UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

A simulation analysis of alternative stabilization schemes for the British Columbia hog industry Palacios, Alejandro 1978

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Notice for Google Chrome users:
If you are having trouble viewing or searching the PDF with Google Chrome, please download it here instead.

Item Metadata

Download

Media
831-UBC_1978_A6_7 P34.pdf [ 6.31MB ]
Metadata
JSON: 831-1.0094284.json
JSON-LD: 831-1.0094284-ld.json
RDF/XML (Pretty): 831-1.0094284-rdf.xml
RDF/JSON: 831-1.0094284-rdf.json
Turtle: 831-1.0094284-turtle.txt
N-Triples: 831-1.0094284-rdf-ntriples.txt
Original Record: 831-1.0094284-source.json
Full Text
831-1.0094284-fulltext.txt
Citation
831-1.0094284.ris

Full Text

A SIMULATION ANALYSIS OF ALTERNATIVE STABILIZATION SCHEMES FOR THE BRITISH COLUMBIA HOG INDUSTRY by ALEJANDRO PALACIOS A THESIS SUBMITTED IN PARTIAL FULFILLMENT THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE in THE FACULTY OF GRADUATE STUDIES DEPARTMENT OF AGRICULTURAL ECONOMICS We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA July, 1978 (c) Alejandro Palacios, 1978 In presenting th i s thes is in pa r t i a l fu l f i lment o f the requirements for an advanced degree at the Univers i ty of B r i t i s h Columbia, I agree that the L ibrary shal l make it f ree ly ava i l ab le for reference and study. I fur ther agree that permission for extensive copying of th i s thesis for scho lar ly purposes may be granted by the Head of my Department or by his representat ives. It is understood that copying or pub l i ca t ion of this thes is for f inanc ia l gain sha l l not be allowed without my writ ten permission. Department of AGRICULTURAL ECONOMICS The Univers i ty of B r i t i s h Columbia 2075 Wesbrook Place Vancouver, Canada V6T 1W5 AUGUST 24, 1978 Date i i ABSTRACT Given the B r i t i s h Columbia Government goal of income s t a b i l i t y for hog producers, the major objective of t h i s study was to estimate the budgetary cost to the p r o v i n c i a l government and effectiveness of the Farm Income Assurance Program (FIAP) and alternative schemes i n achieving t h i s goal. To accomplish t h i s objective, i t was necessary to b u i l d a mathematical model incorporating the main features of the B r i t i s h Columbia hog industry and capable of simulating the operation and consequences of a variety of s t a b i l i z a t i o n schemes. Modelling of the B r i t i s h Columbia hog industry posed a number of d i f f i c u l t i e s . Overcoming these d i f f i c u l t i e s required a combination of economic theory and empirical__ y knowledge. The basic assumption underlying the hog model was that B r i t i s h Columbia hog production represents a minor component of the Canadian and North American market. This assumption implies that B r i t i s h Columbia hog producers face a perfectly e l a s t i c demand function. Thus, hog prices could be treated as exogenous, implying that any increase i n production, due to a s h i f t i n the supply function to the r i g h t , would be absorbed by the market with no e f f e c t on hog prices. Later a set of production assumptions and d i f f e r e n t alternative schemes designed to s t a b i l i z e producer income were incorporated into the model. Given that the objective of t h i s study was not to determine an optimal s t a b i l i z a t i o n program, because of the lack of knowledge of the objective function of policy makers, but rather to evaluate costs and effects of alternative s t a b i l i z a t i o n schemes, simulation was chosen as the research method. When the mathematical model was completed i t was translated into the computer model and the f i r s t step was to validate i t . H i s t o r i c a l v a l i d a t i o n was possible because the FIAP has been i n operation since January 1974. Although the model was b u i l t to be as f l e x i b l e and general as possible, and was able to handle several d i f f e r e n t alternative s t a b i l i z a t i o n schemes, th i s study reports r e s u l t s for only three of them: (1) Farm Income Assurance Program; (2) Modified Farm Income Assurance Program; and (3) Premium-Subsidy Scheme. The analysis of the r e s u l t s began with a single run for each scheme, in order to determine i t s e f f e c t s . Later, a detailed comparative analysis that involved changing one parameter value at a time was undertaken to assess the contribution of each parameter to the policy objective of income s t a b i l i t y . F i n a l l y , a series of simulation runs was performed and performance functions were estimated to allow more general conclusions to be drawn. To achieve income s t a b i l i t y a premium/subsidy scheme was shown to be preferable to FIAP, because i t c o l l e c t s farmer premiums i n a s t a b i l i z i n g way. To the extent that reduced government cost i s a goal, FIAP can be modified i n a number ways, i n c l u d i n g a s l i d i n g farmer premium. V TABLE OF CONTENTS Page ABSTRACT i i TABLE OF CONTENTS V LIST OF TABLES x i LIST OF FIGURES x i i i ACKNOWLEDGEMENT x i v CHAPTER 1 INTRODUCTION 1 1.1 The Hog Industry i n B r i t i s h Columbia . . . . 1 1.1.1 S p a t i a l D i s t r i b u t i o n o f Pr o d u c t i o n . . . . i 1.1.2 Hog Pr o d u c t i o n and E n t e r p r i s e S i z e . . . . 2 1.1.3 B r i t i s h Columbia's Hog P r o d u c t i o n and the P r o v i n c i a l Market 2 1.2 I n s t a b i l i t y i n B r i t i s h Columbia's Hog Ind u s t r y 3 1.3 Problem Statement 4 1.4 P r o v i n c i a l Government Goal f o r the Hog Ind u s t r y 5 1.5 O b j e c t i v e s of the Study 5 1.6 M o t i v a t i o n f o r the Study 7 1.7 T h e s i s Guide 8 CHAPTER 2 METHODOLOGY . . . 9 2.1 Some Previous S t u d i e s 9 2.2 Research Technique Used i n t h i s Study . . . . 12 2.3 Methodology of S i m u l a t i o n 14 2.3.1 Formulation of the Problem 14 v i Page 2.3.2 Formulation of the Mathematical Model . . . 14 2.3.3 Formulation of the Computer Program . . . . 17 2.3.4 Checking the Model 17 2.3.4.1. V e r i f i c a t i o n 17 2.3.4.2 V a l i d a t i o n 18 2.3.5 Model Experimentation 18 2.3.6 I n t e r p r e t a t i o n of the S i m u l a t i o n Output . . 19 CHAPTER 3 APPROACHES TO HOG PRODUCER INCOME STABILIZATION 20 3.1 Farmer Premium Subsidy Scheme on P r i c e of S l a ughter Hogs 20 3.1.1 Product P r i c e Support 21 3.1.1.1 A g r i c u l t u r a l S t a b i l i z a t i o n A c t 21 3.1.1.2 B r i t i s h Columbia Swine Producers Income Assurance Program 22 3.1.2 Premium Subsidy Scheme 24 3.2 Subsidy on Inputs 2 5 3.2.1 S u b s i d i e s T i e d to Feed P r i c e s 25 3.2.2 G i l t R e t e n t i o n Subsidy 25 CHAPTER 4 THE MATHEMATICAL MODEL 2 8 4.1 Data Used 28 4.2 Hog P r o d u c t i o n Assumptions f o r B r i t i s h Columbia 28 4.3 The Model . 31 4.3.1 Response by Farmers to S t a b i l i z a t i o n Programs 34 v i i Page 4.3.1.1 B e h a v i o r a l Equations 34 4.3.1.1.1 Change i n Quantity of G i l t s Retained f o r Breeding 35 4.3.1.1.2 Holdover F u n c t i o n 38 4.3.1.2 Flow R e l a t i o n s h i p s and Accounting I d e n t i t i e s 39 4.3.1.2.1 Output Change from Sale of A d d i t i o n a l Sows 40 4.3.1.2.2 Output Change from O f f s p r i n g of A d d i t i o n a l G i l t s Retained 41 4.3.1.2.3 T o t a l Output Change R e s u l t i n g from Change i n Breeding Herd S i z e 41 4.3.1.2.4 C o n s t r a i n t on R e t e n t i o n of G i l t s . . . 42 4.3.1.2.5 Holdover C o n s t r a i n t 42 4.3.1.2.6 Market Supply of Slaughter Hogs . . . 43 4.3.1.3 Market I d e n t i t y 43 4.3.2 Schemes f o r Hog Producers Income S t a b i l i z a t i o n 44 4.3.2.1 Premium Subsidy Scheme 44 4.3.2.1.1 A g r i c u l t u r a l S t a b i l i z a t i o n A c t . . . . 46 4.3.2.1.2 B r i t i s h Columbia Swine Producers Income Assurance Program 47 4.3.2.2 Input Subsidy Schemes . . . 49 4.3.3 Summary Measures 50 4.3.3.1 Summary Measures Computation 53 4.3.3.1.1 Government Payments 53 4.3.3.1.1.1 F e d e r a l Government Payments . . . . 53 v i i i Page 4.3.3.1.1.2 P r o v i n c i a l Government Payments . . . 55 4.3.3.1.1.2.1 Product P r i c e Subsidy 55 4.3.3.1.1.2.2 Input Subsidy 56 4.3.3.1.1.2.3 G i l t R e t e n t i o n Subsidy 56 4.3.3.1.1.2.4 T o t a l Monthly P r o v i n c i a l Government Payments 57 4.3.3.1.2 Producer C o n t r i b u t i o n s 57 4.3.3.1.3 Net Monthly Payments t o or Received from Farmers, by the P r o v i n c i a l Government 58 4.3.3.1.4 Net Monthly Farmer C o n t r i b u t i o n s to the P r o v i n c i a l Government or S u b s i d i e s Received from the P r o v i n c i a l or F e d e r a l Governments 60 4.4 Model V a l i d a t i o n 61 4.4.1 V a l i d a t i o n Procedure 64 4.4.1.1 Choosing Parameter Values 64 4.4.1.1.1 Response Parameters 64 4.4.1.1.1.1 B e h a v i o r a l Parameters 65 4.4.1.1.1.2 T e c h n i c a l and I d e n t i t y Parameters . 69 4.4.1.1.1.3 P o l i c y Parameters 69 4.4.1.2 R e s u l t s o f the V a l i d a t i o n Procedure . . 73 CHAPTER 5 THE RESULTS 76 5.1 A n a l y t i c a l Procedure 76 5.1.1 Comparing E f f e c t s of A l t e r n a t i v e Schemes . 76 5.1.2 Performance F u n c t i o n s 7 7 5.2 Outcome o f Simulated Hog Producers Income S t a b i l i z a t i o n Programs 81 i x Page 5.2.1 E f f e c t s of the B r i t i s h Columbia Swine Producers Income Assurance Program 82 5.2.2 E f f e c t s of a M o d i f i e d B r i t i s h Columbia Swine Income Assurance Program 85 5.2.2.1 E f f e c t s of I s o l a t e d M o d i f i c a t i o n s . . . . 86 5.2.2.2 Combined E f f e c t s of M o d i f i c a t i o n s . . . . 88 5.2.3 E f f e c t s of a Premium Subsidy Scheme . . . . 90 5.2.4 S e l f - F i n a n c i n g S t a b i l i z a t i o n Schemes . . . . 93 5.3 Performance F u n c t i o n s 95 5.3.1 Performance F u n c t i o n s t o Assess M o d i f i c a t i o n s to FIAP (1975) 95 5.3.1.1 Change i n P o l i c y Parameters 95 5.3.1.1.1 Summary Measure E s t i m a t i o n 9 7 5.3.1.1.2 S e n s i t i v i t y A n a l y s i s 97 5.3.1.1.3 Break-even P o i n t s 100 5.3.2 Comparison of Performance F u n c t i o n Estimates with R e s u l t s from A c t u a l Runs of the Model 100 CHAPTER 6 CONCLUSIONS 103 6.1 M e t h o d o l o g i c a l Aspects 10 3 6.2 C o n c l u s i o n s Drawn from the Comparative A n a l y s i s of the A l t e r n a t i v e S t a b i l i z a t i o n Schemes 107 6.3 E x t e n s i o n s of the Model 109 LIST OF REFERENCES 110 APPENDICES 115 X Page Appendix A C a l c u l a t i o n of Cost F i g u r e s Used i n the A n a l y s i s 115 Appendix B Model V a l i d a t i o n : Real and Simulated Q u a n t i t i e s o f Hogs Produced under FIAP . 121 Appendix C R e s u l t s o f A l t e r n a t i v e S t a b i l i z a t i o n Schemes 125 Appendix D Numerical R e s u l t s o f S i m u l a t i o n Runs and Estimated Regression C o e f f i c i e n t s . . 131 x i LIST OF TABLES Page Table 4.1 Values of the Parameters 70 Table 5.1 Estimated E f f e c t s of FIAP (1975), 1964-1976 84 Table 5.2 Estimated E f f e c t s of Proposed Modified FIAP, 1964-1976 89 Table 5.3 Comparative E f f e c t s of a Premium Subsidy Scheme, 1964-1976 92 Table 5.4 Comparative Effects of FIAP (1975)and FIAP (1975) with S l i d i n g Premium, 1964-1976 94 Table 5.5 Gross Income, Absolute and Relative Variation of Income, Prov. Gov. Budgetary Cost and Hog Production E l a s t i c i t i e s with respect to a^2 and a 2 4 9 9 Table 5.6 Comparison of Performance Functions Estimates with Results from Actual Runs of the Model 101 Table A - l Price of Feed Needed to Produce One cwt of Hog Dressed Carcass, 1964-1976 . . . . 118 Table A-2 Price of A l l Variable Inputs Needed to Produce One cwt of Hog Dressed Carcass . . 119 Table A-3 Price of Total Inputs Needed to Produce One cwt of Hog Dressed Carcass 120 Table B-l Simulated Floor Price for Hogs, FIAP (1974-1976) 121 Table B-2 Quantities of Hog Produced Under FIAP (1974-1976) 122 x i i Page Table B-3 Simulated Q u a n t i t i e s of Hog Produced under FIAP, (1974-1976) 123 Table B-4 A g r i c u l t u r a l S t a b i l i z a t i o n A c t F l o o r P r i c e f o r Hogs (1964-1976) 124 Table C - l Summary Measures, Market E q u i l i b r i u m V a l u e s , (1964-1976) . . 125 Table C-2 Summary Measures, FIAP (1975) , (1964-1976) 126 Table C-3 Summary Measures, M o d i f i e d FIAP, (1964-1976) 127 Table C-4 Summary Measures, Premium Subsidy Program, (1964-1976) 128 Table C-5 Summary Measures, S e l f - F i n a n c i n g Product P r i c e Support Program, (1964-1976) . . . 129 Table C-6 Summary Measures, S e l f - F i n a n c i n g Premium Subsidy Program, (1964-1976) 130 Table D-1 Numerical R e s u l t s of S i m u l a t i o n Runs f o r FIAP (1975), (1964-1976); Change i n B e h a v i o r a l Parameters 131 Table D-2 Numerical R e s u l t s of S i m u l a t i o n Runs f o r FIAP (1975), (1964-1976); Change i n P o l i c y Parameters 132 Table D-3 Estimated Regression C o e f f i c i e n t s of Performance F u n c t i o n s f o r FIAP (1975); (1964-1976); Change i n P o l i c y Parameters 133 x i i i LIST OF FIGURES Page F i g u r e 3.1 Schematic of Premium Subsidy Scheme 26 F i g u r e 4.1 Flow Diagram of S i m u l a t i o n Model . . . . 33 F i g u r e 4.2 Model V a l i d a t i o n 74 x i v ACKNOWLEDGEMENTS I would l i k e t o thank my a d v i s o r , P r o f e s s o r George Kennedy and the members o f my T h e s i s Committee, P r o f e s s o r R i c h a r d B a r i c h e l l o and P r o f e s s o r R i c h a r d M. Beames, f o r t h e i r numerous suggestions which l e d to s u b s t a n t i a l improvements i n t h i s t h e s i s . 1 Chapter 1 INTRODUCTION In t h i s chapter the main c h a r a c t e r i s t i c s of the B r i t i s h Columbia hog i n d u s t r y are presented to put i n p e r s p e c t i v e the problem a t hand. L a t e r the problem statement and o b j e c t i v e s of the study are d i s c u s s e d , and a t h e s i s guide i s p r o v i d e d . 1.1 The Hog Industry i n B r i t i s h Columbia B r i t i s h Columbia's hog p r o d u c t i o n p l a y s a r e l a t i v e l y minor r o l e as a component of t o t a l Canadian hog p r o d u c t i o n . In 1975, swine production"'" accounted f o r o n l y 6 8,692 head or 0.9 percent of the t o t a l number sl a u g h t e r e d i n Canada ( A g r i c . Canada, Meat Trade Report) and 1.3 percent ($11.6 m i l l i o n ) of the t o t a l farm cash r e c e i p t s from hog o p e r a t i o n s ( S t a t . Canada, Farm Cash R e c e i p t s ) . Hog p r o d u c t i o n a l s o r e p r e s e n t s a s m a l l p r o p o r t i o n of B r i t i s h Columbia's t o t a l a g r i c u l t u r a l p r o d u c t i o n . In 1975, farm cash r e c e i p t s from hog o p e r a t i o n s c o n t r i b u t e d o n l y 2.9 percent of t o t a l farm cash r e c e i p t s from farming o p e r a t i o n s and 4.3 percent of the t o t a l v alue of l i v e s t o c k and l i v e s t o c k products ( S t a t . Canada, Farm Cash R e c e i p t s ) . 1.1.1 S p a t i a l D i s t r i b u t i o n of P r o d u c t i o n B r i t i s h Columbia's hog p r o d u c t i o n i s h i g h l y concentrated "^"Production" as used here r e f e r s to t o t a l number of head sl a u g h t e r e d i n f e d e r a l or p r o v i n c i a l l y i n s p e c t e d p l a n t s i n B r i t i s h Columbia and A l b e r t a ; i t does not i n c l u d e s l a u g h t e r i n non-inspected p l a n t s , farm k i l l or e x p o r t s . 2 i n the F r a s e r V a l l e y and three o t h e r a r e a s : the Okanagan, the Peace R i v e r and Vancouver I s l a n d . Out of 6 8,692 hogs marketed i n 1975, the F r a s e r V a l l e y produced 47,334 (70%), the Okanagan 6,157 ( 9 % ) , the Peace R i v e r 5,919 (9%) and Vancouver I s l a n d 5,707 (8% ) . Throughout the l a s t three y e a r s , the F r a s e r V a l l e y and Vancouver I s l a n d have shown a steady climb i n number of hogs marketed, the Okanagan a d e c r e a s i n g trend and the Peace R i v e r r e g i o n small f l u c t u a t i o n s ( A g r i c . Canada, Annual R e p o r t s ) . 1.1.2 Hog P r o d u c t i o n and E n t e r p r i s e S i z e In 1971, a c c o r d i n g to the A g r i c u l t u r a l Census ( S t a t . Canada, (1971)) there were 2,729 farmers i n B r i t i s h Columbia (14.8 percent of the t o t a l ) h o l d i n g p i g stocks (of a l l ages) ranging from 1 to over 500. Twenty-three farmers r e p r e s e n t i n g 0.8 percent of the t o t a l number of hog producers and 15.2 percent of a l l commercial hog producers ( i . e . , those who s e l l a t l e a s t 50 hogs a n n u a l l y ) , produce 35.8 percent of the t o t a l number o f hogs marketed o r 50.5 percent o f commercial hog p r o d u c t i o n . 1.1.3 B r i t i s h Columbia's Hog P r o d u c t i o n and the  P r o v i n c i a l Market B r i t i s h Columbia's t o t a l pork consumption f o r 1974 was estimated to be 143.3 m i l l i o n pounds or approximately 890,000 head (B.C. M i n i s t r y of A g r i c , (Dec. 1976)) while the p r o v i n c i a l p r o d u c t i o n was o n l y 13.09 m i l l i o n pounds or 82,000 head ( A g r i c . Canada, Meat Trade Report). T h e r e f o r e , a d e f i c i t of approximately 130 m i l l i o n pounds o c c u r r e d . I f the B r i t i s h 3 Columbia average per c a p i t a consumption of pork of 59.8 l b s . (1974) i s used as a r e f e r e n c e , then over the p e r i o d 1971-76, B r i t i s h Columbia's hog p r o d u c t i o n only c o n t r i b u t e d an average of 5.2 pounds per c a p i t a , or 8.7 percent of the B r i t i s h Columbia average l e v e l of pork consumption. 1.2 I n s t a b i l i t y i n B r i t i s h Columbia's Hog I n d u s t r y Hog p r o d u c t i o n i n B r i t i s h Columbia, not u n l i k e hog p r o d u c t i o n elsewhere, has been u n s t a b l e . P r o d u c t i o n and p r i c e c y c l e s i n both Canada and the United S t a t e s are w e l l r e c o g n i z e d and have been analysed i n a number of s t u d i e s (West e t a l (19 74) ; P e t r i e ; Boswell and Kulshr.eshta) . A review of the t h e o r i e s which have been advanced to e x p l a i n the hog c y c l e s i s g iven i n West e t a l (1974), Chapter I I . Throughout the l a s t t h i r t e e n years (1964-1976), commercial hog s l a u g h t e r i n B r i t i s h Columbia has f l u c t u a t e d widely; f o r example p r o d u c t i o n went from 32,566 head i n 1965 to 76,799 i n 1971 and back down to 46,304 i n 1973 ( A g r i c . Canada, Meat Trade Report). Major v a r i a t i o n s i n market p r i c e of hogs have a l s o o c c u r r e d . Slaughter hog p r i c e s (Calgary, index 100 hogs) rose from $39.18 per cwt i n January 1973 to $82.35 per cwt i n September 1975 and then f e l l to $44.89 per cwt i n November 1976 ( A g r i c . Canada, Meat Trade Report). I n s t a b i l i t y i n p r o d u c t i o n i s not o n l y i n h e r e n t i n the hog i n d u s t r y but t y p i c a l of a g r i c u l t u r e . Because of the r e l a t i v e l y i n e l a s t i c supply and demand f u n c t i o n s t h a t c h a r a c t e r i z e a g r i c u l t u r a l p roducts, they g e n e r a l l y show 4 g r e a t e r p r i c e f l u c t u a t i o n s than do n o n - a g r i c u l t u r a l goods (Tweeten e t a l ) . On the supply s i d e , b i o l o g i c a l f a c t o r s i n c l u d i n g weather, domestic government p o l i c i e s , and changing farmers' e x p e c t a t i o n s are l i k e l y to be important sources of i n s t a b i l i t y . On the demand s i d e , f l u c t u a t i o n s i n i n t e r n a t i o n a l demand can be an important source of i n s t a b i l i t y . Other f a c t o r s t h a t have c o n t r i b u t e d to i n s t a b i l i t y i n the hog i n d u s t r y i n c l u d e v a r i a t i o n s i n i n p u t p r i c e s . P r i c e s of i n p u t s have shown a tendency to i n c r e a s e , and i n some cases wide f l u c t u a t i o n s (although mainly upwards) have a l s o o c c u r r e d . For example, the Wage Index f o r farm l a b o r (hourly rated) f o r Western Canada i n c r e a s e d from 177.0 i n January 1973 to 334.3 i n December 1976 ( S t a t . Canada, Farm Input P r i c e Index); ground b a r l e y p r i c e s rose from $3.77 per cwt i n November 1972 to $9.04 per cwt i n November 1974, and then f e l l to $7.53 i n November 1976 ( S t a t . Canada, P r i c e and P r i c e Indexes and Industry P r i c e Indexes). F l u c t u a t i o n s i n a g r i c u l t u r a l product and i n p u t p r i c e s and f l u c t u a t i o n s i n q u a n t i t i e s produced have c r e a t e d a problem of income i n s t a b i l i t y f o r B r i t i s h Columbian hog producers. 1.3 Problem Statement The study i s concerned w i t h the problem o f income i n s t a b i l i t y which has t r a d i t i o n a l l y faced B r i t i s h Columbia hog producers. Income i n s t a b i l i t y can be expected to have d e t r i m e n t a l e f f e c t s on farm f a m i l y w e l f a r e . In a d d i t i o n to w e l f a r e e f f e c t s , f l u c t u a t i o n s i n gross income can l e a d to 5 d i f f i c u l t i e s i n p r o d u c t i o n p l a n n i n g and i n e f f i c i e n c i e s due to over or under investment t h a t generate i n s t a b i l i t y i n hog p r o d u c t i o n . I n s t a b i l i t y i n hog p r o d u c t i o n a t the farm l e v e l a f f e c t s not o n l y producer incomes but u l t i m a t e l y consumers, t r a n s m i t t e d through the p r o c e s s i n g and food i n d u s t r i e s . In summary, s t a b i l i t y i n hog p r o d u c t i o n a t the farm l e v e l i s a r e l e v a n t matter not o n l y f o r hog producers but a l s o f o r the food and packing i n d u s t r i e s and consumers. 1.4 P r o v i n c i a l Government Goal f o r the Hog Industry The i n s t a b i l i t y t h a t has c h a r a c t e r i z e d the B r i t i s h Columbia hog i n d u s t r y has given r i s e to a government g o a l of r e d u c i n g i t . Consequently, the p r o v i n c i a l government in t r o d u c e d the B r i t i s h Columbia Swine Producers Income Assurance Program i n an attempt to p r o v i d e income s t a b i l i t y to producers (Hudson, B.C. M i n i s t r y of A g r i c u l t u r e (1964)). For the purpose of t h i s study, the g o a l of income s t a b i l i t y r e f e r s t o a v o i d i n g e x c e s s i v e f l u c t u a t i o n s i n gross income, where gross income i s c a l c u l a t e d through m u l t i p l y i n g 2 gross margin by t o t a l hog p r o d u c t i o n . 1.5 O b j e c t i v e s of the Study Given the problem of income i n s t a b i l i t y d e s c r i b e d above, the p r o v i n c i a l government i s i n t e r e s t e d i n ways of a l l e v i a t i n g i t . However, s i n c e f e d e r a l programs a l s o e x i s t 2 Gross margin i n t h i s study r e f e r s to the d i f f e r e n c e between t o t a l r e c e i p t s and t o t a l v a r i a b l e c o s t s . A d e t a i l e d d e s c r i p t i o n of the items i n c l u d e d i n the v a r i a b l e c o s t f i g u r e s can be found i n Appendix A. 6 to meet the same o b j e c t i v e , t h e p r o v i n c i a l programs can not be viewed i n i s o l a t i o n and the study needs to account f o r them. The o b j e c t i v e s of t h i s study are to:. (a) develop an i n t e r n a l l y c o n s i s t e n t model of the B r i t i s h Columbia hog i n d u s t r y which can be used to determine the c o s t and e f f e c t i v e n e s s of a l t e r n a t i v e s t a b i l i z a t i o n schemes; and (b) i l l u s t r a t e how t h i s model can be used. The model should: a) Incorporate the more important f e a t u r e s of the B r i t i s h Columbian hog i n d u s t r y with s u f f i c i e n t f l e x i b i l i t y to allow f o r (1) the implementation of d i f f e r e n t d e c i s i o n r u l e s ("policy parameters") by the government, and (2) the i n c l u s i o n of parameters to i n d i c a t e the magnitude and d i r e c t i o n of the responsiveness of farmers to government s t a b i l i z a t i o n e f f o r t s . b) Be a b l e to determine the consequences of a v a r i e t y of parameter combinations, and c) Include measures to summarize the outcome of each s e t of parameter combinations. In summary, the o b j e c t i v e of t h i s study i s to b u i l d and use a mathematical model to answer que s t i o n s r e l a t e d to the B r i t i s h Columbia Swine Producers Income Assurance Program and a l t e r n a t i v e schemes. Questions i n c l u d e : 1. What l e v e l and v a r i a n c e of producers' income can be 7 expected to result? 2. What i s the budgetary cost to the government and to hog producers? 3. What are the effects on quantities of hogs produced? 1.6 Motivation for the Study Although hog production i s a r e l a t i v e l y minor component of the B r i t i s h Columbia a g r i c u l t u r a l sector, given a large d e f i c i t of domestic production compared to p r o v i n c i a l consumption, the B r i t i s h Columbia government views hog production as having much potential for growth (B.C. Ministry of Agric. (1977), (1976) and (Dec, 1976)). 3 Furthermore, the B r i t i s h Columbia government has spent approximately $800,000 i n indemnities to hog producers on the f i r s t three years (1974-1976) of the B r i t i s h Columbia Swine Producers Income Assurance Program and i s interested i n evaluating i t s effectiveness. F i n a l l y , given a government goal of income s t a b i l i t y for B r i t i s h Columbia hog producers, the government requires information regarding the consequences of alternative methods of achieving i t . Therefore, the prime motivation for t h i s study i s to provide t h i s information so that more informed policy decisions can be made. Some possible alternative schemes which could be used i n an attempt to achieve income 3 From an economic point of view, t h i s does not necessarily follow because the p o s s i b i l i t i e s of expansion of the hog industry i n B.C. w i l l depend upon i t s economic comparative advantages within the B.C. a g r i c u l t u r a l sector. 8 s t a b i l i t y are b r i e f l y d e s c r i b e d i n Chapter 3. 1.7 T h e s i s Guide T h i s t h e s i s has been d i v i d e d i n t o s i x c h a p t e r s . Chapter I I p r e s e n t s the m e t h o d o l o g i c a l approach used i n the study and d i s c u s s e s the reasons f o r choosing s i m u l a t i o n . Chapter I I I d e s c r i b e s both c u r r e n t and a l t e r n a t i v e schemes aimed a t r e d u c i n g income i n s t a b i l i t y f a c i n g hog producers. Chapter IV o u t l i n e s the mathematical model t h a t r e p r e s e n t s the hog i n d u s t r y (at the farm l e v e l ) i n B r i t i s h Columbia. I t a l s o d i s c u s s e s the data used, makes e x p l i c i t the p r o d u c t i o n assumptions on which the a n a l y s i s i s based, and d e s c r i b e s the model v a l i d a t i o n procedure. Chapter V p r e s e n t s the r e s u l t s of the d i f f e r e n t s t a b i l i z a t i o n schemes and Chapter VI presents the c o n c l u s i o n s which can be drawn from the study. 9 Chapter 2 METHODOLOGY Given the o b j e c t i v e s of t h i s study s t a t e d above, the q u e s t i o n a r i s e s as to what methodology should be used. To provide i n f o r m a t i o n to help answer t h i s q u e s t i o n , t h i s chapter begins by g i v i n g a b r i e f review of some pr e v i o u s s t u d i e s which are r e l e v a n t . L a t e r i t i n t r o d u c e s the m e t h o d o l o g i c a l approach used and presents the reasons f o r choosing the p a r t i c u l a r approach. F i n a l l y , i t d e s c r i b e s the necessary steps i n v o l v e d i n i t s use. 2.1 Some Previous S t u d i e s Zwart, e t a l (19 74) proposed a methodology f o r e v a l u a t i n g the e f f e c t s of changes i n government or marketing agency p o l i c i e s based on a s p a t i a l and temporal model of the North American pork s e c t o r . Using q u a d r a t i c programming, the model maximized a t o t a l i n d i r e c t w e l f a r e f u n c t i o n or "the sum of areas under the excess supply and demand schedules" ...which... " a l s o i n c l u d e s the net summed area under the excess stocks supply and demand schedule"(Zwart e t a l (1974), page 20). T h i s i m p l i e s t h a t the model assumes t h a t the North American pork market behaves i n a c o m p e t i t i v e manner between r e g i o n s . The model was v a l i d a t e d by running i t r e c u r s i v e l y over a f o r t y - o n e q u a r t e r p e r i o d (1963-1973) and the r e s u l t s showed t h a t i t was able to simulate events i n the pork s e c t o r 10 very c l o s e l y over t h i s p e r i o d . The methodology employed i n t h i s model appears u s e f u l i n e v a l u a t i n g the dynamic impacts of a change i n government p o l i c i e s i f the major concern i s to i n c o r p o r a t e i n t e r t e m p o r a l and i n t e r r e g i o n a l c o n s i d e r a t i o n s , i n c l u d i n g the supply and demand f o r s t o c k s . However, i t must be c l e a r l y r e c o g n i z e d t h a t t h i s approach r e l i e s on two b a s i c assumptions: t h a t the pork market behaves i n a c o m p e t i t i v e manner between r e g i o n s and t h a t the g o a l of p o l i c y makers i s to maximize the s o - c a l l e d " t o t a l i n d i r e c t w e l f a r e f u n c t i o n . " Hedley and Cushon proposed a d i f f e r e n t (and r e l a t i v e l y simple) model f o r e v a l u a t i n g s t a b i l i z a t i o n a l t e r n a t i v e s f o r the hog i n d u s t r y i n Canada. T h e i r model i s a n o n - o p t i m i z i n g , dynamic, d e t e r m i n i s t i c , econometric one. I t i n c l u d e s two supply equations (one f o r E a s t e r n Canada and one f o r Western 4 Canada) t h a t f o l l o w s the Nerlove s p e c i f i c a t i o n . The model i s completed by three o t h e r equations and one i d e n t i t y . The three equations i n c l u d e one demand equation f o r pork consumption i n Canada and two stock demand f u n c t i o n s (one f o r E a s t e r n Canada and one f o r Western Canada). The i d e n t i t y s p e c i f i e d t h a t c u r r e n t p e r i o d consumption demand i n Canada e q u a l l e d c u r r e n t p e r i o d s u p p l i e s p l u s opening stocks minus c l o s i n g stocks minus exports p l u s imports. The s p e c i f i e d model was used to simulate d i f f e r e n t s t a b i l i z a t i o n p l a n s to e v a l u a t e t h e i r r e s u l t s . 4 For a d e t a i l e d d e s c r i p t i o n see Marc Nerlove, The Dynamics  of Supply: E s t i m a t i o n of farmers' response to p r i c e . The John Hopkins P r e s s , B a l t i m o r e , 1958. 11 Tyner and Tweeten p o s t u l a t e d a s i m i l a r model, although a t an aggregate l e v e l , t o e v a l u a t e the e f f e c t o f government programs on a g r i c u l t u r a l e f f i c i e n c y and resource use i n the U n i t e d S t a t e s . T h e i r model can a l s o be c h a r a c t e r i z e d as being d e t e r m i n i s t i c , non-optimizing and dynamic. A s l i g h t l y d i f f e r e n t m e t h o d o l o g i c a l approach has been used by Candler and Kennedy. They developed a model f o r the U n i t e d S t a t e s hog-pork system as a s e r i e s of equations t h a t can r e p r e s e n t a long p e r i o d of time and a l s o i n c o r p o r a t e c a r r y - o v e r e f f e c t s and time l a g s . T h e i r model i s s i m i l a r to the ones i n Hedley and Cushon, and Tyner and Tweeten, except t h a t the s p e c i f i e d equations are assumed to be exact r e l a t i o n s h i p s and t h e r e f o r e are not estimated u s i n g econometric techniques. In summary, the model can be d e s c r i b e d by three b a s i c p r o p e r t i e s : (1) d e t e r m i n i s t i c , i n the sense t h a t the equations are assumed to be exact r e l a t i o n s h i p s ; (2) dynamic, s i n c e i t t r a c e s the behavior of the market over time; and (3) n o n - o p t i m i z i n g , because i t does not attempt to maximize an o b j e c t i v e f u n c t i o n . The developed model, assumed to adequately r e p r e s e n t the r e a l system, was used to evaluate a l t e r n a t i v e methods of a c h i e v i n g a g o a l of p r i c e s t a b i l i t y f o r hog-pork p r i c e s . L acking knowledge of the o b j e c t i v e f u n c t i o n of p o l i c y makers, s i m u l a t i o n was used because " i t i s a r e l a t i v e l y convenient technique f o r s t u d y i n g non-optimizing problems" (Candler and 12 Kennedy, page 8). T h i s type of approach was a l s o used by Agarwala to e v a l u a t e d i f f e r e n t s t a b i l i z a t i o n p o l i c i e s i n the egg market i n the U n i t e d Kingdom d u r i n g the p e r i o d 1958-68. An e x t e n s i v e l i t e r a t u r e review of the use of s i m u l a t i o n i n a g r i c u l t u r a l economics s t u d i e s can be found i n Anderson. 2.2 Research Technique Used i n t h i s Study From the p r e v i o u s d i s c u s s i o n i t f o l l o w s t h a t the problem of e v a l u a t i n g d i f f e r e n t a l t e r n a t i v e s t a b i l i z a t i o n schemes f o r the B r i t i s h Columbia hog i n d u s t r y can be analyzed by both mathematical programming and computer s i m u l a t i o n . In g e n e r a l , use of mathematical o p t i m i z a t i o n techniques i m p l i e s a high degree of knowledge about p o l i c y makers' o b j e c t i v e f u n c t i o n and normally more, s o p h i s t i c a t e d m o d e l l i n g (Candler and Kennedy; O r c u t t ; Tyner e t a l ) . S i m u l a t i o n , on the other hand, does not n e c e s s i t a t e an "optimal s o l u t i o n " ; a l s o , i t i s b e t t e r s u i t e d to handle time l a g s , n o n l i n e a r i t i e s and r e c u r s i v e e f f e c t s (Candler and Kennedy; Tyner e t a l ) . T h i s i s not to say t h a t mathematical programming cannot handle t h i s k i n d of problem (Zwart e t a l (1974)), o n l y t h a t i t would i n v o l v e more cumbrous models. T h e r e f o r e , given t h a t the o b j e c t i v e of t h i s study i s not to determine an optimal s t a b i l i z a t i o n program (because of the l a c k of knowledge of the o b j e c t i v e f u n c t i o n of p o l i c y makers), but r a t h e r to e v a l u a t e c o s t s and e f f e c t s of a l t e r n a t i v e s t a b i l i z a t i o n schemes i m p l i e d by a c e r t a i n s e t of assumptions, s i m u l a t i o n 13 seems a p p r o p r i a t e . S i m u l a t i o n allows f o r c o n d i t i o n a l or " i f . . . t h e n " statements; i f a s e t of c o n d i t i o n s holds and i f a c e r t a i n s t a b i l i z a t i o n program i s i n o p e r a t i o n , then these are the r e s u l t s . S i m u l a t i o n , a c c o r d i n g to Naylor ((1971), page 2), can be d e f i n e d as: "A numerical technique f o r conducting experiments w i t h c e r t a i n types of mathematical models which d e s c r i b e the behavior of a complex system on a d i g i t a l computer over extended period's of time." In summary, s i m u l a t i o n w i l l be used mainly because i t i s a convenient technique f o r s t u d y i n g a non-optimizing problem. The model t h a t w i l l be used to simulate d i f f e r e n t income s t a b i l i z a t i o n schemes can be d e s c r i b e d as being of a symbolic, mathematical type. I t has a l r e a d y been e s t a b l i s h e d t h a t i t w i l l be n on-optimizing. I t w i l l a l s o be dynamic, i n the sense o f t r a c i n g the behavior o f the system over-time. W i t h i n the group of n o n - o p t i m i z i n g , dynamic models, i t i s necessary to choose between a s t o c h a s t i c or d e t e r m i n i s t i c one. C o n s i d e r i n g t h a t a g r i c u l t u r a l p r o d u c t i o n depends h e a v i l y on b i o l o g i c a l , m e t e o r o l o g i c a l and market f o r c e s , the models best s u i t e d to r e p r e s e n t i t are o f t e n of a s t o c h a s t i c nature. I t has been suggested t h a t " s t o c h a s t i c i t y i n a g r i c u l t u r a l systems has too seldom been i n c l u d e d by s i m u l a t o r s " (Anderson, page 13). D e s p i t e t h i s c r i t i c i s m , t h i s study w i l l take a d e t e r m i n i s t i c approach, not because i t simply i g n o r e s the 14 " u n c e r t a i n t y p r i n c i p l e of m o d e l l i n g " (Anderson), but because the emphasis i s on a s s e s s i n g the consequences i m p l i e d by a l t e r n a t i v e s e t s o f v a l u e s o f d e c i s i o n v a r i a b l e s , r a t h e r than e x p l a i n i n g what has happened or f o r e c a s t i n g what w i l l happen (Agarwala). Given t h i s o b j e c t i v e , avoidance of the i n c r e a s e d complexity which the i n c l u s i o n of s t o c h a s t i c v a r i a b l e s would n e c e s s i t a t e i s thought to outweigh the added r e a l i s m which s t o c h a s t i c v a r i a b l e s c o u l d p r o v i d e (Naylor, 1971). 2.3 Methodology of S i m u l a t i o n In t h i s s e c t i o n a b r i e f summary of the steps i n v o l v e d i n the use of s i m u l a t i o n as a t o o l of a n a l y s i s are g i v e n . More d e t a i l e d d i s c u s s i o n s can be found i n Naylor (1971) , Naylor e t a l (1968) and Anderson. 2.3.1 Formulation of the Problem As i n any s c i e n f i t i c study, t h i s step i n v o l v e s a c l e a r f o r m u l a t i o n of the problem and the o b j e c t i v e s pursued by the s i m u l a t i o n technique. In the p r e s e n t case, s i m u l a t i o n w i l l be used to assess the e f f e c t s on r e l e v a n t p o l i c y v a r i a b l e s of a l t e r n a t i v e s t a b i l i z a t i o n schemes f o r B r i t i s h Columbia hog producers. 2.3.2 Formulation of the Mathematical Model Once the o b j e c t i v e s of s i m u l a t i o n are s t a t e d , the system of i n t e r e s t i s s t u d i e d to d e t e c t i t s more important f e a t u r e s and components. Next i s the f o r m u l a t i o n of a mathematical model, which i s an a b s t r a c t e d or s i m p l i f i e d 15 version of the r e a l system incorporating those features considered to be s i g n i f i c a n t for the questions at hand. A model has the advantage of allowing the researcher manipulations which would be impossible or too expensive to perform on the r e a l system. In other words, i t allows the researcher to i n f e r the e f f e c t s of d i f f e r e n t p o l i c i e s without the necessity of putting them into e f f e c t (Shubik; Candler and Kennedy; Naylor (1971)). An important consideration i n the formulation of the mathematical model i s the choice of variables to be included i n i t . In general, the endogenous variables, once selected, are not c r u c i a l since they are determined as a f i n a l r e s u l t of the experiment. Exogenous variables and "policy parameters" (Naylor, (1971)) must be more c a r e f u l l y selected because there exists a trade-off between realism and compu-tation procedures. A model can usually be made more r e a l i s t i c by incorporating more exogenous variables and more useful by incorporating more p o l i c y parameters. In both cases, however, the inclu s i o n of additional variables w i l l l i k e l y make the model more d i f f i c u l t to compute and manipulate. In general, when formulating a mathematical,model the in t e r e s t i s to construct one that produces reasonable descriptions or predictions about the behavior of the r e a l system while minimizing computational and programming time (Naylor, (1971)). According to Naylor ((1971), page 41), a mathematical 16 model of an economic system should i n c l u d e : components, v a r i a b l e s , and f u n c t i o n a l r e l a t i o n s h i p s . 1) Components: are the d e c i s i o n making u n i t s , able to i n f l u e n c e the system. In t h i s study, the components are hog producers and governments. 2) V a r i a b l e s : as the name i t s e l f i n d i c a t e s , are elements i n the model t h a t can assume d i f f e r e n t v a l u e s a t d i f f e r e n t p o i n t s of o b s e r v a t i o n . They may be c l a s s i f i e d as endogenous, exogenous, s t a t u s v a r i a b l e s , and p o l i c y (or d e c i s i o n ) v a r i a b l e s . Exogenous v a r i a b l e s or independent v a r i a b l e s are those whose v a l u e s are determined o u t s i d e the system being modelled, and are entered i n the model as parameters. T h e i r v a l u e s are h e l d constant i n each s i m u l a t i o n run, but may be changed between runs to assess t h e i r e f f e c t s on the system. The p r i c e e l a s t i c i t y " o f demand, f o r example, i s assumed to have a value predetermined by the environment i n which the modelled system e x i s t s . P o l i c y v a r i a b l e s , such as a f l o o r p r i c e f o r hogs, are those t h a t can be manipulated. Endogenous v a r i a b l e s or i n p u t v a r i a b l e s are those whose v a l u e s are determined w i t h i n the model as a r e s u l t of the i n t e r a c t i o n of exogenous ( i n c l u d i n g p o l i c y ) v a r i a b l e s (Naylor, (1971)). An example of an endogenous v a r i a b l e i n t h i s study's model i s t o t a l hog p r o d u c t i o n . 17 Status variables are a subset of the output variables and describe the properties of some component of the model at some s p e c i f i c point of time. 3) Functional relat i o n s h i p s : include i d e n t i t i e s and behavioral equations that relate the components and variables of the system. In other words, functional relationships describe the behavior of the complete system. 2.3.3 Formulation of the Computer Program After completing the mathematical model, the next step i s to translate i t into computer language. Although there exists special purpose simulation languages, t h i s study w i l l use FORTRAN IV, a general purpose one. FORTRAN IV,being a general purpose language,can be e a s i l y adapted to the type 5 of mathematical model developed for t h i s study. 2.3.4 Checking the Model This stage involves two d i f f e r e n t a c t i v i t i e s : v e r i f i c a t i o n and v a l i d a t i o n (Anderson). 2.3.4.1 V e r i f i c a t i o n : refers to checking the correctness of the model, to determine i f i t i s i n t e r n a l l y consistent. For example, are a l l hogs produced eventually sold?; does producer gross income equal gross revenue less t o t a l variable costs?; etc. At t h i s stage, nothing has been 5 Special-purpose languages are, i n general, more i n f l e x i b l e and s p e c i f i c a l l y oriented to work with some type of models (e.g. DYNAMO and FORDYN are suited to work with models characterized by numerous f i r s t - o r d e r difference equations and complex feedbacks and SINSCRIPT for queuing and inventory systems (Anderson)). 18 s a i d about the r e a l i s m of the assumptions b u i l t i n to the model or i t s a b i l i t y to reproduce r e a l i t y . T h i s i s a matter of v a l i d a t i o n . 2.3.4.2 V a l i d a t i o n : i s the stage of the s i m u l a t i o n process d e s t i n e d to f i n d out how c l o s e l y the model r e p r e s e n t s r e a l i t y (Anderson). Elsewhere (Anderson; Naylor (1971)) i t has been p o i n t e d out t h a t the v a l i d a t i o n process i s a r a t h e r d i f f i c u l t one because i t i n v o l v e s s e v e r a l t h e o r e t i c a l , p r a c t i c a l , s t a t i s t i c a l and even p h i l o s o p h i c a l problems (Naylor, (1971)). In g e n e r a l , however, two types of approaches can be d e s c r i b e d as being u s e f u l f o r v a l i d a t i o n of a s i m u l a t i o n model: f i r s t , to compare the r e s u l t s of the model wi t h h i s t o r i c a l data ( i . e . h i s t o r i c a l v a l i d a t i o n ) and/or second, to compare the p r e d i c t i o n s of the model with f u t u r e events ( i . e . events t h a t have evolved s i n c e the study was i n i t i a t e d ) . 2.3.4 Model Experimentation Once the model has been v a l i d a t e d , experimentation with the model i s needed t o ex p l o r e the e f f e c t s of d i f f e r e n t s e t s of valu e s of the exogenous or p o l i c y v a r i a b l e s on the endogenous or output v a r i a b l e s . Where s i m u l a t i o n experiments i n v o l v e a l a r g e number of v a r i a b l e s , to avoid unnecessary c a l c u l a t i o n s and to economize i n computer time, experimental designs are advantageous (Anderson). Experimental design i m p l i e s the s e l e c t i o n of a p a r t i c u l a r combination of 19 parameters and the range (or l e v e l s ) over which they w i l l be allowed to f l u c t u a t e , thus h e l p i n g the r e s e a r c h e r to conduct model experimentation i n a systematic way. 2.3.6 I n t e r p r e t a t i o n of the S i m u l a t i o n Output The r e s u l t s of the s i m u l a t i o n experiment can be analyzed by one of the two f o l l o w i n g methods: a n a l y s i s of v a r i a n c e or r e g r e s s i o n a n a l y s i s . In g e n e r a l , a n a l y s i s of v a r i a n c e i s used when q u a l i t a t i v e f a c t o r s are p r e s e n t , while r e g r e s s i o n a n a l y s i s i s d i r e c t e d towards q u a n t i t a t i v e e v a l u a t i o n (Naylor, (1968)). Given the o b j e c t i v e of t h i s study, i . e . to q u a n t i t a t i v e l y e v a l u a t e the outcome of d i f f e r e n t hog producer income s t a b i l i z a t i o n p o l i c i e s , r e g r e s s i o n a n a l y s i s w i l l be used. Performance f u n c t i o n s w i l l be estimated as a way of o b t a i n i n g more gen e r a l f u n c t i o n a l r e l a t i o n s h i p s between the v a r i a b l e s i n c o r p o r a t e d i n the study and the r e s u l t i n g output. Performance f u n c t i o n s have been d e s c r i b e d by Candler and C a r t w r i g h t . A d d i t i o n a l examples of t h e i r a p p l i c a t i o n can be found i n Chudleigh and i n Kennedy (197 3). 20 Chapter 3 APPROACHES TO HOG PRODUCER INCOME STABILIZATION T h i s s e c t i o n o u t l i n e s some a l t e r n a t i v e schemes f o r s t a b i l i z i n g the incomes of B r i t i s h Columbia hog producers. I t i n c l u d e s a d e s c r i p t i o n of c u r r e n t programs - the B r i t i s h Columbia Swine Producers Income Assurance Program and the A g r i c u l t u r a l S t a b i l i z a t i o n A c t . Se v e r a l mechanisms e x i s t through which income s t a b i l i z a t i o n can be achieved (e.g. p r i c e c o n t r o l s , d e f i c i e n c y payments, quotas, e t c . ) . Some of these instruments f a l l under the j u r i s d i c t i o n of the government (e.g. p r i c e c o n t r o l s , f i n a n c i a l c o n t r i b u t i o n s to a s p e c i f i c program, p r i c e supports and product purchase programs, e t c . ) , w h i l e others can be administered by the government and/or by p r i v a t e i n s t i t u t i o n s (e.g. p r o d u c t i o n quotas or storage p o l i c i e s managed by farmers through a marketing board). There are a l s o measures t h a t farmers can use to cope with income s t a b i l i z a t i o n without r e l y i n g on the government (e.g. forward c o n t r a c t i n g and f u t u r e s t r a d i n g ) . Although many d i f f e r e n t p o l i c y instruments e x i s t , t h i s study w i l l c o n s i d e r o n l y government schemes i n v o l v i n g producer s u b s i d i e s . 3.1 Government s u b s i d i e s r e l a t e d to  product p r i c e or gross margin T h i s s e c t i o n i n t r o d u c e s c u r r e n t and a l t e r n a t i v e approaches f o r hog producer income s t a b i l i z a t i o n , i n v o l v i n g government'subsidies related to product price or gross margin. 3.1.1 Deficiency Payment Schemes Within t h i s group of s t a b i l i z a t i o n schemes the most common approach has been what i s usually referred to as a "price deficiency payment" program. This implies subsidies to farmers i n times of low product p r i c e s . The Federal A g r i c u l t u r a l S t a b i l i z a t i o n Act, the B r i t i s h Columbia Farm Income Assurance Program and the Manitoba Beef Producers Income S t a b i l i z a t i o n Plan are examples of t h i s kind of program (Eyvindson). 7 A b r i e f description of the main operational c h a r a c t e r i s t i c s of the A g r i c u l t u r a l S t a b i l i z a t i o n Act (hereafter referred to as ASA) and of the B r i t i s h Columbia Swine Producers Income Assurance Program (hereafter referred to as FIAP) are given below to provide a basis for comparing them with various alternative schemes. 3.1.1.1 A g r i c u l t u r a l S t a b i l i z a t i o n Act The 1958 A g r i c u l t u r a l S t a b i l i z a t i o n Act of the federal government guaranteed hog producers a f l o o r price which was 80% of the national moving average hog market price over the previous ten years. Under the amended Act (1975), the f l o o r price was raised to 90% of the national moving average hog market price over the previous 5 years, plus the difference The description refers only to those aspects relevant to the hog industry. between current national average cash costs of production and the national moving average cash costs i n the preceding f i v e years. The f l o o r price i s calculated each year and published i n A p r i l at the end of the hog production year. This means that hog producers do not know whether an indemnity w i l l be paid u n t i l after the production process i s completed (Martin). 3.1.1.2 B r i t i s h Columbia Swine Producers  Income Assurance Program (FIAP) The B r i t i s h Columbia Swine Producers Income Assurance Program began i n January 1974 for a period of f i v e years, ending December 31, 1978. The program was set up to be " a c t u a r i a l l y sound", with farmers and the P r o v i n c i a l government paying premiums into the B r i t i s h Columbia Swine Producers Assurance Fund. When the accumulated money i n the Fund i s not enough to cover subsidy payments the P r o v i n c i a l government makes an "advance" into the Fund which i s expected to be recouped i n periods of small (or no) subsidy payments. Involvement i s on a voluntary basis. The main c h a r a c t e r i s t i c s of FIAP can.be summarized as follows (B.C. Ministry of Agriculture, (1974)): - E l i g i b i l i t y . To be e l i g i b l e the producer must be a member of the B r i t i s h Columbia Swine Producers Association and market a. minimum of 50 e l i g i b l e hogs annually. The maximum number of e l i g i b l e hogs on which a producer can c o l l e c t an indemnity must not exceed 1,800, with some special rules for partnerships, corporations and cooperatives. 23 E l i g i b l e market hogs are those graded 88 to 112 which have been born, r a i s e d and marketed i n B r i t i s h Columbia. For the year 1977, p r e v i o u s l y e x i s t i n g expansion c o n s t r a i n t s on e l i g i b l e market hogs were removed and the minimum s i z e e l i g i b i l i t y requirement was r a i s e d to 300 market hogs per year f o r new producers. - Indemnities. In 1975, the C e n t r a l B a r g a i n i n g Committee of the B r i t i s h Columbia M i n i s t r y of A g r i c u l t u r e and the B r i t i s h Columbia F e d e r a t i o n of A g r i c u l t u r e agreed to adopt a standard indemnity formula f o r a l l Farm Income Assurance Programs. The gross indemnity i s equal to 75% of the b a s i c c o s t of p r o d u c t i o n p l u s a marketing charge minus the market r e t u r n . The " b a s i c c o s t o f p r o d u c t i o n " i n c l u d e s cash c o s t s , d e p r e c i a t i o n , i n t e r e s t on investment, op e r a t o r and f a m i l y l a b o r , and a management f e e . The c o s t i s j o i n t l y determined by the B r i t i s h Columbia Department of A g r i c u l t u r e and the B r i t i s h Columbia F e d e r a t i o n of A g r i c u l t u r e , based on an assumed model of a hog e n t e r p r i s e marketing 1,800 hogs per year. - Payments. Market r e t u r n s used to c a l c u l a t e i f i n d e m n i t i e s are a p p l i c a b l e are equal to the C a l g a r y p r i c e f o r hogs index 100 p l u s $3.00 per cwt dressed c a r c a s s . S t a r t i n g A p r i l 1 s t , 1977, market r e t u r n s are c a l c u l a t e d based on the C a l g a r y p r i c e of hogs index 103 i n s t e a d of 100. B a s i c c o s t s of p r o d u c t i o n and market r e t u r n s are c a l c u l a t e d monthly and i n d e m n i t i e s p a i d on a q u a r t e r l y b a s i s 24 (weighted average of the three months). - Program Fund. Under the FIAP farmers pay a fixed monthly premium, irr e s p e c t i v e of whether or not a subsidy i s received. The amount of the t o t a l premium ( i . e . , farmers plus government payments) was set at $3.00 per cwt i n 1974, with farmers paying one t h i r d ($1.00/cwt) and the p r o v i n c i a l government two thirds ($2.00/cwt) into the B r i t i s h Columbia Swine Producers Assurance Fund. In 1975 the t o t a l premium was raised to $4.50 per cwt and has remained stable thereafte Total premiums are received annually but at no time can a producer's share exceed $3.00 per cwt, dressed carcass. 3.1.2 Premium-Subsidy Scheme This type of scheme i s a d i f f e r e n t approach to producer income s t a b i l i t y , i n the sense that both price "peaks" and "troughs" are eliminated. In other words, the program includes a f l o o r and a c e i l i n g p r i c e , paying subsidie g when the equilibrium price f a l l s below the f l o o r , and c o l l e c t i n g premiums when price exceeds the c e i l i n g . The Maritime Hog S t a b i l i z a t i o n Program operates along these l i n e s ; producers contribute to a s t a b i l i z a t i o n fund whenever the market price of hogs exceeds the support price by $5.00 (Eyvindson). Hudson has suggested a similar type of scheme in his proposal of an "A g r i c u l t u r a l S t a b i l i z a t i o n Fund". "Equilibrium" refers to the price and quantity p r e v a i l i n g in the market when no s t a b i l i z a t i o n scheme i s i n operation. Given a g o a l of producer income s t a b i l i t y , i t seems l o g i c a l to r e q u i r e farmers to pay a premium i n times of h i g h hog p r i c e s (or wide margin) but not to r e q u i r e them to pay a premium when p r i c e s are low. The scheme c o u l d be made s e l f - f i n a n c i n g by a l l o w i n g f l o o r and c e i l i n g p r i c e s to s l i d e i n response to changes i n the s t a b i l i z a t i o n fund. As the government advance became l a r g e , the f l o o r and c e i l i n g c o u l d be lowered to reduce s u b s i d i e s p a i d to farmers and i n c r e a s e premiums p a i d by farmers. S i m i l a r l y , i f s u c c e s s i v e farmer premiums b u i l t up the fund, the f l o o r a n d . c e i l i n g c o u l d be r a i s e d . F i g u r e 3.1 p r e s e n t s a schematic v e r s i o n of the o p e r a t i o n of the premium-subsidy scheme. 3.2 Subsidy On Inputs Under t h i s type of approach, s u b s i d i e s are t i e d to i n p u t p r i c e s and are intended to a f f e c t producers' investment d e c i s i o n s . 3.2.1 S u b s i d i e s . T i e d to Feed P r i c e s S t u d i e s on hog supply f u n c t i o n s i n Canada (West e t a l , (1974) and (1973)) and i n the U n i t e d S t a t e s (Meilke) show t h a t farmers r e a c t d i f f e r e n t l y to a r i s e i n hog p r i c e s than to a decrease i n feed p r i c e s . T h e r e f o r e , i t seems reasonable to c o n s i d e r a scheme t h a t i n c l u d e s a subsidy to feed c o s t s . 3.2.2 G i l t R e t e n t i o n Subsidy Scheme T h i s scheme i s s i m i l a r to A l b e r t a A g r i c u l t u r e ' s Sheep Reten t i o n Program where producers r e c e i v e d a subsidy f o r each ewe lamb r e t a i n e d f o r breeding purposes. Given t h a t s h o r t Farmers pay premium Farmers r e c e i v e subsidy F i g u r e 3.1 Schematic of Premium/Subsidy Scheme term p r o d u c t i o n responses are very l i m i t e d f o r hogs, the purpose of t h i s scheme i s to a f f e c t breeding d e c i s i o n s through a subsidy f o r each e x t r a g i l t r e t a i n e d . In p e r i o d s of low product p r i c e s or high i n p u t p r i c e s , the g i l t r e t e n t i o n subsidy might be e f f e c t i v e i n p r e v e n t i n g l a r g e s c a l e breeding stock l i q u i d a t i o n . T h i s scheme may be used i n l i e u of or i n a d d i t i o n to some of the above schemes. 28 Chapter 4 THE MATHEMATICAL MODEL This chapter presents the mathematical model intended to represent the main c h a r a c t e r i s t i c s of the B r i t i s h Columbia hog industry. I t discusses the basic data used and makes e x p l i c i t production assumptions on which the analysis i s based. Later i t describes the c h a r a c t e r i s t i c s of the model and the e x p l i c i t form of the functions employed. The l a s t section discusses the model v a l i d a t i o n procedure. 4.1 Data Used The basic data used i n t h i s study i s a monthly series of B r i t i s h Columbia hog production for the period January 1964 to December 1976, reported by Canada Livestock and Meat  Trade Report (Agric. Canada). From th i s series and through multiplying by the yearly average carcass weight, the equilibrium quantity of hog production (dressed carcasses), at the farm l e v e l , i s obtained. The hog price series (average price of slaughter hogs Index 100 received by farmers, Calgary), i s also taken from the publication mentioned above. Input price series i s taken from S t a t i s t i c s Canada Publications, Price and Price Indexes, Farm Input Price Index and Industry  Price Indexes. 4.2 Hog.Production Assumptions for B r i t i s h Columbia Below i s a l i s t of production assumptions considered to 29 9 be r e p r e s e n t a t i v e of hog p r o d u c t i o n i n B r i t i s h Columbia. (1) Number of sow c u l l i n g s per f a r r o w i n g : f i r s t f a r rowing 10% of sows second fa r r o w i n g 20% of sows t h i r d f a rrowing 25% of sows f o u r t h f a r r o w i n g 20% of sows f i f t h f a rrowing 15% of sows s i x t h f a r r o w i n g 5% of sows seventh f a r r o w i n g 5% of sows (2) The far r o w i n g i n t e n s i t y d e c i s i o n i s p r i c e i n e l a s t i c ; i . e . , i t i s u n a f f e c t e d by changes i n product or i n p u t p r i c e s . T h i s i m p l i e s the p r o p o r t i o n s of producers on d i f f e r e n t f arrowing systems are not a f f e c t e d by government p o l i c y and farmer response to i n p u t or product p r i c e changes wi t h r e s p e c t to the breeding herd i s onl y i n terms of g i l t s r e t a i n e d . (3) A sow which i s to be r e t a i n e d i s rebred two months a f t e r f a r r o w i n g . (4) A sow which i s to be s o l d , i s s o l d two months a f t e r f a r r o w i n g . (5) There i s a fo u r month p e r i o d from the time of conception u n t i l f a r r o w i n g . (.6) There i s a f i v e month p e r i o d from farrowing 9 These estimates were a r r i v e d a t i n c o n s u l t a t i o n with B r i t i s h Columbia M i n i s t r y of A g r i c u l t u r e hog s p e c i a l i s t s , A b b o t s f o r d , B r i t i s h Columbia. "*"^ More p r e c i s e l y , 6 to 7 weeks a f t e r f a rrowing. However, s i n c e the model i s monthly, the p e r i o d was rounded to two months. 30 u n t i l o f f s p r i n g have reached minimum sl a u g h t e r weight and a s i x month p e r i o d from fa r r o w i n g to average s l a u g h t e r weight."'""'" (7) In the absence of any scheme, market hogs are s o l d on r e a c h i n g average s l a u g h t e r weight. (8) The d e c i s i o n to r e t a i n g i l t s f o r b r e e d i n g i s made at the time g i l t s reach average s l a u g h t e r weight. (9) G i l t s which are r e t a i n e d f o r breeding are bred two months a f t e r r e a c h i n g average s l a u g h t e r weight. (10) Market hogs can be kept a maximum of two months a f t e r r e a c h i n g minimum s l a u g h t e r weight (or one month a f t e r r e a c h i n g average s l a u g h t e r weight). The above assumptions imply the f o l l o w i n g schedule f o r a g i l t which i s r e t a i n e d f o r breeding purposes. Month t-1 g i l t reaches minimum s l a u g h t e r weight. t g i l t reaches average s l a u g h t e r weight and the d e c i s i o n i s made to r e t a i n i t f o r breeding purposes. t+2 breed g i l t . t+6 f i r s t f a r r o w i n g . t+8 breed sow or s e l l sow. For the purpose of t h i s study, i t i s assumed t h a t average s l a u g h t e r weight i s the weight a t which hogs are normally marketed f o r s l a u g h t e r . I t i s f u r t h e r assumed t h a t a hog needs 6 months to reach t h a t weight (200 l b s l i v e or 160 l b dressed c a r c a s s ) . Minimum s l a u g h t e r weight i s the minimum weight a t which a hog can be s o l d f o r s l a u g h t e r (150 l b dressed c a r c a s s ) . Maximum s l a u g h t e r weight i s the maximum weight a t which a hog can be s l a u g h t e r e d , due to i n e f f i c i e n -c i e s of c o n t i n u i n g f e e d i n g (170 l b dressed c a r c a s s ) . t+11 hogs reach minimum s l a u g h t e r weight. t+12 hogs reach average s l a u g h t e r weight. I f sow was bred i n t+8, then: t+12 second f a r r o w i n g . t+14 breed sow or s e l l sow. t+17 hogs reach minimum s l a u g h t e r weight. t+18 hogs reach average s l a u g h t e r weight. I f sow was bred a t t+14, then: t+18 t h i r d f a r r o w i n g t+20 breed sow or s e l l sow. t+2 3 hogs ( t h i r d farrowing) reach minimum s l a u g h t e r weight. t+24 hogs reach average s l a u g h t e r weight. I f sow was bred a t t+20, then: t+24 f o u r t h f a r r o w i n g . t+26 breed sow or s e l l sow. t+2 9 hogs reach minimum s l a u g h t e r weight. t+30 hogs reach average s l a u g h t e r weight. 4.3 The Model The model developed i n t h i s study attempts t o r e p r e s e n t the p r o d u c t i o n d e c i s i o n s o f hog producers i n B r i t i s h Columbia through a s e t of equations based on some p r o d u c t i o n assumptions and parameter v a l u e s taken from p r e v i o u s s t u d i e s or a r r i v e d a t i n c o n s u l t a t i o n w i t h B.C. M i n i s t r y of A g r i c u l t u r e Hog 12 s p e c i a l i s t s . The model c o n s i s t s b a s i c a l l y of three modules: A more d e t a i l e d d e s c r i p t i o n of the procedure used to s e l e c t the parameter val u e s i s gi v e n i n s e c t i o n 5.1. 32 a) one t h a t p r o v i d e s f o r responses by farmers to changes induced by s t a b i l i z a t i o n programs. b) one t h a t d e s c r i b e s the s t a b i l i z a t i o n programs themselves, and c) one t h a t accounts f o r "summary measures", i . e . , s t a t i s t i c a l parameters used to i n d i c a t e the degree of s t a b i l i t y and the l e v e l of those v a r i a b l e s regarded as important to p o l i c y makers (Kennedy, (1973)). W i t h i n these modules the f i r s t one d e p i c t i n g farmer response to s t a b i l i z a t i o n programs i s the most important s i n c e i t p o r t r a y s farmers' p r o d u c t i o n d e c i s i o n s w hile the r e s t o n l y incorporates a r b i t r a r i l y s e l e c t e d s t a b i l i z a t i o n schemes and "summary measures". Next, F i g u r e 4.1 g i v e s a s i m p l i f i e d v e r s i o n of the steps i n v o l v e d i n s i m u l a t i n g the response of the B r i t i s h Columbia hog i n d u s t r y g i v e n d i f f e r e n t f e d e r a l and/or p r o v i n c i a l income s t a b i l i z a t i o n schemes, i n order to al l o w a b e t t e r understanding of the model f u n c t i o n i n g . 33 Exogenous Variables (hog and input prices) at equilibrium (No sta-b i l i z a t i o n scheme) * f Behavioral equations (1) G i l t retention function (2) Holdover function I Flow relationships and accounting i d e n t i t i e s (production assumptions and resource constraints) Market Identity Summary Measures -Cost to gov't and farmers -variance and l e v e l of i n -come -variance and l e v e l of pro-duction ± PRINT OUT OUTCOME FROM PROGRAMS Federal and/or Prov. Gov't S t a b i l i z a t i o n Programs Figure 4.1 Flow Diagram of Simulation Model. 34 4.3.1 Response by Farmers to S t a b i l i z a t i o n  Programs-1-3 The equations i n t h i s module, t h a t r e p r e s e n t the core of the s i m u l a t i o n model, can be grouped i n t o three c a t e g o r i e s : (a) B e h a v i o r a l equations; i . e . , those t h a t simulate farmer response to changes i n product and/or i n p u t p r i c e s induced by s t a b i l i z a t i o n programs. (b) Flow r e l a t i o n s h i p s and accounting i d e n t i t i e s ; i . e . , those t h a t i n c o r p o r a t e the hog p r o d u c t i o n assumptions presented e a r l i e r and account f o r the change i n p r o d u c t i o n r e s u l t i n g from the long run farmer response, and (c) Market i d e n t i t y ; ensures t h a t a l l hogs s u p p l i e d are purchased i n the market. 4.3.1.1 B e h a v i o r a l Equations The b e h a v i o r a l equations a l l o w two farmer responses to changes induced by s t a b i l i z a t i o n e f f o r t s : a " p r i c e e f f e c t " and a "non-price e f f e c t " , with both having s h o r t and long run i m p l i c a t i o n s . The s h o r t run p r i c e e f f e c t on g i l t s r e t a i n e d i s captured through the parameter a-^  ( i n equation one), t h a t allows farmers to r e t a i n more or l e s s g i l t s i n a month of government i n t e r f e r e n c e . The s h o r t run p r i c e e f f e c t on holdovers i s accounted f o r through the parameter a-^, i n equation two. A "non-price e f f e c t " was i n c l u d e d because i t i s The p o r t i o n of the model presented i n t h i s s e c t i o n has been adapted from Kennedy (19 73). 35 reasonable to assume t h a t p r i c e s t a b i l i z a t i o n programs can induce a s h i f t to the r i g h t of the supply curve ( B a r i c h e l l o , J u s t , Kennedy (1973) and M a r t i n and MacLaren). Any program t h a t p r o v i d e s a more s t a b l e p r o d u c t i o n environment may induce farmers to i n c r e a s e s u p p l i e s over and above any i n c r e a s e s brought on d i r e c t l y by s u b s i d i e s . The model i n c o r p o r a t e s the "non-price e f f e c t " by a l l o w i n g changes i n the number of g i l t s r e t a i n e d , v i a parameter i n equation one. The s h o r t run i m p l i c a t i o n i s a change i n g i l t s s u p p l i e d to market i n the p a r t i c u l a r month. The long run i m p l i c a t i o n i s changed hog supply 14 months i n the f u t u r e . In summary, equations one and two i n c l u d e what can be c o n s i d e r e d to be the c r i t i c a l b e h a v i o r a l parameters. 4.3.1.1.1 Change i n Quantity of G i l t s  Retained f o r Breeding a (PH f c - PHfc) + a 0 ( P I f c - PT^) + a_G^ + a. , s e 2 e s 3 s 4 (1) t 1 QGR where: AQGR*" i s the a d d i t i o n a l q u a n t i t y (thousands of cwt) of g i l t s r e t a i n e d f o r b r e e d i n g purposes, i n month t . i s the e q u i l i b r i u m q u a n t i t y (thousands of cwt) of g i l t s r e t a i n e d f o r breeding purposes, i n month t . i s the e q u i l i b r i u m B r i t i s h Columbia market p r i c e ( d o l l a r s / c w t ) of s l a u g h t e r hogs (Index 100), i n month t . 36 PH^ i s the simulated or e f f e c t i v e p r i c e ( d o l l a r s / c w t ) of s l a u g h t e r hogs (index 100) r e c e i v e d by farmers i n month t . s P I t i s the e q u i l i b r i u m p r i c e ( d o l l a r s / c w t ) of a l l e i n p u t s needed to produce one cwt of hog (dressed carcass)14 PI^ i s the simulated or e f f e c t i v e p r i c e ( d o l l a r s / c w t ) of a l l i n p u t s p a i d by farmers i n month t. G*" i s the amount of the g i l t r e t e n t i o n subsidy ( d o l l a r s / s cwt), i n month t, a-^  i s the e f f e c t of a p r i c e change i n s l a u g h t e r hog p r i c e s i n month t , / p H t _ p p j ^ x on a d d i t i o n a l ( s e ' q u a n t i t y of g i l t s r e t a i n e d f o r breeding purposes. a 2 i s the e f f e c t of a p r i c e change i n t o t a l i n p u t s , t t (.Pig - p I e ) i l n month t , on a d d i t i o n a l q u a n t i t y of g i l t s r e t a i n e d f o r breeding purposes. a 3 i s the e f f e c t of a g i l t r e t e n t i o n subsidy on a d d i t i o n a l q u a n t i t y of g i l t s r e t a i n e d f o r breeding purposes, i n month t . i s the non-price e f f e c t on a d d i t i o n a l q u a n t i t y of g i l t s r e t a i n e d due to government s t a b i l i z a t i o n e f f o r t s . E q uation (1) assumes t h a t the a d d i t i o n a l q u a n t i t y of g i l t s r e t a i n e d f o r breeding purposes i s a l i n e a r f u n c t i o n of the hog and i n p u t p r i c e changes induced by s t a b i l i z a t i o n e f f o r t s . However, given t h a t the monthly f i g u r e s of the q u a n t i t i e s of g i l t s r e t a i n e d i n B r i t i s h Columbia were not o b t a i n a b l e , QGRt was r e p l a c e d by Q^ + 1^ ( e q u i l i b r i u m q u a n t i t y of hOgs sl a u g h t e r e d i n month t+14), the best a v a i l a b l e proxy, and the b e h a v i o r a l parameters a d j u s t e d a c c o r d i n g l y . 14 T h i s p r i c e i s estimated u s i n g as a b a s i s the FIAP c o s t f i g u r e s , the B.C. feed p r i c e s and the Farm Input P r i c e Index f o r Western Canada. The f o u r t e e n month l a g i n p r o d u c t i o n was recommended by the B r i t i s h Columbia M i n i s t r y o f A g r i c u l t u r e hog s p e c i a l i s t s , and allows f o r : a) the f o u r month w a i t i n g p e r i o d from the time the d e c i s i o n i s made u n t i l the g i l t i s bred b) the fo u r month p e r i o d from c o n c e p t i o n u n t i l f a r r o w i n g , and c) the s i x month p e r i o d from f a r r o w i n g u n t i l average s l a u g h t e r weight i s reached. In the case of no s t a b i l i z a t i o n a c t i v i t y , the e q u i l i b r i u m p r i c e equals the simulated p r i c e , i m p l y i n g AQGRt = 0, or no change i n q u a n t i t y of g i l t s r e t a i n e d . Note t h a t equation (1) i n c l u d e s the separated e f f e c t s of both product and i n p u t p r i c e s . The p o s s i b i l i t y of i n c l u d i n g a r a t i o , such as.the hog/barley p r i c e r a t i o , was r e j e c t e d i n view of the f i n d i n g s of some hog supply s t u d i e s (Meilke; West e t a l , (1974)). West r e p o r t s t h a t hog supply i n B r i t i s h Columbia i s more r e s p o n s i v e to a change i n hog p r i c e s than a change i n feed p r i c e s . M e i l k e , i n h i s hog supply study f o r the Un i t e d S t a t e s p o i n t s out t h a t the hog-corn p r i c e r a t i o may p r o v i d e a good e x p l a n a t i o n of hog supply when corn p r i c e s are constant but not when they are f l u c t u a t i n g . Consequently, s i n c e feed p r i c e s have f l u c t u a t e d w idely i n the p a s t few y e a r s , i t i s f e l t t h a t c o n s i d e r a t i o n should be g i v e n t o the independent e f f e c t s o f changing hog p r i c e s and feed p r i c e s on hog supply. 38 4.3.1.1.2 Holdover F u n c t i o n I t i s assumed t h a t s l a u g h t e r hogs are kept a maximum of two months a f t e r r e a c h i n g minimum s l a u g h t e r weight because continued f e e d i n g leads t o i n e f f i c i e n c i e s and q u a l i t y d e t e r i o r a t i o n . Assuming t h a t i n e q u i l i b r i u m farmers s e l l market hogs a t average weight ( i . e . a t s i x months), then i n response to p r i c e changes caused by s t a b i l i z a t i o n a c t i v i t y , the may hold over market g i l t s and barrows one a d d i t i o n a l month ( p o s i t i v e holdover) or s e l l them one month e a r l i e r (negative h o l d o v e r ) . In other words, s e l l i n g a f i v e month  hog r e p r e s e n t s a n e g a t i v e holdover. T h i s i m p l i e s t h a t farmers have a two month f l e x i b i l i t y p e r i o d i n which to s e l l s l a u g h t e r g i l t s and barrows, and t h a t a holdover d e c i s i o n may be made at minimum and/or average s l a u g h t e r weight. The q u a n t i t y of hogs t h a t can be s o l d one month e a r l y or l a t e i s r e l a t e d to t o t a l hogs a v a i l a b l e f o r h o l d i n g over ( Q ^ ) . .t AQ h = « 1 4 < P H s " P H e » + a15 ( P I e " P I s > ' ( 2 ) The v a l u e of w i l l vary depending on whether n Q^ - 1 i s p o s i t i v e or n e g a t i v e . Q h = ( Q e " A Q G R t + a l 6 A Q h _ 1 + A Q 0 F t ) ' ( 3 ) 1 5 1 5 S i n c e AQ, t - 1 i s 1 s m a l l e r than zero, the e x p r e s s i o n h ( a , , A Q ^ - 1 ) i s neg a t i v e , l b n 39 i f AQ^ 1 < 0 Q h = ( Q e • " A Q G R t + A Q ° F t ) i f A Q h _ 1 i 0 ' ( 4 ) 1 6 where: AQ h i s the q u a n t i t y ( i n thousands of cwt) of hogs i n month t s o l d one month bef o r e (negative holdover) or one month a f t e r ( p o s i t i v e holdover) r e a c h i n g average s l a u g h t e r weight. AQOFfc i s the a d d i t i o n a l q u a n t i t y ( i n thousands of cwt) of s l a u g h t e r hogs, i n month t , produced by a d d i t i o n a l g i l t s and sows. i s the e f f e c t o f the p r i c e change of s l a u g h t e r hogs i n month t on q u a n t i t y of holdovers i n month t . a-^i- i s the e f f e c t of a p r i c e change i n v a r i a b l e i n p u t s i n month t , on q u a n t i t y o f holdovers i n month t . a^g accounts f o r the w e i g h t . i n c r e a s e , a d j u s t e d f o r death l o s s , from keeping a s l a u g h t e r hog an e x t r a month. 4.3.1.2 Flow R e l a t i o n s h i p s and  Accounting I d e n t i t i e s Two equations presented i n t h i s s e c t i o n c a l c u l a t e the changes i n hog p r o d u c t i o n , i n terms of a d d i t i o n a l sows and o f f s p r i n g , r e s u l t i n g from the change i n the number of g i l t s r e t a i n e d some months e a r l i e r . Two accounting i d e n t i t i e s sum up the t o t a l output change. Furthermore, s i n c e i t seems reasonable to assume t h a t farmers have, i n the s h o r t run, resource c o n s t r a i n t s , upper l i m i t s on the number of g i l t s r e t a i n e d and the number of hogs h e l d over are i n c o r p o r a t e d AQ^ i s not i n c l u d e d i n equation (4) s i n c e the number of hogs heldover i n the p r e v i o u s month cannot be h e l d a g a i n , having reached maximum s l a u g h t e r weight. 40 i n the model. 4.3.1.2.1 Output Change from Sale of  A d d i t i o n a l Sows Ac c o r d i n g to the hog p r o d u c t i o n assumptions f o r B r i t i s h Columbia s t a t e d b e f o r e , the e x t r a g i l t s which farmers r e t a i n i n month t f o r breeding purposes (AQGRt) w i l l e v e n t u a l l y come onto market as QGR^ " 8 , QGRt "*"4 and so on, acc o r d i n g to the number of sow c u l l i n g s per fa r r o w i n g . (Assumptions 1, 2, 3, and 4). AQSO t = a 6 a^AQGRt 8 + a 0AQGR t _ 1 4 + a AQGR1 2 0 + / o g +a 1 QAQGR t 2 6 + a-^AQGR1 3 2+ a 1 2AQGR t 3 8+ t-44 + (1 - a.y - ag - <Xg '- d-^Q - a ^ - AQGR - AQGR1 , (5) where: AQSO t i s the a d d i t i o n a l q u a n t i t y ( i n thousand of cwt) of s l a u g h t e r hogs ( e q u i v a l e n t s ) i n month t , r e s u l t i n g from the s a l e of a d d i t i o n a l sows. t-8 t-14 t-44 AQGR , AQGR , , AQGR are the a d d i t i o n a l q u a n t i t i e s of g i l t s r e t a i n e d ( i n thousand o f cwt) f o r b r e e d i n g purposes i n month t-8, t-14, t-20, t-26, t-32, t-38, and t-44 r e s p e c t i v e l y ( i . e . , h e l d f o r 1, 2, 3, 4, 5, 6 or 7 l i t t e r s ) . afi accounts f o r the weight i n c r e a s e , a d j u s t e d f o r death l o s s , from keeping an e x t r a g i l t f o r breeding purposes u n t i l i t reaches the average sow weight at time o f s l a u g h t e r . 41 a-jr ag/ a^f a i o ' a l l ' a12 a n C ^ (l-oij-ag-ag-a-^Q-a^-a^) r are the p r o p o r t i o n s of sow c u l l i n g s per far r o w i n g ( f i r s t , second, t h i r d , f o u r t h , f i f t h , s i x t h and seventh farrowing r e s p e c t i v e l y ) . 4.3.1.2.2 Output Change from O f f s p r i n g o f A d d i t i o n a l G i l t s Retained A d d i t i o n a l g i l t s r e t a i n e d i n month t produce o f f s p r i n g of average market weight i n month t+12 and every s i x months t h e r e a f t e r . AQOF*" = a 1 3 t - 1 0 -(--I ?! t-24 AQGR x + ( l - a _ ) AQGR + (l-a_-a 0)AQGR + / t o + (l-a 7-a g-a 9). AQGRt 3 0 + ( A Q G R t - 3 6 + t-42 + ( l - a 7 - a g - a g - a 1 0 - a 1 1 ) A Q G R + ( l - a 7 - a g - a g - a 1 0 -~ a i i " a i 2 ) A Q G R t ~ 4 8 (6) where: AQOF : i s the a d d i t i o n a l q u a n t i t y ( i n thousands of cwt) of s l a u g h t e r hogs i n month t , produced by a d d i t i o n a l g i l t s and sows. a^^ 1 I s the average l i t t e r s i z e , adjusted by death l o s s u n t i l o f f s p r i n g reaches average s l a u g h t e r weight ( i n number of head) . 4.3.1.2.3 T o t a l Output Change R e s u l t i n g from Change i n Breeding Herd S i z e AQT t = AQSOt + AQOF t , (7) 42 where: AQT 1 i s the t o t a l change ( i n thousands of cwt) i n q u a n t i t y of s l a u g h t e r hogs, i n month t , r e s u l t i n g from changes i n g i l t r e t e n t i o n s i n month t and months p r i o r to t . .4.3.1.2.4. C o n s t r a i n t on R e t e n t i o n of G i l t s I t i s reasonable to assume t h a t farmers have, i n the s h o r t run, an upper l i m i t to the change i n the q u a n t i t y of g i l t s r e t a i n e d f o r breeding, s i n c e there l i k e l y e x i s t s resource c o n s t r a i n t s . Max AQGR1 <a c QGR1 , (8) where: a, i s the maximum p r o p o r t i o n of g i l t s t h a t c o u l d be added to breeding stock, i n month t . As i n the case of equation (1), s i n c e QGR1 was not t+14 o b t a i n a b l e i t was r e p l a c e d by Q g , the best a v a i l a b l e proxy and a,- a d j u s t e d a c c o r d i n g l y . 4.3.1.2.5 Holdover C o n s t r a i n t The q u a n t i t y of hogs t h a t can be h e l d over i s c o n s t r a i n e d as r e s o u r c e s become b i n d i n g . T h i s i m p l i e s t h a t , at some p o i n t , hogs must be s o l d even a t very low p r i c e s . T h e r e f o r e , i t i s a p p r o p r i a t e t h a t Q 1 be given an upper li m i t " . 43 A Q h ^ a17 C Q e " A Q G R t + a i 6 A ° h 1 + A Q ° r t ) ' (9) i f A Q 1 _ 1 < 0 A Q h = a17 ( Q e " A Q G R t + A Q ° p t ) ' i f AQ 1" 1 ? 0 where: a , i s the maximum p r o p o r t i o n of hogs t h a t can be w i t h h e l d from market i n month t and s o l d the f o l l o w i n g month. 4.3.1.2.6 Market Supply of Slaughter Hogs Qs = Q e + A Q T t + a i 6 A Q h _ 1 " A Q h ' where: Q 1 i s the t o t a l (simulated) q u a n t i t y ( i n thousands of cwt) of s l a u g h t e r hogs s u p p l i e d i n month t . 4.3.1.3 Market I d e n t i t y Packer demand f u n c t i o n i s assumed to be p e r f e c t l y e l a s t i c because market p r i c e i n B r i t i s h Columbia i s determined 17 o u t s i d e the p r o v i n c e . Given t h a t B r i t i s h Columbia's hog pr o d u c t i o n r e p r e s e n t s o n l y a very s m a l l f r a c t i o n of t o t a l Western Canadian p r o d u c t i o n , any change i n i t s volume w i l l have a n e g l i g i b l e e f f e c t on market p r i c e s . 17 T r y f o s , Reimer, Dawson and Zwart (1973) conclude t h a t an important percentage of Canadian L i v e s t o c k p r i c e v a r i a t i o n s can be e x p l a i n e d by v a r i a t i o n s i n Un i t e d S t a t e s p r i c e s . Given the assumption of a p e r f e c t l y e l a s t i c demand f u n c t i o n used i n t h i s study, a l l hogs s u p p l i e d are purchased i n the market, or Qd = Q s ' ( 1 2 ) 4.3.2 Schemes f o r Hog Producer Income S t a b i l i z a t i o n In s e c t i o n 4.3.1 the e x p l i c i t f u n c t i o n s of the p o r t i o n of the mathematical model r e p r e s e n t i n g farmer responses to s t a b i l i z a t i o n programs were presented. Now, the schemes f o r hog producer income s t a b i l i z a t i o n d i s c u s s e d i n Chapter 3, are presented i n mathematical form. 4.3.2.1 Premium-Subsidy Scheme 18 Under a premium-subsidy scheme on p r i c e of s l a u g h t e r hogs, assuming t h a t both the f e d e r a l and the p r o v i n c i a l programs work on a monthly b a s i s , and t h a t the f e d e r a l program comes i n t o o p e r a t i o n f i r s t , the e f f e c t i v e p r i c e r e c e i v e d by farmers (PH^) i s equal to the p r o v i n c i a l e q u i l i b r i u m p r i c e (PH^) l e s s any producer premium, i f the p r o v i n c i a l e q u i l i b r i u m p r i c e exceeds both the f e d e r a l f l o o r p r i c e r e l e v a n t a t the p r o v i n c i a l l e v e l ( p f f ) and the p r o v i n c i a l f l o o r p r i c e ( p f p ) • I r t n e e q u i l i b r i u m p r i c e i s l e s s than the f e d e r a l f l o o r but g r e a t e r than the p r o v i n c i a l f l o o r , the f e d e r a l government g i v e s a d e f i c i e n c y payment to r a i s e e f f e c t i v e p r i c e to the f e d e r a l f l o o r . I f the e q u i l i b r i u m p r i c e i s l e s s than the f e d e r a l f l o o r , which i s l e s s than the p r o v i n c i a l f l o o r , then the p r o v i n c i a l government makes up the 18 Some s p e c i f i c formulae to determine the c e i l i n g and f l o o r p r i c e s w i l l be d i s c u s s e d i n Chapter 5. 45 d i f f e r e n c e between the two f l o o r s with a d e f i c i e n c y payment. Both cases hol d when the e q u i l i b r i u m hog p r i c e i s l e s s than the predetermined c e i l i n g . I f the e q u i l i b r i u m hog p r i c e i s g r e a t e r than the c e i l i n g , the e f f e c t i v e p r i c e to farmers i s t 19 equal to the c e i l i n g (PH^), l e s s any producer premium. PH 1 = max (PH 1, P^ f, P 1 ^ - PP 1 i f PH 1 < PH 1 or P 1 < PH 1 (13) e c f t c t t t PH = PH - PP s c i f PH 1 > PH 1 or P ^ > PH 1 ( 1 4 ) where: PH 1 i s the simulated or e f f e c t i v e p r i c e of hogs s r e c e i v e d by farmers ( d o l l a r s / c w t ) , i n month t . i s the f e d e r a l f l o o r p r i c e of hogs ( d o l l a r s / c w t ) , r e l e v a n t a t the p r o v i n c i a l l e v e l , i n month t . P 1 i s the p r o v i n c i a l f l o o r p r i c e of hogs ( d o l l a r s / c w t ) , " i n month t . When f e d e r a l s u b s i d i e s are p a i d with r e s p e c t to the p r o v i n c i a l hog e q u i l i b r i u m p r i c e (PH 1), the f e d e r a l f l o o r p r i c e r e l e v a n t a t the p r o v i n c i a l l e v e l (Pff) becomes equal to the f e d e r a l n a t i o n a l f l o o r p r i c e ( p f f n ) • F o r t n e case where a d e f i c i e n c y payment i s p a i d w i t h r e s p e c t to the average n a t i o n a l e q u i l i b r i u m hog p r i c e ( p H g n ) > t n e r e l e v a n t 19 t The l e v e l of the f l o o r p r i c e f o r hogs ( P f p ) under any s t a b i l i z a t i o n program, except f o r the c u r r e n t FIAP, i s given by the parameter ^22' w h i - * - e t n e c e i l i n g p r i c e i s s e t by i n c r e a s i n g the f l o o r p r i c e a c e r t a i n percentage g i v e n by the parameter 3. f e d e r a l f l o o r p r i c e a t the p r o v i n c i a l l e v e l (Pff) becomes equal to the p r o v i n c i a l e q u i l i b r i u m p r i c e p l u s the f e d e r a l subsidy. The f e d e r a l subsidy i n t h i s case i s equal to the d i f f e r e n c e between the f e d e r a l n a t i o n a l f l o o r p r i c e ( P ^ ) c f f n and the n a t i o n a l e q u i l i b r i u m hog p r i c e (PH^ n). I f r e s t r i c t i o n s are imposed i n a p r o v i n c i a l program on what hogs are e l i g i b l e , the average p r o v i n c i a l f l o o r p r i c e of hogs ( p f p a ) becomes e f f e c t i v e . I t r e p r e s e n t s a weighted average of the e q u i l i b r i u m hog p r i c e (PH^) and the e f f e c t i v e p r i c e f o r e l i g i b l e hogs on the program (P^p)t weighted by the p r o p o r t i o n of hogs marketed under the program. In other words, P f p a i s the e f f e c t i v e average p r i c e r e c e i v e d f o r a l l farmers, r e g a r d l e s s of whether they q u a l i f y or not f o r the 20 program. As i n d i c a t e d e a r l i e r , both the ASA and the FIAP are product p r i c e support programs s i n c e they i n v o l v e o n l y a subsidy o p t i o n ; i . e . farmers are not taxed when e q u i l i b r i u m p r i c e exceeds some c e i l i n g . 4.3.2.1.1 A g r i c u l t u r a l S t a b i l i z a t i o n A c t Under the ASA, a subsidy i s p a i d to farmers i f the annual average hog p r i c e f o r Canada as a whole i s l e s s than the predetermined n a t i o n a l f l o o r p r i c e . I f Canada's average hog p r i c e exceeds the f l o o r , no subsidy o c c u r s . The simulated p r i c e f o r hogs under the ASA i s equal The same reas o n i n g w i l l apply f o r the case o f r e s t r i c t i o n s on what hogs q u a l i f y under a f e d e r a l program. to the B r i t i s h Columbia equilibrium price (PH*j), regardless of the l e v e l of the f l o o r price determined by the program. As indicated e a r l i e r , ASA payments are annual and represent an "after the fact" type of subsidy; hence they do not have d i r e c t price e f f e c t s on farmers' g i l t retention or holdover decisions (Martin). The ASA may, however, af f e c t supply through the s h i f t e r a^.' Given t h i s consideration, price received by farmers under the ASA i s : PH*" = PH*" , (15) s e 4.3.2.1.2 B r i t i s h Columbia Swine Producers  Income Assurance Program Under the B r i t i s h Columbia Swine Producers Income Assurance Program, an indemnity i s paid to farmers each time the calculated t o t a l cost of production, plus the marketing cost, i s greater than the p r o v i n c i a l equilibrium market price for hogs. The amount of the indemnity i s equal to 75 percent of the return d e f i c i t , or the difference between costs and hog p r i c e . Therefore, the price received by farmers under the FIAP (Pj ) equals the B r i t i s h Columbia market price plus the calculated monthly indemnity. However, since the FIAP imposes some r e s t r i c t i o n s on what hogs are e l i g i b l e for the program, the average farm l e v e l hog price (Pfp a) becomes e f f e c t i v e . Also, the e f f e c t i v e producer premium paid i s the average producer premium (PP*") . PP*" represents farmers' share of the t o t a l fixed premium rate paid every month, 48 regardless of whether subsidies are paid that month. Considering that the amount of the premium rate and the producer's share can be modified, PP 1 can be regarded as a 21 "policy parameter". PH 1 = max (PH 1, P 1 ) - PP 1 (16) s e' fpa a RD1 = (PI 1 + C 1) - P 1 ( 1 7 ) 2 2 e m he IND 1 - « 1 8 RD1 (since 1975 to date) (18) IND 1 = a., _ PH 1 (for the year 1974) (19) 18 e pj = IND 1 + PH 1 (20) f p e P f p a = [ a19 P f p + ( 1-°19 ) P H e (21) where: P 1 i s the price received by farmers for hogs p e l i g i b l e for the FIAP, i n month t (dollars/cwt), P 1 i s the weighted average price for hogs received " by farmers, i n month t (dollars/cwt). 21 The computer program includes two parameters to account for changes i n the farmers' share i n t o t a l premiums. a^^ for the case of a fixed premium rate and a^~j when the premiums are allowed to s l i d e according to the amount of money accumulated i n the p r o v i n c i a l s t a b i l i z a t i o n fund. 22 The proportion of fixed costs included i n the ca l c u l a t i o n of the return d e f i c i t i s given by the parameter ( i . e . , i n the extremes, equals one for the case of a net margin and zero for the case of a gross margin). Also, the hog price used to calculate the return d e f i c i t i s allowed to vary according to the parameter o ^ ^ . 49 C*" i s the marketing c o s t per cwt of hogs s o l d m ( d o l l a r s / c w t ) i n month t , as r e p o r t e d by the FIAP. PP*" i s the f i x e d producer premium ( d o l l a r s / c w t ) , i n month t . PP*" i s the average premium ( d o l l a r s / c w t ) , i n month cl t. IND*" i s the indemnity p a i d by the program ( d o l l a r s / c w t ) , i n month t . RD*" i s the r e t u r n d e f i c i t , or d i f f e r e n c e between the t o t a l c o s t of p r o d u c t i o n p l u s the marketing c o s t , and the e q u i l i b r i u m hog p r i c e ( d o l l a r s / c w t ) , i n month t . a l 8 i s the p r o p o r t i o n of the monthly r e t u r n d e f i c i t guaranteed by the FIAP ( c u r r e n t l y 75%). a , n i s the p r o p o r t i o n of hogs e l i g i b l e f o r a g i v e n program, over the t o t a l number of hogs marketed, i n any month. In t h i s s p e c i f i c case a1_ r e f e r s i y to the p r o p o r t i o n of hogs e l i g i b l e f o r FIAP. During 1974 ( f i r s t year of o p e r a t i o n of the FIAP), the f l o o r p r i c e was c a l c u l a t e d assuming = 0 and a^g equal to some accumulated percentage indemnity c a l c u l a t e d a c c o r d i n g to the r e t u r n d e f i c i t . 4.3.2.2 Input Subsidy Schemes As mentioned i n Chapter 3, elsewhere (West e t a l (1974) and (1973), Meilke) i t has been s t a t e d t h a t farmers r e a c t d i f f e r e n t l y t o changes i n margin depending on whether hog or feed p r i c e s change. T h e r e f o r e , the model i n c l u d e s the case of an i n p u t subsidy scheme on feed p r i c e to account f o r i t s i s o l a t e d e f f e c t s . Under t h i s program the e f f e c t i v e feed 50 p r i c e p a i d by farmers (PF 1) i s equal to the c a l c u l a t e d c e i l i n g i f the feed e q u i l i b r i u m p r i c e (PF 1) exceeds the c e i l i n g . P F 1 = minimum (PF 1 , P F 1 ) , (22) s e c where: P F 1 i s the c e i l i n g p r i c e of f e e d 2 3 needed to produce c one cwt of hog dressed c a r c a s s ( d o l l a r s / c w t ) , i n month t. P F 1 i s the e q u i l i b r i u m p r i c e of feed needed to produce one cwt of hog dressed c a r c a s s ( d o l l a r s / c w t ) , i n month t . e P F 1 i s the e f f e c t i v e or (simulated) p r i c e of feed p a i d S by farmers ( d o l l a r s / c w t ) , i n month t . Regarding the g i l t r e t e n t i o n subsidy program, i t s e f f e c t has a l r e a d y been i n c l u d e d i n equation (1) through the e x p r e s s i o n (a^G 1). r e p r e s e n t s the e f f e c t of the g i l t r e t e n t i o n subsidy on a d d i t i o n a l q u a n t i t y of g i l t s r e t a i n e d f o r b r e e d i n g purposes and G 1 i s the amount of the subsidy. The change i n g i l t s r e t a i n e d i s assumed to be p r o p o r t i o n a l to the amount of the subsidy. 4.3.3 Summary Measures C o n s i d e r i n g t h a t the computer s i m u l a t i o n experiments with the model can generate a p r o f u s i o n of i n f o r m a t i o n , i t i s necessary to summarize i t by c a l c u l a t i n g what i s c a l l e d 2 3 T h e l e v e l of the c e i l i n g p r i c e of feed i s s e t i n the computer model by means of the parameter a 2 1 -"summary measures" (Kennedy (1974)). They are s t a t i s t i c a l parameters ( i . e . mean, standard d e v i a t i o n , maximum and minimum values) used t o i n d i c a t e the degree o f s t a b i l i t y and the l e v e l of v a r i a b l e s regarded as important to p o l i c y makers. V a r i a b l e s such as farmers' income, hog p r i c e s , q u a n t i t y of hogs produced, gross revenue and budgetary c o s t to government and producers. By comparing the valu e s of the summary measures under no s t a b i l i z a t i o n scheme wi t h the ones of c u r r e n t and proposed programs, i t i s p o s s i b l e to assess t h e i r d i f f e r e n t impacts on the r e l e v a n t v a r i a b l e s . Summary measures w i l l be c a l c u l a t e d based on monthly v a l u e s over the e n t i r e p e r i o d . A l i s t of the summary measures used i n t h i s study i s given below. I £ ( I - ) i s the mean (standard d e v i a t i o n ) of annual fern res e q u i l i b r i u m hog producer income (thousands of d o l l a r s ) . I_ ( I r ) i s the mean (standard d e v i a t i o n ) of annual fsm r s s simulated hog producer income (thousands of d o l l a r s ) . P, (P, ) i s the mean (standard d e v i a t i o n ) o f the average hem hes monthly v a l u e (between years) of e q u i l i b r i u m p r i c e ( d o l l a r s / c w t ) of s l a u g h t e r hogs. P, (P. ) i s t h e mean (standard d e v i a t i o n ) o f the average hsm hss ^ monthly value (between years) of simulated p r i c e ( d o l l a r s / c w t ) o f s l a u g h t e r hogs. 52 Q, (Q, ) i s the mean (standard d e v i a t i o n ) o f the annual hem hes e q u i l i b r i u m q u a n t i t y of slaugher hogs (thousands of cwt). (Q, ) i s the standard d e v i a t i o n of the monthly v a l u e , hesm w i t h i n y e a r s , of e q u i l i b r i u m q u a n t i t y of s l a u g h t e r hogs (thousands of cwt). Q, (H, ) i s the mean (standard d e v i a t i o n ) of the annual hsm hss simulated q u a n t i t y of s l a u g h t e r hogs (thousands of cwt). (Q, ) i s the standard d e v i a t i o n of the monthly v a l u e , hssm 2 w i t h i n y e a r s , o f simulated q u a n t i t y of s l a u g h t e r hogs (thousands o f cwt). R £ (R_ ) i s the mean (standard d e v i a t i o n ) of the annual fern res e q u i l i b r i u m hog producer gross revenue (thousands of d o l l a r s ) . R £ {Rr- \ i s the mean (standard d e v i a t i o n ) of the annual fsm f s s ) simulated hog producer gross revenue (thousands of d o l l a r s ) . TNSPG i s the t o t a l net amount of s u b s i d i e s the p r o v i n c i a l government p a i d t o farmers ( i f negative) or r e c e i v e d from them as c o n t r i b u t i o n s ( i f p o s i t i v e ) (thousands of d o l l a r s ) . TFGP i s the t o t a l amount p a i d by the f e d e r a l government as s u b s i d i e s to farmers (thousands of d o l l a r s ) . TNF i s the t o t a l net amount r e c e i v e d by farmers as s u b s i d i e s from the f e d e r a l and p r o v i n c i a l governments ( i f p o s i t i v e ) or the t o t a l net amount p a i d as c o n t r i b u t i o n s to the p r o v i n c i a l government ( i f negative) (thousands of d o l l a r s ) 4.3.3.1 Summary Measures Computation The mean and standard d e v i a t i o n of the r e l e v a n t v a r i a b l e s are computed u s i n g standard s t a t i s t i c a l procedures. Government payments and farmer c o n t r i b u t i o n s are c a l c u l a t e d making use of the s e t of equations d e t a i l e d below. 4.3.3.1.1 Government Payments C o n s i d e r i n g t h a t a l l p r e s e n t and proposed schemes may i n c l u d e f e d e r a l and/or p r o v i n c i a l payments to farmers, the model needs t o account f o r them. 4.3.3.1.1.1 F e d e r a l Government Payments For the case of a f e d e r a l p r i c e support program t h a t operates on a monthly [(annual)J b a s i s where s u b s i d i e s are p a i d to farmers each time the f e d e r a l f l o o r p r i c e , r e l e v a n t e i s g r e a t e r than the (PH a)l , the monthly (annual) amount p a i d e q u a l s : FG = 0 P i f PH1 > P*: (23) e = i f PH*" < P*; e f f (24) F G a = 0 i f PH a > P a p e = f (25) 54 FG a = Q a(P* - PHa) i f PH 3 < P a (26) p s f f e e f f where: t a FG (FG ) i s the monthly (annual) federal government P P payment to farmers.(thousands of d o l l a r s ) , i n month t (year a) t a Q (Q ) i s the monthly (annual) t o t a l or simulated "s s quantity of slaughter hogs supplied, i n month t (year a). (thousands of cwt) t a P^^(P f f) i s the monthly (annual) federal f l o o r price for hogs, relevant at the p r o v i n c i a l l e v e l , i n month t (year a). (dollars/cwt) t a P-- (P., ) i s the monthly (annual) federal f l o o r price f f n f f n for hogs (dollars/cwt) at the national l e v e l , i n month t (year a). t a PH (PH ) i s the monthly (annual) p r o v i n c i a l equilibrium e e price of hogs, i n month t (year a ) . ( d o l l a r s / cwt) t a PH (PH ) i s the monthly (annual) national equilibrium en en price of hogs, i n month t (year a). ( d o l l a r s / cwt) .. As stated before, i f subsidies are paid with respect to the p r o v i n c i a l equilibrium hog price, for the monthly J( annual )J case, the relevant federal f l o o r price at the t T a p r o v i n c i a l l e v e l (Pff) r P f f ^ ] i f subsidies are paid with respect to the average national equilibrium hog price ( p Hg n) ^ P Hen'| ' t* 1 S r e^- e v a n^- federal f l o o r price i s equal to the p r o v i n c i a l monthly (annual) , becomes equal to the federal (P« )l • On the other hand, f f n 1 average equilibrium price (PH1) ( p He^ , plus the federal subsidy. The federal subsidy i s equal.to the difference between the monthly [(annual)J federal f l o o r price ( P f f n ) and the monthly JT(annual) j national equilibrium price P a f f n (PH*" ) en en For the s p e c i f i c case of the A g r i c u l t u r a l S t a b i l i z a t i o n Act, the national federal f l o o r price of hogs i s calculated as follows: P « = a ™ PH 3 5 + ( P i a - P i a 5 ) (from 1975 to date), (27) f f n 20 e v v p a . = P H a l ° (from 1958 to 1974), (28) f f n 20 e where: a5 PH i s the f i v e year national moving average hog e price (dollars/cwt). a l 0 PH i s the ten year national moving average hog price e (dollars/cwt). a5 PI i s the f i v e year moving average cash cost needed v a20 to produce one cwt of hog dressed carcass ( d o l l a r s / cwt) . i s the proportion of the average national hog price supported under the ASA. 4.3.3.1.1.2 P r o v i n c i a l Government Payments Given that t h i s study includes product price tax-subsidy as well as input subsidy types of schemes, the model needs to consider any p r o v i n c i a l government payment that may occur under any of them. 4.3.3.1.1.2.1 Deficiency Payment Scheme As i n the case above, i n months where the B r i t i s h Columbia market price (PHe) f a l l s below the p r o v i n c i a l f l o o r price ( pfp) ' a n <^ t n e l a t t e r i s greater than the federal f l o o r price of hogs, relevant at the p r o v i n c i a l l e v e l (P^£)/ the p r o v i n c i a l government pays a subsidy to farmers. PG 1 =0 i f (PH 1 > P 1 or P 1 > P 1 ), p e = fp f f = fp (29) PG 1 = Q 1 (P 1 - max p s fp P H e ' P f f i f (PH 1 < P* p and P]:f < P t p ) , (30) where: PG i s the p r o v i n c i a l government payment to farmers p i n month t (thousands of d o l l a r s ) . 4.3.3.1.1.2.2 Input Subsidy Under an input subsidy program the p r o v i n c i a l government pays a subsidy to farmers whenever the market price of feed ( P£ e) i s greater than the calculated c e i l i n g ( P f c ) • PG 1 = 0 I i f PF1 < PF 1 e = c (31) PG 1 l Q 1 (PF 1 s e PF1) c i f PF1 > PF 1 e c (32) where: PG: i s the p r o v i n c i a l government payment to farmers under an input subsidy scheme on feed prices (thousands of d o l l a r s ) . 4.3.3.1.1.2.3 G i l t Retention Subsidy Under a g i l t retention subsidy scheme, assuming that a subsidy i s p a i d on a l l a d d i t i o n a l g i l t s r e t a i n e d , the monthly subsidy i s equal t o : PGg = 0 i f AQGR*" < 0 (33) PG f c = AQGR*"• G*" i f AQGR*" > 0 (34) g s where: PG*" i s the p r o v i n c i a l government payment to farmers ^ under a g i l t r e t e n t i o n subsidy program, i n month t (thousands of d o l l a r s ) . 4.3.3.1.1.2.4 T o t a l Monthly P r o v i n c i a l  Government Payments The t o t a l amount p a i d t o farmers by the p r o v i n c i a l government i n any month, i s equal to the sum of the payments under a product p r i c e subsidy scheme, an in p u t subsidy scheme and/or a g i l t r e t e n t i o n one. SPG*" = PG*" + PG*: + PG*" (35) py p l g where: SPG*" i s the t o t a l amount of s u b s i d i e s p a i d t o farmers PY by the p r o v i n c i a l government, i n month t (thousands of d o l l a r s ) . 4.3.3.1.2 Producer C o n t r i b u t i o n s I f any of the programs being c o n s i d e r e d i n c l u d e producers'premiums, the monthly producer c o n t r i b u t i o n can be c a l c u l a t e d as f o l l o w s : 58 PC 1 = (Q 1 x PP 1) s i f P 1 < PH 1 and PH 1 < PH 1 f f = c e = c PC 1 = Q. max ( P 1 , PH 1) f f e i f P 1 > PH 1 or PH 1 > PH 1 f f c e c - PH + PP (36) 24 (37) where: PC i s the producer c o n t r i b u t i o n through premiums, i n month t (thousands of d o l l a r s ) . 4.3.3.1.3 Net Monthly Payments t o ( i f negative)  or Received from ( i f p o s i t i v e )  Farmers, by the P r o v i n c i a l Government Under any of the p r o v i n c i a l schemes where farmers c o n t r i b u t e to the f i n a n c i a l support o f the program through premiums, the net monthly amount p a i d by the p r o v i n c i a l 25 government NSPG 1 i s equal to: = P C 1 - SPG 1 PY (38) where: NSPG i s the net amount of s u b s i d i e s p a i d to farmers ( i f n e g a t i v e ) , or r e c e i v e d from them as c o n t r i b u t i o n s ( i f p o s i t i v e ) , i n month t (thousands of d o l l a r s ) . 24 In the case of r e s t r i c t i o n s on what hogs are e l i g i b l e f o r a program, the e f f e c t i v e producer premium and hog c e i l i n g p r i c e are equal t o the weighted average producer premium (PP 1) and c e i l i n g p r i c e (PH 1 ) r e s p e c t i v e l y , a c a 25 Note t h a t the monthly amount p a i d by the p r o v i n c i a l govern-ment (j^gpgt) i s n e t n o t o n l y o f producer c o n t r i b u t i o n s but a l s o of f e d e r a l payments, given the c o n d i t i o n s i n equations (29) and (30). 59 For the case o f a f e d e r a l program t h a t works on an annual b a s i s , where f e d e r a l payments have t o be deducted from those of the p r o v i n c i a l government p a i d d u r i n g the 2 6 year, the net annual payment by the p r o v i n c i a l government to farmers i s equal t o : NSPG 12 £ NSPG i = l 12 12 i f E NSPG 1 > 0 , i = l (39) NSPG = min 0, (E NSPG*" 1 + FG a) i = l p 12 , t - i i f Z NSPG < 0, (40) i = l where NSPG i s the net amount p a i d by the p r o v i n c i a l government as s u b s i d i e s ( i f negative) or r e c e i v e d as farmers' c o n t r i b u t i o n s ( i f p o s i t i v e ) i n year a (thousands of d o l l a r s ) . Equation (39) i s r e l e v a n t f o r the case where the p r o v i n c i a l government has r e c e i v e d a net c o n t r i b u t i o n from farmers, and t h e r e f o r e , any f e d e r a l payment t h a t might occur has no e f f e c t on p r o v i n c i a l government expenses. Equation (40) r e f l e c t s the s i t u a t i o n where the p r o v i n c i a l government has p a i d s u b s i d i e s t o farmers amounting ,to more than the f e d e r a l s u b s i d i e s . Here the net amount p a i d by the p r o v i n c i a l government i s equal to the annual s u b s i d i e s p a i d l e s s the . f e d e r a l payment. Equation (40) a l s o d e p i c t s the o p p o s i t e s i t u a t i o n where the t o t a l amount of f e d e r a l s u b s i d i e s p a i d T h i s i s the case o f the c u r r e n t ASA and FIAP, where f e d e r a l payments are made at the end of the hog p r o d u c t i o n year. 60 i s g r e a t e r than or equal to the t o t a l amount p a i d by the p r o v i n c i a l government. Here, the p r o v i n c i a l government reco v e r s what has a l r e a d y been p a i d and t r a n s f e r s to farmers the excedent ( i . e . NSPG = 0). 4.3.3.1.4 Net Monthly Farmer C o n t r i b u t i o n s  to the P r o v i n c i a l Government ( i f  negative) or S u b s i d i e s R e c e i v e d - from ( i f p o s i t i v e ) the P r o v i n c i a l  or F e d e r a l Governments When farmers c o n t r i b u t e to a p r o v i n c i a l s t a b i l i z a t i o n program and, a t the same time, r e c e i v e s u b s i d i e s from the f e d e r a l and/or p r o v i n c i a l governments, the net amount p a i d or r e c e i v e d i s equal t o : NTF 1 = SPG 1 + F G 1 - P C 1 (41) py P where: NTF 1 i s the t o t a l net amount r e c e i v e d by farmers as s u b s i d i e s from the f e d e r a l and p r o v i n c i a l governments ( i f p o s i t i v e ) or the t o t a l net amount of c o n t r i b u t i o n s to the p r o v i n c i a l government ( i f n e g a t i v e ) , i n month t (thousands of d o l l a r s ) . For the case of a f e d e r a l annual program, the annual amount p a i d or r e c e i v e d by farmers i s equal t o : N T F a = F G 3 - NSPG a ( 4 2 ) 2 7 P A c c o r d i n g to equation (4 0) whenever the amount of f e d e r a l annual s u b s i d i e s p a i d i s g r e a t e r than the p r o v i n c i a l s u b s i d i e s , the net annual amount p a i d by the P r o v i n c i a l government equals zero. 61 where: NTF a i s the t o t a l net amount r e c e i v e d by farmers as s u b s i d i e s from the f e d e r a l and p r o v i n c i a l governments ( i f p o s i t i v e ) or the t o t a l net amount p a i d as c o n t r i b u t i o n s to the p r o v i n c i a l government ( i f n e g a t i v e ) , i n year a (thousands of d o l l a r s ) . 4.4 Model V a l i d a t i o n V a l i d a t i n g a model i n v o l v e s determining the l e v e l of agreement between r e s u l t s o b tained from the model with those from the r e a l system being simulated (Anderson). To do t h i s , N a ylor's (1971) "m u l t i s t a g e v a l i d a t i o n " procedure w i l l be used. I t i n v o l v e s the f o l l o w i n g three s t e p s : (a) A r a t i o n a l i s t step of e n s u r i n g t h a t the assumptions of the model are i n a c c o r d w i t h r e l e v a n t theory, experience, and g e n e r a l knowledge; (b) An e m p i r i c a l step of s u b j e c t i n g assumptions to e m p i r i c a l t e s t i n g where p o s s i b l e ; and (c) A p o s i t i v e step of comparing model performance with the r e a l system being simulated (Anderson). Regarding step (a), the assumptions u n d e r l y i n g the present model have been e s t a b l i s h e d i n accord w i t h economic theory, and i n the s p e c i f i c case of the p r o d u c t i o n assumptions, i n c o n s u l t a t i o n with B.C.M.A. hog s p e c i a l i s t s . Parameter valu e s have been based on p r e v i o u s s t u d i e s wherever p o s s i b l e , or set a t reasonable l e v e l s a c c o r d i n g to the advice of experienced people working i n the hog i n d u s t r y . Regarding 62 step (b), given budgetary and time c o n s t r a i n t s , i t i s im p o s s i b l e to s u b j e c t the assumptions to e m p i r i c a l t e s t . T h e r e f o r e , they are l e f t as " t e n t a t i v e p o s t u l a t e s " (Naylor, (1971)) because t h e r e are no a p r i o r i reasons to assume t h a t they are i n v a l i d . Regarding step ( c ) , the step of comparing the model performance w i t h the data observed w i l l be undertaken through h i s t o r i c a l v a l i d a t i o n , s i n c e t h i s study i s not intended f o r f o r e c a s t i n g purposes. H i s t o r i c a l v a l i d a t i o n i s p o s s i b l e because the B r i t i s h Columbia Farm Income Assurance Program has operated f o r almost f i v e y e a r s ; thus the o p p o r t u n i t y e x i s t s t o compare i t s a c t u a l r e s u l t s w i t h the ones generated by the computer s i m u l a t i o n model. For t h a t purpose, the model w i l l be run w i t h zero v a l u e s of the s t a b i l i z a t i o n parameters f o r the 2 8 p e r i o d January 1964 to December 1973, and w i t h the ones 29 r e p o r t e d i n Table 4.1 from January 1974 to December 1976. L a t e r , t o assess the degree to which the simulated q u a n t i t i e s of hogs produced over the 36 month p e r i o d conform to the observed r e a l d ata, s t a t i s t i c a l t e s t s of "goodness of f i t " (the Mann-Whitney Rank Sum T e s t and T h e i l ' s I n e q u a l i t y C o e f f i c i e n t ) and a g r a p h i c a l comparison, to check the number, the t i m i n g , and d i r e c t i o n of t u r n i n g p o i n t s , w i l l be performed (Freund> MacAuley, Zwart (1973)). With zero v a l u e s of the s t a b i l i z a t i o n parameters, the model w i l l reproduce r e a l world data f o r the p e r i o d being c o n s i d e r e d . i The model was v a l i d a t e d over t h i s p e r i o d because i t was the one f o r which FIAP data e x i s t e d . However, bef o r e a p p l y i n g the v a l i d a t i o n procedure d e s c r i b e d above, i t i s necessary to overcome a problem r e l a t e d to the b a s i c h i s t o r i c a l data a v a i l a b l e . Since the q u a n t i t i e s of hogs produced d u r i n g the p e r i o d January 1974 to December 1976 a l r e a d y i n c l u d e the e f f e c t s of the o p e r a t i o n of the FIAP, i t i s necessary to d e s i g n a procedure t h a t allows e s t i m a t i o n of the e q u i l i b r i u m q u a n t i t i e s of hogs produced without FIAP. Given t h a t the q u a n t i t i e s of hogs marketed under the FIAP are known and assuming a c e r t a i n s h o r t run supply e l a s t i c i t y based on p r e v i o u s s t u d i e s , i t i s p o s s i b l e t o estimate the e q u i l i b r i u m q u a n t i t i e s of hogs produced. The r e l e v a n t equations are as f o l l o w s : E (43) s r f pa where: f pa i s the weighted average p r i c e f o r hogs r e c e i v e d farmers, i n month t ( d o l l a r s / c w t ) . by of i s the q u a n t i t y of hogs produced (thousands cwt) when the FIAP i s i n o p e r a t i o n . E s r i s the s h o r t run hog supply e l a s t i c i t y . From equation (43), s o l v i n g f o r Q Qfc = Q t X ! . / 1.0+E s f i sr - PH 1 fpa e PH* e 64 (44) 4.4.1 Validation Procedure According to the v a l i d a t i o n procedure outlined i n the previous section there are two c r u c i a l steps involved. F i r s t , the selection of parameter values, and second, the comparison of the res u l t s generated by the model with observed data. This section concentrates on these two aspects of the val i d a t i o n procedure. 4.4.1.1 Choosing Parameter Values Modeling hog producers' reactions to s t a b i l i z a t i o n programs (section 4.3.1) needed the s p e c i f i c a t i o n of seventeen "response" parameters, while the s t a b i l i z a t i o n schemes themselves required ten "policy" parameters. 4.4.1.1.1 "Response" Parameters "Response" parameters can be c l a s s i f i e d into three groups: (a) Behavioral parameters; allow for farmer response to changes i n hog prices, input p r i c e s , g i l t retention subsidies ( i . e . , price effects) or a more stable (unstable) production environment ( i . e . , non-price e f f e c t ) . As stated i n section 4.3.1.1, both e f f e c t s can have short and long run implications. (b) Technical parameters; incorporate the more important technological aspects of the hog 65 p r o d u c t i o n process i n B r i t i s h Columbia, and (c) I d e n t i t y parameters; account f o r s h o r t run resource c o n s t r a i n t s . 4.4.1.1.1.1 B e h av i o r a1 P arameters The v a l u e s assigned to the b e h a v i o r a l parameters and a. i n the g i l t r e t e n t i o n equation (equation one) , were based on the e s t i m a t i o n by West e t a l (19 74) of a hog supply f u n c t i o n a t the farm l e v e l f o r B r i t i s h Columbia. The c a l c u l a t e d s h o r t run hog p r i c e e l a s t i c i t y of supply of 0.83 and the feed p r i c e e l a s t i c i t y of -0.60 were used as s t a r t i n g p o i n t s . A c c o r d i n g to the supply equation s p e c i f i e d by West et a l (1974), the s h o r t run e l a s t i c i t i e s r e f e r to the change i n supply of hogs marketed eighteen months l a t e r (West e t a l (1974), page 38). In other words, they r e f l e c t changes i n hog p r o d u c t i o n i n month t+18, r e s u l t i n g from changes i n the number of g i l t s r e t a i n e d i n month t due to changes i n hog and/or i n p u t p r i c e s . For t h i s study, estimated v a l u e s f o r s h o r t run (one month) g i l t r e t e n t i o n e l a s t i c i t i e s were needed to a s s i g n i n i t i a l v a l u e s to the g i l t r e t e n t i o n parameters which would a l l o w the change i n hog p r o d u c t i o n to occur f o u r t e e n months l a t e r (the l a g i n p r o d u c t i o n assumed i n t h i s s t u d y ) . To estimate s h o r t run (one month) g i l t r e t e n t i o n e l a s t i c i t i e s , the model was run w i t h a l l b e h a v i o r a l parameters at zero v a l u e s and with a l l t e c h n i c a l and i d e n t i t y parameters at values g i v e n by the p r o d u c t i o n assumptions. By a d j u s t i n g the g i l t r e t e n t i o n subsidy parameter (a_) the q u a n t i t y of g i l t s r e t a i n e d was i n c r e a s e d by one percent. The r e s u l t s showed t h a t a one percent i n c r e a s e i n g i l t s r e t a i n e d induced, on average, a three percent i n c r e a s e i n hog p r o d u c t i o n . Thus, by making use of the model i t was p o s s i b l e to estimate 30 s h o r t run hog and feed p r i c e g i l t r e t e n t i o n e l a s t i c i t i e s . The c a l c u l a t e d v a l u e s were 0.28 and -0.20 f o r hog and feed p r i c e s , r e s p e c t i v e l y . They p r o v i d e d the base to a s s i g n the v a l u e s (reported i n Table 4.1) f o r a-^ and a^-Next, s i n c e no e s t i m a t i o n s were a v a i l a b l e f o r s h o r t run (one month) hog and feed p r i c e supply e l a s t i c i t i e s , the v a l u e s r e p o r t e d by West e t a l (1974) were taken as upper bounds and l a t e r used to estimate v a l u e s f o r a,„ and a , c , 14 ID the b e h a v i o r a l parameters i n the holdover equation (equation two). Given t h a t h i s t o r i c a l v a l i d a t i o n was p o s s i b l e , the model was run s u c c e s s i v e l y to o b t a i n improved estimates f o r an. and a,,-/ the parameters r e f l e c t i n g farmer response 14 l b to changes i n hog and i n p u t p r i c e s , r e s p e c t i v e l y . The estimated v a l u e s are r e p o r t e d i n Table 4.1 and r e p r e s e n t a s h o r t run e l a s t i c i t y (one month) of supply of 0.4 f o r hog p r i c e and -0.30 f o r feed p r i c e . These val u e s imply the f o l l o w i n g about farmer respon-ses to changes i n hog p r i c e s and i n p u t p r i c e s . Regarding the g i l t r e t e n t i o n response, as p r i c e of hogs i n c r e a s e s or p r i c e of i n p u t s f a l l s , farmers w i l l r e t a i n more g i l t s f o r b r e e d i n g . 30 . . . . The hog and feed p r i c e g i l t r e t e n t i o n e l a s t i c i t i e s are d e f i n e d as the percentage change i n number of g i l t s r e t a i n e d over the percentage change i n hog or feed p r i c e s . Short run i n t h i s case r e f e r s to a one month p e r i o d . Regarding the holdover response as price of hog increases farmers w i l l holdover less hogs. On the other hand, i f e f f e c t i v e input price were lowered i t i s assumed that farmers w i l l r e t a i n more hogs to take advantage of the lower costs of production. F i n a l l y , the values of the response parameter to a g i l t retention subsidy (a^) and the g i l t retention s h i f t parameter (a^) were chosen i n an ad-hoc manner, lacking previous estimates of these parameters. The values reported in Table 4.1 thus represent only approximations; they should, however, provide insights as to the l i k e l y e f f e c t s of these parameters. Next, an experiment where two behavioral parameters were allowed to vary was undertaken to assess the extent to which values assigned to them (in Table 4.1) were c r u c i a l i n determining the re s u l t s obtained. In other words, to determine i f the re s u l t s apply only for the case of the single runs reported or whether they apply over a wide range of parameter values. The behavioral parameters selected were those considered most important i n influencing farmer 31 production decisions. The parameters chosen and the range over which they were varied were: a^, the g i l t retention s h i f t e r , was not included because i t s e f f e c ts are known a p r i o r i . In f a c t , w i l l s h i f t the number of g i l t s retained any desired proportion and d i r e c t i o n depending only on the value assigned to i t i n the model. 68 a, : accounts for the e f f e c t of a change i n slaughter hog p r i c e s , i n month t, on additional quantity of g i l t s retained for breeding purposes. Its selected range was from 0.0003 to 0.0027 ( i . e . , a range i n terms of e l a s t i c i t i e s of 0.09 to 0.84). a-^. accounts for the e f f e c t of a change i n slaughter hog prices, i n month t, on quantity of holdovers. Its selected range was from 0.0033 to 0.030 ( i . e . , a range i n terms of e l a s t i c i t i e s of 0.13 to 1.20). Having selected a central composite design to select the values of the two parameters, the model was run nine times under d i f f e r e n t sets of parameter combinations. The re s u l t s of each run and the l e v e l of the behavioral parameters varied are given i n Appendix D, Table D-1. The res u l t s are consistent with the ones obtained on the basis of a single run. In fa c t , viewing the experiment's results i t can be seen that i n a l l nine runs the level s of farmer income and hog production are above i t s equilibrium l e v e l . Also, r e l a t i v e v a r i a t i o n (measured through the c o e f f i c i e n t of variation) f a l l s consistently below i t s equilibrium value. Because these results.occurred under each parameter combination of the experiment, they give confidence to the res u l t s obtained from a single run; i n other words, the s p e c i f i c parameter values chosen for and a ^ do not appear c r i t i c a l i n determining the res u l t s of the model. The value of absolute v a r i a t i o n i n farmer income, however, i n some runs i s inconsistent with the previous r e s u l t s . This finding indicates that more careful consideration should be given to the analysis before drawing general conclusions regarding a b s o l u t e v a r i a t i o n o f farmer income. 4.4.1.1.1.2 T e c h n i c a l and I d e n t i t y Parameters A l l t e c h n i c a l and i d e n t i t y parameter v a l u e s presented i n Table 4.1 were a r r i v e d a t through c o n s u l t a t i o n w i t h . . . 33 B r i t i s h Columbia M i n i s t r y of A g r i c u l t u r e hog s p e c i a l i s t s . 4.4.1.1.1.3 P o l i c y Parameters Values f o r p o l i c y parameters can be manipulated by p o l i c y makers, such as a f l o o r or c e i l i n g p r i c e f o r hogs. T h e i r v a l u e s are h e l d constant i n each s i m u l a t i o n run and may be changed between runs t o assess t h e i r e f f e c t s on the r e l e v a n t summary measures.. Values f o r p o l i c y parameters r e l e v a n t to c u r r e n t programs (FIAP and ASA) r e p o r t e d i n Table 4.1 are the valu e s c u r r e n t l y i n e f f e c t . The r e s u l t s show t h a t when the g i l t r e t e n t i o n parameter i s above 0.0015 ( i . e . , an e l a s t i c i t y o f 0.47) the va l u e of the ab s o l u t e v a r i a t i o n of farmer income (measured i n standard d e v i a t i o n s ) tends to i n c r e a s e above the e q u i l i b r i u m v a l u e . T h e r e f o r e , the more r e s p o n s i v e farmers are i n terms of g i l t s r e t a i n e d , the more d e - s t a b i l i z i n g the e f f e c t s on producer income ( i n a b s o l u t e terms). The use of con s t a n t v a l u e s f o r the parameters r e p r e s e n t i n g the p r o d u c t i o n assumptions and a constant i n p u t mix needed to produce one hundred weight of hog (dressed c a r c a s s ) , over the t h i r t e e n year p e r i o d being simulated, i m p l i e s t h a t no t e c h n o l o g i c a l improvement or s u b s t i t u t i o n between i n p u t s , due to changes i n r e l a t i v e p r i c e s , was allowed. T h i s assumption would be p a r t i c u l a r l y u n r e a l i s t i c f o r the case of a feed p r i c e subsidy. Removal of t h i s assumption would have r e q u i r e d c a p t u r i n g hog producers investment d e c i s i o n s over time and, hence, more s o p h i s t i c a t e d m o d e l l i n g . 70 TABLE 4.1 VALUES OF THE PARAMETERS Symbol Value Parameter Type D e f i n i t i o n CH-O I , a. 01. a, a, a, a, a a 10 11 l12 l13 0.0009 0.0 00 8 0.0037 0.10 0.20 0.25 . 0.20 0.15 0.05 7.75 Behavioral Behavioral 0.00002 Behavioral Behavioral 0.0125 Identity 1.80 Technical Technical Technical Technical Technical Technical Technical Technical G i l t retention response to a change i n hog prices . G i l t retention response to a change i n input p r i c e s . G i l t retention response to a g i l t retention subsidy. G i l t retention response induced by s t a b i l i z a t i o n e f f o r t s . G i l t retention constraint. Weight increase from keeping an extra g i l t u n t i l i t reaches average sow weight at time of slaughter. Proportion of sow c u l l i n g a f t e r f i r s t farrowing. Proportion of sow c u l l i n g after second farrowing. Proportion of sow c u l l i n g after t h i r d farrowing. Proportion of sow c u l l i n g after fourth farrowing. Proportion of sow c u l l i n g after f i f t h farrowing. Proportion of sow c u l l i n g after sixth farrowing. Average l i t t e r size surviving u n t i l average slaughter weight. 71 Symbol Value Parameter D e f i n i t i o n Type. . a14 -0.01 Behavioral a15 0.01 Behavioral a16 1.05 Technical a17 0.10 Identity a18 0.75 Policy a19 - Policy a20 0.90 Policy a21 0.90 Policy a22 0.75 Policy a23 1.00 Policy a24 1.00 Policy a25 1.00 Policy Holdover response to a change i n hog prices. Holdover response to a change in input p r i c e s . Weight increase from keeping slaughter hog an extra month. Holdover constraint. Proportion of return d e f i c i t guaranteed by the current FIAP. Proportion of hogs e l i g i b l e under any given program. Level of support of the Level of support of the input (feed) subsidy program. Determines the f l o o r price of hogs under the product price and product price premium subsidy schemes. Determines the c e i l i n g price of hogs under the product price premium subsidy schemes. Proportion of fixed cost considered to calculate the return d e f i c i t . Hog grade used to determine B r i t i s h Columbia market return. 72 Symbol Value Parameter Type D e f i n i t i o n a 26 a 27 ESR 1.00 0.00 0.40 P o l i c y P o l i c y B e h a v i o r a l Change i n the premium r a t e p a i d by farmers w i t h r e s p e c t to the FIAP v a l u e i n 1975, assuming t h a t premium are a f i x e d annual amount. P r o p o r t i o n of premium p a i d by farmers assuming a s l i d i n g premium r a t e . Short run (one month) hog p r i c e e l a s t i c i t y of supply. 4.4.1.2 R e s u l t s of the V a l i d a t i o n Procedure For v a l i d a t i o n purposes, the model was used to generate monthly l e v e l s of hog p r o d u c t i o n from January, 1974 through December, 1976, u s i n g v a l u e s assigned to the parameters i n Table 4.1. L a t e r , the generated v a l u e s were compared to a c t u a l l e v e l s of p r o d u c t i o n over the same p e r i o d . To determine the a b i l i t y of the model to reproduce the r e a l observed data,the Mann-Whitney (Sum Rank) T e s t was performed (Freund) and T h e i l ' s U i n e q u a l i t y c o e f f i c i e n t was c a l c u l a t e d (Zwart, (1973)). Given t h a t both t e s t s measure onl y the o v e r a l l a b i l i t y of the model to reproduce r e a l i t y , not g i v i n g i n s i g h t s about the degree of over or underestima-t i o n , a g r a p h i c a l comparison was performed to show the a b i l i t y of the model to p r e d i c t t u r n i n g p o i n t s (Zwart, (1973)). R e s u l t s of the r e a l and simulated monthly l e v e l s of hog p r o d u c t i o n under the FIAP are g i v e n i n Appendix B, Tables B-2 and B-3, and a g r a p h i c a l comparison i s g i v e n i n f i g u r e 4.2. The c a l c u l a t e d v alue of the c o e f f i c i e n t of the Mann-Whitney (Sum Rank) Te s t was + 0.46. T h i s means t h a t a t a 99% l e v e l of s i g n i f i c a n c e the n u l l h ypothesis cannot be r e j e c t e d ( i . e . , t h a t both samples come from the same p o p u l a t i o n , having equal means and d i s p e r s i o n ) . T h e i l ' s U c o e f f i c i e n t was 0.029, i n d i c a t i n g t h a t the model has the 34 a b i l i t y t o reproduce r e a l i t y , w h i le the g r a p h i c a l a n a l y s i s 34 A c o e f f i c i e n t of zero i n d i c a t e s p e r f e c t a b i l i t y to p r e d i c t or reproduce r e a l i t y ; a c o e f f i c i e n t of one,a complete l a c k of a b i l i t y . Monthly Hog P r o d u c t i o n showed t h a t i n 97 percent of the cases i t was able to a c c u r a t e l y p r e d i c t the d i r e c t i o n of t u r n i n g p o i n t s . The r a t h e r unusual a b i l i t y of the model t o reproduce r e a l i t y , as i n d i c a t e d by s t a t i s t i c a l t e s t s and g r a p h i c a l a n a l y s i s , deserves some comments. Two f a c t s are r e l e v a n t : a) the model was b u i l t to p r e d i c t o n l y marginal or a d d i t i o n a l changes i n hog p r o d u c t i o n r a t h e r than t o t a l supply, and b) although the va l u e s assigned to the b e h a v i o r a l parameters and were s e t a c c o r d i n g to West's estimates (West e t a l (1974)), the value s of a,, and a , c ±4 ID were a r r i v e d a t from s u c c e s s i v e runs of the model to achieve a good f i t . In oth e r words, the way the v a l i d a t i o n procedure was conducted induced, to some ex t e n t , the good r e s u l t s of the s t a t i s t i c a l t e s t s . However, i t should not be f o r g o t t e n t h a t the r e s u l t s are a l s o h e a v i l y dependent on the s o - c a l l e d t e c h n i c a l and i d e n t i t y parameters. In summary, the r e s u l t s of both the s t a t i s t i c a l t e s t s and the g r a p h i c a l . a n a l y s i s imply t h a t the model i s an accurate r e p r e s e n t a t i o n of the B r i t i s h Columbia hog i n d u s t r y and, t h e r e f o r e , can be used t o d e r i v e c o n c l u s i o n s which are a p p l i c a b l e t o the r e a l world. 76 Chapter 5 THE RESULTS T h i s chapter i l l u s t r a t e s r e s u l t s t h a t can be obtained by u s i n g the model to simulate some of the d i f f e r e n t approaches to hog producer income s t a b i l i z a t i o n presented i n Chapter 3. I t begins by o u t l i n i n g the a n a l y t i c a l procedure f o l l o w e d and then p r e s e n t s r e s u l t s thought t o be r e l e v a n t f o r p o l i c y makers. 5.1 A n a l y t i c a l Procedure The a n a l y s i s of the simulated outcome of c u r r e n t and a l t e r n a t i v e schemes f o r hog producers* income s t a b i l i z a t i o n w i l l comprise two stages: one which i n v o l v e s a s i n g l e run of the model wi t h the b a s i c v a l u e s of the parameters, to estimate the impact of a l t e r n a t i v e schemes and the other which i n v o l v e s the e s t i m a t i o n of performance f u n c t i o n s (Candler and C a r t w r i g h t ; Chudleigh; Kennedy (1973)). 5.1.1 Comparing E f f e c t s of A l t e r n a t i v e Schemes As p o i n t e d out above, the f i r s t stage of a n a l y s i s i n v o l v e s o n l y a s i n g l e run of the model, under d i f f e r e n t s t a b i l i z a t i o n ,schemes, i n order to e v a l u a t e program e f f e c t s on the p r e v i o u s l y s p e c i f i e d summary measures'(e.g., government budgetary c o s t , producer income s t a b i l i t y , e t c . ) . Being able to compare a l t e r n a t i v e s t a b i l i z a t i o n schemes, without having to put them i n t o e f f e c t i n the r e a l world, was one of the reasons f o r choosing s i m u l a t i o n . The model can be run, f o r example, under i d e n t i c a l c o n d i t i o n s except f o r the formula t h a t determines the l e v e l of support; t h e r e f o r e , any d i f f e r e n c e i n r e s u l t s can be a t t r i b u t e d to the formula. Another aspect of t h i s stage i s to perform more d e t a i l e d comparative analyses i n the sense of being a b l e to e v a l u a t e the e f f e c t , on the summary measures, of a change i n one s p e c i f i c parameter. 5.1.2 Performance Functions The e s t i m a t i o n of performance f u n c t i o n s , as d e s c r i b e d by Candler and C a r t w r i g h t , complements the s i m u l a t i o n a n a l y s i s by a l l o w i n g more g e n e r a l r e l a t i o n s h i p s between parameters and summary measures to be obtained without having to re- r u n the model each time the value of a parameter i s changed. I t i s assumed t h a t some f u n c t i o n a l r e l a t i o n s h i p e x i s t s between the parameters v a r i e d and the summary measures; the performance f u n c t i o n technique attempts to approximate t h a t t r u e f u n c t i o n by means of r e g r e s s i o n a n a l y s i s . The d e r i v a t i o n of a performance f u n c t i o n i m p l i e s s e v e r a l steps t h a t can be summarized as f o l l o w s (Candler and C a r t w r i g h t ) : (1) Choose the parameters and the range over which they w i l l be v a r i e d . The parameters chosen are those c o n s i d e r e d to i m p o r t a n t l y a f f e c t the summary measures. The range s e l e c t e d determines the parameter v a l u e s over which i n f e r e n c e can be made without e x t r a p o l a t i o n . (2) Set the l e v e l o f parameters which w i l l remain 78 constant.. For the present case, these v a l u e s are r e p o r t e d i n Table 4.1 and d i s c u s s e d i n s e c t i o n 4.4.1.1. (3) Choose a f u n c t i o n a l form f o r the approximating f u n c t i o n . Since no a p r i o r i i n f o r m a t i o n i s a v a i l a b l e t h a t allows s e l e c t i o n of a s p e c i f i c f u n c t i o n a l form, f o l l o w i n g p r e v i o u s s t u d i e s (Candler and C a r t w r i g h t ; Chudleigh; Kennedy (1973)) a second order polynomial w i l l be used i n i t i a l l y . I f i t does not c l o s e l y approximate the t r u e f u n c t i o n 2 u s i n g the c o e f f i c i e n t of m u l t i p l e d e t e r m i n a t i o n (R ) as a measure, a l t e r n a t i v e f u n c t i o n a l forms need to be t r i e d . Candler and C a r t w r i g h t i n d i c a t e t h a t c a r e f u l c o n s i d e r a t i o n should be given to the l e a s t square estimates of the c o e f f i c i e n t s f o r the p o l y n o m i a l , and the c o e f f i c i e n t of m u l t i p l e 2 35 d e t e r m i n a t i o n (R ). In g e n e r a l form, the performance f u n c t i o n can be w r i t t e n as: "Note t h a t the o b s e r v a t i o n s were known with c e r t a i n t y , so t h a t the r e g r e s s i o n model was a c t u a l l y n o n - s t o c h a s t i c and d i d not conform to a l l the assumptions of the General L i n e a r Model. N e v e r t h e l e s s , i n these circumstances, i t i s p e r m i s s i b l e to use a l e a s t - s q u a r e s procedure p r o v i d e d the c o e f f i c i e n t of m u l t i p l e d e t e r m i n a t i o n i s regarded as a measure of the adequacy of the polynomial i n approximating the shape of the a c t u a l f u n c t i o n . In a n o n - s t o c h a s t i c model, the standard e r r o r s o b t a i n e d from l e a s t - s q u a r e s r e g r e s s i o n have no meaning" (Candler and C a r t w r i g h t , page 164). S i = f ± (x.) . ; i = 1 n and j = 1 i • • • i m (45) where: S. l i s the summary measure being c o n s i d e r e d are the parameters t o be v a r i e d I f the performance f u n c t i o n i n (45) i s approximated by a second order polynomial and two parameters are v a r i e d , the estimated f u n c t i o n w i l l be as f o l l o w s : bg... .b,- are the r e g r e s s i o n c o e f f i c i e n t s to be estimated. 3 6 (4) A c c o r d i n g to some experimental d e s i g n , d e f i n e v a l u e s of the parameters t o be v a r i e d and the number of o b s e r v a t i o n s on the response s u r f a c e needed to f i t the s e l e c t e d f u n c t i o n a l form. In t h i s study a c e n t r a l composite d e s i g n was chosen because "the c e n t r a l composite d e s i g n appears t o be p a r t i c u l a r l y s u i t a b l e when the f u n c t i o n to be f i t t e d i s given and the number of o b s e r v a t i o n s 37 i s f i x e d " (Candler and C a r t w r i g h t , page 163). For a more d e t a i l e d d i s c u s s i o n about s e l e c t i n g the a p p r o p r i a t e f u n c t i o n a l form and experimental d e s i g n , see Heady. A c e n t r a l composite d e s i g n r e q u i r e s nine, f i f t e e n , and twenty f i v e r e p e t i t i o n s to estimate a second degree polynomial where two, t h r e e , or fo u r parameters are allowed to vary (Heady, page 137) . (46) where: 80 (5) Run the model f o r each s e t of parameter combinations and compute the r e l e v a n t summary measures. (6) Estimate the c o e f f i c i e n t s of the f u n c t i o n a l form by means of r e g r e s s i o n a n a l y s i s . In the present case, because the polynomial to be f i t t e d i s l i n e a r i n the r e g r e s s i o n c o e f f i c i e n t s to be estimated, Ordinary L e a s t Squares can be used. As p o i n t e d out above, performance f u n c t i o n s permit the e s t i m a t i o n of summary measures, over the range the s e l e c t e d parameters are allowed to vary, without having to re- r u n the computer model. Performance f u n c t i o n s can a l s o be used t o : (a) determine the magnitude and d i r e c t i o n of change i n the valu e s of summary measures given a marginal change i n the value o f a p a r t i c u l a r parameter. In other words, s e n s i t i v i t y a n a l y s i s can be performed by t a k i n g the p a r t i a l d e r i v a t i v e of a summary measure (dependant v a r i a b l e ) with r e s p e c t to any parameter (independent v a r i a b l e ) , w h i l e h o l d i n g a l l other independent v a r i a b l e s constant; and (b) l o c a t e "break-even" p o i n t s , i . e . , values of the parameters t h a t g i v e a zero value (or some predetermined value) of a p a r t i c u l a r summary measure. 81 5.2. • Outcome of Simulated Hog Producer Income  S t a b i l i z a t i o n Programs In Chapter 1, i t was stated that B r i t i s h Columbia hog producers have t r a d i t i o n a l l y faced a problem of income i n s t a b i l i t y which has given r i s e to a government goal of reducing i t . Consequently, the main objective of t h i s study focussed on estimating the cost and effectiveness of e x i s t i n g and alternative s t a b i l i z a t i o n programs. The present section reports the estimated outcome for some of these schemes from simulating the mathematical model presented i n Chapter 4. In p a r t i c u l a r , i t reports r e s u l t s from simulating the following 3 8 three s t a b i l i z a t i o n schemes: (1) The B r i t i s h Columbia Swine Producers Income Assurance Program as i t existed i n 1975 (referred to as "FIAP (1975) ") ; (2) A modified Swine Producers Income Assurance Program (referred to as "modified FIAP"); and (3) A premium/subsidy program. The e f f e c t s of each of these schemes as predicted by the model are presented below. The e f f e c t s are measured i n terms of t h e i r impact on what are considered to be key p o l i c y variables. A l l schemes were run on a monthly basis over a thirteen year period, January, 1964 to December, 1976. The length of the simulation period was chosen so that i t This section reports only on the e f f e c t s of p r o v i n c i a l s t a b i l i z a t i o n schemes since the federal ASA never came into e f f e c t during the period being simulated (see Appendix B, Table B-4). 82 comprised a t l e a s t two to three phases (peaks and troughs) of the three to four year hog p r o d u c t i o n c y c l e i n B r i t i s h Columbia (West e t a l (1974)). Each scheme was run once wi t h the parameter v a l u e s r e p o r t e d i n Table 4.1, and r e s u l t i n g summary measures compared to the ones obtained from a run w i t h no s t a b i l i z a t i o n program i n o p e r a t i o n ( i . e . with the market 39 e q u i l i b r i u m v a l u e s of the v a r i a b l e s ) . Any d i f f e r e n c e s i n the computed summary measures can be a t t r i b u t e d to the p a r t i c u l a r scheme i n o p e r a t i o n . Next, f o r the case of the m o d i f i e d FIAP, a d e t a i l e d comparative a n a l y s i s was performed to estimate the l i k e l y impact of each i n d i v i d u a l m o d i f i c a t i o n on the summary measures. F i n a l l y , to make the r e s u l t s more gene r a l and u s e f u l to p o l i c y makers, performance f u n c t i o n s were estimated. 5.2.1 E f f e c t s of the B r i t i s h Columbia Swine  Producers Income Assurance Program The pr e s e n t s e c t i o n r e p o r t s the estimated e f f e c t s of the FIAP (1975) on farmer income s t a b i l i t y and other summary measures, had i t begun i n January, 196 4 and ended i n December, 1976. In other words, the model was used to simulate the outcome of the FIAP (1975) over t h i s t h i r t e e n year p e r i o d . Next, a comparison between i t s r e s u l t s w i t h those obtained i n the absence of FIAP p r o v i d e s an e s t i m a t i o n of i t s l i k e l y impact. The r e s u l t s of the run w i t h the e q u i l i b r i u m v a l u e s are r e p o r t e d under "No scheme" i n Table 5.1. 83 For the i n i t i a l run, the main f e a t u r e s of the FIAP (.19 75) were: (a) farmers and the p r o v i n c i a l government both pay a per hundredweight premium on s l a u g h t e r hogs on a 1/3 to 1/2 b a s i s ; i n 1975, the farmer premium was $1.50/cwt and the government premium was $2.25/cwt; and (b) farmers r e c e i v e an indemnity when market p r i c e of s l a u g h t e r hogs f a l l s below a computed support l e v e l . The support l e v e l equals 75% of the r e t u r n d e f i c i t , where r e t u r n d e f i c i t i s the d i f f e r e n c e between c o s t of p r o d u c t i o n ( i n c l u d i n g r e t u r n to land and management fee) and the market p r i c e of s l a u g h t e r hogs (index 100). I f a s t a b i l i z a t i o n program such as FIAP (1975) i s p e r c e i v e d as p r o v i d i n g a more s t a b l e p r o d u c t i o n environment, i t i s reasonable to assume t h a t a rightward s h i f t i n the supply f u n c t i o n would r e s u l t . To account f o r t h i s , the parameter a^, i n the g i l t r e t e n t i o n equation, was g i v e n a value ranging from zero to 0.0037, e q u i v a l e n t to an annual average i n c r e a s e i n g i l t s r e t a i n e d equal to 1.5% and an annual i n c r e a s e i n hog 40 p r o d u c t i o n equal to 4.5 percent. The r e s u l t s presented i n Table 5.1 i n d i c a t e t h a t the FIAP (1975) would be capable of a c h i e v i n g the p r o v i n c i a l government g o a l of reduced income v a r i a b i l i t y f o r hog producers. Absolute v a r i a t i o n of annual gross income would be reduced, shown by a f a l l i n standard d e v i a t i o n of 14 thousand d o l l a r s . 40 The i n c r e a s e i n hog p r o d u c t i o n was assumed to be g r e a t e r i n the f i r s t years of o p e r a t i o n of the program; more p r e c i s e l y , 9 percent f o r the f i r s t t h ree y e a r s , 6 percent f o r the next t h r e e , 3 p e r c e n t f o r the next f i v e years and zero f o r the l a s t two. 84 Table 5.1 Estimated Effects of FIAP (1975), 1964-19 76. No FIAP a Variables Scheme (19 75) Difference 1. LEVEL OF HOG PRODUCER INCOME 631 818 187 (average per year i n thousand dollars) 2. ABSOLUTE VARIATION OF HOG 526 512 -14 PRODUCER INCOME (average s t . dev. per year i n thousand dollars) 3. RELATIVE VARIATION OF HOG 83 63 -20 PRODUCER INCOME (average c o e f f i c i e n t of variation) 4. LEVEL OF HOG PRODUCTION 8,509 9,136 627 (average per year in thousand lbs.) 5. GOVERNMENT PREMIUM 0 1,194 1,194 (thousand dollars/period) 6. GOVERNMENT ADVANCE 0 504 5 04 (thousand dollars/period) 7. TOTAL NET GOVERNMENT PAYOUTS 0 1,698 1,698 (thousand dollars/period) a Includes a parameter s h i f t e r i n the g i l t retention equation, to account for an assumed more stable production environment. Source: Appendix C, Tables C-l and C-2. 85 Relative v a r i a t i o n of annual gross income would also be reduced, shown by a f a l l of 20 i n the c o e f f i c i e n t of v a r i a t i o n . In addition to s t a b i l i z i n g producer income, FIAP (1975) would have raised producer income 187 thousand d o l l a r s per year, or 30 percent. On average, hog prices increased by 3 percent while hog production increased s l i g h t l y over seven 41 percent. From the standpoint of the budgetary cost to the p r o v i n c i a l government, t h i s program would have represented a t o t a l net payment to farmers over the thirteen year period of 1.7 m i l l i o n d o l l a r s (1.2 m i l l i o n in government premiums and 0.5 m i l l i o n i n government advance). 5.2.2 E f f e c t s of a Modified B r i t i s h Columbia  Swine Income Assurance Program Having estimated the e f f e c t s of FIAP (1975), the next step i n the a n a l y t i c a l procedure involved estimating the effects of a modified FIAP. The modified FIAP to be considered incorporates the following four modifications of FIAP (1975): (1) Support l e v e l increased to 100% of return d e f i c i t ; (2) Farmer premium increased 50%; government premium lowered 50% ( i . e . , share basis l / 2 ; l / 2 ) ; (3) Land return and management fee removed from cost of production calculations; and The seven percent increase i n hog production i s comprised of 4.5 percent increase due to the s h i f t i n the supply function and a 2.8 percent increase due to higher hog prices. This l a t t e r figure implies a price e l a s t i c i t y of supply of 0.93, s l i g h t l y greater than the one reported by West et a l (19 74) of 0. 83. 86 (4) Market price of slaughter hogs changed to . index 103. The f i r s t three modifications have been suggested by 42 the B r i t i s h Columbia Minister of Agriculture. The fourth modification was incorporated into the e x i s t i n g B r i t i s h Columbia Swine Producers Income Assurance Program i n 1977. F i r s t , the e f f e c t s of each modification alone w i l l be presented, followed by the combined e f f e c t s of a l l four modifications. 5.2.2.1 Effects of Isolated Modifications The r e s u l t s of running the model for each modification 43 i n i s o l a t i o n are reported i n Table 5.2. They i l l u s t r a t e the usefulness of the model i n providing p o l i c y makers with information about the impact of s p e c i f i c changes i n the operation of a p a r t i c u l a r s t a b i l i z a t i o n scheme. For example, i f the only modification to FIAP (1975) was an increase i n the support l e v e l from 75% to 100% (modification (1)), t h i s would have an increasing e f f e c t on hog producer income amounting to 6 9 thousand d o l l a r s per year, or 8.8 percent. Absolute v a r i a t i o n of annual gross income would be increased, shown by an increase i n standard deviation of 13 thousand d o l l a r s , while r e l a t i v e v a r i a t i o n would be decreased s l i g h t l y , A c l a r i f i c a t i o n of points regarding these proposals can be found i n B r i t i s h Columbia Ministry of Agriculture News Release, February 23, 1978. 'Since the d i f f e r e n t modifications could have varying e f f e c t s on the supply curve, the s h i f t parameter was set equal to zero for the runs reported i n Table 5.2. 87 shown by a f a l l of 4 i n the c o e f f i c i e n t of v a r i a t i o n . P r o v i n c i a l government budgetary cost would be increased considerably compared to the cost under FIAP (1975) (750 additional thousand d o l l a r s , or 46%). Each of the other modifications ( ( 2 ) , (3), (4)) would have a lowering e f f e c t on producer income. Raising the farmer premium from 1/3 to 1/2 share, for example, would lower producer income 26 thousand d o l l a r s per year. Interestingly enough, t h i s reduction i n producer income due to increased farmer premium i s less than the reduction caused by removing land return and management fee (43 thousand dollars) as well as increasing index to 103 (29 thousand d o l l a r s ) . 44 Modifications (2), (3), and (4) each would have reduced absolute v a r i a t i o n of hog producer income, but not r e l a t i v e v a r i a t i o n . Also, each of these modifications would have reduced t o t a l net government payouts. The reasons that support modification (3) are well known. Elsewhere (Hudson, Barichello) i t has been indicated that where fixed costs are included i n determining the support l e v e l , a problem of endogeneity of costs appears. Excess p r o f i t earned due to the operation of the program w i l l be c a p i t a l i z e d into 44 Among the proposed changes to FIAP (1975), removing of some items (management fee and return to land) from the calculated fixed cost used to determine the return d e f i c i t i s an important one. According to the 1975 FIAP cost structure removing the above mentioned items represents a reduction i n the fixed cost figure entering the return d e f i c i t c a l c u l a t i o n of about 17%. 88 the value of the fixed assets thus increasing average cost. As a consequence, the support l e v e l , which i s determined in part by fixed cost, w i l l be increased too. 5.2.2.2 Combined Effects of Modifications This section presents the r e s u l t s of the combined eff e c t s of the four modifications to FIAP (1975), l i s t e d above; these results are also given i n Table 5.2. The l e v e l of hog producer income, for example, would have averaged 734 thousand d o l l a r s per year, had the modified FIAP operated from 1964-1976. Comparing the two sets of e f f e c t s implies cer t a i n conclusions regarding the l i k e l y impact of the combined modifications r e l a t i v e to FIAP (1975). The combined modifications would have: (1) a lowering e f f e c t on the l e v e l of hog producer income r e l a t i v e to FIAP (1975) (on average, 49 thousand d o l l a r s less per year); (2) a s t a b i l i z i n g e f f e c t with respect to absolute v a r i a b i l i t y of hog producer income (average standard deviation f a l l s 19 thousand d o l l a r s per year); (3) a d e - s t a b i l i z i n g e f f e c t with respect to r e l a t i v e v a r i a b i l i t y of hog producer income (average c o e f f i c i e n t of v a r i a t i o n increases by 2 per year); (4) a lowering e f f e c t on the l e v e l of hog production (on average, 79 thousand lbs. less per year); (5) a lowering e f f e c t on cumulative government premium (295 thousand d o l l a r s l e s s ) ; 89 Table 5.2 Comparative E f f e c t s of Proposed Modified FIAP, 1 9 6 4 - 1 9 7 6 a E f f e c t of Isolated Modifications Variables FIAP Modified FIAP Differences Due to Tota l Modifications 75%-100% Level Support 1/3 to 1/2 Removal Land Return and Management fee Index 100 to 103 1. LEVEL OF HOG PRODUCER INCOME 783 734 49 69 - 26 - 43 - 29 ( a v e r a g e p e r y e a r i n th. d o l l a r s ) 2. ABSOLUTE VARIATION OF HOG PRODUCER INCOME 500 481 19 1 3 - 1 5 - 5 - 5 ( a v e r a g e s t . d e v . p e r y e a r i n t h . d o l l a r s ) RELATIVE VARIATION OF HOG PRODUCER INCOME 64 66 -4 0 ( c o e f f i c i e n t o f v a r i a t i o n ) 4. LEVEL OF HOG PRODUCTION 8,719 8,640 - 79 96 - 38 - 65 45 ( a v e r a g e p e r y e a r i n t h . l b s . ) 5. GOVERNMENT PREMIUM 1,146 ( t h . d o l l a r s / p e r i o d ) 6. GOVERNMENT ADVANCE 485 ( t h . d o l l a r s / p e r i o d ) 7. TOTAL NET 1,631 GOVERNMENT PAYOUTS ( t h . d o l l a r s / p e r i o d ) 851 234 1,085 -295 -251 -546 14 -292 - 10 736 0 -454 -310 750 -292 -464 -318 A s s u m i n g a z e r o s u p p l y r e s p o n s e t o g o v e r n m e n t i n t e r v e n t i o n . 90 (6) a lowering e f f e c t on cumulative government advance (251 thousand d o l l a r s l e s s ) ; (7) a lowering e f f e c t on t o t a l net government payouts (546 thousand d o l l a r s l e s s ) . 5.2.3 E f f e c t s of a Premium/Subsidy Scheme Given a goal of producer income s t a b i l i t y , i t seems l o g i c a l to require farmers to pay a premium i n times of high hog prices (or wide margin) but not require them to pay a premium when prices are low. Hudson (1977) recognized t h i s l o g i c i n his proposal of an "Ag r i c u l t u r a l S t a b i l i z a t i o n Fund". Below a description of a premium/subsidy scheme which incorporates t h i s thinking i s given. A f l o o r price for slaughter hogs would be pre-determined, possibly related to cost of production. When market price f e l l below the f l o o r p r i c e , farmers would receive a subsidy from a s t a b i l i z a t i o n fund to raise e f f e c t i v e price received to the f l o o r . The s t a b i l i z a t i o n fund could be i n i t i a t e d with a government advance. There would be no government premium, only a farmer premium. When market price exceeded the c e i l i n g , farmers would pay premiums into the s t a b i l i z a t i o n fund so that the e f f e c t i v e price they receive equals the c e i l i n g . The operation of the scheme i s portrayed i n Figure 3.1. The estimated e f f e c t s of a premium/subsidy scheme, had one operated from 1964-1976, are reported i n Table 5.3. The flo o r price was set equal to the support l e v e l of FIAP (1975)-i . e . , 75% of return d e f i c i t , where return d e f i c i t equals cost of production (including return to land and management fee) minus market price of slaughter hogs (index 100). The c e i l i n g price was set 2.5% above the f l o o r p r i c e . The results of no scheme and FIAP (1975) from Table 5.1 are also reported in Table 5.3 for comparative purposes. The results of a premium/subsidy scheme can be summarized as follows: (1) Average l e v e l of hog producer income would be increased markedly, from 6 31 to 818 thousand d o l l a r s per year; (2) Absolute v a r i a b i l i t y of hog producer income would be reduced, shown by a drop i n standard deviation from 526 to 481 thousand d o l l a r s per year; (3) Relative v a r i a b i l i t y of hog producer income would also be reduced, shown by a drop i n c o e f f i c i e n t of v a r i a t i o n from 83 to 59; (4) Level of hog production would be increased from 8,509 to 9,123 thousand pounds per year; (5) Total net government payouts would be approximately 1.7 m i l l i o n d o l l a r s . In comparing the ef f e c t s of a premium/subsidy scheme with those of FIAP (1975) i n Table 5.3, i t can be seen that both schemes would have cost the government about 1.7 m i l l i o n d o l l a r s over the period 1964-1976. The two schemes would have led to i d e n t i c a l levels of hog producer income and almost i d e n t i c a l l e v e l s of hog production. However, the schemes would have d i f f e r e d with respect to t h e i r e f f e c t s on v a r i a b i l i t y of hog producer income - a premium/subsidy scheme would have Table 5.3 Comparative E f f e c t s of a  Premium/Subsidy Scheme, 1964-1976 Variables No EIAP Premium/Subsidy Scheme (1975) Scheme 1. LEVEL OF HOG PRODUCER INCOME 631 818 818 (average per year i n thousand dollars) 2. ABSOLUTE VARIATION OF 526 512 481 HOG PRODUCER INCOME (average st. dev. per year i n thousand dollars) 3. RELATIVE VARIATION OF HOG PRODUCER INCOME 83 63 59 (average c o e f f i c i e n t of variation) 4. LEVEL OF HOG PRODUCTION 8,509 9,136 9,12 3 (average per year i n thousand lbs.) 5. TOTAL NET GOVERNMENT 0 1,698 1,682 PAYOUTS (thousand dollars/period) Source: Appendix C, Table C - l , C-2 and C-4. caused a g r e a t e r r e d u c t i o n i n both a b s o l u t e and r e l a t i v e v a r i a b i l i t y . Since net government payouts would be almost the same f o r both schemes, the model r e s u l t s suggest a premium/subsidy scheme would achieve a g r e a t e r r e d u c t i o n i n the v a r i a b i l i t y of producer income per d o l l a r of government expenditure than would FIAP (1975). 5.2.4 S e l f - F i n a n c i n g S t a b i l i z a t i o n Schemes Through r e l a t i v e l y minor adjustments the s t a b i l i z a t i o n schemes compared above could be made s e l f - f i n a n c i n g . For the case of FIAP (19 75), t h i s c o u l d be done by i n c r e a s i n g the farmer premium commensurate with government advances. S i m i l a r l y , f o r a premium/subsidy scheme, as government advances became l a r g e the f l o o r and c e i l i n g c o u l d be lowered to reduce government s u b s i d i e s and i n c r e a s e farmer premiums. Below, the e f f e c t s of a d j u s t i n g FIAP (1975) so t h a t i t approaches s e l f - f i n a n c i n g , are examined. In years f o l l o w i n g a government advance, the farmer premium was i n c r e a s e d by an amount determined by d i v i d i n g an e x i s t i n g government advance by expected p r o d u c t i o n the coming year. R e s u l t s f o r a run i n c o r p o r a t i n g t h i s adjustment, w i t h support l e v e l remaining a t 75% of r e t u r n d e f i c i t , are r e p o r t e d i n Table 5.4. For comparative purposes the r e s u l t s of FIAP (1975) without a s l i d i n g premium (from Table 5.1) are a l s o r e p o r t e d i n Table 5.4. 94 Table 5.4 Comparative Ef f e c t s of FIAP (1975)  and FIAP (1975) With S l i d i n g  Premium, 1964-1976. Variables 1. LEVEL OF HOG PRODUCER INCOME (average per year i n thousand dollars) 2. ABSOLUTE VARIATION OF HOG PRODUCER INCOME (average st. dev. per year in thousand dollars) 3. RELATIVE VARIATION OF HOG PRODUCER INCOME (average coef. of variation) 4. LEVEL OF HOG PRODUCTION (average per year i n thousand lbs.) 5. TOTAL NET GOVERNMENT PAYOUTS (thousand dollars/period No FIAP FIAP(19 75)with Scheme (197 5) S l i d i n g Premium 631 818 693 526 512 427 83 63 62 8,509 9,136 8,961 0 1,698 246 Source: Appendix C, Tables C - l , C-2 and C-5 From Table 5.4 i t can be seen that the s l i d i n g premium adjustment largely achieves s e l f - f i n a n c i n g , as t o t a l net government payouts over the period 1964-1976 are reduced from 1,698 to 246 thousand d o l l a r s . One r e s u l t of the reduced government cost i s lowered hog producer income, from.818 to 693 thousand d o l l a r s per year. Note, however, that the re s u l t i n g l e v e l of income (693) i s higher than that of the no scheme si t u a t i o n (631). Even at the lower government cost, the s l i d i n g premium enhanced the a b i l i t y of FIAP (19 75) to reduce both absolute and r e l a t i v e income v a r i a b i l i t y . The s l i d i n g premium reduced standard deviation of hog producer income from 512 to 42 7 thousand d o l l a r s per year and the c o e f f i c i e n t of v a r i a t i o n from 63 to 62. The s l i d i n g premium had l i t t l e e f f e c t on l e v e l of hog production. 5.3. Performance Functions The f i n a l stage i n the a n a l y t i c a l procedure involved the estimation of performance functions to make the r e s u l t s more general and useful. The performance functions were estimated following the steps outlined i n section 5.1.2. 5.3.1 Performance Functions to Assess  Modifications to FIAP (19 75) This section reports on the estimation of performance functions to assess the e f f e c t of changes i n two p o l i c y parameters on farmer income l e v e l and s t a b i l i t y , hog production l e v e l , and p r o v i n c i a l government budgetary cost, assuming that a program similar to FIAP (1975) was i n operation. The estimated performance functions are reported i n Appendix D. 5.3.1.1 Change i n Policy Parameters Performance functions, where two policy parameters were allowed to vary, were estimated. Having selected a second degree polynomial to approximate the true function, and a central composite design to select the values of the two parameters, the model was run nine times under d i f f e r e n t parameter combinations. The r e s u l t of each run and the l e v e l of the policy parameters varied are reported i n Appendix D, Table D-2. Performance functions r e l a t i n g the two p o l i c y parameters to selected summary measures were estimated using Ordinary Least Squares. They are given i n Appendix D, Table D-3. The p o l i c y parameters varied were those considered important i n determining the values of the summary measures. The p o l i c y parameters varied and the range over which they were varied were: a 2 2 : the percentage of the return d e f i c i t supported by the p r o v i n c i a l government. Its range was from 0.75 (current FIAP) to 1.0 0 (proposed modified FIAP). 0I24 : the percentage of the fixed costs allowed to enter the c a l c u l a t i o n of return d e f i c i t . Its selected range was from 0.75 to 1.00 (net margin). Next, an example of each of the possible uses of performance functions (indicated i n section 5.1.2) i s given to i l l u s t r a t e t h e i r usefulness. Since a l l performance functions showed c o e f f i c i e n t s of multiple determination ranging from 0.985 to 0.999, a second degree polynomial can be regarded as a good approximation of the true function. 97 5.3.1.1.1 Summary Measure E s t i m a t i o n I f , f o r example, p o l i c y makers were i n t e r e s t e d i n a s s e s s i n g the e f f e c t on the p r o v i n c i a l government budgetary c o s t of a change i n a 2 2 and/or a ^ , they c o u l d make use of the f o l l o w i n g performance f u n c t i o n . From Appendix D, Table D-3, column f o u r , the performance f u n c t i o n t h a t d e p i c t s the r e l a t i o n s h i p between the p r o v i n c i a l government budgetary c o s t and the two s e l e c t e d parameters can be w r i t t e n as f o l l o w s : 2 Prov. Gov. Cost = 331 - 2359 a 2 2 - 469 a 2 4 + 1092 a 2 2 + + 4 a 2 4 + 3874 a ^ a ^ , (47) I f , f o r i l l u s t r a t i v e purposes, the two parameters were a r b i t r a r i l y given v a l u e s of a 2 2 = 0.85 and a^^ = 0.80, a f t e r s u b s t i t u t i n g those val u e s i n equation (47) the p r o v i n c i a l government budgetary c o s t , over the t h i r t e e n year p e r i o d being simulated, would equal 1.4 m i l l i o n d o l l a r s . 5.3.1.1.2 S e n s i t i v i t y A n a l y s i s S e n s i t i v i t y a n a l y s i s . c a n be c a r r i e d out by t a k i n g the p a r t i a l d e r i v a t i v e of a summary measure (dependant v a r i a b l e ) with r e s p e c t to any parameter (explanatory v a r i a b l e ) , h o l d i n g a l l other parameters constant. As an example, the e f f e c t on the l e v e l of farmer income of a u n i t change i n the l e v e l of p r o v i n c i a l government support ( a 2 2 ) can be c a l c u l a t e d as f o l l o w s : 98 .3. farmer, income = -168 + 177 a 2 2 + 3 2 3 a 2 4 , (48) 8 a22 I f the p r e v a i l i n g v a l u e s of the c u r r e n t FIAP were used (a =0.75 and a = 1.00), annual average producer income 22 24 would have i n c r e a s e d by 3.0 thousand d o l l a r s f o r each u n i t a r y i n c r e a s e i n the support l e v e l (e.g., from 75 to 76 p e r c e n t ) . F i n a l l y , as a summary, the gross income, a b s o l u t e and r e l a t i v e v a r i a t i o n of income, p r o v i n c i a l government budgetary c o s t and hog p r o d u c t i o n e l a s t i c i t i e s w i t h r e s p e c t t o a 2 2 and a 2 4 are presented i n Table 5.5.. I t shows, f o r example, t h a t a one percent i n c r e a s e i n the support l e v e l would cause a 0.32 percent i n c r e a s e i n farmer gross income and a 1.22 percent i n c r e a s e i n p r o v i n c i a l government c o s t . 99 Table 5.5 Gross Income, Absolute and R e l a t i v e V a r i a t i o n of Income, Prov. Gov. Budgetary Cost and  Hog P r o d u c t i o n E l a s t i c i t i e s w i t h r e s p e c t to a„„ and Gross In- Absolute R e l a t i v e Prov.Gov. Hog Prod, come per V a r i a t i o n V a r i a t i o n Cost per year Parameters year of Income of Income per p e r i o d sd. dev. coef. of per year v a r i a t i o n a a22 0. 32 0.02 0.23 1.22 0 .02 b a24 0.24 -0. 05 -0.23 1.78 0 .03 : p e r c e n t of r e t u r n d e f i c i t supported by the Prov. government. : p e r c e n t of f i x e d c o s t s t h a t enter r e t u r n d e f i c i t c a l c u l a t i o n s . Note t h a t the f i g u r e s i n Table 5.5 measure the e f f e c t of an i n c r e a s e i n the percentage of the f i x e d c o s t s t h a t enter the r e t u r n d e f i c i t c a l c u l a t i o n . For a r e d u c t i o n , the sig n s must be r e v e r s e d . 100 5.3.1.1.3 "Break-even" P o i n t s L o c a t i o n o f "break-even" p o i n t s allows d e t e r m i n a t i o n of parameters v a l u e s t h a t g i v e some predetermined value of r e l e v a n t summary measures. For example, i f p o l i c y makers wanted to know what l e v e l of support ( 0*22) ' under the c u r r e n t FIAP ( i . e . , Gi2 4 = 1.0), g i v e s a c o s t t o the government of 1.0 m i l l i o n d o l l a r s , equation (47) becomes a q u a d r a t i c form i n a 2 2 ' MAY k e w r i t t e n as: 1.0 = - 134 + 1515 a 2 2 + 1092 , (49) S o l v i n g the q u a d r a t i c equation f o r 0:22' t * i e P ^ i t i v e r o o t g i v e s a va l u e of 0.52. In other words, a support l e v e l of 52 percent of the r e t u r n d e f i c i t , under the c o n d i t i o n s o f FIAP (1975), w i l l r e p r e s e n t a c o s t to the p r o v i n c i a l government equal t o one m i l l i o n d o l l a r s . 5.3.2 Comparison of Performance F u n c t i o n  Estimates w i t h R e s u l t s from A c t u a l  Runs of the Model To determine how good the estimates obtained from the performance f u n c t i o n s a r e , estimates were obtained d i r e c t l y from the model. To o b t a i n comparative r e s u l t s d i r e c t l y from the the model the f o l l o w i n g three runs were made: (1) Support l e v e l ( o ^ ) w a s r a i s e d to 85 percent of the r e t u r n d e f i c i t and the f i x e d c o s t entered i n i t s c a l c u l a t i o n ( 0 * 2 4 ) reduced t o 80 pe r c e n t . Next the p r o v i n c i a l government c o s t was computed. 101 (2) To estimate the e f f e c t on farmer income of a change of one percent i n the l e v e l of support, a 22 was s e t equal t o 7 6 percent of the r e t u r n d e f i c i t , and (3) Given t h a t the performance f u n c t i o n e s t i m a t i o n i n d i c a t e d t h a t a 52 percent support l e v e l r e p r e s e n t s a c o s t t o the p r o v i n c i a l government equal to 1.0 m i l l i o n d o l l a r s , the model was run under t h i s c o n d i t i o n . The r e s u l t s from these runs are r e p o r t e d i n Table 5.6. Table 5.6 Comparison of Performance F u n c t i o n  Estimates w i t h R e s u l t s from A c t u a l Runs of the Model. Use of P e r f . F u n c t i o n Summary Measure P e r f . F u n c t i o n Estimate Model Re s u l t (1) Summary measure e s t i m a t i o n w i t h a,=0.85 and a-. = 0.80 government c o s t 1.47 m i l l i o n d o l l a r s 1. 37 m i l l i o n d o l l a r s (2) S e n s i t i v i t y a n a l y s i s (change i n support Change i n farmer 2.8 th d o l l a r s 3.0 t h d o l l a r s l e v e l (a ) from 75 xncome to 76 percent) (3) "Break-even" P o i n t (a„„ = 52 percent) Gov. c o s t 1.0 m i l l i o n d o l l a r s 0.99 m i l l i o n d o l l a r s 102 With a support l e v e l of 85 per c e n t , the model estimates government c o s t to be 1.37 m i l l i o n d o l l a r s w h ile an estimate of 1.4 7 m i l l i o n d o l l a r s was obtained from the performance f u n c t i o n . From Table.5.6 i t can be seen t h a t the estimates obtained from performance f u n c t i o n s are very good approximations of r e s u l t s obtained from the model. 103 Chapter 6 CONCLUSIONS T h i s chapter w i l l summarize the most important c o n c l u s i o n s t h a t can be drawn from t h i s study. They i n c l u d e methodological a s p e c t s , c o n c l u s i o n s r e s u l t i n g from the comparison of the s t a b i l i z a t i o n schemes d i s c u s s e d i n the t e x t and some e x t e n t i o n s f o r f u r t h e r r e s e a r c h . 6.1 M e t h o d o l o g i c a l Aspects (1) Since t h i s study c o n c e n t r a t e d on a s s e s s i n g the e f f e c t s o f a l t e r n a t i v e s t a b i l i z a t i o n schemes under d i f f e r e n t s e t s o f assumptions, i t c o n s i s t e n t l y f o l l o w e d a " p o s i t i v e " economic approach. In f a c t , i t s aim was onl y t o p r o v i d e p o l i c y makers with a wide range of r e s u l t s so t h a t more informed d e c i s i o n s can be made, r a t h e r than attempt to determine an "optimal" p l a n . (2) S i m u l a t i n g a mathematical model of the B.C. hog i n d u s t r y proved t o be an e f f e c t i v e way of determining the l i k e l y impact of a l t e r n a t i v e s t a b i l i z a t i o n schemes. 46 (3) As p o i n t e d out above, the model was b u i l t to be g e n e r a l and f l e x i b l e . I t can determine the e f f e c t s The computer model used i n t h i s study i s a v a i l a b l e from the Department of A g r i c u l t u r a l Economics, U n i v e r s i t y of B r i t i s h Columbia. 104 of a number of s t a b i l i z a t i o n schemes i n a d d i t i o n to p r o v i n c i a l d e f i c i e n c y payments programs, i n c l u d i n g the ASA, a g i l t r e t e n t i o n subsidy program, and a feed subsidy program. I t s f l e x i b i l i t y allows i t t o : (a) c a l c u l a t e t h r e e , f o u r , or f i v e year moving average p r i c e s and/or margins; (b) work with a gross margin, a net margin, or any p r o p o r t i o n of f i x e d c o s t c o n s i d e r e d r e l e v a n t to c a l c u l a t e r e t u r n d e f i c i t ; (c) impose r e s t r i c t i o n s on the number of hogs t h a t q u a l i f y f o r any f e d e r a l and/or p r o v i n c i a l s t a b i l i z a t i o n program; and (d) be run f o r each f e d e r a l or p r o v i n c i a l program s e p a r a t e l y or i n any d e s i r e d combination. Some important c o n c l u s i o n s emerged from the v a l i d a t i o n procedure. They can be summarized as f o l l o w s : (a) the v a l i d a t i o n r e s u l t s g i v e support to the estimates of West e t a l (1974) of a s h o r t run (18 month) hog and feed e l a s t i c i t y of supply f o r B r i t i s h Columbia (0.83 and -0.60 r e s p e c t i v e l y ) . T h i s i s an i n d i c a t i o n t h a t hog producers i n B r i t i s h Columbia are more res p o n s i v e to changes i n hog and feed p r i c e s than those i n other Canadian r e g i o n s ; (b) i t was p o s s i b l e to o b t a i n a p r e l i m i n a r y 105 estimate f o r a hog and feed p r i c e e l a s t i c i t y of g i l t r e t e n t i o n (0.28 and -0.20 r e s p e c t i v e l y ) ; (c) i t was a l s o p o s s i b l e to "estimate" a s h o r t - r u n (one month) hog and feed p r i c e e l a s t i c i t y of supply (0.4 and -0.3 r e s p e c t i v e l y ) ; and (d) the v a l u e s assigned to the t e c h n i c a l and i d e n t i t y parameters r e p r e s e n t i n g the main p r o d u c t i o n c h a r a c t e r i s t i c s of hogs i n B r i t i s h Columbia, and the assumed l a g of 14 months i n p r o d u c t i o n , appear v a l i d . Making use of the mathematical model of the B r i t i s h Columbia hog i n d u s t r y presented some problems r e g a r d i n g parameters' val u e s and other b a s i c i n f o r m a t i o n . Although i t was p o s s i b l e to a s s i g n v a l u e s to the c r u c i a l b e h a v i o r a l parameters ( i n equation one and two) u s i n g West's e t a l ' s (1974) estimates of a hog supply f u n c t i o n f o r B r i t i s h Columbia as a s t a r t i n g p o i n t , and l a t e r r e f i n i n g them by means of the v a l i d a t i o n procedure, f u r t h e r r e s e a r c h to check the v a l i d i t y of these p r e l i m i n a r y e s t i m a t e s would be u s e f u l . E s t i m a t i o n s were not a v a i l a b l e f o r the response parameter to a g i l t r e t e n t i o n subsidy (ct^) and the s h i f t parameter to account f o r a more s t a b l e p r o d u c t i o n environment (a^) so they were assigned ad-hoc v a l u e s . E m p i r i c a l estimates o f these parameter values would be u s e f u l f o r f u r t h e r r e s e a r c h . 106 Regarding basic information needed, given that the FIAP uses negotiated monthly cost of production figures instead of a pre-determined formula based on published data, i t was necessary to estimate the cost series used i n t h i s study. The estimation proved to be d i f f i c u l t and time consuming. In f a c t , i t was necessary to take the cost structure reported by FIAP for 1975 as a basis and then, through successive i t e r a t i o n estimate the inputs supposedly used i n the monthly FIAP negotiations. The r e s u l t of each i t e r a t i o n was validated against an 18 month period (January 19 75 through June 1976) of known FIAP cost data. Once the estimated cost showed not to be s i g n i f i c a n t l y d i f f e r e n t (in a s t a t i s t i c a l sense) from the known figures, the remaining years were 47 estimated by means of the Farm Input Price Index.. (6) Performance functions were estimated and shown to be a convenient mechanism for producing information of i n t e r e s t to p o l i c y makers, without having to re-run the model. The comparison of performance function estimates with re s u l t s from actual runs of the model showed that they are very good approximations of the results obtained d i r e c t l y from the model. The exact formula used to calculate the cost figures i s presented i n Appendix A. 107 6.2 C o n c l u s i o n s Drawn from the Comparative A n a l y s i s  of the A l t e r n a t i v e S t a b i l i z a t i o n Schemes As p o i n t e d out e a r l i e r , the r e s u l t s of t h i s study are dependant on the v a l u e s assigned parameters and the p a r t i c u l a r model used. Reasonable v a l u e s were assigned parameters by reviewing a l l a v a i l a b l e sources of i n f o r m a t i o n . Moreover, the experiment performed w i t h the c r i t i c a l b e h a v i o r a l parameters showed t h a t the r e s u l t s o b t a i n e d from the model a p p l i e d over a wide range of parameter v a l u e s . F i n a l l y , the h i s t o r i c a l v a l i d a t i o n procedure showed the a b i l i t y of the model to reproduce r e a l world c o n d i t i o n s . Given the caveat t h a t the r e s u l t s of t h i s study are dependent on a number of assumptions and the model used, and given a government g o a l of income s t a b i l i t y f o r hog producers, p o l i c y makers are o f f e r e d the f o l l o w i n g c o n c l u s i o n s : (1) I f the government wished to support hog producer income, as w e l l as s t a b i l i z e i t , a premium/ subsidy scheme would be p r e f e r r e d to FIAP (1975). For a g i v e n government expenditure, both schemes are e q u a l l y capable of i n c r e a s i n g income; however a premium/subsidy scheme i s advantageous i n terms of r e d u c i n g income v a r i a b i l i t y . A premium/subsidy scheme reduces v a r i a b i l i t y not o n l y through s u b s i d i z i n g farmers i n times of low p r i c e s but by a l s o r e q u i r i n g them to pay a premium i n times of h i g h p r i c e s ; i n other words, i t c o l l e c t s farmer premiums i n a s t a b i l i z i n g way. 108 (2) If the government wished to achieve income s t a b i l i t y at low cost, modified FIAP would be preferable to FIAP (1975). Cost over the period 1964-1976 would be 33% less for modified FIAP than for FIAP (1975). (3) If the government wished to reduce cost further, t h i s could be done through introducing a s l i d i n g premium into FIAP (19 75). By allowing farmer premiums to sl i d e upwards i n response to government advances, cost of FIAP (1975) would be reduced 85%. Not only would government cost be reduced subs t a n t i a l l y by allowing the premium to s l i d e , but a greater reduction i n income v a r i a b i l i t y would r e s u l t than for either FIAP (1975) without a s l i d i n g premium or modified 48 FIAP. The price of reduced government cost and reduced income v a r i a b i l i t y due to the s l i d i n g premium would be a lower l e v e l of income for hog producers. (However, i t increases the l e v e l of producer income over the equilibrium s i t u a t i o n ) . In summary, to the extent that income support i s the predominant government goal, the premium/subsidy scheme i s the preferred choice. To the extent that reduced government cost i s the predominant goal, FIAP (19 75) with a s l i d i n g premium could achieve t h i s . The s l i d i n g farmer premium was thus a s t a b i l i z i n g influence on producer incomes. This occurred because years of increas-ed farmer premiums happened to coincide with years of high hog prices. Were the price cycle d i f f e r e n t (as i t i s for beef), the s l i d i n g premium could well be d e - s t a b i l i z i n g . 109 6.3 Extensions of the Model Some u s e f u l e x t e n s i o n s . o f the model are: (1) Government s t a b i l i z a t i o n programs f o r hog producers can be expected t o have an impact beyond the farm gate. Thus, the farm l e v e l model developed i n t h i s study c o u l d be u s e f u l l y extended to i n c l u d e the p r o c e s s i n g and r e t a i l l e v e l s o f the hog i n d u s t r y . (2) With some minor m o d i f i c a t i o n s , the computer model developed i n t h i s study c o u l d be used to study income s t a b i l i z a t i o n programs f o r beef producers. T h i s would i n v o l v e a new subroutine i n c o r p o r a t i n g the r e l e v a n t p r o d u c t i o n assumptions f o r beef as w e l l as the a p p r o p r i a t e s e t of b a s i c d a t a . (3) Since the model i s an aggregate one i t does not i d e n t i f y i n d i v i d u a l b e n e f i c i a r i e s of v a r i o u s s t a b i l i z a t i o n programs. A number of economic s t u d i e s suggest t h a t such programs have r e g r e s s i v e 49 d i s t r i b u t i o n a l e f f e c t s ( B a r i c h e l l o ) . In f a c t , c o n s i d e r i n g t h a t there e x i s t s some i n d i c a t i o n t h a t a f a i r l y s m a l l percentage of hog producers have r e c i e v e d a r e l a t i v e l y l a r g e p r o p o r t i o n of indemnity payments (Hudson), i t would be of i n t e r e s t to extend the model i n order to al l o w a q u a n t i t a t i v e e v a l u a t i o n of d i s t r i b u t i o n a l e f f e c t s . 49 A w e l l documented review of t h i s t o p i c . c a n be found i n D. Gale. Johnson, World A g r i c u l t u r e i n D i s a r r a y , (London, 1973) , MacMillan P r e s s , Chapter 9. 110 LIST OF REFERENCES Agarwala, R. "A S i m u l a t i o n Approach to the A n a l y s i s of S t a b i l i z a t i o n P o l i c i e s i n A g r i c u l t u r a l Markets: A Case Study". J o u r n a l of A g r i c u l t u r a l Economics, V o l . XXII, No. 1, January, 1971 A g r i c u l t u r e Canada. Canada L i v e s t o c k and Meat Trade Report. L i v e s t o c k D i v i s i o n , P r o d u c t i o n and Marketing Branch. . Annual Reports. L i v e s t o c k D i v i s i o n , P r o d u c t i o n and Marketing Branch. Anderson, Jock R. " S i m u l a t i o n : Methodology and A p p l i c a t i o n i n A g r i c u l t u r a l Economics". Review of Marketing and  A g r i c u l t u r a l Economics, V o l . 42, No. 1, March, 1974. B a r i c h e l l o , R i c h a r d . "An Economic A n a l y s i s of the D a i r y Farm Income Assurance Program", Department of A g r i c u l t u r e Economics Research B u l l e t i n , U n i v e r s i t y of B r i t i s h Columbia, September, 1977. B r i t i s h Columbia M i n i s t r y of A g r i c u l t u r e , B r i t i s h Columbia F e d e r a t i o n of A g r i c u l t u r e and B r i t i s h Columbia Swine Producers A s s o c i a t i o n . " B r i t i s h Columbia Swine Producers Income Assurance Program". Mimeograph. 1974. _. " A g r i c u l t u r a l Development P o l i c y P r o p o s a l s " . Cabinet Committee on P l a n n i n g and P r i o r i t i e s . Mimeograph. March, 1977. . " A g r i c u l t u r a l Development P o l i c y P r o p o s a l s " . Cabinet Committee on Economic Development. Mimeograph. December, 1976. . "Background Paper on A g r i c u l t u r a l Development O p p o r t u n i t i e s i n B r i t i s h Columbia to 1986." Mimeograph, 1976. B o e h l j e , M i c h a e l . " O p t i m i z a t i o n and D e c i s i o n Models: The Use of S t a t i s t i c a l Search Procedures". Canadian  J o u r n a l of A g r i c u l t u r a l Economics, V o l . 21, No. 2, J u l y , 1973. Boswell, A.M. "Cycles i n P r o d u c t i o n and P r i c e s of Hogs i n Canada and United S t a t e s , 1953 to 1967", Canadian;Farm  Economics, V o l . 3, No. 3, August, 1968. I l l C a ndler, W. e t a l . "The S u b s t i t u t i o n of A n a l y t i c f o r S i m u l a t i o n A l g o r i t h m s : A Comment". American J o u r n a l  of A g r i c u l t u r a l Economics, V o l . 55, No. 2, May, 1973. Candler, W. and C a r t w r i g h t , R.W. " E s t i m a t i o n of Performance Fu n c t i o n s f o r Budgeting and S i m u l a t i o n S t u d i e s " . American J o u r n a l of A g r i c u l t u r a l Economics, V o l . 51, No. 1, February, 1969. Candler, W. and Kennedy, G. "A S i m u l a t i o n A n a l y s i s of A l t e r n a t i v e P r i c e C e i l i n g s f o r Pork." Purdue U n i v e r s i t y , A g r i c u l t u r a l Experimental S t a t i o n B u l l e t i n No. 88, J u l y , 1975. Chudleigh, P e t e r . "Model of the Small Scale D a i r y i n g E n t e r p r i s e : An A i d to Resource A l l o c a t i o n i n A g r i c u l t u r a l Development". A g r i c u l t u r a l Systems, V o l . 2, No. 1, January, 1977. Cl a r k s o n , G. and Simon, H. "S i m u l a t i o n of I n d i v i d u a l and Group Behavior". American Economic Review, Volume L, No. 5, December, 19 60. Dawson, J.L. "Canadian Hog P r i c e s W i t h i n a North American Market," Canadian Farm Economics, V o l . 7, No. 4, October, 1972. Eyvindson, R.K. and Ke r r , T.C. "Contrast between F e d e r a l and P r o v i n c i a l S t a b i l i z a t i o n P o l i c i e s and Programs". Canadian-Journal o f A g r i c u l t u r a l Economics, C.A.E.S. Proceedings, March, 1976. Freund, John E. Modern Elementary S t a t i s t i c s . P r e n t i c e -H a l l , Inc., Englewood C l i f f s , N.J., U.S.A. 1967 ( T h i r d E d i t i o n ) . F u r n i s s , I . "Resource Use i n Canadian A g r i c u l t u r e , " The  A g r o l o g i s t , V o l . 6, No. 1, Winter-, 1977. Ha r r i n g t o n , D.H. "Research t o o l s needed to ev a l u a t e p o l i c y a l t e r n a t i v e s f o r s t a b i l i z a t i o n of the a g r i c u l t u r a l s e c t o r . " Canadian J o u r n a l of A g r i c u l t u r a l Economics, C.A.E.S. Proceedings, 1974. Heady, E.O. and D i l l o n , J.L. A g r i c u l t u r a l P r o d u c t i o n F u n c t i o n s . Iowa St a t e U n i v e r s i t y P r e s s , Ames, Iowa, 1961. Hedley, D. and Cushen, H. "A Hog Model f o r E v a l u a t i o n of S t a b i l i z a t i o n A l t e r n a t i v e s . " Canadian J o u r n a l of  A g r i c u l t u r a l Economics, C.A.E.S., Proceedings, 1974. 112 Houck, J.P. "Some Economic Aspects of A g r i c u l t u r a l Regulation and S t a b i l i z a t i o n . " American journal  of A g r i c u l t u r a l Economics, A.A.E.E., 1974 Proceedings Issue. Vol. 56, No. 5, December, 1974. Hudson, S.C. "A Review of Farm Income S t a b i l i z a t i o n i n B r i t i s h Columbia." Mimeograph. October, 1977. Just. R.E. "Risk Response Models and Their Use i n A g r i c u l t u r a l Policy Evaluation." American Journal  of A g r i c u l t u r a l Economics, Vol. 57, December, 1975. Kennedy, George. "The P o s s i b i l i t y of a Futures Market i n Farm Cost Indexes." Dept. of A g r i c u l t u r a l Economics, University of B r i t i s h Columbia, Mimeograph, 1977. "A Simulation Analysis of Alternative S t a b i l i z a t i o n Schemes for Hog-Pork Prices Unpublished Ph.d. Thesis, Department of A g r i c u l t u r a l Economics, Purdue University, 1973. Kulshreshta, S.N. and Wilson, A.G. "A Harmonic Analysis of Cattle and Hog Cycles i n Canada." Canadian  Journal of A g r i c u l t u r a l Economics, Vol. 21, No. 3, November, 1973. MacAuley, T.G. "The Timing of Deficiency Payments for S t a b i l i z a t i o n . " Canadian Journal of A g r i c u l t u r a l  Economics, Vol. 25, No. 1, February, 1977. Martin, L. and MacLaren, D. "Market S t a b i l i z a t i o n by Deficiency Payment Program: Theoretical Analysis and i t s Application to the Canadian Pork Sector." Canadian Journal of A g r i c u l t u r a l Economics, Vol. 24, No. 2, July, 1976. Martin, L. "An Analysis of the Amended A g r i c u l t u r a l S t a b i l i z a t i o n Act with Reference to the Livestock Industry." Ontario A g r i c u l t u r a l College, University of Guelph, Technical B u l l e t i n AEEE/76/11. Meilke, K.D. "Another Look at the Hog-Corn Ratio." American  Journal of A g r i c u l t u r a l Economics, Vol. 59, No. 1, February, 1977, pages 216-219. Naylor, Thomas H. Computer Simulation Experiments with Models of Economic Systems, New York, John Wiley & Sons, 1971 Naylor, T.H. et a l . Computer Simulation Techniques, New York, John Wiley and Sons, 196 8. 113 O r c u t t , Guy H. " S i m u l a t i o n of Economic Systems." American  Economic Review, V o l . L, No. 5, December, 1960. P e t r i e , T.M. "Seasonal, C y c l i c a l and Trend V a r i a t i o n s i n the Hog Industry." A g r i c u l t u r e Canada, Economics Branch P u b l i c a t i o n No. 74/20, November, 1974. Reimer, E.R. "An Econometric Model of the Canadian L i v e -stock-Feed Grains S e c t o r . Unpublished M.Sc. T h e s i s , U n i v e r s i t y of Saskatchewan. Mimeograph. May, 197 3. S t a t i s t i c s Canada. 1971 Census of A g r i c u l t u r e - B r i t i s h Columbia, Catalogue 96-711, V o l . IV, P a r t 3, May, 1973. . Farm Input P r i c e Index, Catalogue 62-004, Q u a r t e r l y . . Farm Cash R e c e i p t s , Catalogue 21-201, 1975. . P r i c e and P r i c e Indexes, Catalogue 62-002. . Industry P r i c e Indexes, Catalogue 62-011. Shubik, M a r t i n . " S i m u l a t i o n of the Industry and the Firm." American Economic Review, V o l . L, No. 5, December, 1960. T r y f o s , P. "The Determinants of P r i c e and Employment i n the Canadian Meat Industry" .. Canadian J o u r n a l of  A g r i c u l t u r a l Economics, V o l . 21, No. 2, J u l y , 1973. Tweeten, L. and J.S. P l a x i c o . "Long Run Outlook f o r A g r i c u l t u r a l Adjustments Based on N a t i o n a l Growth." J o u r n a l of Farm Economics, XLIV, December, 19 64. Tyner, F. and Tweeten, L. " S i m u l a t i o n as a Method of A p p r a i s i n g Farm Programs." American J o u r n a l of  A g r i c u l t u r a l Economics, V o l . 50, No. 1, February, 1968. West, D.A. and C h i n , S.B. " F a c t o r s A f f e c t i n g the Supply of Hogs at the N a t i o n a l and Regional Le v e l . " Canadian Farm Economics, V o l . 10, No. 2, A p r i l , 1975. West, D.A. and Smith, H.W. " I n s t a b i l i t y i n the Hog Pork Ind u s t r y . " Canadian Farm Economics, V o l . 8, No. 2, A p r i l , 1973. 114 West, D.A., Chin, S.B., and Pando, J.L. " N a t i o n a l and Regional Hog Supply F u n c t i o n s . " A g r i c u l t u r e Canada, Economics Branch P u b l i c a t i o n No. 74/15, September, 1974. Zwart, A. and M a r t i n L. "The North-American Pork Sector -A n a l y s i s of i t s Economic I n t e r r e l a t i o n s h i p s and a Model f o r P o l i c y E v a l u a t i o n . " O n t a r i o A g r i c u l t u r a l C o l l e g e , U n i v e r s i t y of Guelph, T e c h n i c a l B u l l e t i n AE/74/10. Zwart, Anthony C. "A Recursive S p a t i a l A n a l y s i s of the North American Pork S e c t o r . " Unpublished M.Sc. T h e s i s . U n i v e r s i t y of Guelph, August, 1973. 114 a APPENDICES APPENDIX A CALCULATION OF COST FIGURES USED IN THE ANALYSIS 115 Cost F i g u r e s C a l c u l a t i o n s The c o s t f i g u r e s needed t o produce one cwt of hog dressed c a r c a s s , r e p o r t e d i n t a b l e s A - l , A-2 and A-3 were estimated as f o l l o w s : 1. T o t a l V a r i a b l e Cost was decomposed i n t o three items: feed c o s t , labour c o s t and o t h e r c o s t s . 1.1. Feed Cost was estimated u s i n g a r a t e of c o n v e r s i o n of 4.375 l b s . of feed to produce one pound of pork (or 3.50 l b s . to produce one pound of l i v e hog). T h i s r a t e of c o n v e r s i o n excludes sow and boar f e e d , estimated t o be 0.9 5 l b s . In other words, to produce 160 l b s . of pork (dressed c a r c a s s weight) i t was assumed t h a t 852 l b s . of feed were needed. T h i s f i g u r e was taken from FIAP c a l c u l a t i o n s and can be decomposed as f o l l o w s : 50 l b s of s t a r t e r mash and creep feed 650 l b s grower mash 152 l b s ground b a r l e y 852 l b i n t o t a l . P r i c e of grower mash and ground b a r l e y are B r i t i s h Columbia r e t a i l p r i c e s taken from S t a t i s t i c s Canada P u b l i c a t i o n , P r i c e and P r i c e Indexes, Catalogue 62-002 (from 1964 u n t i l October, 1975) and from Ind u s t r y P r i c e Indexes, Catalogue 62-011, s t a r t i n g November, 1975 u n t i l 116 December, 1976. Since FIAP c a l c u l a t i o n s i n c l u d e bulk feed p r i c e s of 10 TON loads which are approximately 83% of the r e t a i l p r i c e s , i n the case of grower mash, wholesale p r i c e s were ob t a i n e d by m u l t i p l y -i n g grower mash p r i c e s by 0.83. In the case of ground b a r l e y , r e t a i l p r i c e s were ob t a i n e d by i n c r e a s i n g grower mash p r i c e s by 20 percent. 1.2. Cost of l a b o u r . To estimate the c o s t of l a b o u r , the average wage r a t e of $5.37 per hour used by the FIAP i n 1975 was taken as a base. L a t e r , by means of the Index of Farm Labour (hourly rated) f o r Western Canada, taken from S t a t i s t i c s Canada P u b l i c a t i o n s , Farm Input P r i c e Index, Catalogue 62-004, the r e s t of the p e r i o d being simulated was estimated. 1.3. Other V a r i a b l e Cost. Based on the 1975 FIAP c o s t c a l c u l a t i o n i t was estimated t h a t other v a r i a b l e c o s t s such as v e t e r i n a r y and medicine, i n s u r a n c e , sow and boar replacement, e t c . , were e q u i v a l e n t to 4% of the labour p l u s feed c o s t . 2. T o t a l F i x e d . C o s t . The t o t a l f i x e d c o s t was a l s o estimated by means of the average f i g u r e r e p o r t e d by the FIAP f o r 1975, and the Land and Farm B u i l d i n g Index, taken from S t a t i s t i c s Canada, Farm Input P r i c e Index. The average f i x e d c o s t c a l c u l a t e d by FIAP f o r 1975 was $20.93 per hog 117 or $13.08 per cwt. The Land and Farm B u i l d i n g Index f o r Western Canada i n c l u d e s : b u i l d i n g replacement, b u i l d i n g r e p a i r , f e n c i n g c o n s t r u c t i o n and r e p a i r , mortgage c r e d i t , p r o p e r t y taxes and farm r e n t . * * * TABLE A - l * * * PRICE OF FEED NEEDED TO PRODUCE ONE HUNDRED WEIGHT OF HOG DRESSED CARCASS 1964-1976 DOLLARS PER HUNDRED WEIGHT JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 1964 17.21 17.18 17 .22 17.22 17.24 17 .14 17.11 17 .13 17.15 17.23 17.19 17.22 1965 17.29 17 .19 17 .22 17.23 17.23 17.28 17.33 17 .37 17.42 17 .37 17 .33 17.45 1966 17.49 17.57 17 .73 1 8 . 0 4 18.11 18.21 18.60 18.75 18 .70 18 .60 18.38 18.41 1967 18.39 18 .40 18.52 18.51 18.54 18.63 18.72 18.61 18.69 18.74 18.74 18.74 1968 18.73 18.85 18.88 18.92 18.92 19.02 18.99 19 .08 18 .79 18.37 18.31 18.26 1969 18.25 18.34 18 .25 18.41 18.35 18.48 18.48 18.51 18 .47 18.35 18.00 18.14 1970 18.29 18.25 1 8 . 5 7 18.69 18.54 18. 56 18.83 18.90 18.48 18.53 18 .86 18.89 1971 18.92 19.19 19.31 19 .23 19.38 19.29 19.26 19.24 18 .96 19.13 19.01 18.80 1972 19.06 18.98 18 .84 1 9 . 1 8 19.08 19.06 19.15 19.11 19.38 19.59 19.63 19.89 1973 21 .09 22 .73 23 .81 24 .58 2 4 . 7 9 25. 55 27.98 2 8 . 4 0 31 .84 33 .44 33 .33 33 .58 1974 34 .16 35 .30 3 6 . 1 4 3 6 . 8 2 37.55 37 .46 36.63 36 .82 38 .99 40.65 4 0 . 8 6 40.70 1975 4 0 . 5 5 41 .38 40 .48 4 0 . 5 8 39 .49 39 .10 39.11 39 .34 4 0 . 0 3 39.79 39.15 38 .43 1976 37 .45 37 .82 3 7 . 8 2 37 .82 38.77 39 .49 38 .87 39 .84 39 .89 38.94 38.56 38 .24 SOURCE :STATI STIC CANADA : PRICE AND PRICE INDEXES, CATALOGUE 62 -002 AND INDUSTRY PRICE INDE XE S, C ATALOSUE 6 2 - 0 1 1 . ESTIMATION BASED ON THE 1975 F . I . A . P . COST STRUCTURE. * * * TABLE A-2 *** PRICE OF ALL VARIABLE INPUTS NEEDED TO PRODUCE ONE HUNDRED WEIGHT OF HOG DRESSED CARCASS 1964-1976 OOLLARS PER HUNDRED WEIGHT JAN FEB MAR APR HAY JUN JUL AUG SEP OCT NOV DEC 1964 21.54 21.51 21 .55 21.62 21.63 21.52 21.52 21.54 21.57 21.66 21.62 21.65 1965 21.77 21.66 21.69 21.74 21.74 21.79 21.96 22.01 22.06 22.07 22.07 22.14 1966 22.25 22.33 22.50 22.90 22.97 23.07 23.59 23.74 23.69 23.66 23.43 23.47 1967 23.54 23.55 23.67 23.74 23.76 23.86 24.01 23.90 23.97 24.38 24.08 24.08 1968 24.16 24.23 24.25 24.32 24.32 24.43 24.41 24.51 24.21 23.83 23.77 23.72 1969 23.75 23.84 23.75 24.01 23.94 24.08 24.16 24.20 24.15 24.07 23.71 23.85 1970 24.02 23.98 24.31 24.45 24.31 24.32 24.67 24.74 24.31 24.40 24.74 24.77 1971 24.87 25.15 25.28 25.24 25.40 25.30 25.39 25.36 25.08 25.27 25.15 24.92 1972 25.41 25.32 25.18 25.60 25.51 25.48 25.70 25.67 25.94 26.35 26.39 26.66 1973 28.10 29 .80 30.93 31.85 32.07 32.86 35.78 36.22 39.79 41.77 41.65 41.91 1974 42.79 43.98 44.85 45.90 46.66 46.56 46.11 46.31. 48.56 50.90 51. 13 50.96 1975 51 .07 51 .92 50.99 51.63 50.49 50. 17 50.49 50.73 51.45 51 .SS 51.00 50.25 \XJ 1976 49.34 49.72 49.72 49.95 50.95 51.70 51.53 52.54 52. 59 52.15 51.75 51.42 SOURCE:STATISTIC CANADA ; PRICE AN 0 PRICE INDEXES, CATALOGUE 62-002 AND INDUSTRY PRICE INDEXES .CATALOGUE 62-011. ESTIMATION BASED ON THE 1975 F. I .A.P. COST STRUCTURE. * * * TABLE A-3 * * * PRICE OF TOTAL INPUTS NEEDED TO PRODUCE ONE HUNDRED WEIGHT OF HOG DRESSED CARCASS 1964-1976 DOLLARS PER HUNDRED WEIGHT JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 1964 27.71 27.68 27.72 27.82 27.84 27.73 27.74 27.75 27.78 27.88 27.85 27.88 1965 28.57 28.46 28.50 28.56 28.56 28.62 28.79 28.84 28.89 28.91 28.92 28.99 1966 29.78 29.86 30.03 30.46 30.52 30.63 31.17 31.32 3 1.27 31.25 31.02 31.06 1967 30.39 30.40 30.53 30.62 30.65 30.74 30.91 30.80 30.88 30.98 30.98 30.98 1963 31.25 31.33 31.35 31.45 31.45 31.56 31.55 31.65 31.35 30.98 30.92 30.87 1969 31.33 31.42 31.33 31.68 31.61 31.75 31.79 31.83 31.78 31.75 31.38 31.53 1970 31. 59 31. 54 31.88 31.99 31.84 31.86 32.21 32.28 31.85 31.96 32.31 32.33 1971 32.56 32.85 32.98 32.98 33.13 33. 04 33.18 33.16 32.87 33.13 32.99 32.76 1972 34.48 34.40 34.25 34.72 34.62 34.60 34.89 34.85 35.13 35.63 35.67 35.94 1973 37.97 39.67 40.81 41.82 42.03 42.82 45.79 46.23 49.81 51.85 51.74 52.00 1974 53.71 54.89 55.77 57.03 57.80 57.70 57.34 57.54 59.79 62.11 62.34 62.17 1975 63.97 64.82 63.89 64.62 63.48 63.17 63.65 63.89 64.60 64.92 64.26 63.50 1976 62.91 63.29 63.29 63.68 64.67 65.42 65.30 66.30 66.36 66.04 65.64 65.31 SOURCEsSTATISTIC CANADA ; PRICE AND PRICE INDEXES. CATALOGUE 62-002 AND INOUSTRY PRICE INDEXES. C AT ALOGUE 62-011. ESTIMATION 8ASE0 ON THE 1975 F. I .A.P. COST STRUCTURE. M O APPENDIX B MODEL VALIDATION: REAL AND SIMULATED QUANTITIES HOGS PRODUCED UNDER THE FIAP * * * TABLE B - l * * » SIMULATED FLOOR PRICE FOR HOGS FARM INCOME ASSURANCE PROGRAM (RESTRICTIONS ON WHAT HOGS OUALIFV FOR THE PROGRAMI DOLLARS PER HUNDRED WEIGHT JAN FEB MAR APR MAY JUN JUL.... AUG SEP OCT NOV DEC 1974 51.46 50.57 47.13 45.21 43.16 42.75 45.61 53.21 55.83 55.68 54.43 56.48 1975 58.25 59.53 56.45 58.65 63.59 68.76 75.02 77.44 84.52 79.22 72.76 72.73 1976 70.77 71.41 68.91 65.23 66.57 66.27 66.10 64.39 63.63 59.45 56.11 58.58 SOURCE: TABLE A - l FOR CDST DATA AND AGRICULTURE CANADA, LIVESTOCK AND MEAT TRADE REPORT • FOR EQUILIBRIUM HOG PR ICES . F . I . A . P . FIGURES FOR THE NUMBER OF HOGS MARKETED UNDER THE PROGRAM. * * * T A B L E B -2 * • » QUANTITIES OF HOG PROOUCED UNDER THE FARM INCOME ASSURANCE PROGRAM 1 9 7 4 - 1 9 7 6 THOUSANDS OF HUNDRED WEIGHT JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV OEC 1974 6 . 3 9 6 . 7 5 9 . 8 7 7 . 9 7 7 . 7 5 1 0 . 0 6 8 . 1 2 8 . 4 3 1 0 . 9 2 1 0 . 0 6 9 . 0 7 1 1 . 5 0 1975 9 . 2 0 8 . 4 9 1 1 . 1 0 8 . 7 8 8 . 4 3 1 0 . 7 2 8 . 1 3 7 . 7 2 1 0 . 5 6 8 . 3 5 7 . 5 2 9 . 0 5 1976 7 . 0 8 7 . 4 9 8 . 6 4 7 . 0 5 7 . 3 1 9 . 5 7 8 . 0 5 8 . 1 2 9 . 3 7 7 . 19 8 . 9 8 1 4 . 7 0 SOURCE : AGRICULTURE CANADA L IVESTOCK AND MEAT TRADE REPORT N J » * * TABLE B-3 * * * SIMULATEO QUANTITIES OF HOG PRODUCED FARM INCOME ASSURANCE PROGRAM (RESTRICTIONS ON WHAT HOGS QUALIFY FOR THE PROGRAM) THOUSANDS OF HUNDRED WEIGHT JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 1974 6.39 6.77 9.86 7.83 7.44 9.69 7.67 8.27 10.69 10.04 9.03 11.41 1975 9.17 8.23 10.97 8.57 8.23 11.01 8.38 7.94 10.67 8.68 7.85 9.36 1976 7.50 7.86 8.99 7.65 7.54 9.79 8.38 8.43 9.52 7.37 8.63 14.16 M CO * *» TABLE B-4 » * * AGRICULTURAL STABILIZATION ACT FLOOR PRICE FOR HOGS AND PER UNIT FEDERAL SUBSIDY 1964-1976 DOLLARS PER HUNDRED WEIGHT YEAR EOUI. PRICE FLOOR PRICE FED.SUB. 1964 25.3900 1965 34.4900 1966 32.1000 1967 27.6000 1968 30.6600 1969 36.0200 1970 26.9600 1971 25.4900 1972 38.6100 1973 51.7900 1974 48.5700 1975 69.2900 19 76 57.7200 20.6920 0.0300 20.5544 0.0000 21.5168 0.0000 21.9752 0.0000 21.7184 0.0000 21.9312 0.0300 23.1160 0.0000 23.3264 0.0000 23.3864 0.0000 24.2352 0.0000 26.3288 0.0000 45.6656 0.0000 50.7970 0.0000 APPENDIX C RESULTS OF ALTERNATIVE STABILIZATION SCHEMES *** TABLE C 1 *** MARKET EQUILIBRIUM VALUES. MEAN ANO STANDARD OEVIATION OF HQS PRI CES .QUANTITIES OF HOG PRODUCED AND FARMERS INCOME AND REVENUE. VAR. INPUT PRICES $/CWT HOG PRICES S/CWT HOG PRODUCTION TH. CWT TOTAL REVENUE TH. $ GROSS INCOME T H . $ MEAN MEAN STAND. DEV. STANO. DEV. STAND. DEV. (ANNUAL (MONTHLY (MONTHLY BETWEEN (MONTHLY WITHIN ( ANNUAL AVERAGE ) AVERAGE) AVERAGE YEARS I AVERAGE YEARS) AVERAGE) 30.64 12.33 38.43 16.68 85.09 7.09 2.39 23.53 3369.90 1793.46 630.81 526.18 FEDERAL GOVERNMENT TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS. PROV. GOV. TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS AND/OR THE FED. GOV. FARMERS TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM THE PROV. GOV. AND/OR THE FED. GOV. TOTAL PAYMENTS C- I AND/OR RECEIPTS (•!. NET PAYMENTS {-) AND/OR RECEIPTS ( «•) . THOUSANDS OF DOLLARS FEO. GOV. ANNUAL PROGRAM FED. GOV. MONTHLY PROGRAM PROV. GOV. MONTHLY PROGRAM B.C. HOG PRODUCERS 0.000 0.000 0.000 0.000 0.000 0.000 SOURCE : AGRICULTURE CANAOA LIVESTOCK AND MEAT TRADE REPORT.. RESTRICTIONS ON WHAT HOGS OUALIFY FOR THE PROVINCIAL PROGRAM. PRICE OF HOGS BASEO ON HOGS INDEX 100 (DRESSED CARCASS WEIGHT). »** TABLE C 2 *** PRODUCT PRICE SUPPORT PROGRAM. MEAN AND STANDARD OEVIATION OF HOG PRICES, QUANT ITI ES OF HOG PRODUCED AND FARMERS INCOME AND REVENI VAR. INPUT HOG HOG TOTAL GROSS PRICES PRICES PRODUCT ION REVENUE INCOME 4/CWT S/CWT TH. CWT TH. * TH. t MEAN (ANNUAL AVERAGE) 91.36 3755.30 818.08 MEAN I MONTHLY AVERAGE! 30.64 39.59 7.61 STAND. DEV. (MONTHLY AVERAGE 12.33 16.35 BETWEEN YEARS 1 STAND. DEV. (MONTHLY AVERAGE 2.63 WITHIN YEARS) STAND. DEV. (ANNUAL AVERAGEI 25. 10 1979.58 5 12.2* FEDERAL GOVERNMENT TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS. PROV. GOV. TOTAL ANO NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS AND/OR THE FED. GOV. FARMERS TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM THE PROV. GOV. AND/OR THE FED. GOV. TOTAL PAYMENTS (-» NET PAYMENTS (-) AND/OR RECEIPTS ( • ) . AND/OR RECEIPTS («•). THOUSANDS OF DOLLARS FED. GOV. ANNUAL PROGRAM 0.000 FED. GOV. MONTHLY PROGRAM 0.000 PROV. GOV. MONTHLY PROGRAM -2294.748 -1697.753 B.C. HOG PROOUCERS -596.993 1697.753 INCLUDES A SHIFTER PARAMETER OF THE SUPPLY FUNCTION TO ACCOUNT FOR A MORE STABLE ( I F POSITIVE! OR UNSTABLE ( I F NEGATIVEI PRODUCTION ENVIROMENT, DUE TO STABILIZATION EFFORTS. NO FEDERAL STABILIZATION SCHEME INCLUDED. PROVINCIAL SUPPORT LEVEL AT 75.01 OF NET MARGIN OR RETURN DEFICIT. RESTRICTIONS ON WHAT HOGS QUALIFY FOR THE PROVINCIAL PROGRAM. PRODUCER PREMIUM INCLUDED IN ALL MONTHS. PRICE CF HOGS BASED ON HOGS INDEX 100 (DRESSED CARCASS WEIGHT). RETURN DEFICIT USED TO CALCULATE THE FLOOR AND CEILING PRICES FOR H3GS BASED ON INDEX 100 HOG PRICES. * * * TABLE C 3 *** PRODUCT PRICE SUPPORT PROGRAM. MEAN AND STANDARD DEVIATION OF HOG PRICES,OUANTITIES OF HOG PROOUCEO AND FARMERS INCOME ANO REVENUE. VAR. INPUT HOG HOG TOTAL GROSS PRICES PRICES PRODUCTION REVENJE INCOME S/CWT S/CWT T H . CWT T H . * TH. t MEAN I ANNUAL AVERAGE I 9 0 . 5 6 3 6 7 7 . 5 8 7 6 7 . 0 3 MEAN (MONTHLY AVERAGE) 3 0 . 6 4 3 9 . 1 2 7 . 5 5 STAND. DEV . (MONTHLY AVERAGE 1 2 . 3 3 1 6 . 2 6 BETWEEN YEARS) STANO. DEV. (MONTHLY AVERAGE 2 . 6 0 WITHIN YEARS) STAND. DEV. [ANNUAL AVERAGE) 2 4 . 7 3 1 9 3 8 . 2 1 4 9 3 . 1 5 FEDERAL GOVERNMENT TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS. PROV. GOV. TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS AND/OR THE F E D . GOV. FARMERS TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM THE PROV. GOV. AND/OR THE F E D . GOV. TOTAL PAYMENTS (-1 NET PAYMENTS « - ) AND/OR RECEIPTS ( + •• AND/OR RECEIPTS ! • ) . THOUSANDS OF DOLLARS FED. GOV. ANNUAL PROGRAM • 0 . 0 0 0 — F E D . GOV. MONTHLY PROGRAM 0 . 0 0 0 PROV. GOV. MONTHLY PROGRAM - 2 0 1 3 . 8 6 3 - 1 1 2 6 . 6 3 3 B . C . HOG PRODUCERS - 8 8 7 . 2 2 8 1 1 2 6 . 6 3 3 INCLUDES A SHIFTER PARAMETER OF THE SUPPLY FUNCTION TO ACCOUNT FOR A MORE STABLE ( I F POSIT IVEI OR UNSTABLE ( I F NEGATIVE) PRODUCTION ENVIROMENT, DUE TO STABIL IZATION EFFORTS. NO FECERAL STABIL IZATION SCHEME INCLUDED. PROVINCIAL SUPPORT LEVEL AT 100.0% OF NET MARGIN OR RETURN D E F I C I T . RESTRICTIONS ON WHAT HOGS QUALIFY FOR THE PROVINCIAL PROGRAM. PRODUCER PREMIUM INCLUDED IN ALL MONTHS. PRODUCER PREMIUM CHANGED BY 5 0 . O S .COMPARED TO THE 1 9 7 6 FIAP RATE OF S I . 5 PER CWT OF HOG PRODUCED (DRESSED CARCASS) . PRICE CF HOGS BASED ON HOGS INDEX 1 0 0 (DRESSED CARCASS WEIGHT). RETURN DEF IC IT USED TO CALCULATE THE FLOOR AND CEIL ING PRICES FOR HDGS BASED ON INDEX 1 0 3 HOG PR ICES . NET MARGIN CALCULATED AFTER REDUCING THE TOTAL AMOUNT OF FIXED COSTS TO A 8 3 . 0 * OF THE FIAP F IGURES. » » * T A B L E C * * * » P R E M I U M - S U B S I D Y P R O G R A M . MEAN AND S T A N D A R D D E V I A T I O N CF HOG P RI C E S . QU ANT I T I ES O F HOG P R O D U C E D AND F A R M E R S I N C O M E AND R E V E N U E . S T A N D . D E V S T A N D . D E V . S T A N D . D E V . MEAN ( A N N U A L A V E R A G E ! MEAN ( M O N T H L Y A V E R A G E > ( M O N T H L Y A V E R A G E B E T W E E N Y E A R S ) ( M O N T H L Y A V E R A G E W I T H I N Y E A R S ) ( A N N U A L A V E R A G E ) V A R . I N P U T P R I C E S $ /CWT 3 0 . 6 4 1 2 . 3 3 HOG P R I C E S t / C W T 3 9 . 5 4 1 6 . 0 3 HOG PRODUCT ION T H . CWT 9 1 . 2 3 7 . 6 0 2 . 5 9 2 4 . 9 0 T O T A L R E V E N U E TH. i 3 7 4 8 . 1 0 G R O S S INCOME T H . t 1 9 5 7 . 9 9 8 1 7 . 5 3 4 8 0 . 8 3 F E D E R A L G O V E R N M E N T T O T A L AND N E T C O N T R I B U T I O N S T O OR R E C E I P T S FROM F A R M E R S . P R O V . G O V . T O T A L A N D N E T C O N T R I B U T I O N S T O OR R E C E I P T S F R O M F A R M E R S A N D / O R T H E F E D . G O V . F A R M E R S T O T A L AND N E T C O N T R I B U T I O N S TO OR R E C E I P T S FROM T H E P R O V . G O V . A N D / O R T H E F E D . G O V . T O T A L P A Y M E N T S ( - ) A N D / O R R E C E I P T S ( • ! . N E T P A Y M E N T S ( - ) A N D / O R R E C E I P T S ( • ) . T H O U S A N D S O F D O L L A R S F E D . G O V . A N N U A L P R O G R A M F E D . G O V . M O N T H L Y PROGRAM P R O V . G O V . M O N T H L Y P R O G R A M B . C . HOG P R O D U C E R S 0 . 0 0 0 0 . 0 0 0 - 2 2 8 0 . 9 3 0 - 5 9 9 . 3 4 8 - 1 6 8 1 . 5 8 1 1 6 8 1 . 5 8 1 2 . 5 * A B O V E T H E F L O O R P R I C E . I N C L U D E S A S H I F T E R P A R A M E T E R O F T H E S U P P L Y F U N C T I O N T O A C C O U N T FOR A MORE S T A B L E ( I F P O S I T I V E ) OR U N S T A B L E ( I F N E G A T I V E ! P R O D U C T I O N E N V I R O M E N T , DUE T 3 S T A B I L I Z A T I O N E F F O R T S . NO F E D E R A L S T A B I L I Z A T I O N S C H E M E I N C L U D E D . P R O V I N C I A L S U P P O R T L E V E L A T 7 5 . 0 * OF N E T M A R G I N OR R E T U R N D E F I C I T AND C E I L I N G R E S T R I C T I O N S ON WHAT HOGS Q U A L I F Y FOR T H E P R O V I N C I A L P R O G R A M . NO F I X E D P R O D U C E R P R E M I U M I N C L U D E D . P R I C E OF HOGS B A S E D ON HOGS I N D E X 100 ( D R E S S E D C A R C A S S W E I G H T ! . R E T U R N D E F I C I T U S E D T O C A L C U L A T E T H E F L O O R AND C E I L I N G P R I C E S F O R H O G S B A S E D ON I N D E X 1 0 0 HOG P R I C E S . * * * T A B L E C 5 * * * S E L F - F I N A N C I N G P R O D U C T P R I C E S U P P O R T P R O G R A M M E A N AND S T A N D A R D D E V I A T I O N OF HOG P R I C E S , Q U A N T I T I E S OF HOG P R O D U C E D AND F A R M E R S I N C O M E AND R E V E N U E . V A R . I N P U T HOG HOG T O T A L GROSS P R I C E S P R I C E S P R O D U C T I O N R E V E N U E INCOME HCWT J / C W T T H . CWT T H . $ T H . » M E A N ( A N N U A L A V E R A G E I VE A N ( M O N T H L Y A V E R A G E ) S T A N D . D E V . ( M O N T H L Y A V E R A G E B E T W E E N Y E A R S ) S T A N D . D E V . ( M O N T H L Y A V E R A G E W I T H I N Y E A R S ) S T A N C • D E V . ( A N N U A L A V E R A G E ) — — 8 9 . 6 1 3 5 6 3 . 2 3 6 9 2 . 3 6 3 0 . 6 4 3 8 . 4 9 7 . 4 7 1 2 . 3 3 1 5 . 9 1 2 . 5 3 2 4 . 2 5 1 8 4 2 . 3 4 4 2 7 . 4 9 F E D E R A L G O V E R N M E N T T O T A L AND N E T C O N T R I B U T I O N S T O OR R E C E I P T S FROM F A R M E R S . P R O V . G O V . T O T A L AND N E T C O N T R I B U T I O N S T O OR R E C E I P T S F R O M F A R M E R S A N D / O R T H E F E O . G O V . F A R M E R S T O T A L AND N E T C O N T R I B U T I O N S TO OR R E C E I P T S FROM T H E P R O V . G O V . A N D / O R T H E F E O . G O V . T O T A L P A Y M E N T S ( -1 A N D / O R R E C E I P T S ( • ) . N E T P A Y M E N T S ( - 1 A N D / O R R E C E I P T S ( • ) . T H O U S A N D S O F D O L L A R S F E D . G O V . A N N U A L P R O G R A M F E D . G O V . M O N T H L Y P R O G R A M P R O V . G O V . M O N T H L Y P R O G R A M B . C . HOG P R O D U C E R S 0 . 0 0 0 0 . 0 0 0 - 2 2 3 6 . 1 6 0 - 1 9 9 1 . 2 0 1 - 2 4 4 . 9 5 6 2 4 4 . 9 5 6 I N C L U D E S A S H I F T E R P A R A M E T E R O F T H E S U P P L Y F U N C T I O N TO A C C O U N T FOR A MORE S T A B L E ( I F P O S I T I V E ) OR U N S T A B L E ( I F N E G A T I V E ) P R O D U C T I O N E N V I ROME NT < DUE TO S T A B I L I Z A T I O N E F F O R T S . NO F E D E R A L S T A B I L I Z A T I O N S C H E M E I N C L U D E D . P R O V I N C I A L S U P P O R T L E V E L A T 7 5 . 0 % OF N E T M A R G I N OR R E T U R N D E F I C I T . R E S T R I C T I O N S O N W H A T H O G S Q U A L I F Y FOR T H E P R O V I N C I A L P R O G R A M . P R O D U C E R P R E M I U M I N C L U D E D IN A L L M O N T H S . P R I C E OF H O G S B A S E D ON H O G S I N D E X 1 0 0 ( D R E S S E D C A R C A S S W E I G H T ) . R E T U R N D E F I C I T U S E D T O C A L C U L A T E T H E F L O O R AND C E I L I N G P R I C E S FOR HOGS B A S E D ON I N D E X 1 0 0 HOG P R I C E S . S L I D I N G P R E M I U M W I T H F A R M E R S C O N T R I B U T I N G 1 0 0 . 0 * AND T H E P R O V . G O V . 0 . 0 * O F T H E T O T A L P R E M I U M S P A I D . h-1 M * * * T A B L E C 6 • * * S E L F - F I N A N C I N G P R E M I U M - S U B S IOV P R O G R A M . MEAN AND STANDARD DEVIATION OF HOG PRICES t QUANT I TI ES OF HOG PRODUCED ANO FARMERS INCOME AND REVENUE. VAR. INPUT PRICES S/CWT MEAN (ANNUAL AVERAGE) MEAN (MONTHLY AVERAGE) 3 0 . 6 * STAND. DEV. (MONTHLY AVERAGE 1 2 . 3 3 BETWEEN YEARS) STAND. DEV. (MONTHLY AVERAGE WITHIN YEARS) STAND. DEV. (ANNUAL AVERAGE! HOG HOG TOTAL GROSS PRICES PRODUCTION REVENUE INCOME S/CWT TH. CWT TH. S T H . S 8 9 . 1 8 3 5 4 3 . 1 4 6 8 7 . 2 9 3 8 . 3 5 7 . 4 3 1 5 . 5 1 — — 2 . 3 9 2 3 . 8 4 1 8 1 5 . 4 9 4 0 9 . 7 9 FEDERAL GOVERNMENT TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS. PROV. GOV. TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS AND/OR THE FED . GOV. FARMERS TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM THE PROV. GOV. AND/OR THE F E D . GOV. TOTAL PAYMENTS (-) NET PAYMENTS (-) AND/OR RECEIPTS {+). AND/OR RECEIPTS (•) . THOUSANDS OF DOLLARS F E D . GOV. ANNUAL PROGRAM 0 . 0 0 0 F E O . GOV. MONTHLY PROGRAM 0 . 0 0 0 PROV. GOV. MONTHLY PROGRAM - 1 5 8 5 . 0 7 2 - 2 5 4 . 5 1 7 B.C . HOG PROOUCERS - 1 3 3 0 . 5 5 4 2 5 4 . 5 1 7 INCLUDES A SHIFTER PARAMETER OF THE SUPPLY FUNCTION TO ACCOUNT FOR A MORE STABLE ( I F POSIT IVE) OR UNSTABLE ( IF NEGATIVE) PROOUCTION E N V I R O M E N T « DUE TO STABIL IZATION EFFORTS. NO FEDERAL STABIL IZAT ION SCHEME INCLUDED. PROVINCIAL SUPPORT LEVEL AT 7 5 . O S OF NET MARGIN OR RETURN DEFIC IT AND CEIL ING 1 . 5 * ABOVE THE FLOOR PR ICE . RESTRICTIONS ON WHAT HOGS OUALIFY FOR THE PROVINCIAL PROGRAM. SL IDING PREMIUM WITH FARMERS CONTRIBUTING 1 0 0 . 0 % AND THE PROV. GOV. 0 . 0 * OF THE TOTAL PREMIUMS PA ID. NO FIXED PRODUCER PREMIUM INCLUDED. PRICE OF HOGS BASED ON HOGS INOEX 100 (DRESSED CARCASS WEIGHT). RETURN DEF IC IT USED TO CALCULATE THE FLOOR AND CEIL ING PRICES FOR HOGS BASED ON INDEX 1 0 3 HOG PR ICES. NET MARGIN CALCULATED AFTER REDUCING THE TOTAL AMOUNT OF FIXED COSTS TO A 8 5 . 0 * OF THE F IAP F IGURES. APPENDIX D NUMERICAL RESULTS OF SIMULATION RUNS AND ESTIMATED REGRESSION COEFFICIENTS Table D - l Numerical R e s u l t s of Sim u l a t i o n Runs f o r FIAP (1975) Change i n B e h a v i o r a l Parameters (1964-1976) Run Independant V a r i a b l e s Summary Measures Average Absolute R e l a t i v e Net Prov. Hog a Gross V a r i a t i o n V a r i a t i o n Gov.Payouts P r o d u c t i o n a l 14 Income of Income of Income (th of d o l - (th of per year (st.dev i n (Coef. of l a r s per lbs) (th of th of d o l - V a r i a t i o n ) period) d o l l a r s ) l a r s ) 1 0. 00235 -0. 0072 854 547 64 1,707 9,418 2 0. 00235 -0. 0261 854 547 64 1,716 9,418 3 0. 00065 -0. 0072 810 504 62 1,694 9 ,077 4 0. 00065 -0. 0261 810 503 62 1,703 9,077 5 0. 00150 -0. 0134 835 530 63 1,705 9,267 6 0. 00270 -0. 0134 861 552 64 1,712 9 ,470 7 0. 00030 -0. 0134 799 491 61 1,694 8,996 8 0. 00150 -0. 0033 835 531 63 1,699 9 ,267 9 0. 00150 -0. 0300 835 530 63 1,712 9,268 Table D-2 Numerical R e s u l t s of Sim u l a t i o n Runs f o r FIAP (1975) Change i n P o l i c y Parameters (1964-1976) Run Independent V a r i a b l e s Summary Measures Average Absolute R e l a t i v e Net Prov. Hog a 22 Income V a r i a t i o n V a r i a t i o n Gov.Payouts P r o d u c t i o n 24 per year of Income of Income (th of d o l - (th of (th of (Average (Coef. of l a r s per lbs) d o l l a r s ) dev.in t h V a r i a t i o n ) period) of d o l l a r s 1 0. 963 0.963 865 519 60 2 ,215 9,197 2 0. 963 0.787 808 512 63 1,584 9,114 3 0. 787 0.963 818 512 63 1,694 9,134 4 0. 787 0.787 771 508 66 1,183 9,066 5 0. 875 0.875 815 512 63 1,661 9,126 6 1. 000 0.875 854 517 61 2 ,086 9,183 7 0. 750 0. 875 779 508 65 1,271 9,076 8 0. 875 1.000 845 517 61 1,988 9,166 9 0. 875 0.750 785 509 65 1,335 9,087 Table D-3 Estimated Regression C o e f f i c i e n t s of Performance Functions f o r the FIAP (1975) Change i n P o l i c y Parameters (1964-1976) Independant V a r i a b l e s Summary Measures Average Gross A b s o l u t e V a r i a t i o n R e l a t i v e V a r i a t i o n Net Prov. Hog Income Per of Income (sd.dev. of Income Gov.Pay- Pr o d u c t i o n Year i n t h of d o l l a r s ) (Coef.of V a r i a t i o n ) outs (th of (th of d o l l a r s ) (th of lbs) d o l l a r s ) I n t e r c e p t 654.3 602.9 91.9 331.0 9,030.7 22 -167.9 -107.5 -16.5 -2,358.8 -431.7 24 - 1.8 -165.5 -16.5 - 469.1 - 94.6 ) 2 2 ; 88.5 32.1 0.0009 1,091.5 217.1 ) 2 - 7.5 64.2 0.001 3.5 24.6 a a a 2 2 a 2 4 322. 8 96.9 0.0005 3,873.9 484. 3 CO CO R' 0.988 0.997 0.999 0.988 0.978 

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            data-media="{[{embed.selectedMedia}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
https://iiif.library.ubc.ca/presentation/dsp.831.1-0094284/manifest

Comment

Related Items