.  the ARDSA o r OVTFA r e p l a n t programs i n c r e a s e d the l e v e l  of r e p l a n t i n g t o new v a r i e t i e s .  I n c r e a s i n g the v a l u e o f grants had no e f f e c t on r e p l a n t i n g . f i r s t glance, in  most cases,  At  t h i s seems c o n t r a r y t o a p r i o r i e x p e c t a t i o n s , but when grant  amounts were i n c r e a s e d ,  eligibility  c r i t e r i a were a l s o i n c r e a s e d r e s u l t i n g i n a no net e f f e c t .  77  A n e c d o t a l evidence i n d i c a t e s that i n c r e a s i n g the requirements q u a l i f y f o r a grant, there was  to  a p o s i t i v e e f f e c t on the economic  v i a b i l i t y of the o r c h a r d i n d u s t r y . The ever i n c r e a s i n g  criteria  "pushed" r e p l a n t i n g so that o r c h a r d i s t s p l a n t e d s m a l l e r but more profitable projects.  The time v a r i a b l e i s not s i g n i f i c a n t and i n d i c a t e s t h a t the r a t e of a d o p t i o n of the technology of new v a r i e t i e s , by i t s e l f , i s not increasing  Growers  (or decreasing) over  i n the  Vernon,  Kelowna  r e s p o n s i v e to p l a n t i n g to new and  Osoyoos  are  less  time.  and  Cawston  regions  are  more  v a r i e t i e s , w h i l e those i n O l i v e r  responsive.  Summerland,  Penticton  and  C r e s t o n growers do not d i f f e r i n t h e i r r e s p o n s i v e n e s s and engage i n an average  l e v e l of r e p l a n t i n g .  I t i s expected t h a t growers  i n Summerland, P e n t i c t o n , O l i v e r and Osoyoos w i l l conduct a lower l e v e l of r e p l a n t i n g to new v a r i e t i e s , s i n c e they have the o p t i o n of p l a n t i n g other crops such as s o f t f r u i t s and grapes. growers are l e s s l i k e l y s h o r t e r growing growing new  to opt f o r new  Creston  v a r i e t i e s because  their  season and c o l d e r w i n t e r s i n c r e a s e the r i s k s of  varieties.  78  F i g u r e 4.1  Demographics and Regional Responsiveness o f P l a n t i n g s of New V a r i e t i e s  New Variety Plantings Coefficient vs Age/Education  Percent of Growers in Each Region Who are Younger Than 45 Years of Age and Have a College Education  The above graph i l l u s t r a t e s t h a t r e g i o n a l d i f f e r e n c e s i n p l a n t i n g to t r a d i t i o n a l v a r i e t i e s i s r e l a t e d t o the age and e d u c a t i o n o f the farmers i n the r e g i o n . young  and more  When there i s a g r e a t e r p r o p o r t i o n o f  educated farmers i n a  r e p l a n t i n g t o new v a r i e t i e s .  region,  there  i s more  These farmers a r e w i l l i n g t o take  on more r i s k , and p l a n t to new v a r i e t i e s .  I t c o u l d a l s o be t h a t  new v a r i e t i e s g i v e a h i g h r e t u r n t o management, something t h a t younger, w e l l educated farmers a r e l o o k i n g f o r .  R e c a l l , r e p l a n t i n g to new v a r i e t i e s was g r e a t e s t i n r e g i o n s where there were fewer v i n t a g e t r e e s .  I t may not be i n c o n c e i v a b l e t h a t  these young and w e l l educated farmers e i t h e r chose t o purchase 79  farms  that  had  a  larger  p r o p o r t i o n of  younger  trees  or  c a r r y i n g on a w e l l maintained f a m i l y farm from t h e i r p a r e n t s . well,  i t seemingly  e x p l a i n s why  e c o n o m i c a l l y depressed  are As  regions  w i t h poor e d u c a t i o n a l systems t h a t do not encourage students to c a r r y on to c o l l e g e continue to l a g behind e c o n o m i c a l l y endowed regions.  80  4.6.2  Plantings of T r a d i t i o n a l  T a b l e 4.2  Varieties  1  2  3  4  5  6  4.5E-4 (3.2*) [0.04] -2.8E-4 (-1.2) [0.03] -1.1E-5 (-0.3) [0.03] - .32 (-0.8) -3.9 (-1.2) 4.7 (0.8) -1.7 (-0.3) -4.6 (-2.5*) -9.0 (-4.9*) -11.6 (-2.8*) -9.1 (-3.5*) -8.2 (-3.9*) 10.7 (2.0*) -294.3 (-2.2*) -590.0 (-2.2*)  4.2E-4 (2.9*) [0.03] -4.7E-4 (-2.2*) [0.05] -1.9E-5 (-0.5) [0.05] -0.4 (-1.0) -4.0 (-1.2) 5.6 (0.9) -0.7 (-0.1) -4.6 (-2.2*) -9.8 (-4.7) -12.9 (-3.1*) -9.2 (-3.4*) -8.7 (-4.0*)  6.1E-4 (3.5*) [0.05] -1.7E-4 (-0.7) [0.02] -2.3E-5 (-0.5) [0.05] 0.2 (1.8*) -4.2 (-1.0)  -29.1 (-1.7*) -59.8 (-1.8*)  13.4 (1.9*) -339.7 (-1.9*) -679.5 (-2.0*)  2.8E-4 (1.9*) [0.09] -3.6E-4 (-1.6) [0.09] -2.1E-5 (-0.6) [0.05] -0.2 (-0.4) -5.7 (-1.6) 2.0 (0.3) -5.2 (-0.8) -6.4 (-3.2*) -11.4 (-4.8*) -12.6 (-2.9*) -10.1 (-3.6*) -9.8 (-4.4*) -0.3 (-0.1) -15.6 (-0.3) -32.1 (-0.3)  4.7E-5 (0.2) [0.03] -4.5E4 (-4.8*) [0.3] -1JE5 (-0.3) [0.02] -0.3 (-0.8) -4.3 (-1.2) 5.4 (0.9) -1.3 (-0.2) -5.4 (-2.7*) -9.5 (-4.3*) -12.3 (-2.8*) -9.6 (-3.3*) -9.4 (•4.0*) -1.2 (-1.2) -0.9 (-0.1) -3.0 (-0.2)  Grant  0.1 (2.2*)  0.2 (1.7*)  0.2 (2.0*)  0.8 (0.3)  1.3E-4 (0.7) [0.3] -4.2E-4 (-1.2) [0.9] -4.9E-5 (-0.9) [0.2] -0.4 (-0.9) -5.3 (-1.5) 6.0 (1.0) -0.2 (-0.0) -5.0 (-2.4*) -10.1 (-4.5*) -13.4 (-3.1*) -9.5 (-3.3*) -9.6 (-4.1*) - .7 (-0.9) 0.3 (0.1) -0.5 (-0.2) -4.5 (-1.1)  R  0.71  0.68  0.41  0.66  0.66  .64  2.3  1.3  2.2  2.3  1.9  NPV  e  t remov.  v  NPV\ NPV  t r a d  e tn e w  VINT  t  Z REG Vernon REG Kelown. REG Summer. REG P e n t i c . REG O l i v e r REG Osoyoos REG Cawston time ARDSA OVTFA 1 OVTFA 2  2  Durb. Wat.  2.2  7.3E-4 (0.2)  Mean  8.9  8.9  8.9  8.9  8.8  9.0  Variance  12.7  13.5  22.4  15.1  14.9  15.5  NB:  ( *  R e g r e s s i o n c o e f f i c i e n t v a l u e s a r e s c a l e d by a v a l u e o f 1000 f o r presentation. To o b t a i n t r u e c o e f f i c i e n t v a l u e s d i v i d e numbers i l l u s t r a t e d above by 1000. )  = t statistic = s i g n i f i c a n t a t p =.05  [ n  ]  =64  81  = elasticity observations  Growers p l a n t i n g t r a d i t i o n a l v a r i e t i e s do so i n a manner i n which is  positively  correlated  to  the  NPV  of  trees  being  removed.  Perhaps growers examine t h e i r r e t u r n s from t r a d i t i o n a l  varieties  (eg. Spartan and Mcintosh) and estimate they w i l l i n c r e a s e p r o f i t s i f they r e p l a n t to the same v a r i e t i e s ,  and  their  improve t h e i r  packouts.  The  coefficient  significant,  variable  illustrating  for  traditional  that  growers  varieties  do  not  is  change  not their  r e p l a n t c h o i c e s around t r a d i t i o n a l v a r i e t i e s when e x p e c t a t i o n s profits  change.  P l a n t i n g s of t r a d i t i o n a l v a r i e t i e s are not i n f l u e n c e d by the present  of  value  expected from new  varieties  t r a d i t i o n a l v a r i e t i e s do not view new  and  net  growers p l a n t i n g  v a r i e t i e s as an a l t e r n a t i v e  crop.  Increasing  the  level  of  r e p l a n t i n g to t r a d i t i o n a l  grants  does  increase  the  acreage  of  varieties.  The V i n t a g e v a r i a b l e i s not s i g n i f i c a n t and suggests t h a t growers will  replant  to  traditional  percentage of v i n t a g e  varieties  t r e e s i n the r e g i o n .  regardless  Perhaps, growers  tend to r e p l a n t to t r a d i t i o n a l v a r i e t i e s f i r s t b e f o r e to new  varieties.  of  the may  replanting  T h i s would support the r e g r e s s i o n data, where  growers i n c r e a s i n g l y r e p l a n t to new 82  v a r i e t i e s i f more r e p l a n t i n g  had be c a r r i e d out p r e v i o u s l y . in  Perhaps there i s a l e a r n i n g curve  e f f e c t , with replanting to t r a d i t i o n a l v a r i e t i e s  (to h i g h e r  d e n s i t i e s ) f o l l o w e d be r e p l a n t i n g to new v a r i e t i e s .  Model 1 estimates that over time, growers a r e r e p l a n t i n g more t o traditional  varieties.  The s i g n i f i c a n c e  of t h i s  variable i s  d i f f e r e n t a c r o s s models and i s not a robust v a r i a b l e .  Both  the ARDSA  and OVTFA r e p l a n t  programs have decreased the  l e v e l of r e p l a n t i n g to t r a d i t i o n a l v a r i e t i e s .  In p a r t , t h i s was  p a r t o f the o b j e c t i v e s of the programs, encouraging  growers t o  r e p l a n t t o new v a r i e t i e s . R e p l a n t i n g to new v a r i e t i e s the o b j e c t i v e s of the OVTFA and i s r e f l e c t e d  i s one o f  i n their  replant  program, which d i s c o u r a g e s growers from r e p l a n t i n g t o t r a d i t i o n a l varieties.  Growers i n Vernon, traditional Southern  varieties  Interior.  experience  with  varieties hardiness.  This  growers  the r i s k colder  temperatures  As w e l l ,  of winter  winter  a r e too r i s k y  i n other  i s expected  traditional varieties  against  regions  than  colder winter  p l a n t hardy hedge  Kelowna and Creston a r e more apt t o p l a n t o f the  these  regions  since  and growers  will  often  (eg Mcintosh and Spartan) t o injury.  temperatures  to plant  regions  because  Growers may  feel  i n these some  o f unknown  some o f the new v a r i e t i e s  new  winter  (eg F u j i and  Granny Smith) r e q u i r e growing seasons which a r e l o n g e r than these 83  r e g i o n s experience  i n most y e a r s .  Regions south of Summerland  (including  to r e p l a n t to t r a d i t i o n a l v a r i e t i e s . can r e p l a n t to a l t e r n a t i v e difficult  Summerland) are l e s s  apt  T h i s i s p a r t y because they  crops, and p a r t l y because i t i s more  to o b t a i n good f r u i t  c o l o u r on Mcintosh and  Spartan  (the predominantly r e p l a n t e d t r a d i t i o n a l v a r i e t i e s p l a n t e d d u r i n g the study p e r i o d of t h i s  thesis).  84  4.6.3  Removals o f T r a d i t i o n a l  T a b l e 4.3  Removals Regression  Varieties  Coefficient  1  2  3  4  5  6  3 .5E-04 (2.4*) [0.02] -4.3E-04 (-1.8) [0.05] -2.1E-05 (-0.6) [0.04] -2.1 (-5.1*) -0.35 (-0.1) 32 .3 (5.5*) 21.4 (3.4*) -7.3 (-3.8*) -17.4 (-8.2*) -28.1 (-6.5*) -18.8 (-6.5*) -0.3 (-0.1) 12.7 (2.2*) -360.3 (-2.6) -717.9 (-2.6*)  -3.2E-4 (-2.1*) [0.02] -6.4E-4 (-2.9*) [0.05] -3.0E-5 (-0.8) [0.05] -2.1 (-5.1*) -0.46 (-0.1) 33.4 (5.5*) 22.5 (3.5*) -7.2 (-3.6) -17 .3 (-7.9*) -29.6 (-6.7*) -18.2 (-6.4*) -0.9 (-0.3)  -4.3E-4 (-1.8*) [0.03] -3.8E-4 (-1.1) [0.03] 4.4E-5 (0.7) [0.08] -0.2 (-1.9*) -3.9 (-0.7)  -59.9 (-3.3*) -115.1 (-3.2*)  12.6 (1.3) 302.8 (-1.3) -598.1 (-1.3)  3.1E-4 (2.0*) [0.06] -8.2E-4 (-3.3*) [0.4] -4.7E-5 (-1.2) [0.09] -1.8 (-4.1*) -2.4 (-0.6) 28.1 (4.4*) 16.1 (2.4*) -9.1 (-4.2*) -18.4 (-7.1*) -28.4 (-6.0*) -18.1 (-5.9*) -3.7 (-1.5) -9.4 (-3.7*) 174.3 (3.3*) 352.4 (3.3*)  -3.6E-5 (-0.2) [0.07] -2.3E-4 (-0.6) [0.2] -2.7E-5 (-0.5) [0.08] -2.0 (-4.7*) -1.7 (-0.5) 32.0 (5.1*) 21.0 (3.2*) -8.0 (-3.8*) -17.3 (-7.5*) -28.6 (-6.4*) -18.6 (-6.3*) -1.5 (-0.6) -1.5 (-1.9*) 0.2 (0.6) 6.5 (1.7*) 0.7 (0.2)  -!L2&4 (-0.5) [0.07] -L3B4 (-0.5) [0.07] -4.5B4 (-0.1) [0.01] -1.8 (-3.8*) -2.0 (-0.5) 28.6 (4.2*) 17.3 (2.5*) -8.5 (-3.8*) -16.8 (-6.8*) -26.5 (-5.4*) -18.0 (-5.6*) -2.5 (-1.0) -2.9 (-2.6*) 30.0 (2.7*) 65.5 (3.1*)  Grant  0.2 (2.6*)  0.0 (3.2*)  0.2 (1.3)  -0.1 (-3.2*)  R  0.83  0.82  0.41  0.80  0.81  0.78  Durb. Wat.  2.0  2.1  0.9  2.3  2.1  2.2  Mean  11.9  11.9  11.9  11.6  11.9  12.0  Variance  14.0  15.1  43.9  17.6  16.0  19.1  NPV  e t remov  NPV%  .  t r a d  N*V%  n e w  VINT  t  Z REG Vernon REG Kelown. REG Summer. REG P e n t i c . REG O l i v e r REG Osoyoos REG Cawston time ARDSA OVTFA 1 OVTFA 2  2  NB:  ( *  -L5E-2 (-2.8*)  R e g r e s s i o n c o e f f i c i e n t v a l u e s a r e s c a l e d by a v a l u e o f 1000 f o r presentation. To o b t a i n t r u e c o e f f i c i e n t v a l u e s d i v i d e numbers i l l u s t r a t e d above by 1000. )  = t statistic = s i g n i f i c a n t a t p =.05  [ n  85  ]  =64  = elasticity observations  Removals of v i n t a g e t r e e s are p o s i t i v e l y c o r r e l a t e d to the p r o f i t e x p e c t a t i o n s from the t r e e s b e i n g removed. T h i s does not  support  the a p r i o r i e x p e c t a t i o n t h a t growers remove t r e e s when  their  p r o f i t a b i l i t y declines.  Removals are not  d r i v e n by  traditional varieties. the  new  varieties  the p r o f i t  expectations  Across models, t h i s statement  coefficient,  but  the  of new  or  i s true f o r  traditional  varieties  c o e f f i c i e n t e x h i b i t s a s i g n i f i c a n t l y negative c o e f f i c i e n t  effect.  Depending on the model, there seems to be evidence t h a t the p r i c e of  traditional varieties  does e f f e c t  removals.  O b v i o u s l y , when there are more v i n t a g e t r e e s i n a r e g i o n t h e r e i s a  lower  degree  of  t r e e removal.  increase  i n younger  removal.  These  historically, supports percentage  the  trees  there  observations  r e p l a n t i n g has notion  that  in  Conversely, i s a l s o an reinforce  followed regions  as  increase the  removals. were  there  there  in  notion As  is  tree that,  well,  is a  an  it  higher  of younger t r e e s , growers are more apt to r e p l a n t .  The ADRSA program had no e f f e c t on removals, program decreased  however, the OVTFA  the l e v e l of removal a c t i v i t y .  I n c r e a s i n g the v a l u e of the r e p l a n t grant i n c r e a s e d the l e v e l of removals. 86  Removals do not f o l l o w a c o l d w i n t e r which c o u l d cause economic injury.  I n c i d e n t l y , Kelowna, Vernon and Creston, the t h r e e areas  which h i s t o r i c a l l y  experience  colder winter  temperatures, a l l  have a h i g h e r dummy v a r i a b l e c o e f f i c i e n t than the o t h e r r e g i o n s . It  could  winter  be  that  injury.  percent  the r e g i o n a l dummies  partially  account f o r  Perhaps these r e g i o n s i n g e n e r a l have a h i g h e r  o f t r e e s t h a t are i n j u r e d by c o l d e r temperatures  occurred  i n a period  outside  o f the data  s e t , which  that the Z  v a r i a b l e c o u l d not account f o r .  Over time,  there was a i n c r e a s e i n removals o f t r e e s .  Across  models, t h i s time e f f e c t was d i f f e r e n t s u g g e s t i n g t h a t the time v a r i a b l e i s not r o b u s t .  4.7  E m p i r i c a l Values  The  results  of  the e m p i r i c a l model  can form  the b a s i s f o r  e s t i m a t i n g the e f f e c t s of government p o l i c i e s on r e p l a n t and a r e described i n this section.  4.7.1  The E f f e c t s o f F I I and NTSP  Appendix C i l l u s t r a t e s time.  In r e a l  terms  the nominal v a l u e s o f F I I and NTSP  over  (1991 d o l l a r s , u s i n g the CPI) the average  payment t o growers has been 3.42 cents p e r pound.  T h i s i s the  i n c r e a s e i n p r o f i t e x p e c t a t i o n s growers have expected 87  for their  fruit.  If  varieties,  this the  $4765 h i g h e r  increased  NPV  over  the  expected  for traditional the  20  years  acreage  of  retained vintage  removed (and replanted) without  NPV  varieties  from 1973  c o e f f i c i e n t of t r a d i t i o n a l v a r i e t i e s the  value  7  of  traditional  would  to 1992.  have Using  been the  from the removals equation,  trees  that  would  have  been  F I I or NTSP i n p l a c e would be:  * c o e f f i c i e n t * t o t a l acres t r e e f r u i t * 2 0 y e a r s  4765 * 4.3E-07 * 23415 *20  NB:  = 960  acres  T h i s c a l c u l a t i o n underestimates the a c r e s s i n c e i t i s a static calculation. In r e a l i t y , as growers would have r e p l a n t e d more, the i n c r e a s e d p r o p e n s i t y to r e p l a n t c r e a t e d by the d e c l i n e i n v i n t a g e t r e e s would have spurred a d d i t i o n a l removals and r e p l a n t i n g .  T h e r e f o r e , the top l o a d i n g subsidy programs l e d to the r e t e n t i o n of 960  a c r e s of apples  t h a t would have been removed i f F I I  and  NTSP were not implemented.  The  1991  OVTFA survey t o t a l l e d 6527  acres  the  age  of  of  tree  fruits  over  20  A c c o r d i n g to t h i s c a l c u l a t i o n approximately  years  (Table  1.10).  15% of these v i n t a g e  t r e e s are i n p l a c e s o l e l y because of F I I and NTSP.  The  additional  costs  of  these  programs  from  1973  to  1992  The expected NPV o f t r a d i t i o n a l v a r i e t i e s from the removals e q u a t i o n i s used i n the c a l c u l a t i o n . These would r e p r e s e n t t r e e s t h a t may have been m a r g i n a l l y p r o f i t a b l e and r e q u i r e d a s u b s i d y payment to keep them from b e i n g removed. The expected NPV of removals was not used s i n c e the t r e e s b e i n g removed f o r t h a t v a r i a b l e were s l a t e d f o r removals r e g a r d l e s s of s u b s i d y programs i n place. 7  88  (assuming  20,000 l b s p e r acre) were:  960 * 20,000 * .0342 * 20 y e a r s =  $13,132,800.00  Because these two top l o a d i n g subsidy programs l e f t growers w i t h marginal  t r e e s i n the ground, the c o s t t o s o c i e t y  these t r e e s would have been approximately  to maintain  $13 m i l l i o n  dollars.  I t i s i n t e r e s t i n g t o note that because the programs o n l y brought growers  up  t o the c o s t o f p r o d u c t i o n ,  that  much  o f the $13  m i l l i o n may not have been expressed as a p r o f i t by the growers and was a dead weight l o s s t o s o c i e t y .  89  5.0  Summary, C o n c l u s i o n s and P o l i c y I m p l i c a t i o n s  T h i s chapter summarizes the study and draws c o n c l u s i o n s which a r e used t o develop p o l i c y i m p l i c a t i o n s .  5.1  The  Summary and Conclusions  o b j e c t i v e of t h i s  study  i s t o examine  o r c h a r d r e n o v a t i o n i n the Southern A  mathematical  constructed, varieties,  model  using  I n t e r i o r o f B r i t i s h Columbia.  o f the supply  plantings  of  the mechanics o f  response  new  and  and removals o f t r a d i t i o n a l  o f growers  traditional  varieties  was apple  as dependent  variables.  The s t r u c t u r e and environment under which growers i n Southern BC operate  a r e d i s c u s s e d and t e s t e d i n an e m p i r i c a l model.  The  a n a l y s i s covers a l l e i g h t r e g i o n s over e i g h t y e a r s , t e s t i n g the two p l a n t i n g s equations and one removals equation i n d i v i d u a l l y as O r d i n a r y L e a s t Squares  (OLS).  O r c h a r d i s t s i n Southern B r i t i s h Columbia a r e f a c e d w i t h managing a mixture  o f l o n g term investments.  On the one hand  orchard  r e n o v a t i o n can p r o v i d e i n c r e a s e d revenue, but revenues a r e n o t experienced  immediately  and p e r c e p t i o n s 90  of r i s k  hinder  supply  responsiveness.  When o r c h a r d r e n o v a t i o n i s c o n s i d e r e d , the grower has two o p t i o n s to  consider.  New  apple v a r i e t i e s draw c o n s i d e r a b l e n o t i c e but  growers do not appear to change p l a n t i n g behaviour g i v e n changes in  prices.  increases  Perhaps p r i c e s are i n p r i c e s do  replanting.  not  Conversely,  a  already p r o f i t a b l e  result  i n already  lowering  enough  high  in prices  and  levels  (and  of  expected  p r o f i t s ) does not n e c e s s a r i l y cause a d e c l i n e i n a c r e s p l a n t e d . Perhaps the c o n s e r v a t i v e long-term possible declines i n prices into  The  grower takes  nature  of farmers  has  taken  account.  these elements i n t o c o n s i d e r a t i o n and  selects  the v a r i e t y t h a t w i l l maximize p r o f i t s ; however, not a l l elements are weighted e q u a l l y . varieties  For example the expected  p r o f i t s of  i s not used i n the d e c i s i o n process but  profits  of a v i n t a g e b l o c k  regions  will  is.  react d i f f e r e n t l y ,  As w e l l , as  the  new  expected  growers i n d i f f e r e n t  supported  by  r e g i o n dummy  variable variations.  Replanting  to new  varieties  e x p e r i e n c e w i t h the new  i s more l i k e l y  cultivar.  i f there  is  local  Thus r e g i o n s where r e p l a n t i n g  has o c c u r r e d i n the p a s t w i l l see a h i g h e r l e v e l of r e p l a n t i n g . T h i s i s s i m i l a r to the f i n d i n g s of Z v i G r i l i c h e s , i n t h a t growers are  likely  to  adapt  new  technology  more r a p i d l y  i f they  p r e v i o u s experience w i t h technology adoption i n the p a s t . 91  had  R e g i o n a l d i f f e r e n c e s do e x i s t . and  better  adoption  educated  to new  (eg  Regions where growers are younger  Cawston)  varieties.  have  seen  higher  Areas which c o n t a i n  levels  of  more m a r g i n a l  growing areas (eg Vernon) have a l e s s e r a d o p t i o n to new v a r i e t i e s and  a  results  greater from  reliance Zvi  on  traditional  Grilliches,  it  is  varieties. unclear  which  elements of a r e g i o n a f f e c t r e p l a n t i n g d e c i s i o n s . age  the  quality  of  the  Like  the  specific  Somehow farmer  and  education,  and  farm  land  act  as  inputs.  Separating  these elements i s a t o p i c f o r f u t u r e work.  I t would seem more a p p r o p r i a t e  to work at a f i n e r l e v e l of data  aggregation.  from  Perhaps moving  the  regional  producer l e v e l would generate b e t t e r r e s u l t s  Government programs  8  level  to  the  .  ( i n c l u d i n g grants) aimed a t r e p l a n t i n g on  a  whole can i n c r e a s e the l e v e l of r e p l a n t i n g but d i r e c t i n g growers i n t o p l a n t i n g to new qualify  v a r i e t i e s , w h i l e i n c r e a s i n g the c r i t e r i a  f o r g r a n t s appears to have been s u c c e s s f u l .  g i v e n the s h o r t time p e r i o d of t h i s study, i t may draw such c o n c r e t e  5.2  Policy  However,  be too e a r l y to  conclusions.  Implications  F I I and NTSP  I n i t i a l l y the author wished to work a t the farm l e v e l o f a g g r e g a t i o n , l i m i t a t i o n s i n d a t a r e s u l t e d i n working a t the r e g i o n a l l e v e l . 8  92  to  but  These two programs have h i s t o r i c a l l y been a s i g n i f i c a n t p a r t o f the economics o f t r e e f r u i t p r o d u c t i o n  i n the p r o v i n c e .  I t would  be f a i r t o say t h a t they have i n c r e a s e d p r o f i t e x p e c t a t i o n s  from  older  more  blocks  which  have  resulted  in  replanting  t r a d i t i o n a l v a r i e t i e s and l e s s to new v a r i e t i e s . this  work  show  this  t o amount  equals  960  to  E s t i m a t e s from  acres,  c o s t i n g the  government an a d d i t i o n a l $13 m i l l i o n .  These  programs  plantings The  i s a reduction  varieties.  the p r o f i t  expectations  from  T h i s has had two e f f e c t s .  i n the l e v e l  of r e p l a n t i n g  t o new  The second i s an i n c r e a s e i n the l e v e l o f p l a n t i n g t o  traditional  programs  increased  of t r a d i t i o n a l v a r i e t i e s .  first  profit.  also  v a r i e t i e s by perhaps  Over may  a  period  have  of  blocked  creating  time, growers  these from  a  comfort  zone o f  top l o a d i n g  subsidy  fully  examining  new  v a r i e t i e s that were more hardy o r from examining p l a n t i n g t o new crops e n t i r e l y . top  loading  I t may have "locked" growers i n t o r e l y i n g on the  subsidy  growers may f e e l are  limited,  programs.  I t becomes more c l e a r why  some  that without F I I and NTSP, t h e i r a l t e r n a t i v e s  and  the  removal  of  the  ALR  is  their  only  alternative.  5.3 Government P o l i c y  The  information  generated  from 93  this  thesis  illustrates  the  complex  nature  of  a  replanting  decision.  Past  and  present  p r o v i n c i a l and f e d e r a l governments have wished r e p l a n t i n g t o take p l a c e a t a f a s t e r pace.  Perhaps they have o v e r l o o k e d the complex  l o n g term d e c i s i o n s growers are faced w i t h .  The n o t i o n of F I I  and r e p l a n t programs seem to m a i n t a i n a c o n f l i c t i n g  objective,  y e t these two programs operated c o n c u r r e n t l y from 1987 to 1992.  5.3.1  Ad Hoc  Perhaps  more  Payments  detrimental  is  the  effect  of  special  ad  hoc  payments, whereby the p r o v i n c i a l government would q u i c k l y a i d the i n d u s t r y , when f i n a n c i a l c o n d i t i o n s i n d i c a t e d t h a t F I I and NTSP payments were not enough. b u s i n e s s who As w e l l ,  These ad hoc payments kept growers i n  perhaps would have otherwise e x i t e d  such payments  the i n d u s t r y .  allowed growers to keep v i n t a g e  which s h o u l d have been r e p l a n t e d .  blocks  These payments slowed down the  on the e n t r y / e x i t  behaviour of growers, thereby h i n d e r i n g the  a d a p t a t i o n of new  technology needed f o r o r c h a r d i s t s  competitive.  This  not  only  affected  replanting  t o remain  but brought  p r e s s u r e s on the ALR.  The  federal  government  and  bodies  governments,  provincial acting  wishing  to  governments  were  i n a conflicting expand 94  their  not  manner.  urban  tax  the  only  Municipal base,  saw  opportunity  i n u r g i n g growers to c h a l l e n g e  the r e s t r i c t i v e  For c e r t a i n , t h i s changed growers' e x p e c t a t i o n s  of l a n d  values,  p a r t i c u l a r l y i n areas on the f r i n g e of urban development. recently,  the success  of a grower has  a b i l i t y to remove l a n d from the ALR,  The have  Replant  r a t h e r than an achievement  varying  Increasing vintage  effects  and  has  traditional varieties. has e i t h e r discouraged net  levels on  of d i r e c t  growers'  the amount of grants  trees  land.  Subsidies  types of programs and had  Most  been measured i n h i s / h e r  r e l a t e d to the a g r i c u l t u r a l stewardship of the  5.3.2  ALR.  has  increased  payment to growers  replanting  encouraged the  the  levels  of  decisions. removals of  replanting  However r e p l a n t programs by  themselves  c e r t a i n types of r e p l a n t i n g or have had  e f f e c t on r e p l a n t e d a c r e s .  In e i t h e r case,  to  no  the q u a l i t y of  the r e p l a n t p r o j e c t s have improved, r e s u l t i n g i n b e t t e r r e p l a n t proj ects.  5.3.3  Regional  Differences  I n d i v i d u a l s i n the i n d u s t r y and feel  t h a t r e p l a n t i s a key  i n v a r i o u s l e v e l s of government  component to the  s u s t a i n a b i l i t y of the apple i n d u s t r y . 95  l o n g term economic  To support  this direction,  governments have embraced r e p l a n t programs. These programs have been  broad  based,  and d i r e c t e d  t o the i n d u s t r y  However, the a n a l y s i s i n t h i s t h e s i s supports uptake has been h i g h l y r e g i o n s p e c i f i c . the  endowments o f c l i m a t e  and s o i l ,  as a  whole.  a conclusion that  T h i s i s i n p a r t due t o  and p a r t i a l l y due t o the  demographics o f the farmers i n the r e g i o n .  Regardless  o f reason, both the l e v e l o f r e p l a n t i n g and the types  of v a r i e t i e s b e i n g p l a n t e d do vary by r e g i o n . the  f u t u r e economic w e l l - b e i n g  growers i n the Cawston r e g i o n at a faster  This could a f f e c t  o f the r e g i o n s .  F o r example,  (Similkameen V a l l e y ) a r e p l a n t i n g  r a t e than other r e g i o n s , and a r e p l a n t i n g more new  v a r i e t i e s r e l a t i v e t o other r e g i o n s . a divergence  In time, t h i s w i l l  i n the p r o f i t a b i l i t y o f apple growing i n d i f f e r e n t  r e g i o n s , t h a t was p r e v i o u s l y masked by the F I I and NTSP programs.  Consequently, i t may be d i f f i c u l t  grower a s s o c i a t i o n s "industry"  create  as  a  f o r government and  ( l i k e the BCFGA) t o develop p o l i c y  whole,  i f the divergence  significant.  96  subsidy  continues  f o r the t o be  Bibliography  Akiyama T. and T r e v e d i P.K. Perennial  Crop  V i n t a g e P r o d u c t i o n Approach t o  Supply:  An  Application  Producing C o u n t r i e s . J . Econometrics  A l l a n R.N.  and Carman H.Y.  Response April  Tea  i n Major  36(1987):133-161  A Model of New  to T e c h n o l o g i c a l  to  Zealand Apple Supply  Change. Aust  J . of Agr.  Econ.  (1975):30-51  A l s t o n J.M.,  F r e e b a i r n J.W.  Response  in  the  and Q u i l k e y J . J . A model of Supply  Australian  Orange  Growing  Industry.  A u s t r a l i a n J o u r n a l of A g r i c u l t u r a l Economics. 24 (1980) :248267  B a r i t e l l e J.L. and P r i c e D.W. Strategies  for  Supply Response and M a r k e t i n g  Deciduous  Crops.  Am.  J.  Agr.  Econ.  56 (2) (1974) : 245-253  French B.C.  and B r e s s l e r R.G.  The Lemon C y c l e . J o u r n a l o f Farm  Economics. 44 (1962) : 1021-1036  French B.C.,  K i n g G.A.  and Nunami D.D.  P l a n t i n g and Removal  R e l a t i o n s h i p s f o r P e r e n n i a l Crops: An a p p l i c a t i o n t o C l i n g Peaches.  Am.  J . Agr. Econ. 67(1985): 215-223  97  French  B.C.  and  Mathews  P e r e n n i a l Crops.  J.L.  Am.  A  Supply  Response  Model  for  J . Agr. Econ. 53(1971): 478-490  G r i l i c h e s Z v i , H y b r i d Corn: An E x p l o r a t i o n i n the Economics o f T e c h n i c a l Change.  H a r t l e y M.J.,  Econometrica v o l . 25 no. 4  N e r l o v e M.,  Rubber  Supply  in  and P e t e r s K.R. Sri  Lanka.  (1957)501-522  J r , An a n a l y s i s of Am.  J.  Agr.  Econ.  69 (1987) :755-761  K a l a i t z a n d o n a k e s N.G. and Shonkwiler J.S. to P e r e n n i a l Crop A n a l y s i s .  A State-Space Approach  Am J . Agr. Econ. May(1992) 343 -  352  Knapp K.C.  and  Konyar  K.  Perennial  Kalman F i l t e r Approach.  J a r a m i l l o F.  Crop  Supply Response:  A  Am. J . Agr. Econ. Aug(1991):841-849  An Econometric A n a l y s i s of the Columbian C o f f e e  Industry.  PhD  Thesis.  (1989)  University  of  California  Berkeley  Stennes  B.L.  Apple Cost of P r o d u c t i o n  a t the Farm L e v e l  B r i t i s h Columbia and Washington S t a t e .  Wickens M.R.  in  BCMAFF. (1994).  and G r e e n f i e l d J.N. The Econometrics of A g r i c u l t u r a l  Supply: An A p p l i c a t i o n to the World C o f f e e Market. Rev Econ. 98  and S t a t i s t . 55 (1973) :433-40.  99  APPENDIX A  100  APPENDIX B C a l c u l a t i o n o f Net Present  Price  Values  Expectations  Annual r e g i o n a l p r i c e e x p e c t a t i o n s f o r t r a d i t i o n a l and new apple varieties  were  c a l c u l a t e d by  listing  the farm  r e c e i v e d f o r each i n d i v i d u a l v a r i e t y i n each y e a r . then made r e a l , u s i n g the CPI and then lagged identifying  i n any p e r i o d .  which expressed  a weighting  A distributed  prices  P r i c e s were  f o r each v a r i e t y ,  the importance of p r i c i n g h i s t o r y  expectations  gate  i n forming l a g was  price  generated  t h a t p l a c e d a s t r o n g e r emphasis on  the t-2 p e r i o d , i d e n t i f y i n g t h a t i t takes two p e r i o d s f o r farmers to r e c e i v e i n f o r m a t i o n o f crop v a l u e s . t-3 were addressed The  As w e l l , p e r i o d s t-1 and  as having i n f l u e n c e on r e p l a n t i n g d e c i s i o n s .  f o l l o w i n g d i s t r i b u t e d l a g was used:  weight(price)  = (1/2)i - (1/6)i  weight(price)  2  + (8/1000)i  3  period  When i = l  0.35  t-1  i=2  0.42  t-2  i=3  0.28  t-3  From t h i s , a weight was a s s i g n e d t o p a s t y e a r s 3).  where i = p e r i o d  ( i e t - 1 , t-2,  The weight i s m u l t i p l i e d by the p r i c e i n t h a t y e a r . 101 .  t-  These  are  summed up f o r three years  t o from a p r i c e e x p e c t a t i o n f o r  period t.  For example, assume the h i s t o r i c a l r e a l p r i c e s f o r a p a r t i c u l a r v a r i e t y i n a c e r t a i n r e g i o n i s as f o l l o w i n g : 87  Year  88  7  12  8  Price  89  90 15  Weight  .28  .42  .35  0  Period  t-3  t-2  t-1  t  The p r i c e e x p e c t a t i o n f o r 1990 would be: p e  i99o  =  (8  *  0.28)  +  (12  *  0.42)  +  (7  *  0.35)  +  (15  *  0)  =  9.73  For each r e g i o n , the p r i c e e x p e c t a t i o n s f o r each year and v a r i e t y are m u l t i p l i e d by the acres o f t h a t v a r i e t y p l a n t e d i n t h a t y e a r . New v a r i e t i e s  and t r a d i t i o n a l v a r i e t i e s  The  product  two  classes of v a r i e t i e s  planted  are l i s t e d  o f a c r e s and p r i c e e x p e c t a t i o n s  f o r that c l a s s .  separately.  a r e summed f o r the  and then d i v i d e d by the t o t a l This  acres  then c a l c u l a t e s an average p r i c e  e x p e c t a t i o n f o r new and t r a d i t i o n a l v a r i e t i e s i n each r e g i o n . I t is  a n t i c i p a t e d that  each  region  would  then  have  a  different  e x p e c t a t i o n based on the h i s t o r i c a l p r i c i n g o f each v a r i e t y and the p r o p o r t i o n o f acres p l a n t e d t o the d i f f e r e n t  102  varieties.  For  example:  Variety  P  Mcintosh  0.12  2  Red  0.08  3  Spartan  0.14  8  Golden D e l i c i o u s  0.10  1  Delicious  e  Acres Planted  Acres *  103  e  0.24 0.24 1.12 0.10  1.70 Total: 14 The P f o r t r a d i t i o n a l v a r i e t i e s for this period would be (1.70 / 14) = 0.12 or 12 cents per pound. e  P  and  region  Net Present  Values  The  expectations  price  calculated  the  net  were  present  then value  fed of  into  a  model  planting  an  which acre.  E s t a b l i s h m e n t and o p e r a t i n g c o s t s , and i n c r e m e n t a l i n c r e a s e s i n yield  were assumed.  P l a n t i n g s of t r a d i t i o n a l  varieties  were  c a l c u l a t e d assuming a p l a n t a t i o n d e n s i t y of 400 t r e e s p e r a c r e and new v a r i e t i e s based on 600 t r e e s p e r a c r e .  In the case of removals,  there a r e no establishment  o p e r a t i n g c o s t of $2900.00 per acre i s used.  c o s t s so an  T h i s i s based on  the M i n i s t r y o f A g r i c u l t u r e c o s t o f p r o d u c t i o n study, Apple of  Production  at  Washington S t a t e  the  (Stennes  Farm  Level  1994).  104  in  British  Columbia  Cost and  APPENDIX C B.C. Apple Returns  (nominal cents/pound)  I n c l u d i n g Support  Payments (Farm Gate 1973-1992 cee grade and b e t t e r ) FII  NTSP o r FIA  Total Returns  Year  Market Return  1973  5.86  1.28  7 .14  1974  6.60  0.67  7 .27  1975  2.93  2 .40  6.55  1976  4.97  2 .14  7 .11  1977  9.10  0.26  9.36  1978  9.82  0.14  9.96  1979  1.18  -0.65  10.58  9.93  3.62  10.93  2.31  10.48  2 .10  3 .31  10.87  6.76  0.50  2.25  9.50  1984  5.59  0.75  2 .87  9.21  1985  13 .77  2.48  16.25  1986  16.20  0.11  16.31  2.00  13.00  1.72  13 .87  2.69  15.93  1.81  15.04  1980  5.54  1981  8.18  1982  5.46  1983  1987  7.64  1988  12 .15  1989  7.72  1990  13 .23  1991  16.67  1992  14.73  1.77  1.61  1.52  16.67 0.2  0 .25  15.18  Source: BCFGA Note:  1987 t o t a l c o n t a i n s 1.75 c / l b s p e c i a l payment f o r Red Delicious 1989  t o t a l c o n t a i n s 4.00 c / l b s p e c i a l payment  105  APPENDIX D S e l e c t e d C r o s s - T a b u l a t i o n of Demographics f o r the Salmon Arm and Vernon Region Education  Age Years  0  1-3  4-7  8-10  11-12  Trade  Coll  N/R  TOTAL  0-25  0  0  0  0  0  0  1  0  1  26-35  0  0  0  2  1  0  3  0  6  36-45  0  0  0  1  8  3  11  0  23  46-55  0  0  0  4  8  2  11  0  25  56-65  0  0  0  8  10  3  5  1  27  66 +  0  0  3  3  2  0  5  3  16  N/R  0  0  0  0  0  0  0  4  4  TOTAL  0  0  3  18  29  8  36  8  102  S e l e c t e d Cross T a b u l a t i o n o f Demographics f o r the Kelowna Area Education  Age Years  0  1-3  4-7  8-10  11-12  Trade  Coll  N/R  TOTAL  0-25  0  0  0  0  1  1  0  0  2  26-35  0  0  0  7  31  10  19  2  69  36-45  0  0  1  8  56  17  46  2  130  46-55  0  0  2  20  57  15  33  7  134  56-65  0  1  15  44  59  9  27  9  164  66 +  1  1  3  20  26  2  11  7  71  N/R  0  0  0  0  1  0  1  23  25  TOTAL  1  2  21  99  231  54  137  50  595  106  S e l e c t e d Cross T a b u l a t i o n of Demographics f o r the P e n t i c t o n and Summerland Region Education  Age Years  0  1-3  4-7  8-10  11-12  Trade  Coll  N/R  TOTAL  0-25  0  0  0  0  0  0  0  1  1  26-35  0  0  0  3  13  5  7  1  29  36-45  0  0  4  11  26  9  29  3  82  46-55  0  0  7  18  18  10  29  3  85  56-65  0  3  6  18  29  7  17  4  84  66 +  0  1  2  13  14  4  11  0  45  N/R  0  0  0  0  2  0  0  15  17  TOTAL  0  4  19  63  102  35  93  27  343  S e l e c t e d Cross T a b u l a t i o n o f Demographics f o r the Oliver-Osoyobs Region Education  Age Years  0  1-3  4-7  8-10  11-12  Trade  Coll  N/R  TOTAL  0-25  0  0  0  1  1  0  0  0  2  26-35  1  0  6  20  30  8  5  0  70  36-45  1  0  20  16  47  15  29  2  130  46-55  0  5  30  14  25  5  15  11  105  56-65  4  4  27  19  24  2  14  17  111  66 +  2  0  6  11  19  1  4  11  54  N/R  0  0  0  0  0  0  0  7  7  TOTAL  8  9  89  81  146  31  67  48  479  107  S e l e c t e d Cross T a b u l a t i o n of Demographics f o r the Cawston-Keromeos Region Education  Age Years  0  1-3  4-7  8-10  11-12  Trade  Coll  N/R  TOTAL  0-25  0  0  0  1  0  0  0  0  1  26-35  0  0  0  5  13  2  1  1  22  36-45  0  0  1  5  14  16  13  1  50  46-55  0  0  1  4  7  1  7  1  21  56-65  0  0  8  7  4  2  5  4  30  66 +  0  0  0  6  4  0  3  4  17  N/R  0  0  0  0  1  0  0  4  5  TOTAL  0  0  10  28  43  21  29  15  146  S e l e c t e d Cross T a b u l a t i o n o f Demographics f o r the C r e s t o n Region Education  Age Years  0  1-3  4-7  8-10  11-12  Trade  Coll  N/R  TOTAL  0-25  0  0  0  0  0  0  0  0  0  26-35  0  0  0  1  4  2  3  0  10  36-45  0  0  0  0  3  1  2  0  6  46-55  0  0  0  1  3  3  5  0  12  56-65  0  0  1  2  3  4  7  0  17  66 +  0  0  0  0  4  3  2  1  10  N/R  0  0  0  0  1  0  0  0  1  TOTAL  0  0  1  4  18  13  19  1  56  108  APPENDIX E Classification study:  o f new  and t r a d i t i o n a l  varieties  New  Traditional  Akane Breaburn Criterian Discovery Earligold Empire Elstar Fiesta Fuj i Gala Granny Smith Idared Jonagold Mutsu Sunrise Idared Sinta Sumac Shamrock Gravenstien  Red D e l i c i o u s Golden D e l i c i o u s L o d i (or Yellow Transparent) Mcintosh Newtown Red Rome Tydeman's Red Spartan Wealthy Winter Banana Winesap  109  used  i n this  Appendix F Summary o f Data The data used i n t h i s t h e s i s has been aggregated level.  t o the r e g i o n a l  The t a b l e below i s a summary o f the v a r i a b l e s .  Variable  Level  Observations  Source  Tree V i n t a g e Acres P l a n t e d Prices OVTFA and ARDSA Weather (Z) Grants  Regional Regional Regional Regional Regional Regional  1991 survey Annual 85-92 Annual 80-92 Annual 85-92 Annual 80-91 Annual 85-92  OVTFA OVTFA, BCMAFF Industry BCMAFF, OVTFA BC Min Environ. BCMAFF, OVTFA  NB.  Data i s a v a i l a b l e f o r 8 r e g i o n s  The q u a l i t y o f the OVTFA data i s e x c e p t i o n a l l y h i g h . Farm l e v e l data was c o l l e c t e d as p a r t of a comprehensive survey. Farmer demographics were c o l l e c t e d . As w e l l , i n f o r m a t i o n on a t r e e by t r e e b a s i s were logged i n t o a g e o g r a p h i c a l i n f o r m a t i o n system (GIS) and i n f o r m a t i o n on l a n d use were c a l c u l a t e d from t h e r e . Tree V i n t a g e :  Tree v i n t a g e i s the acres of t r e e s o l d e r than 2 0 y e a r s o f age. These t r e e s a r e p a s t t h e i r maximum p r o f i t a b i l i t y and growers w i l l take a view t o remove t r e e s o f t h i s age. from the 1991 OVTFA o r c h a r d survey.  I n f o r m a t i o n i s taken  The survey a c t s as a bench  mark which i s a d j u s t e d a n n u a l l y from removals t h a t o c c u r r e d i n each r e g i o n .  F i g u r e s a r e p r e s e n t e d as the p e r c e n t o f v i n t a g e t r e e s as r e l a t i v e to the t o t a l acreage o f a l l f r u i t t r e e s i n the r e g i o n .  110  Plantings:  P l a n t i n g s are acres of apples p l a n t e d r e l a t i v e to the t o t a l apple acreage f o r the r e g i o n .  These f i g u r e s are r e p o r t e d to government  w i t h removal i n f o r m a t i o n . farm  level  estimation  but  has  This information  been aggregated  into  i s a v a i l a b l e at a  regional  the  form  for  i n t h i s model.  Prices:  The  prices  are  the  real  farm gate p r i c e s  payments are i n c l u d e d i n the p r i c e .  of  apples.  Subsidy-  Farm gate p r i c e s by grower  and v a r i e t y are kept on f i l e at BC Tree F r u i t s from 1986 P r i o r to t h a t , p r i c e s were kept on a p r o v i n c i a l l e v e l . f o r the l a c k of r e g i o n a l data d u r i n g those y e a r s 1982 s m a l l r e g r e s s i o n , u s i n g 1986  to 1991  p r i c e d i f f e r e n c e s between r e g i o n s . to  c a l c u l a t e a p r i c e of  new  or  p r i c e s was  to To  1991. adjust  to 1985,  a  used to e s t i m a t e  These p r i c e s were then used  traditional  varieties in  each  region.  The  composition  varieties  of  varied  v a r i e t i e s that  by  year  and  v a r i e t i e s planted  and  depending  acreage of  on  the  made up  region  removed.  new  depending  or  traditional  on  the  mix  of  Each v a r i e t y r e c e i v e d a weight  that  v a r i e t y planted  or  removed.  P r i c e s of Red D e l i c i o u s s t r a i n s were used s e p a r a t e l y depending on whether the p r i c e of Red  D e l i c i o u s was 111  r e q u i r e d i n the  removals  or p l a n t i n g planting  equation.  equation  and  New  strain  old  strain  information information  was  used i n  the  was  used  the  in  removals e q u a t i o n .  Planting  Subsidy:  These two offered  dummy v a r i a b l e s  to  growers d u r i n g  ARDSA program, and value  was  used  programs. increased  dollar  1991 for  Subsidies  the  periods  to 1992 years  but  representing  were p r o v i d e d  eligibility  1986  subsidy programs  to  1990  under  under the OVTFA program.  i n v a l u e through time.  replanting, programs.  account f o r r e p l a n t  in  no a  specific  grant  form  A zero replant  and  have  The programs o f f e r e d g r a n t s f o r  criteria  varied  between  D o l l a r amounts of the g r a n t s v a r i e d as w e l l .  amounts were e i t h e r  the  included  i n the  NPV  of  the  the  two These  new  or  t r a d i t i o n a l v a r i e s v a r i a b l e s , o r were i n c l u d e d s e p a r a t e d under a Grants v a r i a b l e , depending upon the model.  This  data  is  sourced  from  the  British  Columbia  Ministry  of  A g r i c u l t u r e , F i s h e r i e s and Food and from the Okanagan V a l l e y Tree Fruit  Authority.  Weather:  112  A dummy v a r i a b l e  was c o n s t r u c t e d t o account  which caused w i n t e r i n j u r y t o f r u i t t r e e s .  f o r temperatures  I f the minimum w i n t e r  temperatures d u r i n g October o r November reached -25 C e l s i u s and i f temperatures i n February o r March r e c e i v e d temperature o f -25 Celsius  and then  i n 24 hours  winter i n j u r y occurred. was  exceeded  15 C e l s i u s ,  economic  T h i s v a r i a b l e i s a dummy v a r i a b l e and  r e c o r d e d as yes (1) o r no (0) that  such damaging weather  conditions occurred.  Grants  T h i s v a r i a b l e accounts f o r the v a l u e o f g r a n t s o f f e r e d i n any year.  Grants i n c r e a s e d from zero i n 1985 t o $3500 i n 1992.  113  

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