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

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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 t h e s i s as to the r e q u i r e d  conforming  standard  THE UNIVERSITY OF BRITISH COLUMBIA J u l y , 1978  (c)  Alejandro Palacios,  1978  In p r e s e n t i n g t h i s  thesis  in p a r t i a l  f u l f i l m e n t o f the requirements f o r  an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, the L i b r a r y s h a l l I f u r t h e r agree  make i t f r e e l y a v a i l a b l e  that permission  I agree  that  f o r reference and study.  f o r e x t e n s i v e copying o f t h i s  thesis  f o r s c h o l a r l y purposes may be granted by the Head of my Department or by h i s r e p r e s e n t a t i v e s . of  this  thesis  It  i s understood that copying o r p u b l i c a t i o n  f o r f i n a n c i a l gain s h a l l  not be allowed without my  written permission.  Department o f  AGRICULTURAL ECONOMICS  The U n i v e r s i t y o f B r i t i s h  2075 Wesbrook Place Vancouver, Canada V6T 1W5  AUGUST Date  24, 1978  Columbia  ii ABSTRACT Given the B r i t i s h Columbia Government g o a l of income s t a b i l i t y f o r hog  producers, the major o b j e c t i v e of t h i s  study  was  to estimate the budgetary c o s t to the p r o v i n c i a l government  and  e f f e c t i v e n e s s of the Farm Income Assurance Program  and  a l t e r n a t i v e schemes i n a c h i e v i n g  this  (FIAP)  goal.  To accomplish t h i s o b j e c t i v e , i t was  necessary to b u i l d  a mathematical model i n c o r p o r a t i n g the main f e a t u r e s of  the  B r i t i s h Columbia hog  the  operation  and  i n d u s t r y and  capable of s i m u l a t i n g  consequences of a v a r i e t y 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  a number of d i f f i c u l t i e s .  Overcoming these  r e q u i r e d a combination of economic theory knowledge.  The  t h a t B r i t i s h Columbia hog  production  difficulties  and  b a s i c assumption u n d e r l y i n g  i n d u s t r y posed  empirical__  the hog model  represents  assumption i m p l i e s t h a t B r i t i s h Columbia hog  t r e a t e d as exogenous, implying due  to a s h i f t i n the supply  Thus, hog  t h a t any  s e t of production  This  producers face a p r i c e s could  increase i n  assumptions and  be  production,  f u n c t i o n to the r i g h t , would  absorbed by the market with no e f f e c t on hog  was  a minor  component of the Canadian and North American market.  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 .  y  prices.  be  Later a  d i f f e r e n t a l t e r n a t i v e schemes  designed to s t a b i l i z e producer income were i n c o r p o r a t e d  into  the model. Given t h a t the o b j e c t i v e of t h i s study was determine an optimal  not  to  s t a b i l i z a t i o n program, because of the  lack  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 evaluate  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, s i m u l a t i o n was  chosen as the  research  method. When the mathematical model was  completed i t was  t r a n s l a t e d i n t o the computer model and  the f i r s t step was  to  v a l i d a t e i 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 because  the  FIAP has been i n o p e r a t i o n  s i n c e January  Although the model was g e n e r a l as p o s s i b l e , and was  1974.  b u i l t to be as f l e x i b l e  and  able to handle s e v e r a l 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, t h i s study r e p o r t s r e s u l t s f o r only three of them: (2)  (1)  Farm Income Assurance Program;  M o d i f i e d Farm Income Assurance Program; and  (3) Premium-  Subsidy Scheme. The  a n a l y s i s of the r e s u l t s began with a s i n g l e run  f o r each scheme, i n order to determine i t s e f f e c t s .  Later, a  d e t a i l e d comparative a n a l y s i s t h a t i n v o l v e d changing parameter value  at a time was  undertaken to assess  one  the  c o n t r i b u t i o n of each parameter to the p o l i c y o b j e c t i v e of income s t a b i l i t y . performed and more g e n e r a l  performance f u n c t i o n s were estimated conclusions  To achieve was  F i n a l l y , a s e r i e s of s i m u l a t i o n runs to  was  allow  to be drawn.  income s t a b i l i t y a premium/subsidy scheme  shown to be p r e f e r a b l e to FIAP, because i t c o l l e c t s  premiums i n a s t a b i l i z i n g way.  To the extent  farmer  t h a t reduced  government c o s t i s a g o a l , FIAP can be m o d i f i e d  i n a number  ways, i n c l u d i n g  a sliding  f a r m e r premium.  V  TABLE OF CONTENTS Page ABSTRACT  i i V  TABLE OF CONTENTS L I S T OF TABLES  xi  L I S T OF FIGURES  xiii  ACKNOWLEDGEMENT  xiv  CHAPTER 1 1.1  INTRODUCTION  1  The Hog I n d u s t r y  i n B r i t i s h Columbia  . . . .  1  of Production  . . . .  i  and E n t e r p r i s e S i z e  . . . .  2  1.1.1  Spatial  Distribution  1.1.2  Hog P r o d u c t i o n  1.1.3  B r i t i s h C o l u m b i a ' s Hog P r o d u c t i o n and t h e P r o v i n c i a l M a r k e t  1.2  2  I n s t a b i l i t y i n B r i t i s h Columbia's Hog  Industry  1.3  Problem  1.4  Provincial Hog  3  Statement  4  Government G o a l f o r t h e  Industry  5  1.5  O b j e c t i v e s o f t h e Study  5  1.6  Motivation  7  1.7  Thesis  CHAPTER 2  f o r t h e Study  Guide  8  METHODOLOGY  . . .  9  Studies  9  2.1  Some P r e v i o u s  2.2  R e s e a r c h T e c h n i q u e Used i n t h i s S t u d y  2.3  Methodology  2.3.1  of Simulation  Formulation  o f the Problem  . . . . 12 14 14  vi Page 2.3.2  F o r m u l a t i o n o f the M a t h e m a t i c a l Model  . . .  14  2.3.3  F o r m u l a t i o n o f t h e Computer P r o g r a m  . . . .  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  18  Validation  2.3.5  Model E x p e r i m e n t a t i o n  2.3.6  I n t e r p r e t a t i o n o f the S i m u l a t i o n Output  CHAPTER 3  APPROACHES TO  HOG  18  20  F a r m e r Premium S u b s i d y Scheme on Price  3.1.1  o f S l a u g h t e r Hogs  Product Price  20  Support  21  3.1.1.1  Agricultural  3.1.1.2  B r i t i s h Columbia  Swine  Income A s s u r a n c e  Program  3.1.2 3.2  S u b s i d y on  3.2.2  Gilt THE  22 24 25  t o Feed  Prices  25 25  MATHEMATICAL MODEL  28  Data Used  4.2  Hog  28  P r o d u c t i o n Assumptions  British  4.3.1  21  Retention Subsidy  4.1  The  Act  Producers  Inputs  Subsidies Tied  CHAPTER 4  Stabilization  Premium S u b s i d y Scheme  3.2.1  4.3  19  PRODUCER  INCOME STABILIZATION 3.1  . .  Columbia  Model  .  R e s p o n s e by F a r m e r s t o S t a b i l i z a t i o n Programs  for 28 31  34  vii Page 4.3.1.1  Behavioral Equations  4.3.1.1.1  Change i n Q u a n t i t y o f G i l t s  4.3.1.1.2 4.3.1.2  34  Retained  f o r Breeding  35  Holdover  Function  38  F l o w R e l a t i o n s h i p s and A c c o u n t i n g Identities  4.3.1.2.1  Output of  4.3.1.2.2  4.3.1.2.3  Change f r o m  Additional  Output of  39 Sale  Sows  Change f r o m  40 Offspring  A d d i t i o n a l G i l t s Retained  T o t a l Output  Change R e s u l t i n g  Change i n B r e e d i n g H e r d  41 from  Size  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 o f G i l t s  4.3.1.2.5  Holdover  4.3.1.2.6  Market  4.3.1.3 4.3.2  Market  . . .  Constraint  Supply  42  o f S l a u g h t e r Hogs  . . .  Identity Income  Stabilization  44  Premium S u b s i d y  Scheme  44  4.3.2.1.1  Agricultural  4.3.2.1.2  B r i t i s h Columbia  Swine  Income A s s u r a n c e  Program  4.3.2.2 4.3.3  Input Subsidy  Stabilization  Schemes  Act . . . .  47  . . .  49 50  Summary M e a s u r e s C o m p u t a t i o n  4.3.3.1.1 4.3.3.1.1.1  46  Producers  Summary M e a s u r e s  4.3.3.1  43 43  Schemes f o r Hog P r o d u c e r s  4.3.2.1  42  53  Government Payments F e d e r a l Government Payments  53 . . . .  53  viii Page 4.3.3.1.1.2  Provincial  Government Payments  . . .  55  4.3.3.1.1.2.1  Product Price  Subsidy  55  4.3.3.1.1.2.2  Input Subsidy  56  4.3.3.1.1.2.3  Gilt  56  4.3.3.1.1.2.4  Total  Retention Subsidy Monthly  Provincial  Government Payments 4.3.3.1.2  Producer C o n t r i b u t i o n s  4.3.3.1.3  Net Monthly  57 57  Payments t o o r R e c e i v e d  from Farmers,  by t h e P r o v i n c i a l  Government 4.3.3.1.4  Net Monthly the  58 Farmer C o n t r i b u t i o n s t o  Provincial  Government o r  S u b s i d i e s R e c e i v e d from t h e P r o v i n c i a l or 4.4  F e d e r a l Governments  Model V a l i d a t i o n  4.4.1  Validation  4.4.1.1  61  Procedure  Choosing Parameter  4.4.1.1.1  64 Values  B e h a v i o r a l Parameters  4.4.1.1.1.2  T e c h n i c a l and I d e n t i t y  4.4.1.1.1.3  Policy  4.4.1.2  CHAPTER 5 5.1  64  Response Parameters  4.4.1.1.1.1  64 65 Parameters  .  Parameters  Results of the V a l i d a t i o n  Analytical  Procedure  . .  5.1.2  Performance  73  76  Procedure  Comparing  69 69  THE RESULTS  5.1.1  5.2  60  Effects  76 of Alternative  Functions  Schemes  .  76 77  Outcome o f S i m u l a t e d Hog P r o d u c e r s Income S t a b i l i z a t i o n P r o g r a m s  81  ix Page 5.2.1  E f f e c t s of the B r i t i s h Columbia Producers  5.2.2  Effects  Swine  Income A s s u r a n c e P r o g r a m  of a Modified  British  82  Columbia  Swine Income A s s u r a n c e P r o g r a m 5.2.2.1  Effects  5.2.2.2  Combined E f f e c t s  85 . . . .  86  of Modifications  . . . .  88  5.2.3  E f f e c t s o f a Premium S u b s i d y Scheme  . . . .  90  5.2.4  Self-Financing  . . . .  93  5.3  of Isolated Modifications  Stabilization  Performance F u n c t i o n s  5.3.1  95  Performance F u n c t i o n s t o Assess Modifications  5.3.1.1  t o FIAP  Change i n P o l i c y  (1975)  Summary M e a s u r e  5.3.1.1.2  Sensitivity Analysis  5.3.1.1.3  Break-even P o i n t s  5.3.2  Comparison  CHAPTER 6  97 97 100  o f Performance  Function  from A c t u a l  Runs  the Model  100  CONCLUSIONS  6.1  Methodological Aspects  6.2  C o n c l u s i o n s Drawn f r o m t h e Analysis  L I S T OF  95  Estimation  Estimates with Results of  95  Parameters  5.3.1.1.1  6.3  Schemes  of the A l t e r n a t i v e  103 10 3 Comparative Stabilization  Schemes  107  E x t e n s i o n s o f t h e Model  109  REFERENCES  APPENDICES  110 115  X  Page Appendix A  Calculation Used  Appendix B  of Cost  Figures  i n the A n a l y s i s  Model V a l i d a t i o n :  Real  115 and  Simulated  Q u a n t i t i e s o f Hogs P r o d u c e d u n d e r FIAP Appendix C  Results of Alternative S t a b i l i z a t i o n Schemes  Appendix D  . 121  125  Numerical Results of Simulation and E s t i m a t e d  Regression  Runs  Coefficients.  . 131  xi LIST OF TABLES Page Table 4.1  Values o f the Parameters  Table 5.1  Estimated E f f e c t s of FIAP  70 (1975),  1964-1976 Table 5.2  84  Estimated E f f e c t s of  Proposed  M o d i f i e d FIAP, 1964-1976 Table 5.3  89  Comparative E f f e c t s of a Premium Subsidy Scheme, 1964-1976  Table 5.4  Comparative E f f e c t s of FIAP FIAP  92 (1975)and  (1975) w i t h S l i d i n g Premium,  1964-1976 Table 5.5  94  Gross Income, Absolute and  Relative  V a r i a t i o n of Income, Prov.  Gov.  Budgetary  Cost and Hog  Production  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^  2  2  a  Table 5.6  4  and  9  9  Comparison of Performance F u n c t i o n s E s t i m a t e s w i t h R e s u l t s from A c t u a l Runs of  Table A - l  the Model  P r i c e of Feed Needed to Produce One of Hog  Table A-2  Dressed C a r c a s s , 1964-1976  118  cwt of Hog Dressed Carcass  . .  119  cwt of Hog  Dressed Carcass  120  Simulated F l o o r P r i c e f o r Hogs, FIAP  Table B-2  . . . .  P r i c e of T o t a l Inputs Needed to Produce One  Table B - l  cwt  P r i c e of A l l V a r i a b l e Inputs Needed to Produce One  Table A-3  101  (1974-1976)  121  Q u a n t i t i e s o f Hog Produced Under FIAP  (1974-1976)  122  xii Page T a b l e B-3  Simulated  Q u a n t i t i e s o f Hog P r o d u c e d  under FIAP, T a b l e B-4  Agricultural Price  Table C - l  123  Stabilization  f o r Hogs  Act Floor  (1964-1976)  124  Summary M e a s u r e s , M a r k e t E q u i l i b r i u m Values,  T a b l e C-2  (1974-1976)  (1964-1976)  Summary M e a s u r e s ,  . .  FIAP  125 (1975) ,  (1964-  1976) T a b l e C-3  126  Summary M e a s u r e s , M o d i f i e d  FIAP,  (1964-1976) T a b l e C-4  Summary M e a s u r e s , Premium S u b s i d y Program,  T a b l e C-5  (1964-1976)  Summary M e a s u r e s , Price  T a b l e C-6  127  S u b s i d y Program, T a b l e D-1  S e l f - F i n a n c i n g Product  S u p p o r t Program,  Summary M e a s u r e s ,  128  (1964-1976)  . . .  S e l f - F i n a n c i n g Premium (1964-1976)  130  N u m e r i c a l R e s u l t s o f S i m u l a t i o n Runs f o r FIAP  ( 1 9 7 5 ) , (1964-1976); Change i n  B e h a v i o r a l Parameters T a b l e D-2  131  N u m e r i c a l R e s u l t s o f S i m u l a t i o n Runs f o r FIAP  (1975),  Policy T a b l e D-3  129  (1964-1976); Change i n  Parameters  Estimated  132  Regression C o e f f i c i e n t s of  Performance Functions  f o r FIAP  (1975);  (1964-1976); Change i n P o l i c y Parameters  133  xiii L I S T OF FIGURES Page Figure  3.1  S c h e m a t i c o f Premium S u b s i d y Scheme  Figure  4.1  Flow Diagram o f S i m u l a t i o n Model  Figure  4.2  Model V a l i d a t i o n  26 . . . .  33 74  xiv ACKNOWLEDGEMENTS  I would l i k e  t o t h a n k my  Kennedy and t h e members o f my Richard their  Barichello  T h e s i s Committee,  and P r o f e s s o r R i c h a r d M.  numerous s u g g e s t i o n s  improvements  advisor, Professor  in this  which l e d t o  thesis.  George Professor  Beames, f o r  substantial  1 Chapter  1  INTRODUCTION  In t h i s British  C o l u m b i a hog  perspective and is  chapter  t h e p r o b l e m a t hand. study  are  The  Hog  minor r o l e  Industry  to put  L a t e r the problem d i s c u s s e d , and  1975,  as  in British  C o l u m b i a ' s hog  the in statement  a thesis  guide  of the  total  total  farm cash  plays  for only  number s l a u g h t e r e d 1.3  a  C a n a d i a n hog  s w i n e production"'" a c c o u n t e d  percent  the  Columbia  production  a component o f t o t a l  Canada, Meat T r a d e R e p o r t ) and of  of  provided.  British  0.9  i n d u s t r y are presented  o b j e c t i v e s of the  1.1  In  t h e main c h a r a c t e r i s t i c s  percent  r e c e i p t s f r o m hog  relatively production.  6 8,692 head  i n Canada  or  (Agric.  ($11.6 m i l l i o n )  operations  (Stat.  Canada, Farm C a s h R e c e i p t s ) . Hog British  production  also represents  Columbia's t o t a l  farm cash  r e c e i p t s f r o m hog  percent  of t o t a l  and  percent  4.3  products  agricultural  farm cash o f the  operations  a small proportion production.  contributed only  r e c e i p t s from farming  t o t a l value  In  of l i v e s t o c k  of  1975, 2.9  operations and  livestock  ( S t a t . C a n a d a , Farm C a s h R e c e i p t s ) .  1.1.1 British  Spatial Distribution C o l u m b i a ' s hog  of  Production  production  i s highly  concentrated  " ^ " P r o d u c t i o n " as u s e d h e r e r e f e r s t o t o t a l number o f head slaughtered i n f e d e r a l or p r o v i n c i a l l y inspected p l a n t s i n B r i t i s h C o l u m b i a and A l b e r t a ; i t d o e s n o t i n c l u d e s l a u g h t e r i n n o n - i n s p e c t e d p l a n t s , farm k i l l or e x p o r t s .  2 in  t h e F r a s e r V a l l e y and  three other areas:  t h e Peace R i v e r and V a n c o u v e r marketed  i n 1975,  ( 9 % ) , t h e Peace R i v e r  I s l a n d 5,707  (8%).  I s l a n d have  climb  i n number o f hogs m a r k e t e d ,  trend  and t h e Peace Annual 1.1.2  Hog  ranging 0.8  percent at  Production  shown a  years,  steady  decreasing (Agric.  according  and E n t e r p r i s e S i z e  t o the A g r i c u l t u r a l  o f the t o t a l ) 500.  of the t o t a l  50 hogs  Census  in British  holding p i g stocks  number o f hog p r o d u c e r s  a n n u a l l y ) , produce  number o f hogs m a r k e t e d o r 50.5  35.8  percent  (i.e.,  (Stat. Columbia  ( o f a l l ages)  Twenty-three farmers  o f a l l c o m m e r c i a l hog p r o d u c e r s  least  three  River region small fluctuations  from 1 to over  percent  (9%) and  t h e Okanagan a  (1971)) t h e r e were 2,729 f a r m e r s  (14.8 p e r c e n t  (70%),  Reports).  I n 1971, Canada,  5,919  Throughout the l a s t  t h e F r a s e r V a l l e y and V a n c o u v e r  Canada,  Out o f 6 8,692 hogs  t h e F r a s e r V a l l e y p r o d u c e d 47,334  t h e Okanagan 6,157 Vancouver  Island.  t h e Okanagan,  representing and  15.2  those  percent  who  of the  o f commercial  sell total  hog  production. 1.1.3  B r i t i s h C o l u m b i a ' s Hog P r o v i n c i a l Market  British estimated head  t o be  143.3  million  p r o d u c t i o n was  ( A g r i c . Canada,  of approximately  the  p o r k c o n s u m p t i o n f o r 1974  (Dec. 1976))  o n l y 13.09  while  million  Meat T r a d e R e p o r t ) .  130 m i l l i o n  and  pounds o r a p p r o x i m a t e l y  (B.C. M i n i s t r y o f A g r i c ,  provincial head  Columbia's t o t a l  Production  890,000  the  pounds o r 82,000  Therefore,  pounds o c c u r r e d .  was  I f the  a  deficit British  3 Columbia average per (1974) i s u s e d as  c a p i t a consumption of pork of  a r e f e r e n c e , then  B r i t i s h C o l u m b i a ' s hog of  5.2  pounds p e r  average l e v e l 1.2  c a p i t a , or  of pork  Instability Hog  production cycles and  production  1971-76,  c o n t r i b u t e d an  percent  average  of the B r i t i s h  i n B r i t i s h C o l u m b i a ' s Hog in British  e l s e w h e r e , has  have been a n a l y s e d  the U n i t e d  Boswell  and  Production  States  i n a number o f  unlike  are w e l l  studies  Kulshr.eshta) .  given  i n West e t a l  Throughout the hog  slaughter  1971  and  recognized  (West e t a l  A review  thirteen  years  of  100  hogs) r o s e  per  cwt  f r o m $39.18 p e r  cwt  i n J a n u a r y 1973  i n production  typical  inelastic  characterize  fell  ( A g r i c . C a n a d a , Meat T r a d e  i n d u s t r y but  relatively  of  prices  then  agricultural  i s not  of a g r i c u l t u r e .  supply  and  they  hogs  (Calgary,  index to  t o $44.89 p e r  $82.35 cwt  in  in  the  Report). only  inherent  Because o f  demand f u n c t i o n s  products,  for  ( A g r i c . C a n a d a , Meat  hog  and  commercial  t o 76,799 i n  Slaughter  Instability  cycles  fluctuated widely;  Major v a r i a t i o n s i n market p r i c e  i n September 1975  November 1976  the  (1964-1976),  went f r o m 32,566 head i n 1965  have a l s o o c c u r r e d .  hog  last  b a c k down t o 46,304 i n 1973  Trade Report).  price  (1974), C h a p t e r I I .  i n B r i t i s h C o l u m b i a has  example p r o d u c t i o n  hog and  t h e o r i e s w h i c h have been a d v a n c e d t o e x p l a i n t h e hog is  Columbia  Industry  Columbia, not  been u n s t a b l e .  Canada and  (19 74) ; P e t r i e ;  only  the p e r i o d  lbs.  consumption.  production  i n both  8.7  over  59.8  the  that  g e n e r a l l y show  4 greater  price  fluctuations  (Tweeten e t a l ) .  On  the  t h a n do  supply  non-agricultural  side, b i o l o g i c a l  goods  factors  i n c l u d i n g weather, d o m e s t i c government p o l i c i e s ,  and  farmers' e x p e c t a t i o n s are  sources  likely  instability.  On  the  demand can  an  important  be  Other f a c t o r s the of  hog  industry  inputs  demand s i d e ,  that  include  occurred.  1973  to  For  to  quantities instability  prices  $9.04 p e r  Industry Price p r o d u c t and  i n input increase,  The instability  for British  prices. and  f r o m 177.0  in  Prices  i n some also  in  (hourly  January  rose  cwt  f r o m $3.77 p e r  i n November 1974,  input  cwt  in  and  then  ( S t a t . Canada, P r i c e  Indexes).  Fluctuations  prices  and  C o l u m b i a n hog  and  Price  in  fluctuations  a problem of  Price  in  income  producers.  Statement  study i s concerned w i t h the w h i c h has  producers.  detrimental  instability  ( S t a t . C a n a d a , Farm I n p u t  p r o d u c e d have c r e a t e d  Problem  to  Wage I n d e x f o r f a r m l a b o r  $7.53 i n November 1976  agricultural  hog  to  international  ( a l t h o u g h m a i n l y upwards) have  334.3 i n December 1976  I n d e x e s and  1.3  variations  in  of  instability.  have c o n t r i b u t e d  f o r W e s t e r n Canada i n c r e a s e d  November 1972 fell  source of  example, t h e  Index); ground b a r l e y  important  fluctuations  have shown a t e n d e n c y t o  c a s e s wide f l u c t u a t i o n s  rated)  t o be  changing  Income i n s t a b i l i t y  e f f e c t s on  welfare effects,  traditionally  farm  family  fluctuations  problem of  faced can  be  British expected  welfare.  In  income Columbia to  have  addition  i n g r o s s income can  lead  to  to  5 difficulties to over hog  i n production  or under investment  production.  level  a f f e c t s not  industries. farm l e v e l  In  only producer  food  The  introduced  and  t h a t has given  Consequently, the  production  i n hog  to producers For  attempt  (Hudson, B.C. the purpose of  refers  only  f o r hog  farm  f o r the  Hog  the  consumers.  Industry  c h a r a c t e r i z e d the rise  at  producers  i n d u s t r i e s and  British  t o a government g o a l  provincial  to provide  study,  to avoiding excessive  income, where g r o s s  in  food  of  government Income  income  M i n i s t r y of A g r i c u l t u r e this  due  a t the  production  t h e B r i t i s h C o l u m b i a Swine P r o d u c e r s  A s s u r a n c e P r o g r a m i n an  stability  packing  Government G o a l  i n d u s t r y has  i t .  instability  t h r o u g h t h e p r o c e s s i n g and  instability  C o l u m b i a hog  inefficiencies  incomes b u t u l t i m a t e l y  summary, s t a b i l i t y  Provincial  reducing  i n hog  i s a r e l e v a n t matter not  a l s o f o r the  1.4  and  t h a t generate  Instability  consumers, t r a n s m i t t e d  but  planning  the g o a l of  stability (1964)). income  fluctuations in  gross  income i s c a l c u l a t e d t h r o u g h m u l t i p l y i n g  2 gross margin 1.5  by  total  hog  O b j e c t i v e s of the Given  Study  t h e p r o b l e m o f income i n s t a b i l i t y  above, t h e p r o v i n c i a l alleviating  production.  i t .  described  g o v e r n m e n t i s i n t e r e s t e d i n ways o f  However, s i n c e f e d e r a l p r o g r a m s a l s o  exist  2 G r o s s m a r g i n i n t h i s s t u d y r e f e r s t o t h e 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 detailed d e s c r i p t i o n o f 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 f o u n d i n A p p e n d i x A.  6 to  meet t h e same o b j e c t i v e , t h e p r o v i n c i a l  be v i e w e d them. an  in isolation  The  and  the study needs t o account  o b j e c t i v e s of t h i s  internally  s t u d y a r e to:.  used  to determine  effectiveness of alternative (b) i l l u s t r a t e  how  stabilization  t h i s model c a n be  the B r i t i s h sufficient (1)  Columbian  hog  flexibility  the i n c l u s i o n  industry  and  use  decision the  to  indicate  direction  of  the  t o government  efforts.  able to determine of parameter  the consequences combinations,  of a  and  I n c l u d e m e a s u r e s t o summarize t h e outcome o f each  In  should:  by  of parameters  stabilization  c)  model  with  of d i f f e r e n t  responsiveness of farmers  variety  and  and  t h e m a g n i t u d e and  Be  and  features of  ("policy parameters")  government, (2)  The  hog  to allow f o r  the implementation rules  for  develop  schemes;  used.  not  Columbia  the c o s t  I n c o r p o r a t e t h e more i m p o r t a n t  b)  (a)  c o n s i s t e n t model o f t h e B r i t i s h  i n d u s t r y w h i c h c a n be  a)  programs can  s e t of parameter  summary, t h e o b j e c t i v e  a mathematical  the B r i t i s h  Columbia  and  alternative  1.  What l e v e l  of t h i s  study  i s to  build  model t o answer q u e s t i o n s r e l a t e d  Swine P r o d u c e r s  schemes. and  combinations.  Questions  Income A s s u r a n c e include:  v a r i a n c e o f p r o d u c e r s ' income c a n  be  to  Program  7 expected t o r e s u l t ? 2.  What i s the budgetary c o s t t o the government  and t o hog  producers? 3.  What are the e f f e c t s on q u a n t i t i e s o f hogs produced?  1.6  M o t i v a t i o n f o r the Study Although hog p r o d u c t i o n 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 s e c t o r , given a l a r g e d e f i c i t o f domestic p r o d u c t i o n 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  p r o d u c t i o n as having much p o t e n t i a l f o r growth of A g r i c .  (1977), (1976) and ( D e c , 1 9 7 6 ) ) .  the B r i t i s h Columbia government  3  (B.C. M i n i s t r y Furthermore,  has spent approximately  $800,000 i n i n d e m n i t i e s t o hog producers on the f i r s t years  three  (1974-1976) o f the B r i t i s h Columbia Swine Producers  Income Assurance Program and i s i n t e r e s t e d i n e v a l u a t i n g i t s effectiveness. F i n a l l y , given a government  g o a l o f income  f o r B r i t i s h Columbia hog p r o d u c e r s , the government  stability requires  i n f o r m a t i o n r e g a r d i n g the consequences o f a l t e r n a t i v e methods of a c h i e v i n g i t .  T h e r e f o r e , the prime m o t i v a t i o n f o r t h i s  study i s t o p r o v i d e t h i s i n f o r m a t i o n so t h a t more informed p o l i c y d e c i s i o n s can be made.  Some p o s s i b l e  alternative  schemes which c o u l d be used i n an attempt t o achieve income 3 From an economic p o i n t o f view, t h i s does not n e c e s s a r i l y f o l l o w because the p o s s i b i l i t i e s o f expansion of the hog i n d u s t r y i n B.C. w i l l depend upon i t s economic comparative advantages w i t h i n the B.C. a g r i c u l t u r a l s e c t o r .  8 stability 1.7  are b r i e f l y  Thesis  3.  has b e e n d i v i d e d  into  s i x chapters.  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  s t u d y and Chapter  i n Chapter  Guide  This thesis Chapter  described  d i s c u s s e s the reasons  f o r choosing  I I I d e s c r i b e s b o t h c u r r e n t and  used  i n the  simulation.  alternative  aimed a t r e d u c i n g income i n s t a b i l i t y  facing  Chapter  IV o u t l i n e s  model t h a t r e p r e s e n t s  the  industry  hog  the mathematical  (at the farm l e v e l )  in British  a l s o d i s c u s s e s t h e d a t a u s e d , makes e x p l i c i t assumptions the  on w h i c h  model v a l i d a t i o n  the a n a l y s i s procedure.  r e s u l t s of the d i f f e r e n t  i s based,  producers.  Columbia.  It  the p r o d u c t i o n and d e s c r i b e s  Chapter V p r e s e n t s the  stabilization  VI p r e s e n t s t h e c o n c l u s i o n s w h i c h  hog  schemes  schemes and  c a n be  Chapter  drawn f r o m t h e  study.  9 Chapter  2  METHODOLOGY  Given  the o b j e c t i v e s of t h i s  question arises  study  as t o what m e t h o d o l o g y  s t a t e d above,  s h o u l d be  used.  provide  i n f o r m a t i o n t o h e l p answer t h i s  question,  chapter  begins  of  by  giving  a brief  s t u d i e s which are r e l e v a n t . methodological choosing  2.1  steps  Zwart, e t a l the  the North  (19 74)  ...which... excess  b a s e d on  under the  a spatial  page 2 0 ) .  i t describes  supply  excess  and  and  Using  temporal quadratic  indirect welfare supply  " a l s o i n c l u d e s the  stocks  for the  proposed a methodology f o r  American pork s e c t o r .  of areas  Finally,  reasons  o f changes i n government o r  t h e model m a x i m i z e d a t o t a l sum  the  the  Studies  effects  agency p o l i c i e s  approach.  this  i n v o l v e d i n i t s use.  Some P r e v i o u s  evaluating  presents  To  some p r e v i o u s  Later i t introduces  a p p r o a c h u s e d and  the p a r t i c u l a r  necessary  review  the  net  and  marketing  model  of  programming,  f u n c t i o n or  demand  schedules"  summed a r e a u n d e r  demand s c h e d u l e " ( Z w a r t  "the  the  et a l  T h i s i m p l i e s t h a t t h e model assumes t h a t t h e  (1974), North  A m e r i c a n p o r k m a r k e t b e h a v e s i n a c o m p e t i t i v e manner between regions. over  The  m o d e l was  v a l i d a t e d by  a forty-one quarter period  showed t h a t i t was  running  i t recursively  (1963-1973) and  able to simulate  events  the  results  i n the pork  sector  10 very  closely The  in  over  this  m e t h o d o l o g y employed  e v a l u a t i n g the  policies and  i f the major concern  i s to incorporate  However, i t must be  approach r e l i e s  on  two  t h a t the  "total  clearly  and  recognized that  manner between  the  regions  g o a l o f p o l i c y makers i s t o m a x i m i z e t h e s o - c a l l e d  indirect  welfare  H e d l e y and  function."  Cushon p r o p o s e d a d i f f e r e n t  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  t h e hog  i n d u s t r y i n Canada.  equations  (one  (and  for Eastern  one.  relatively  alternatives for  T h e i r model i s a  dynamic, d e t e r m i n i s t i c , econometric supply  supply  b a s i c assumptions:  pork market behaves i n a c o m p e t i t i v e and  intertemporal  c o n s i d e r a t i o n s , i n c l u d i n g the  demand f o r s t o c k s . this  i n t h i s model a p p e a r s u s e f u l  dynamic i m p a c t s o f a change i n g o v e r n m e n t  interregional  that  period.  non-optimizing,  I t includes  Canada and  one  two  f o r Western  4  Canada) t h a t f o l l o w s t h e N e r l o v e is  specification.  c o m p l e t e d by  three other  equations  three equations  i n c l u d e one  demand e q u a t i o n  consumption  i n Canada and  E a s t e r n Canada and specified equalled closing  one  model  identity.  The  f o r pork  s t o c k demand f u n c t i o n s  f o r Western Canada).  The  (one  for  identity  t h a t c u r r e n t p e r i o d c o n s u m p t i o n demand i n Canada c u r r e n t p e r i o d s u p p l i e s plus opening  s t o c k s minus e x p o r t s  model was evaluate  one  two  and  The  used t o s i m u l a t e their  plus imports.  different  stocks  The  minus  specified  stabilization  plans  to  results.  4  F o r a d e t a i l e d d e s c r i p t i o n see Marc N e r l o v e , The D y n a m i c s 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  a l t h o u g h a t an  Tweeten p o s t u l a t e d a s i m i l a r  aggregate  g o v e r n m e n t p r o g r a m s on use  level,  characterized  t o e v a l u a t e the e f f e c t  agricultural  i n the U n i t e d S t a t e s .  model,  efficiency  T h e i r model c a n  as b e i n g d e t e r m i n i s t i c ,  and  also  of  resource  be  non-optimizing  and  dynamic. A slightly used  by  United can  Candler  d i f f e r e n t methodological  and  Kennedy.  They d e v e l o p e d  carry-over  effects  and  t o t h e ones i n H e d l e y t h a t the  relationships econometric  time and  specified  and  lags.  and  C u s h o n , and equations  t h a t the equations  relationships;  does n o t a t t e m p t  time;  used  a goal of p r i c e  (1)  and  technique  exact behavior  (3) n o n - o p t i m i z i n g ,  because i t  r e p r e s e n t the  The real  t o e v a l u a t e a l t e r n a t i v e methods o f a c h i e v i n g stability  f o r hog-pork p r i c e s .  knowledge o f t h e o b j e c t i v e f u n c t i o n o f p o l i c y s i m u l a t i o n was  be  deterministic,  a r e assumed t o be  to adequately  exact  using  t o m a x i m i z e an o b j e c t i v e f u n c t i o n .  m o d e l , assumed  s y s t e m , was  Tweeten,  (2) d y n a m i c , s i n c e i t t r a c e s t h e  the market over  developed  and  I n summary, t h e model c a n  in  sense  Tyner  t h e r e f o r e are not estimated  techniques.  that  also incorporate  a r e assumed t o be  three basic properties:  of  a model f o r t h e  T h e i r model i s s i m i l a r  d e s c r i b e d by the  been  S t a t e s h o g - p o r k s y s t e m as a s e r i e s o f e q u a t i o n s  r e p r e s e n t a l o n g p e r i o d o f time  except  a p p r o a c h has  used  because  Lacking makers,  " i tis a relatively  for studying non-optimizing  problems"  convenient (Candler  and  12 Kennedy, page 8 ) .  This  Agarwala to evaluate egg  market i n the An  a p p r o a c h was  a l s o used  different stabilization  United  extensive  simulation  type of  Kingdom d u r i n g  literature  the  review of  by  policies period  in  the  1958-68.  the  use  of  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  in  Anderson. 2.2  R e s e a r c h T e c h n i q u e Used i n t h i s From t h e  of evaluating the  British  previous  i t follows  that  different alternative stabilization  C o l u m b i a hog  m a t h e m a t i c a l programming use  discussion  Study  industry and  can  computer  of mathematical o p t i m i z a t i o n  be  problem  schemes f o r  analyzed  by  simulation.  techniques  the  both  In  implies  general,  a  high  degree o f knowledge about p o l i c y makers' o b j e c t i v e  function  and  and  n o r m a l l y more, s o p h i s t i c a t e d m o d e l l i n g  Kennedy; O r c u t t ; does n o t better  not  necessitate  an  Simulation,  "optimal  on  the  other  effects  t o say  this kind  (Candler  and  Kennedy; T y n e r e t a l ) .  (Zwart e t a l  (1974)), only  i n v o l v e more cumbrous m o d e l s .  Therefore,  objective  t o d e t e r m i n e an  of  this  study  i s not  program  the  f u n c t i o n of p o l i c y makers), but  objective costs  schemes i m p l i e d  and by  (because o f  e f f e c t s of  the  given  stabilization  evaluate  and  t h a t m a t h e m a t i c a l programming c a n n o t  of problem  hand,  solution"; also, i t i s  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  recursive is  Tyner e t a l ) .  (Candler  This  handle  that  i t would  that  the  optimal  l a c k o f knowledge  alternative  rather  of  to  stabilization  a c e r t a i n s e t of assumptions,  simulation  13 seems a p p r o p r i a t e . "if...then" a certain are the  statements;  or and i f  program i s i n o p e r a t i o n , then  these  results.  d e f i n e d as:  experiments describe  "A  according to Naylor  ( ( 1 9 7 1 ) , page 2 ) ,  numerical  for  with certain  the b e h a v i o r  computer o v e r In is  for conditional  i f a set of c o n d i t i o n s holds  stabilization  Simulation, be  Simulation allows  technique  types  o f a complex s y s t e m on  technique  models which  a  digital  time."  summary, s i m u l a t i o n w i l l  a convenient  conducting  of mathematical  e x t e n d e d period's o f  can  be  used  for studying a  mainly  because i t  non-optimizing  problem. The  model t h a t w i l l  income s t a b i l i z a t i o n  the  i t will sense  Within  It  I t has  suited  has  system  s y s t e m s has  dynamic, i n over-time.  dynamic m o d e l s , i t i s or  deterministic  p r o d u c t i o n depends h e a v i l y  market f o r c e s ,  the  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  been s u g g e s t e d  page 1 3 ) .  a l s o be  the b e h a v i o r o f the  m e t e o r o l o g i c a l and  too  that "stochasticity  s e l d o m been i n c l u d e d by  Despite this c r i t i c i s m ,  deterministic  approach,  a  a l r e a d y been e s t a b l i s h e d  It will  Considering that agricultural  different  d e s c r i b e d as b e i n g o f  t o c h o o s e between a s t o c h a s t i c  on b i o l o g i c a l , best  type.  non-optimizing.  of tracing  to simulate  the group of n o n - o p t i m i z i n g ,  necessary one.  be  used  schemes c a n be  symbolic, mathematical that  be  this  in  nature.  agricultural  simulators" study w i l l  not because i t simply  models  (Anderson, take  ignores  a  the  14 "uncertainty the  principle  e m p h a s i s i s on  alternative  of modelling"  assessing  sets of values  t h a n e x p l a i n i n g what has happen  (Agarwala).  increased  the  because  consequences i m p l i e d  by  of decision v a r i a b l e s , rather  happened o r  Given t h i s  complexity  (Anderson), but  will  o b j e c t i v e , avoidance of  which the  v a r i a b l e s would n e c e s s i t a t e  f o r e c a s t i n g what  i n c l u s i o n of  the  stochastic  i s thought to outweigh the  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  provide  added  (Naylor,  1971).  2.3  in  Methodology of  the  In  this  use  of  Simulation  section a brief simulation  as  More d e t a i l e d d i s c u s s i o n s Naylor  et a l  (1968) and  2.3.1 As  formulation simulation be  of  can  of  scienfitic  the  the  the  steps  a n a l y s i s are  found  i n Naylor  involved given.  (1971) ,  Problem  study, t h i s  In the  the  step  involves a clear  o b j e c t i v e s p u r s u e d by  present  e f f e c t s on  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 hog  be  p r o b l e m and  technique.  used to assess  a t o o l of  the  Anderson.  Formulation  i n any  summary o f  case,  simulation  the  will  relevant policy variables  schemes f o r B r i t i s h  Columbia  producers. 2.3.2  Formulation  Once t h e system of features  of  objectives of  i n t e r e s t i s studied and  components.  the Mathematical simulation to d e t e c t  Next i s the  m a t h e m a t i c a l m o d e l , w h i c h i s an  are  Model stated,  i t s more  formulation  abstracted  or  the  important of  a  simplified  15  v e r s i o n of the r e a l system i n c o r p o r a t i n g considered  those  features  to be s i g n i f i c a n t f o r the q u e s t i o n s a t hand.  model has the advantage of a l l o w i n g which would be impossible r e a l system.  the researcher  A  manipulations  or too expensive to perform on the  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 n e c e s s i t y of p u t t i n g them i n t o e f f e c t (Shubik; Candler and Kennedy; Naylor  (1971)). An important c o n s i d e r a t i o n  i n the f o r m u l a t i o n  the mathematical model i s the choice included  in i t .  In g e n e r a l ,  of  of v a r i a b l e s t o be  the endogenous v a r i a b l e s , once  s e l e c t e d , are not c r u c i a l s i n c e they are determined as a f i n a l r e s u l t of the experiment. parameters"  (Naylor,  because there  (1971)) must be more c a r e f u l l y s e l e c t e d  e x i s t s a t r a d e - o f f between r e a l i s m and compu-  t a t i o n procedures. realistic  Exogenous v a r i a b l e s and " p o l i c y  A model can u s u a l l y be made more  by i n c o r p o r a t i n g more exogenous v a r i a b l e s and more  u s e f u l by i n c o r p o r a t i n g more p o l i c y parameters.  In both  cases, however, the i n c l u s i o n of a d d i t i o n a l v a r i a b l e s  will  l i k e l y make the model more d i f f i c u l t to compute and manipulate. In g e n e r a l ,  when f o r m u l a t i n g  i s to c o n s t r u c t  a mathematical,model the i n t e r e s t  one t h a t produces reasonable  descriptions  or p r e d i c t i o n s about the behavior of the r e a l system w h i l e m i n i m i z i n g computational and programming time  (Naylor,  (1971)). A c c o r d i n g to Naylor  ((1971), page 41), a mathematical  16 model o f an e c o n o m i c s y s t e m s h o u l d variables, 1)  and f u n c t i o n a l  Components: influence are  2)  making u n i t s ,  points  indicates,  are elements  c a n assume d i f f e r e n t v a l u e s a t of observation.  They may  classified  as e n d o g e n o u s , e x o g e n o u s , s t a t u s  and  (or d e c i s i o n )  policy  Exogenous v a r i a b l e s  or independent v a r i a b l e s  m o d e l l e d , and a r e e n t e r e d Their  values are held  may  the system.  being  i n t h e model as p a r a m e t e r s .  constant  i n each  simulation  The p r i c e e l a s t i c i t y " o f  Policy variables, those that  run,  by  system e x i s t s .  s u c h as a f l o o r p r i c e  f o r hogs, a r e  c a n be m a n i p u l a t e d . variables  whose v a l u e s a r e d e t e r m i n e d w i t h i n  variables  (Naylor,  endogenous v a r i a b l e  (1971)).  are those  t h e model as a  o f t h e i n t e r a c t i o n o f exogenous  production.  demand, f o r  t o have a v a l u e p r e d e t e r m i n e d  Endogenous v a r i a b l e s o r i n p u t  policy)  are those  the system  environment i n which the modelled  result  variables,  be c h a n g e d between r u n s t o a s s e s s t h e i r e f f e c t s  example, i s assumed the  be  variables.  whose v a l u e s a r e d e t e r m i n e d o u t s i d e  on  to  I n t h i s s t u d y , t h e components  a s t h e name i t s e l f  t h e model t h a t  different  but  able  hog p r o d u c e r s and g o v e r n m e n t s .  Variables: in  components,  relationships.  are the d e c i s i o n  the system.  include:  (including  An example o f an  i n t h i s s t u d y ' s model i s t o t a l  hog  17 Status v a r i a b l e s are a subset of the output  variables  and d e s c r i b e the p r o p e r t i e s of some component of the model a t some s p e c i f i c p o i n t of time. 3)  Functional relationships:  include i d e n t i t i e s  and  b e h a v i o r a l equations t h a t r e l a t e the components and v a r i a b l e s of the system.  In other words, f u n c t i o n a l  r e l a t i o n s h i p s d e s c r i b e the behavior of the  complete  system. 2.3.3  Formulation of the Computer Program  A f t e r completing the mathematical  model, the next  step i s to t r a n s l a t e i t i n t o computer language. there e x i s t s s p e c i a l purpose  s i m u l a t i o n languages, t h i s  w i l l use FORTRAN IV, a g e n e r a l purpose a g e n e r a l purpose  Although  language,can  one.  study  FORTRAN IV,being  be e a s i l y adapted  to the type  5  of mathematical 2.3.4  model developed  for this  Checking the Model  T h i s stage i n v o l v e s two d i f f e r e n t v e r i f i c a t i o n and v a l i d a t i o n 2.3.4.1  activities:  (Anderson).  Verification:  r e f e r s to checking the  c o r r e c t n e s s of the model, t o determine consistent.  study.  i f i t i s internally  For example, are a l l hogs produced e v e n t u a l l y  s o l d ? ; does producer gross income equal gross revenue t o t a l variable costs?; etc.  less  At t h i s stage, n o t h i n g has been  5  S p e c i a l - p u r p o s e languages are, i n g e n e r a l , more i n f l e x i b l e and s p e c i f i c a l l y o r i e n t e d t o work w i t h some type of models (e.g. DYNAMO and FORDYN are s u i t e d to work with models c h a r a c t e r i z e d by numerous f i r s t - o r d e r d i f f e r e n c e equations and complex feedbacks and SINSCRIPT f o r queuing and i n v e n t o r y systems (Anderson)).  18 said  about t h e r e a l i s m o f the assumptions b u i l t  model o r i t s a b i l i t y t o reproduce of  reality.  i n to the  This i s a  matter  validation. 2.3.4.2  Validation:  process  destined to find  reality  (Anderson).  has  i s the stage  o u t how c l o s e l y  Elsewhere  difficult practical,  t h e model  (Anderson;  been p o i n t e d o u t t h a t t h e v a l i d a t i o n  of the simulation  Naylor  represents  (1971)) i t  process  i s a rather  one b e c a u s e 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 , s t a t i s t i c a l and e v e n p h i l o s o p h i c a l p r o b l e m s  (Naylor,  (1971)). In described model:  as b e i n g u s e f u l  first,  historical to  g e n e r a l , however, two t y p e s  for validation  t o compare t h e r e s u l t s  o f t h e model  with  and/or  second,  compare t h e p r e d i c t i o n s o f t h e model w i t h  future  events  events 2.3.4  (i.e. historical  of a simulation  validation)  (i.e.  data  o f a p p r o a c h e s c a n be  t h a t have e v o l v e d Model  s i n c e t h e s t u d y was  Experimentation  Once t h e model h a s been v a l i d a t e d , with  experimentation  t h e model i s n e e d e d t o e x p l o r e t h e e f f e c t s  s e t s o f v a l u e s o f t h e exogenous o r p o l i c y endogenous o r o u t p u t  variables.  of d i f f e r e n t  variables  Where s i m u l a t i o n  i n v o l v e a l a r g e number o f v a r i a b l e s , calculations  initiated).  to avoid  a r e advantageous  implies  the s e l e c t i o n  (Anderson).  of a particular  experiments  unnecessary  and t o e c o n o m i z e i n computer t i m e ,  designs  on t h e  experimental  Experimental combination  design of  19 p a r a m e t e r s and allowed  to  the  range  (or l e v e l s ) o v e r w h i c h t h e y w i l l  f l u c t u a t e , thus h e l p i n g  model e x p e r i m e n t a t i o n 2.3.6 The  i n a systematic  Interpretation r e s u l t s of of  the  the  the  of  the  to  conduct  way.  Simulation  simulation  two  researcher  be  Output  e x p e r i m e n t can  f o l l o w i n g methods:  be  a n a l y z e d by  one  variance  or  regression  In g e n e r a l ,  analysis  of  variance  i s u s e d when q u a l i t a t i v e f a c t o r s a r e  present,  while  analysis.  regression  analysis  i s directed  evaluation  (Naylor,  (1968)).  study,  regression  hog  producer  analysis w i l l  estimated  the  the  as  a way  be  used.  of o b t a i n i n g variables  of  quantitative objective the  income s t a b i l i z a t i o n  r e l a t i o n s h i p s between t h e and  Given  i . e . to q u a n t i t a t i v e l y evaluate  different  be  towards  analysis  of  outcome  this  of  policies,  Performance f u n c t i o n s more g e n e r a l incorporated  will  functional i n the  study  r e s u l t i n g output.  P e r f o r m a n c e f u n c t i o n s have been d e s c r i b e d by C a n d l e r and Cartwright. A d d i t i o n a l e x a m p l e s o f t h e i r a p p l i c a t i o n can be f o u n d i n C h u d l e i g h and i n Kennedy (197 3 ) .  20 Chapter  3  APPROACHES TO HOG PRODUCER  This  section  outlines  INCOME  STABILIZATION  some a l t e r n a t i v e  stabilizing  t h e incomes o f B r i t i s h Columbia  It  a description  includes  Columbia  Swine P r o d u c e r s  Agricultural  P r o g r a m and t h e  e x i s t t h r o u g h w h i c h income  c a n be a c h i e v e d  the j u r i s d i c t i o n  and  programs - t h e B r i t i s h  Income A s s u r a n c e  mechanisms  payments, q u o t a s ,  financial  hog p r o d u c e r s .  Stabilization Act.  Several stabilization  of current  schemes f o r  etc.).  (e.g. p r i c e  product purchase  deficiency  Some o f t h e s e i n s t r u m e n t s  o f t h e government  contributions  controls,  (e.g. p r i c e  fall  under  controls,  t o a s p e c i f i c program, p r i c e  supports  p r o g r a m s , e t c . ) , w h i l e o t h e r s c a n be  a d m i n i s t e r e d by t h e g o v e r n m e n t a n d / o r 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  farmers through that  farmers  a marketing  on t h e g o v e r n m e n t  futures  trading).  3.1  There  are also  producer  (e.g. forward  contracting  A l t h o u g h many d i f f e r e n t p o l i c y  t h i s study w i l l  involving  board).  measures  c a n u s e t o cope w i t h income s t a b i l i z a t i o n  relying  exist,  o r s t o r a g e p o l i c i e s managed by  consider  only  government  without  and  instruments  schemes  subsidies.  Government s u b s i d i e s r e l a t e d t o product p r i c e or gross margin This  approaches  section  introduces  f o r hog p r o d u c e r  current  and a l t e r n a t i v e  income s t a b i l i z a t i o n ,  involving  government'subsidies r e l a t e d to product p r i c e or  gross  margin. 3.1.1  Deficiency  Payment Schemes  W i t h i n 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 u s u a l l y r e f e r r e d to as  " p r i c e d e f i c i e n c y payment" program. t o farmers i n times of low  This  implies  product p r i c e s .  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, Income Assurance Program and  The  a  subsidies  Federal  the B r i t i s h Columbia Farm  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 k i n d  of program  (Eyvindson). 7  A brief 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  r e f e r r e d to as ASA)  and  of the B r i t i s h Columbia  Swine Producers Income Assurance Program  (hereafter  to as FIAP) are given below to p r o v i d e a b a s i s  referred  f o r comparing  them with v a r i o u s a l t e r n a t i v e 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  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  1958  government guaranteed hog 80%  producers a f l o o r p r i c e which  of the n a t i o n a l moving average hog  p r e v i o u s ten y e a r s . p r i c e was  Under the  r a i s e d to 90%  federal was  market p r i c e over  amended Act  (1975), the  of the n a t i o n a l moving average  market p r i c e over the p r e v i o u s 5 y e a r s , p l u s the  the  floor hog  difference  The d e s c r i p t i o n r e f e r s only to those aspects r e l e v a n t the hog i n d u s t r y .  to  between c u r r e n t n a t i o n a l average cash c o s t s of p r o d u c t i o n and the n a t i o n a l moving average cash c o s t s i n the p r e c e d i n g f i v e years. The  f l o o r p r i c e i s c a l c u l a t e d each year and p u b l i s h e d  i n A p r i l at the end of the hog p r o d u c t i o n year.  T h i s means  t h a t hog producers do not know whether an indemnity w i l l be p a i d u n t i l a f t e r the p r o d u c t i o n process i s completed 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 Program began i n January 1974 ending December 31, 1978. "actuarially  (Martin).  Swine Producers Income Assurance f o r a p e r i o d of f i v e y e a r s ,  The program was  s e t up to be  sound", with farmers and the P r o v i n c i a l government  paying premiums i n t o the B r i t i s h Columbia Assurance Fund.  When the accumulated  Swine Producers  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" i n t o the Fund which i s expected to be recouped i n p e r i o d s of s m a l l (or no) Involvement  i s on a v o l u n t a r y b a s i s .  of FIAP can.be summarized as f o l l o w s Agriculture,  subsidy payments. The main c h a r a c t e r i s t i c s (B.C. M i n i s t r y of  (1974)):  - Eligibility.  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 A s s o c i a t i o n  and market a. minimum of 50 e l i g i b l e hogs a n n u a l l y .  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 s p e c i a l  r u l e s f o r p a r t n e r s h i p s , c o r p o r a t i o n s and c o o p e r a t i v e s .  23 E l i g i b l e m a r k e t hogs a r e been b o r n , r a i s e d and the on  year  1977,  marketed  previously  -  Indemnities.  British  the  In  British  the  basic  the  market r e t u r n .  labor,  d e t e r m i n e d by  the  British  The  The  and  t h e minimum  size  m a r k e t hogs  per  Bargaining  of A g r i c u l t u r e agreed f o r a l l Farm  plus  to  Income  i s equal to  75%  of  a m a r k e t i n g c h a r g e minus  "basic cost of production" i n t e r e s t on  Columbia F e d e r a t i o n  includes  investment, The  cost  Columbia Department of  a hog  and  operator is  jointly  Agriculture  of A g r i c u l t u r e , based  enterprise marketing  1,800  year.  indemnities  are  hogs i n d e x  Market r e t u r n s  a p p l i c a b l e are 100  plus  $3.00 p e r  cwt  1st,  on  p r i c e o f hogs i n d e x  Calgary Basic  costs  1977,  103  and  indemnities  Calgary  dressed  market r e t u r n s  of production  c a l c u l a t e d m o n t h l y and  used to c a l c u l a t e i f  equal to the  Starting April the  For  constraints  Central  gross indemnity  British  - Payments.  for  Columbia.  300  a management f e e .  assumed model o f  hogs p e r  the  formula  cost of production  family  w h i c h have  Columbia M i n i s t r y of A g r i c u l t u r e  cash c o s t s , d e p r e c i a t i o n ,  an  1975,  indemnity  Assurance Programs.  the  r a i s e d to  Columbia F e d e r a t i o n  adopt a standard  on  in British  112  producers.  Committee o f  and  to  e x i s t i n g expansion  r e q u i r e m e n t was  y e a r f o r new  and  88  e l i g i b l e m a r k e t hogs were removed and  eligibility  the  those graded  are  carcass. calculated  instead  of  market r e t u r n s  paid  on  price  based  100. are  a quarterly  basis  24 (weighted average of the three months). - Program Fund. monthly premium, received.  Under the FIAP farmers pay a f i x e d  i r r e s p e c t i v e of whether or not a subsidy i s  The amount of the t o t a l premium  (i.e.,  farmers  p l u s government payments) was s e t a t $3.00 per cwt i n 1974, with farmers paying one t h i r d government two t h i r d s  ($1.00/cwt) and the p r o v i n c i a l  ($2.00/cwt) i n t o the B r i t i s h  Swine Producers Assurance Fund.  In 1975 the t o t a l  was r a i s e d t o $4.50 per cwt and has remained  stable  Columbia premium thereafte  T o t a l premiums are r e c e i v e d a n n u a l l y but a t no time can a producer's share exceed 3.1.2  $3.00 per cwt, dressed c a r c a s s .  Premium-Subsidy Scheme  T h i s type of scheme i s a d i f f e r e n t approach t o producer income s t a b i l i t y , i n the sense t h a t both p r i c e "peaks" and "troughs" are e l i m i n a t e d .  In other words, the  program i n c l u d e s a f l o o r and a c e i l i n g p r i c e , paying s u b s i d i e g  when the e q u i l i b r i u m p r i c e  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 p r i c e 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 c o n t r i b u t e t o a s t a b i l i z a t i o n fund whenever the market p r i c e of hogs exceeds the support p r i c e by $5.00 (Eyvindson).  Hudson has suggested a s i m i l a r type of scheme  i n h i s p r o p o s a l o f 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". " E q u i l i b r i u m " r e f e r s to the p r i c e and q u a n t i t y p r e v a i l i n g i n 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 goal logical high  to r e q u i r e  hog  t o pay  prices  of producer  f a r m e r s t o pay  a premium when p r i c e s a r e  the  not  low.  The  floor  i n response t o changes i n the  to r e q u i r e  and  be  lowered to reduce  increase  premiums p a i d by  f a r m e r premiums b u i l t raised.  operation  3.2  Figure of  the  up  3.1  farmers. the  presents  to  and  floor  be  prices  to  fund.  As  ceiling  farmers  and  successive  and.ceiling  could  the  scheme.  Inputs  Under t h i s  type of approach, intended  them  a schematic v e r s i o n of  S u b s i d y On  are  floor  Similarly, i f  fund, the  premium-subsidy  i n p u t p r i c e s and  ceiling  subsidies paid  of  scheme c o u l d  stabilization  g o v e r n m e n t a d v a n c e became l a r g e , t h e  could  be  allowing  i t seems  a premium i n t i m e s  (or w i d e m a r g i n ) b u t  made s e l f - f i n a n c i n g by slide  income s t a b i l i t y ,  s u b s i d i e s are  to a f f e c t  producers'  tied  to  investment  decisions. 3.2.1  Subsidies.Tied  Studies (1974) and  on  to Feed  hog  supply  functions  (1973)) and  i n the  United  farmers r e a c t d i f f e r e n t l y  to a r i s e  decrease  i n feed p r i c e s .  Therefore,  consider  a scheme t h a t i n c l u d e s 3.2.2 This  Retention ewe  Prices  Gilt  Retention  i n Canada  States i n hog  (Meilke)  show t h a t  p r i c e s than to  i t seems r e a s o n a b l e  a subsidy  Subsidy  (West e t a l ,  to  feed  a to  costs.  Scheme  scheme i s s i m i l a r t o A l b e r t a A g r i c u l t u r e ' s Sheep  P r o g r a m where p r o d u c e r s r e c e i v e d  lamb r e t a i n e d  for breeding  purposes.  a subsidy Given that  for  each  short  F a r m e r s pay  premium  Farmers r e c e i v e  Figure  3.1  subsidy  Schematic o f Premium/Subsidy  Scheme  term p r o d u c t i o n  responses  purpose of t h i s  scheme i s t o a f f e c t b r e e d i n g  through of  low  a subsidy product  effective  liquidation.  addition  limited  f o r each e x t r a g i l t  p r i c e s or high  s u b s i d y m i g h t be stock  are very  i n preventing  t o some o f t h e above  be  schemes.  the  In  periods  g i l t retention  large scale  used  the  decisions  retained.  input prices,  T h i s scheme may  f o r hogs,  in lieu  breeding of or i n  28 Chapter 4 THE MATHEMATICAL MODEL  T h i s chapter p r e s e n t s the mathematical model intended to r e p r e s e n t the main c h a r a c t e r i s t i c s o f the B r i t i s h hog i n d u s t r y .  Columbia  I t d i s c u s s e s the b a s i c data used and makes  e x p l i c i t 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. L a t e r i t d e s c r i b e s the c h a r a c t e r i s t i c s o f the model and the e x p l i c i t form o f the f u n c t i o n s employed.  The l a s t  section  d i s c u s s e s the model v a l i d a t i o n procedure. 4.1  Data Used The b a s i c data used i n t h i s study i s a monthly  series  of B r i t i s h Columbia hog p r o d u c t i o n f o r the p e r i o d January 1964  to December 1976, r e p o r t e d by Canada L i v e s t o c k and Meat  Trade Report ( A g r i c . Canada).  From t h i s s e r i e s and through  m u l t i p l y i n g by the y e a r l y average c a r c a s s weight, the e q u i l i b r i u m q u a n t i t y o f hog p r o d u c t i o n a t the farm l e v e l , i s o b t a i n e d .  (dressed c a r c a s s e s ) ,  The hog p r i c e  series  (average p r i c e o f s l a u g h t e r hogs Index 100 r e c e i v e d by farmers, C a l g a r y ) , i s a l s o taken from the p u b l i c a t i o n mentioned  above.  Input p r i c e s e r i e s i 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 s , P r i c e and P r i c e Indexes, Farm Input P r i c e Index and Industry P r i c e Indexes. 4.2  Hog.Production Assumptions  forBritish  Columbia  Below i s a l i s t o f p r o d u c t i o n assumptions c o n s i d e r e d t o  29 be  r e p r e s e n t a t i v e o f hog p r o d u c t i o n (1)  Number o f sow c u l l i n g s  in British  The f a r r o w i n g i.e.,  producers  decision i s price  inelastic; or  implies the proportions of farrowing  systems a r e and f a r m e r  price  respect  i s only  to the breeding  herd  changes  with  i n terms  retained.  A sow w h i c h i s t o be r e t a i n e d i s r e b r e d  two  farrowing.  A sow w h i c h i s t o be s o l d ,  i s sold  two months  farrowing.  T h e r e i s a f o u r month p e r i o d f r o m t h e t i m e of  (.6)  sows sows sows sows sows sows sows  response to input or product  after (5)  This  on d i f f e r e n t  months a f t e r (4)  intensity  of of of of of of of  a f f e c t e d by g o v e r n m e n t p o l i c y  of g i l t s (3)  10% 20% 25% 20% 15% 5% 5%  i t i s u n a f f e c t e d by c h a n g e s i n p r o d u c t  input prices.  not  9  per farrowing:  f i r s t farrowing second f a r r o w i n g t h i r d farrowing fourth farrowing f i f t h farrowing s i x t h farrowing seventh farrowing (2)  Columbia.  conception  until  farrowing.  T h e r e i s a f i v e month p e r i o d f r o m  farrowing  9 T h e s e e s t i m a t e s were 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 r i t i s h C o l u m b i a 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 , 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 t o 7 weeks a f t e r f a r r o w i n g . However, s i n c e t h e model i s m o n t h l y , t h e p e r i o d was r o u n d e d t o two months.  30 until  o f f s p r i n g have r e a c h e d minimum  s l a u g h t e r w e i g h t and a s i x month p e r i o d farrowing (7)  to average  In the absence sold  (8)  The at  (9)  decision  which  Market after  a gilt  f o r b r e e d i n g i s made  reach average  reaching  slaughter  reaching  i s retained  weight.  f o r breeding are bred average  slaughter  r e a c h i n g minimum s l a u g h t e r w e i g h t  above a s s u m p t i o n s  which  gilts  weight.  hogs c a n be k e p t a maximum o f two  month a f t e r The  average s l a u g h t e r  are r e t a i n e d  two months a f t e r (10)  scheme, m a r k e t hogs a r e  to r e t a i n  the time g i l t s  Gilts  s l a u g h t e r weight."'""'"  o f any  on r e a c h i n g  from  weight.  months ( o r one  average s l a u g h t e r w e i g h t ) .  imply the f o l l o w i n g  schedule f o r  f o r breeding purposes.  Month t-1  gilt  r e a c h e s minimum s l a u g h t e r  t  g i l t r e a c h e s a v e r a g e s l a u g h t e r w e i g h t and t h e d e c i s i o n i s made t o r e t a i n i t f o r b r e e d i n g p u r p o s e s .  t+2  breed  gilt.  t+6  first  farrowing.  t+8  b r e e d sow  or s e l l  weight.  sow.  F o r t h e p u r p o s e o f t h i s s t u d y , i t i s assumed t h a t a v e r a g e s l a u g h t e r w e i g h t i s t h e w e i g h t a t w h i c h hogs a r e n o r m a l l y 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 n e e d s 6 months t o r e a c h t h a t w e i g h t (200 l b s l i v e o r 160 l b dressed carcass). Minimum s l a u g h t e r w e i g h t i s t h e minimum w e i g h t a t w h i c h a hog c a n be s o l d f o r s l a u g h t e r (150 l b dressed carcass). Maximum s l a u g h t e r w e i g h t i s t h e maximum w e i g h t a t w h i c h a hog c a n be s l a u g h t e r e d , due t o i n e f f i c i e n c i e s o f c o n t i n u i n g f e e d i n g (170 l b d r e s s e d c a r c a s s ) .  t+11  hogs r e a c h minimum s l a u g h t e r  weight.  t+12  hogs r e a c h a v e r a g e  weight.  If  slaughter  sow was b r e d i n t+8, t h e n :  t+12  second  t+14  breed  t+17  hogs r e a c h minimum s l a u g h t e r  weight.  t+18  hogs r e a c h a v e r a g e  weight.  If  farrowing. sow o r s e l l  slaughter  sow was b r e d a t t+14, t h e n :  t+18  third  farrowing  t+20  breed  sow o r s e l l  t+2 3  hogs ( t h i r d weight.  t+24  hogs r e a c h a v e r a g e If  sow.  sow.  farrowing)  r e a c h minimum s l a u g h t e r  slaughter  sow was b r e d a t t+20,  weight.  then:  t+24  fourth  t+26  breed  t+2 9  hogs r e a c h minimum s l a u g h t e r  weight.  t+30  hogs r e a c h a v e r a g e  weight.  4.3  farrowing. sow o r s e l l  sow.  slaughter  The M o d e l The  model d e v e l o p e d  i n this  study attempts  t h e p r o d u c t i o n d e c i s i o n s o f hog p r o d u c e r s through and in  a s e t o f equations based  parameter v a l u e s taken  to represent  in British  on some p r o d u c t i o n  Columbia assumptions  from p r e v i o u s s t u d i e s o r a r r i v e d a t  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  o f A g r i c u l t u r e Hog  12 specialists.  The model c o n s i s t s b a s i c a l l y  o f t h r e e modules:  A more d e t a i l e d d e s c r i p t i o n o f t h e p r o c e d u r e u s e d t h e p a r a m e t e r v a l u e s i s g i v e n i n s e c t i o n 5.1.  to select  32 a)  one t h a t p r o v i d e s  f o r r e s p o n s e s by f a r m e r s  t o c h a n g e s i n d u c e d by s t a b i l i z a t i o n b)  one t h a t d e s c r i b e s  programs.  the s t a b i l i z a t i o n  programs  t h e m s e l v e s , and c)  one t h a t  a c c o u n t s f o r "summary m e a s u r e s " , i . e . ,  statistical  parameters used t o i n d i c a t e the  d e g r e e o f s t a b i l i t y and t h e l e v e l variables makers Within  r e g a r d e d as i m p o r t a n t  (Kennedy,  it  portrays  farmers' production  one d e p i c t i n g  farmer  decisions while stabilization  the r e s t  since only  schemes and  measures". Next, F i g u r e  steps  policy  p r o g r a m s i s t h e most i m p o r t a n t  incorporates a r b i t r a r i l y selected "summary  to  (1973)).  t h e s e modules t h e f i r s t  response t o s t a b i l i z a t i o n  o f those  involved  4.1 g i v e s  i n simulating  C o l u m b i a hog i n d u s t r y income s t a b i l i z a t i o n  given  a simplified  o f the  the response o f the B r i t i s h different  f e d e r a l and/or  schemes, i n o r d e r  u n d e r s t a n d i n g o f t h e model  version  functioning.  to allow  provincial  a better  33  Exogenous V a r i a b l e s  F e d e r a l and/or Prov.  (hog and i n p u t p r i c e s )  Gov't  at e q u i l i b r i u m (No s t a -  Stabilization Programs  b i l i z a t i o n scheme) * f  B e h a v i o r a l equations (1) G i l t r e t e n t i o n f u n c t i o n (2) Holdover f u n c t i o n  I  Flow r e l a t i o n s h i p s and accounting  identities  (production assumptions and resource c o n s t r a i n t s )  Market I d e n t i t y  Summary Measures -Cost t o gov't and farmers - v a r i a n c e and l e v e l o f i n come - v a r i a n c e and l e v e l o f p r o duction  ± PRINT OUT OUTCOME FROM PROGRAMS  F i g u r e 4.1  Flow Diagram o f S i m u l a t i o n  Model.  34 4.3.1  R e s p o n s e by Programs- -3  Farmers t o  Stabilization  1  The of  the  equations  i n t h i s module, t h a t r e p r e s e n t the  s i m u l a t i o n m o d e l , c a n be (a)  grouped  Behavioral equations; farmer  response  input prices (b)  those  induced  assumptions  that  three categories:  i . e . , those  that  to changes i n p r o d u c t  Flow r e l a t i o n s h i p s i.e.,  into  by  and  stabilization accounting  earlier  and  (c)  farmer  response,  Market i d e n t i t y ; are purchased  4.3.1.1 The to  i n the  run  implications.  The  the  long  a l l hogs s u p p l i e d  with both  i s captured through allows farmers  farmer  efforts: having  s h o r t run p r i c e  on h o l d o v e r s i s a c c o u n t e d  A  that  a l l o w two  responses  a "price  s h o r t and  effect  on  effect" long  gilts  t h e p a r a m e t e r a-^ ( i n e q u a t i o n  t o r e t a i n more o r l e s s  month o f g o v e r n m e n t i n t e r f e r e n c e .  equation  from  for  market.  stabilization  a "non-price e f f e c t " ,  that  production  and  ensures  behavioral equations  and  one),  programs.  Behavioral Equations  c h a n g e s i n d u c e d by  retained  and/or  account  t h e change i n p r o d u c t i o n r e s u l t i n g run  simulate  identities;  i n c o r p o r a t e t h e hog  presented  core  The  f o r through  gilts  s h o r t run p r i c e  in a effect  the parameter a-^,  two. "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 o f t h e m o d e l p r e s e n t e d been a d a p t e d f r o m Kennedy (19 7 3 ) .  in this  section  has  in  35 reasonable  t o assume t h a t p r i c e s t a b i l i z a t i o n  induce a s h i f t Just,  Kennedy  the  The  short  run  to market i n the is  c h a n g e d hog  by  t o be  QGR  a1  fc  s  and  above The  allowing  The  14 months i n t h e  may any  model changes i n  in  equation  critical  and  long  two  f c  Gilts  + a_G^  3  + a. , s 4  where: AQGR*"  i s t h e a d d i t i o n a l q u a n t i t y ( t h o u s a n d s o f 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 p u r p o s e s , 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 g i l t s retained for breeding t.  be  parameters.  - PH ) + a ( P I - PT^) e 2 e s 0  implication  i n c l u d e what can  behavioral  fc  run  supplied  future.  Change i n Q u a n t i t y o f Retained f o r Breeding  (PH  program  i m p l i c a t i o n i s a change i n g i l t s  p a r t i c u l a r month.  the  Any  environment  r e t a i n e d , v i a parameter  supply  4.3.1.1.1  t  MacLaren).  by  can  curve ( B a r i c h e l l o ,  subsidies.  effect"  I n summary, e q u a t i o n s one considered  and  s u p p l i e s over  directly  "non-price  number o f g i l t s  one.  supply  a more s t a b l e p r o d u c t i o n  b r o u g h t on  incorporates  of the  Martin  farmers to increase  increases  the  right  (1973) and  that provides induce  to the  programs  ( t h o u s a n d s o f cwt) o f p u r p o s e s , i n month  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 ) o f s l a u g h t e r hogs (Index 1 0 0 ) , i n month t .  (1)  36 PH^ s  i s the s i m u l a t e d or e f f e c t i v e o f s l a u g h t e r hogs ( i n d e x 100) i n month t .  PI  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 i n p u t s needed t o p r o d u c e one cwt o f hog (dressed carcass)14  t  e  p r i c e (dollars/cwt) r e c e i v e d by f a r m e r s  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 ) o f a l l i n p u t s p a i d by f a r m e r s i n month t .  G*" s  i s t h e amount o f t h e c w t ) , i n month t ,  a-^  i s t h e e f f e c t o f 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 t _ p p j ^ x on a d d i t i o n a l s e ' quantity of g i l t s r e t a i n e d f o r breeding purposes.  gilt  r e t e n t i o n subsidy  (dollars/  H  (  a2  i s the  effect  t  of  a p r i c e change i n t o t a l  inputs,  t  (.Pig - I ) i l 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. p  n  e  a  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 a d d i t i o n a l quantity of g i l t s r e t a i n e d f o r p u r p o s e s , i n month t .  3  on breeding  i s t h e n o n - p r i c e 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 o f g i l t s r e t a i n e d due t o g o v e r n m e n t s t a b i l i z a t i o n efforts. Equation gilts the  retained  hog  efforts.  and  (1)  f o r breeding  input  However, g i v e n  obtainable,  QGR  t  14  purposes i s a l i n e a r  behavioral  that  retained  was  o f hOgs s l a u g h t e r e d the  additional quantity  p r i c e changes induced  q u a n t i t i e s of g i l t s  and  assumes t h a t t h e  replaced  by  function  by  Q^ ^ +1  i n month t + 1 4 ) , t h e parameters adjusted  of  stabilization  the monthly f i g u r e s of in British  of  C o l u m b i a were  the not  (equilibrium quantity best  a v a i l a b l e proxy,  accordingly.  T h i s p r i c e i s e s t i m a t e d u s i n g as a b a s i s t h e FIAP c o s t f i g u r e s , t h e B.C. f e e d p r i c e s and t h e Farm I n p u t P r i c e I n d e x f o r W e s t e r n 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 t h e  B r i t i s h C o l u m b i a M i n i s t r y o f A g r i c u l t u r e hog and  specialists,  allows f o r : a)  t h e f o u r month w a i t i n g p e r i o d f r o m t h e t i m e t h e d e c i s i o n i s made u n t i l  b)  the g i l t  i s bred  t h e f o u r month p e r i o d f r o m c o n c e p t i o n  until  f a r r o w i n g , and c)  t h e s i x month p e r i o d f r o m f a r r o w i n g  until  average s l a u g h t e r weight i s reached. In t h e case equilibrium price AQGR  t  o f no s t a b i l i z a t i o n equals  the simulated p r i c e ,  = 0, o r no change i n q u a n t i t y o f g i l t s Note t h a t e q u a t i o n  of both  product  including rejected  and i n p u t p r i c e s .  a ratio,  such  retained.  as.the  prices  than  supply  study  hog/barley  price  ratio,  corn p r i c e  a change i n f e e d p r i c e s .  i n the past  t o a change i n hog Meilke,  i n h i s hog  a good e x p l a n a t i o n o f hog  when c o r n p r i c e s a r e c o n s t a n t Consequently,  supply  S t a t e s p o i n t s o u t t h a t the hog-  r a t i o may p r o v i d e  fluctuating.  was  studies  West r e p o r t s t h a t hog  i s more r e s p o n s i v e  f o r the United  effects  The p o s s i b i l i t y o f  i n v i e w o f t h e f i n d i n g s o f some hog s u p p l y  i n B r i t i s h Columbia  s i n c e f e e d p r i c e s have  few y e a r s ,  and f e e d p r i c e s on hog  supply  b u t n o t when t h e y a r e  i t i s felt  supply.  fluctuated  that consideration  s h o u l d be g i v e n t o t h e i n d e p e n d e n t e f f e c t s prices  implying  (1) i n c l u d e s t h e s e p a r a t e d  ( M e i l k e ; West e t a l , ( 1 9 7 4 ) ) .  widely  a c t i v i t y , the  o f changing  hog  38 4.3.1.1.2 It  Holdover  Function  i s assumed t h a t s l a u g h t e r  o f two months a f t e r because continued deterioration.  reaching  feeding  hogs a r e k e p t a maximum  minimum s l a u g h t e r  leads  weight  to inefficiencies  Assuming t h a t i n e q u i l i b r i u m farmers  m a r k e t hogs a t a v e r a g e w e i g h t  month  (negative hog  over market g i l t s  (positive  represents  In other  a negative  gilts  them one month  words, s e l l i n g  holdover.  have a two month f l e x i b i l i t y  This  period  a five  hogs a v a i l a b l e f o r h o l d i n g  =  «14  The  1 5  slaughter  The q u a n t i t y  over  i s related  (Q^).  .t h  < P H  value  s  "  P H  of  e»  +  a  15  will  n  (  P  I  e "  vary  P I  s>  '  (  2  )  d e p e n d i n g on w h e t h e r  i s p o s i t i v e or negative.  - 1  Q  farmers  d e c i s i o n may be made  o f hogs t h a t c a n be s o l d one month e a r l y o r l a t e  Q^  month  implies that  a t minimum a n d / o r a v e r a g e s l a u g h t e r w e i g h t .  AQ  earlier  i n which t o s e l l  and b a r r o w s , and t h a t a h o l d o v e r  to t o t a l  activity,  and b a r r o w s one a d d i t i o n a l  holdover) or s e l l  holdover).  sell  ( i . e . a t s i x months), then i n  r e s p o n s e t o p r i c e changes caused by s t a b i l i z a t i o n t h e may h o l d  and q u a l i t y  h  =  Since  ( Q  e "  AQ, h  t - 1  (a,,AQ^ ) lb n - 1  A  Q  G  R  t  +  a  l 6  A  Q  h  i s smaller 1  i s negative,  _  1  +  than  A  Q  0  F  t  zero,  )  '  (  the expression  3  )  1  5  39 if  Q  h  =  ( Q  e•"  A  Q  G  R  t  +  A  Q°  F  t  )  i  f  A  Q  h  AQ^  _  1  i  1  0  < 0  '  (  4  )  1  6  where: AQ  i s t h e q u a n t i t y ( i n t h o u s a n d s o f cwt) o f hogs i n month t s o l d one month b e f o r e ( n e g a t i v e h o l d o v e r ) o r one month a f t e r ( p o s i t i v e h o l d o v e r ) r e a c h i n g average s l a u g h t e r weight.  h  AQOF  fc  i s t h e a d d i t i o n a l q u a n t i t y ( i n t h o u s a n d s o f cwt) o f s l a u g h t e r h o g s , i n month t , p r o d u c e d by a d d i t i o n a l g i l t s and sows. i s t h e e f f e c t o f t h e p r i c e change o f s l a u g h t e r hogs i n month t on q u a n t i t y o f h o l d o v e r s i n month t .  a-^i-  i s t h e e f f e c t o f 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 h o l d o v e r s i n month t .  a^g  accounts f o r the weight.increase, adjusted f o r d e a t h l o s s , f r o m k e e p i n g a s l a u g h t e r hog an e x t r a month. 4.3.1.2  F l o w R e l a t i o n s h i p s and Accounting Identities  Two e q u a t i o n s  presented  the  c h a n g e s i n hog p r o d u c t i o n ,  and  offspring, resulting  gilts  i n this  i n t e r m s o f a d d i t i o n a l sows  f r o m t h e change i n t h e number o f  r e t a i n e d some months e a r l i e r .  sum up t h e t o t a l reasonable  output  section calculate  change.  Two  accounting  identities  F u r t h e r m o r e , s i n c e i t seems  t o assume t h a t f a r m e r s h a v e , i n t h e s h o r t r u n ,  resource  c o n s t r a i n t s , upper l i m i t s  retained  and t h e number o f hogs h e l d o v e r a r e i n c o r p o r a t e d  AQ^  i s not included  i n equation  on t h e number o f  gilts  (4) s i n c e t h e number o f  hogs h e l d o v e r i n t h e p r e v i o u s month c a n n o t be h e l d h a v i n g r e a c h e d maximum s l a u g h t e r w e i g h t .  again,  40 in  t h e model. 4.3.1.2.1  O u t p u t Change f r o m S a l e o f A d d i t i o n a l Sows  A c c o r d i n g t o t h e hog p r o d u c t i o n a s s u m p t i o n s f o r British  Columbia  farmers r e t a i n  stated before, the extra g i l t s  i n month t f o r b r e e d i n g p u r p o s e s  e v e n t u a l l y come o n t o m a r k e t a s QGR^" , QGR 8  according  t  t  (AQGR ) t  will  "*" and s o o n , 4  t o t h e number o f sow c u l l i n g s p e r f a r r o w i n g .  (Assumptions AQSO  which  = a  +a AQGR  t  1, 2, 3, and 4 ) . a^AQGR /  6  2  6  1Q  t  8  + a AQGR o  + a-^AQGR  + a AQGR g  t _ 1 4  0  1  3 2  +  a AQGR  t  1 2  3 8  1  2  0  +  + t-44  (1 - a.y - a g - <Xg '- d-^Q - a ^ -  +  AQGR where: AQSO  ,  (5)  i s t h e a d d i t i o n a l q u a n t i t y ( i n t h o u s a n d o f cwt) o f 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 f r o m t h e s a l e o f a d d i t i o n a l sows.  t  AQGR  1  AQGR  t-8  , AQGR  t-14 ,  ,  t-44 AQGR  are t h e a d d i t i o n a l q u a n t i t i e s o f g i l t s r e t a i n e d ( i n t h o u s a n d o f cwt) f o r b r e e d i n g p u r p o s e s i n month t - 8 , t - 1 4 , t - 2 0 , t - 2 6 , t - 3 2 , t - 3 8 , 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 o r 7 litters). a  fi  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 , f r o m k e e p i n g an e x t r a g i l t f o r b r e e d i n g p u r p o s e s u n t i l i t r e a c h e s t h e a v e r a g e sow w e i g h t at time o f s l a u g h t e r .  41 a-jr  ag/ a ^ f i o ' l l ' a  a  a  12  a n C  ^ (l-oij-ag-ag-a-^Q-a^-a^)  r  are t h e p r o p o r t i o n s o f sow c u l l i n g s p e r f a r r o w i n g ( f i r s t , s e c o n d , 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 ) .  of  4.3.1.2.2  O u t p u t Change f r o m 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  Additional  gilts  average market  retained  weight  i n month  t produce  offspring  i n month t+12 and e v e r y s i x months  thereafter.  AQOF*" = a  1  AQGR  3  0  t - 1x  +  (l-a_) /  +  ( l - a - a - a ) . AQGR  +  (l-a -ag-a -a  7  g  9  t  3  0  +  AQGR  (  A  -(--I ?!  Q  +  G  (l-a_-a )AQGR 0  t  R  t  t-24  o  -  3  6  +  t-42  ~  7  a  i i "  a  g  i 2  )  A  Q  G  R  t  ~  1 0  4  -a  1 1  )AQGR  +  (l-a -ag-a -a 7  g  1 0  (6)  8  where:  AQOF  a^^  :  1  i s the a d d i t i o n a l q u a n t i t y ( i n thousands o f cwt) o f s l a u g h t e r hogs i n month t , p r o d u c e d by a d d i t i o n a l g i l t s and sows. I t h e a v e r a g e l i t t e r s i z e , a d j u s t e d by d e a t h 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 w e i g h t ( i n number o f head) . s  4.3.1.2.3  AQT  t  T o t a l O u t p u t Change R e s u l t i n g f r o m Change i n B r e e d i n g H e r d S i z e  =  AQSO  t  +  AQOF  t  ,  (7)  +  42 where: AQT  i s t h e t o t a l change ( i n t h o u s a n d s o f cwt) i n q u a n t i t y o f s l a u g h t e r h o g s , i n month t , r e s u l t i n g f r o m c h a n g e s 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.  1  .4.3.1.2.4. C o n s t r a i n t It  i s reasonable  short run, gilts  an  retained  resource  on  Retention  t o assume t h a t  upper l i m i t  to the  for breeding,  of  Gilts  farmers have, i n  change i n t h e  since  there  quantity  likely  the of  exists  constraints.  Max  AQGR  <a  1  c  QGR  ,  1  (8)  where: a,  i s t h e maximum p r o p o r t i o n o f g i l t s t h a t be added t o b r e e d i n g s t o c k , i n month t .  As  i n the  case of equation  ( 1 ) , s i n c e QGR  1  was  could  not  t+14 obtainable p r o x y and  i t was  a,- a d j u s t e d  4.3.1.2.5 The constrained at  replaced  , the  g  best  available  Constraint  o f hogs t h a t can  resources  be  become b i n d i n g .  some p o i n t , hogs must be  Therefore,  Q  accordingly.  Holdover  quantity as  by  i t i s appropriate  sold  held This  even a t v e r y  that Q  1  be  given  over i s implies low an  that,  prices. upper  limit".  43 h  ^ 17  if  AQ  h  = 17  A Q  A Q  a  C Q  ( Q  AQ " 1  "  A  Q  G  R  t  +  i 6 °h  a  A  1  +  A  Q°  r  t  )  '  (9)  < 0  1 _ 1  a  if  e  e  "  A  Q  G  R  t  +  Q°  A  p t  )  '  ? 0  1  where: a,  i s t h e maximum p r o p o r t i o n o f hogs t h a t c a n be w i t h h e l d f r o m m a r k e t i n month t and s o l d t h e f o l l o w i n g month. 4.3.1.2.6  Qs = e Q  +  A  Q  T  t  Market Supply o f Slaughter  +  a  i 6  A  Q  h  _  "  1  A Q  h  Hogs  '  where: Q  i s the t o t a l (simulated) q u a n t i t y ( i n thousands o f cwt) o f s l a u g h t e r hogs s u p p l i e d i n month t .  1  4.3.1.3  Market I d e n t i t y  P a c k e r demand elastic  f u n c t i o n i s assumed  because market p r i c e  in British  t o be  perfectly  Columbia i s determined  17 outside the province. production  represents  Given that B r i t i s h only  a very  Western Canadian p r o d u c t i o n ,  small  any change  C o l u m b i a ' s hog  fraction  of t o t a l  i n i t s volume  will  have a n e g l i g i b l e e f f e c t on m a r k e t p r i c e s . 17 T r y f o s , R e i m e r , Dawson and Zwart (1973) c o n c l u d e 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 U n i t e d S t a t e s p r i c e s .  Given the assumption function in  used  i n t h i s s t u d y , a l l hogs s u p p l i e d  the market,  4.3.2  of  hog  section  Q  s  producer  purchased  '  4.3.1  the mathematical  presented  =  (  Schemes f o r Hog  stabilization  are  or  Qd  In  o f a p e r f e c t l y e l a s t i c demand  Producer  the e x p l i c i t  functions  of the  )  portion  farmer responses  p r o g r a m s were p r e s e n t e d .  Now,  to  t h e schemes f o r  income s t a b i l i z a t i o n d i s c u s s e d  4.3.2.1  2  Income S t a b i l i z a t i o n  model r e p r e s e n t i n g  i n mathematical  1  i n Chapter  3,  are  form.  Premium-Subsidy  Scheme 18  Under a p r e m i u m - s u b s i d y hogs,  assuming  that  both the f e d e r a l  p r o g r a m s work on a m o n t h l y comes i n t o o p e r a t i o n farmers (PH^)  (PH^)  relevant floor the  federal  and  and  the  that  of  p r o d u c e r premium, i f t h e  price  exceeds  ( fp)• p  I  r  t  n  e  the f e d e r a l  f l o o r but g r e a t e r  price  to the f e d e r a l  i s l e s s than the f e d e r a l  program  received  by  price  provincial  both the f e d e r a l ( f f ) and p  equilibrium  slaughter  provincial  the e f f e c t i v e p r i c e  price  floor the  price  provincial  i s less  than  than the p r o v i n c i a l f l o o r , the  government g i v e s a d e f i c i e n c y  effective price  first,  a t the p r o v i n c i a l l e v e l  price  federal  basis,  on p r i c e  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  l e s s any  equilibrium  scheme  floor.  payment t o I f the  f l o o r , which  raise  equilibrium  i s less  than  the  p r o v i n c i a l f l o o r , t h e n t h e p r o v i n c i a l g o v e r n m e n t makes up t h e 18 Some s p e c i f i c f o r m u l a e t o d e t e r m i n e t h e 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 C h a p t e r 5.  45 difference  between t h e two  Both cases hold the  when t h e e q u i l i b r i u m  predetermined  greater  ceiling.  than the c e i l i n g ,  if PH  = max  1  PH  1  e  (PH ,  < PH  1  c  t t = PH s c  if  PH  1  P^ ,  1  > PH  or P PP  1  1  ft  price  l e s s any -  1  < PH  1  > PH  1  PP  payment.  i s less hog  the e f f e c t i v e p r i c e  P ^  f  hog  I f the e q u i l i b r i u m  t (PH^),  equal to the c e i l i n g PH  f l o o r s with a deficiency  than  price i s  to farmers i s  producer  premium.  19  1  (13)  c  t  or P ^  (  1  4  )  where: PH  i s t h e s i m u l a t e d o r e f f e c t i v e p r i c e o f hogs r e c e i v e d by f a r m e r s ( d o l l a r s / c w t ) , i n month t .  1  s  i s t h e f e d e r a l f l o o r p r i c e o f hogs (dollars/cwt), r e l e v a n t a t t h e p r o v i n c i a l l e v e l , i n month t . P  i s the p r o v i n c i a l f l o o r p r i c e i n month t .  1  "  When f e d e r a l provincial price to  hog  relevant  the f e d e r a l  equilibrium  19  are paid  price  national  national  payment i s p a i d hog  with respect  1  floor price  equilibrium  (dollars/cwt),  (PH ), the f e d e r a l  a t the p r o v i n c i a l l e v e l  where a d e f i c i e n c y average  subsidies  o f hogs  floor  ( P f f ) becomes e q u a l  ( ff )• p  F  o  r  t  n  n  with respect  price  to the  (  p H  g )> n  e  case  to the t  n  e  relevant  t The l e v e l o f t h e f l o o r p r i c e f o r hogs ( f p ) u n d e r 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 g i v e n by t h e p a r a m e t e r ^22' h i - * 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 t h e f l o o r p r i c e a c e r t a i n p e r c e n t a g e g i v e n by the parameter 3. P  w  e  t  n  e  federal equal  floor price  a t the p r o v i n c i a l  to the p r o v i n c i a l equilibrium  subsidy.  The f e d e r a l  difference  subsidy  level  price  (Pff)  plus  becomes  the f e d e r a l  i n t h i s case i s equal  between t h e f e d e r a l  national  to the  floor price  (P^ ) ff n  c  and  the n a t i o n a l If  equilibrium  r e s t r i c t i o n s a r e imposed  on  what hogs a r e e l i g i b l e ,  of  hogs  ( f p  p a  the  foreligible  proportion  words, P f p  (PH^ ). n  i n a provincial  hog p r i c e  (PH^) and t h e e f f e c t i v e  hogs on t h e p r o g r a m  (P^p)t  w e i g h t e d by  o f hogs m a r k e t e d u n d e r t h e p r o g r a m .  farmers, regardless  price  I t represents a weighted  i s the e f f e c t i v e average p r i c e  a  program  the average p r o v i n c i a l f l o o r  ) becomes e f f e c t i v e .  average o f t h e e q u i l i b r i u m price  hog p r i c e  In other  received  for a l l  o f whether they q u a l i f y o r n o t f o r the  20 program. As  indicated  product p r i c e  b o t h t h e ASA and t h e FIAP a r e  s u p p o r t programs s i n c e  subsidy option; price  earlier,  only a equilibrium  ceiling. Agricultural Stabilization Act  Under t h e ASA, a s u b s i d y a n n u a l a v e r a g e hog p r i c e  i s paid  predetermined n a t i o n a l  hog  price  floor price.  e x c e e d s t h e f l o o r , no s u b s i d y simulated  to farmers i f the  f o r Canada as a whole i s l e s s  the  The  involve  i . e . f a r m e r s a r e n o t t a x e d when  e x c e e d s some 4.3.2.1.1  they  price  I f Canada's  than  average  occurs.  f o r hogs u n d e r t h e ASA i s e q u a l  The same r e a s o n i n g w i l l a p p l y f o r t h e c a s e 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), r e g a r d l e s s of  the l e v e l of the f l o o r p r i c e determined by the program.  As  i n d i c a t e d e a r l i e r , ASA payments are annual and r e p r e s e n t an " a f t e r the f a c t " type of subsidy; hence they do not have d i r e c t p r i c e e f f e c t s on farmers' g i l t r e t e n t i o n or holdover decisions  (Martin).  The ASA may,  through the s h i f t e r  however, a f f e c t supply  a^.'  Given t h i s c o n s i d e r a t i o n , p r i c e r e c e i v e d by  farmers  under the ASA i s : PH*" = PH*" , s e 4.3.2.1.2  (15)  B r i t i s h Columbia Income Assurance  Under the B r i t i s h Columbia  Swine Producers Program Swine Producers Income  Assurance Program, an indemnity i s p a i d to farmers  each  time the c a l c u l a t e d 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 , i s g r e a t e r than the p r o v i n c i a l market p r i c e f o r hogs.  equilibrium  The amount of the indemnity i s equal  to 75 percent of the r e t u r n d e f i c i t , or the d i f f e r e n c e between c o s t s and hog p r i c e . under the FIAP  T h e r e f o r e , the p r i c e r e c e i v e d by  (Pj ) equals the B r i t i s h Columbia  p l u s the c a l c u l a t e d monthly indemnity.  farmers  market p r i c e  However, s i n c e 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 f o r the program, the average effective.  farm l e v e l hog p r i c e  ( P f p ) becomes a  A l s o , the e f f e c t i v e producer premium p a i d i s the  average producer premium (PP*") .  PP*"  r e p r e s e n t s farmers'  share of the t o t a l f i x e d premium r a t e p a i d every month,  48 r e g a r d l e s s o f whether s u b s i d i e s are p a i d t h a t month. C o n s i d e r i n g t h a t the amount o f the premium r a t e and the producer's share can be m o d i f i e d , P P  1  can be regarded as a  21 "policy  parameter". P H = max s  (PH , P ) - PP e' f p a a  RD  1  1  1  IND  1  IND  1  1  1  (16)  = (PI + C ) - P e m he  (17)  - «  (18)  1  RD  1 8  (since 1975 t o date) ( f o r the year 1974)  1  + PH e  1  P  +  ( 1  2 2  (19) (20)  1  f p a = [ 19 f p a  1  1  = a., _ P H 18 e  p j = IND fp P  1  -°19  )  P H  e  (21)  where: P  1 p  P  1  "  i s the p r i c e r e c e i v e d by farmers f o r hogs e l i g i b l e f o r the FIAP, i n month t ( d o l l a r s / c w t ) , i s the weighted average p r i c e f o r hogs r e c e i v e d by farmers, i n month t ( d o l l a r s / c w t ) .  21 The computer program i n c l u d e s two parameters t o account f o r changes i n the farmers' share i n t o t a l premiums. a^^ f o r the case o f a f i x e d premium r a t e and a^~j when the premiums are allowed t o s l i d e a c c o r d i n g t o 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 p r o p o r t i o n o f f i x e d c o s t s i n c l u d e d i n the c a l c u l a t i o n of the r e t u r n d e f i c i t i s given by the parameter (i.e., i n the extremes, equals one f o r the case o f a n e t margin and zero f o r the case o f a gross margin). Also, the hog p r i c e used t o c a l c u l a t e the r e t u r n d e f i c i t i s allowed t o vary a c c o r d i n g t o the parameter o ^ ^ .  49 C*" m  i s t h e m a r k e t i n g c o s t p e r cwt o f hogs s o l d ( d o l l a r s / c w t ) i n month t , as r e p o r t e d by t h e FIAP.  PP*"  i s t h e f i x e d p r o d u c e r premium month t .  PP*"  i s the t.  cl  a v e r a g e premium  (dollars/cwt) , i n  ( d o l l a r s / c w t ) , i n month  IND*"  i s t h e i n d e m n i t y p a i d by i n month t .  RD*"  i s t h e r e t u r n d e f i c i t , o r d i f f e r e n c e between t h e 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 t h e 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  i s the p r o p o r t i o n g u a r a n t e e d by t h e  l8  a,  the  program  (dollars/cwt) ,  of the monthly r e t u r n FIAP ( c u r r e n t l y 7 5 % ) .  deficit  i s t h e p r o p o r t i o n o f hogs e l i g i b l e f o r a g i v e n p r o g r a m , o v e r t h e t o t a l number o f hogs m a r k e t e d , i n any month. In t h i s s p e c i f i c case a _ refers  n  1  i y  to the During floor  p r o p o r t i o n o f hogs e l i g i b l e  1974  p r i c e was  (first  year  c a l c u l a t e d assuming  some a c c u m u l a t e d p e r c e n t a g e to the  return  and  or  (1973), M e i l k e )  its  i n Chapter i t has  FIAP),  = 0 and  a^g  equal  input  isolated  the to  according  Schemes 3,  elsewhere  (West e t a l  been s t a t e d t h a t f a r m e r s  Therefore,  subsidy  effects.  scheme on  t h e model i n c l u d e s  hog the  feed p r i c e to account  Under t h i s p r o g r a m t h e  (1974)  react  t o c h a n g e s i n m a r g i n d e p e n d i n g on w h e t h e r  f e e d p r i c e s change.  c a s e o f an  the  indemnity c a l c u l a t e d  Input Subsidy  mentioned  differently  of  deficit.  4.3.2.2 As  of o p e r a t i o n  f o r FIAP.  effective  for feed  50 p r i c e p a i d by ceiling  farmers  i f the  (PF )  i s equal  1  t o the c a l c u l a t e d  feed e q u i l i b r i u m p r i c e  (PF )  exceeds  1  the  ceiling. PF  1  s  = minimum  (PF , e 1  PF ), c  (22)  1  where: PF  1  PF  1  PF  1  i s the c e i l i n g one cwt o f hog i n month t .  c  effect  the  has  already  expression  (a^G ).  retention  1  subsidy  on  The  change i n g i l t s  4.3.3  2 3  effect  (1)  through  of the  G  i s the  1  amount o f t h e  r e t a i n e d i s assumed t o be  the  paid  the  gilt  retained subsidy.  proportional  subsidy.  Summary M e a s u r e s  Considering t h e model c a n  necessary  i n equation the  feed  program, i t s  a d d i t i o n a l quantity of g i l t s  p u r p o s e s and  amount o f  r e t e n t i o n subsidy  represents  breeding  the  gilt  been i n c l u d e d  for  is  needed t o p r o d u c e (dollars/cwt),  i s the e f f e c t i v e or (simulated) p r i c e of by f a r m e r s ( d o l l a r s / c w t ) , i n month t . Regarding  with  2 3  i s the e q u i l i b r i u m p r i c e o f f e e d needed to produce one cwt o f hog d r e s s e d c a r c a s s ( d o l l a r s / c w t ) , i n month t .  e  S  to  p r i c e of f e e d dressed carcass  to  t h a t the  computer s i m u l a t i o n  generate a p r o f u s i o n of  summarize i t by  experiments  information, i t  c a l c u l a t i n g what i s  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 computer m o d e l by means o f t h e p a r a m e t e r a 2 1  called  the  "summary m e a s u r e s " parameters  (Kennedy  the l e v e l  cost of  to indicate  of variables  makers. V a r i a b l e s quantity  such as farmers'  o f hogs p r o d u c e d ,  of  g r o s s revenue  and b u d g e t a r y  By c o m p a r i n g  t h e summary m e a s u r e s u n d e r no s t a b i l i z a t i o n  assess t h e i r  different  over  the e n t i r e A list  given  fern £  impacts  the values scheme w i t h  programs, i t i s p o s s i b l e on t h e r e l e v a n t  be c a l c u l a t e d  based  variables.  on m o n t h l y v a l u e s  period.  o f t h e summary m e a s u r e s u s e d  i n this  study i s  below. (I- ) res  i s t h e mean  (standard d e v i a t i o n ) o f annual  e q u i l i b r i u m hog p r o d u c e r of I_ fsm  stability  income, hog p r i c e s ,  t o g o v e r n m e n t and p r o d u c e r s .  Summary m e a s u r e s w i l l  I  the degree  regarded as important t o p o l i c y  t h e ones o f c u r r e n t and p r o p o s e d to  They a r e s t a t i s t i c a l  ( i . e . mean, s t a n d a r d d e v i a t i o n , maximum and  minimum v a l u e s ) u s e d and  (1974)).  (I ) rss r  income  (thousands  dollars).  i s t h e mean simulated  (standard d e v i a t i o n ) o f annual  hog p r o d u c e r  income  (thousands o f  dollars). P, hem  (P, ) hes  i s t h e mean  (standard d e v i a t i o n ) o f the average  monthly v a l u e price P, hsm  (P. ) hss  (between y e a r s ) o f e q u i l i b r i u m  ( d o l l a r s / c w t ) o f s l a u g h t e r hogs.  i s t h e mean  (standard d e v i a t i o n ) o f the average ^  monthly v a l u e (dollars/cwt)  (between y e a r s )  of simulated price  o f s l a u g h t e r hogs.  52 Q, hem  (Q, ) hes  i s t h e mean  (standard  d e v i a t i o n ) o f the annual  e q u i l i b r i u m quantity of slaugher  hogs  (thousands  of cwt). (Q, ) hesm  i s the standard within years,  (H, ) hss  i s t h e mean simulated  value,  of equilibrium quantity of  s l a u g h t e r hogs Q, hsm  d e v i a t i o n o f the monthly  (thousands o f c w t ) .  (standard  deviation)  o f the annual  q u a n t i t y o f s l a u g h t e r hogs  (thousands  of cwt). (Q, ) hssm  i s the standard within years, hogs  R  (R_ ) res  fern £  d e v i a t i o n o f the monthly 2  o f simulated  value,  quantity of slaughter  (thousands o f c w t ) .  i s t h e mean  (standard  deviation)  equilibrium  hog p r o d u c e r  gross  o f the annual  revenue  (thousands o f d o l l a r s ) . R  fsm £  {Rr- \ fss)  i s t h e mean simulated of  TNSPG  hog p r o d u c e r  i s the t o t a l  negative) (if  gross  revenue  n e t amount o f s u b s i d i e s t h e  government p a i d t o farmers ( i f or received  positive)  i s the t o t a l  f r o m them a s c o n t r i b u t i o n s  (thousands o f d o l l a r s ) . amount p a i d b y t h e f e d e r a l  government as s u b s i d i e s t o farmers of TNF  (thousands  dollars).  provincial  TFGP  (standard d e v i a t i o n ) o f the annual  (thousands  dollars).  i s the t o t a l subsidies  n e t amount r e c e i v e d by f a r m e r s  f r o m t h e f e d e r a l and p r o v i n c i a l  as  governments  ( i f p o s i t i v e ) or the t o t a l n e t  amount p a i d  as c o n t r i b u t i o n s  government 4.3.3.1 The  ( i f negative)  Summary M e a s u r e s  mean and s t a n d a r d  v a r i a b l e s a r e computed u s i n g  to the p r o v i n c i a l  (thousands o f d o l l a r s )  Computation  deviation of the relevant standard  statistical  Government payments and f a r m e r c o n t r i b u t i o n s  procedures.  are calculated  making use o f t h e s e t o f e q u a t i o n s d e t a i l e d below. 4.3.3.1.1 Considering include  Government Payments that a l l present  and p r o p o s e d  schemes may  f e d e r a l a n d / o r p r o v i n c i a l payments t o f a r m e r s , t h e  model needs t o a c c o u n t f o r them. 4.3.3.1.1.1 For  Federal  Government Payments  t h e case o f a f e d e r a l p r i c e s u p p o r t program  that  o p e r a t e s on a m o n t h l y [(annual)J b a s i s where s u b s i d i e s a r e paid  t o farmers each time the f e d e r a l f l o o r p r i c e , is  greater  (PH )l a  e ( a n n u a l ) amount p a i d  FG  P  = 0  a  p  =0  than the  , the monthly  equals:  if  P H > P*: e = 1  if  FG  relevant  PH*" < P*; ff e  i f PH > P e = f a  a  (23)  (24)  (25)  54  FG  a  p  = Q ( P * - PH ) s ff e a  if  a  PH  < P  3  e  (26)  a  ff  where: t a FG P (FG P ) t a Q"s (Q s )  i s the monthly (annual) f e d e r a of l government payment to farmers.(thousands dollars), i n month t (year a) t o t aslu p porl i esimulated qi usa nthe t i t ymonthly of s l a u(annual) g h t e r hogs d, i n month t (year a ) . (thousands of cwt)  t a P^^(P ) ff  i monthly r av li n fc lioaolr lpe rv ie cl e, f osr the hogs, r e l e v a(annual) n t at thef e pd re o i n month t (year a ) . (dollars/cwt)  t a P-- (P., ) i s the monthly (annual) f e d e r a l f l o o r p r i c e f fn ffn f o r hogs ( d o l l a r s / c w t ) at the n a t i o n a l l e v e l , i n month t (year a ) . t a PH e (PH e )  monthly v i n c iaa)l. (edqoulill ai rb s r i/ u m pi rsi cthe e of hogs, i(annual) n month pt r o(year cwt)  t a PH en (PH en ) pi rsi cthe i o n a l a )e.q u i l(idborliluamr s / e ofmonthly hogs, i(annual) n month nt a t(year cwt) .. As  stated before,  i f s u b s i d i e s are p a i d with  to the p r o v i n c i a l e q u i l i b r i u m hog  p r i c e , f o r the monthly  J( annual )J case, the r e l e v a n t f e d e r a l f l o o r p r i c e at provincial level  T  t (Pff)  a r ff^ P  On  ]  1  s u b s i d i e s are p a i d w i t h r e s p e c t  e q u i l i b r i u m hog  price  (  p H  g )  the other  federal hand,  to the average n a t i o n a l  ^ en'| ' * PH  n  the  , becomes equal to the ( P « )l • ffn  if  respect  t  1S  r e  ^-  e v a n  ^- federal  f l o o r p r i c e i s equal to the p r o v i n c i a l monthly (annual) average e q u i l i b r i u m p r i c e (PH ) ( e ^ , p l u s the f e d e r a l 1  pH  subsidy.  The  f e d e r a l subsidy  between the monthly P  a  ffn  and  as  the  difference  federal floor price  JT(annual) j  (Pf ) f n  national equilibrium price  en For  Act,  [(annual)J  the monthly  (PH*" ) en  i s equal.to  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  the n a t i o n a l f e d e r a l f l o o r p r i c e of hogs i s c a l c u l a t e d  follows: P« = ffn  a  p . = ffn  ™ PH 20 e  3 5  a  +  (Pi  PH ° e  - Pi  a 5  v  )  (from 1958  a l  20  a  v  (from 1975  to d a t e ) ,  (27)  to 1974),  (28)  where: a5 PH e  i s the f i v e year n a t i o n a l moving average price (dollars/cwt).  al 0 PH e  i s the ten year n a t i o n a l moving average hog (dollars/cwt).  a5 PI v  a  hog  i s produce the f i v e one year to cwtmoving of hogaverage dressedcash c a r ccaossst needed (dollars/ cwt) . i s the p r o p o r t i o n of the average n a t i o n a l hog supported under the ASA.  20  4.3.3.1.1.2  as w e l l as input subsidy  needs to c o n s i d e r occur under any  any  tax-  types of schemes, the model  p r o v i n c i a l government payment t h a t  of them.  4.3.3.1.1.2.1 As  price  P r o v i n c i a l Government Payments  Given t h a t t h i s study i n c l u d e s product p r i c e subsidy  price  Deficiency  Payment Scheme  i n the case above, i n months where the  British  may  Columbia market p r i c e price  ( fp) ' p  a n <  ^  t  n  e  (PH ) f a l l s below the p r o v i n c i a l  floor  l a t t e r i s g r e a t e r than the f e d e r a l  floor  e  p r i c e of hogs, 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^£)/ the  p r o v i n c i a l government pays a subsidy to farmers. PG = 0 p  (29)  i f (PH > P or P > P ), e = fp f f = fp  1  1  1  PG = Q (P - max p s fp 1  1  1  1  if  1  (PH  < P*  1  P H  e' f f P  and P]: < t f  p  P  p  )  ,  (30)  where: PG  i s the p r o v i n c i a l government payment to farmers i n month t (thousands of d o l l a r s ) .  p  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  PG  PG  1  I  1  l  ( £ ) P  e  i s g r e a t e r than the c a l c u l a t e d c e i l i n g  Q  1  1  s  (PF e 1  PF ) c 1  1  if  c  (31)  i f PF < PF e = c  = 0  (Pf )•  PF > PF e c 1  1  (32)  where: PG:  i s the p r o v i n c i a l government payment t o farmers under an i n p u t subsidy scheme on feed p r i c e s (thousands of d o l l a r s ) . 4.3.3.1.1.2.3  G i l t R e t e n t i o n Subsidy  Under a g i l t r e t e n t i o n 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  monthly subsidy  i s equal t o :  PGg  =0  PG  = AQGR*"• G*" s  fc  g  retained, the  i f AQGR*" < 0  (33)  i f AQGR*" > 0  (34)  where: PG*" ^  i s t h e p r o v i n c i a l g o v e r n m e n t payment t o f a r m e r s under a g i l t r e t e n t i o n s u b s i d y program, i n month t ( t h o u s a n d s o f d o l l a r s ) . 4.3.3.1.1.2.4 The  total  T o t a l Monthly P r o v i n c i a l Government Payments  amount p a i d  t o f a r m e r s by t h e p r o v i n c i a l  g o v e r n m e n t i n any month, i s e q u a l under a p r o d u c t p r i c e s u b s i d y and/or a g i l t SPG*" py  t o t h e sum o f t h e payments  scheme, a n i n p u t  subsidy  scheme  r e t e n t i o n one.  = PG*" + PG*: + PG*" p l g  (35)  where: SPG*" PY  i s t h e t o t a l amount o f s u b s i d i e s p a i d t o f a r m e r s by t h e p r o v i n c i a l g o v e r n m e n t , i n month t (thousands o f d o l l a r s ) .  4.3.3.1.2 If  Producer  Contributions  any o f t h e p r o g r a m s b e i n g  considered  include  p r o d u c e r s ' p r e m i u m s , t h e m o n t h l y p r o d u c e r c o n t r i b u t i o n c a n be calculated  as f o l l o w s :  58 PC  =  1  if  PC  P  (Q x PP ) s 1  if  P  (36)  < P H and P H < P H ff = c e = c 1  1  =  1  1  1  1  1  24  + PP (37)  > PH or PH > PH c e c 1  ff  1  ( P , P H ) - PH ff e  max  Q.  1  1  1  where: i s the producer c o n t r i b u t i o n through i n month t ( t h o u s a n d s o f d o l l a r s ) .  PC  4.3.3.1.3  premiums,  N e t M o n t h l y Payments t o ( i f n e g a t i v e ) or R e c e i v e d from ( i f p o s i t i v e ) F a r m e r s , by t h e P r o v i n c i a l Government  Under any o f t h e p r o v i n c i a l schemes where contribute  to the f i n a n c i a l  premiums, t h e n e t m o n t h l y government NSPG  1  25 =  is  s u p p o r t o f t h e program  amount p a i d  farmers through  by t h e p r o v i n c i a l  equal to:  PC  (38)  - SPG PY  1  1  where: NSPG  i s t h e n e t amount o f s u b s i d i e s p a i d t o f a r m e r s ( i f n e g a t i v e ) , o r r e c e i v e d f r o m them a s 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 o f d o l l a r s ) .  24 I n t h e c a s e o f r e s t r i c t i o n s on what hogs a r e e l i g i b l e f o r a p r o g r a m , t h e e f f e c t i v e p r o d u c e r premium and hog c e i l i n g p r i c e a r e e q u a l t o t h e w e i g h t e d a v e r a g e p r o d u c e r premium ( P P ) and c e i l i n g p r i c e ( P H ) r e s p e c t i v e l y , a ca 1  1  25 N o t e t h a t t h e m o n t h l y amount p a i d by t h e p r o v i n c i a l g o v e r n ment (j^gpgt) i s only o f producer c o n t r i b u t i o n s but a l s o o f f e d e r a l payments, g i v e n t h e c o n d i t i o n s i n e q u a t i o n s (29) and ( 3 0 ) . n  e  t  n  o  t  59 For  t h e c a s e o f a f e d e r a l p r o g r a m t h a t works on an  a n n u a l b a s i s , where  f e d e r a l payments have t o be d e d u c t e d  from t h o s e o f t h e p r o v i n c i a l government p a i d  during the  26 year, to  t h e n e t a n n u a l payment by t h e p r o v i n c i a l g o v e r n m e n t  farmers i s equal t o : 12 NSPG £ NSPG i=l NSPG  if  12 0, (E NSPG*" i=l  = min  1  12 E NSPG i=l + FG ) a  1  (39)  > 0 ,  if  p  12 ,t-i Z NSPG i=l  < 0, (40)  where NSPG  i s t h e n e t amount p a i d by t h e p r o v i n c i a l government as s u b s i d i e s ( i f n e g a t i v e ) o r 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 y e a r a (thousands o f d o l l a r s ) . Equation  provincial  (39) i s r e l e v a n t  government has r e c e i v e d  f a r m e r s , and t h e r e f o r e , has (40)  f o r t h e c a s e where t h e a net contribution  any f e d e r a l payment t h a t m i g h t  no e f f e c t on p r o v i n c i a l g o v e r n m e n t e x p e n s e s . reflects  has p a i d federal  from occur  Equation  t h e s i t u a t i o n where t h e p r o v i n c i a l g o v e r n m e n t  subsidies subsidies.  t o f a r m e r s a m o u n t i n g ,to more t h a n t h e H e r e t h e n e t amount p a i d  government i s e q u a l t o t h e a n n u a l f e d e r a l payment.  Equation  s i t u a t i o n where t h e t o t a l  subsidies  (40) a l s o d e p i c t s amount  by t h e p r o v i n c i a l paid  l e s s the .  the opposite  of federal subsidies  paid  T h i s i s t h e c a s e o f t h e c u r r e n t ASA and F I A P , where f e d e r a l payments a r e made a t t h e e n d o f t h e hog p r o d u c t i o n year.  60 is  greater  than or equal t o the t o t a l  p r o v i n c i a l government. recovers farmers  what has  4.3.3.1.4  the  Here, the p r o v i n c i a l government  already  the excedent  amount p a i d by  been p a i d  ( i . e . NSPG  and  t r a n s f e r s to  = 0).  Net M o n t h l y F a r m e r C o n t r i b u t i o n s t o t h e P r o v i n c i a l Government ( i f negative) or Subsidies 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 o r F e d e r a l Governments -  When f a r m e r s p r o g r a m and, federal or  NTF  =  1  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  a t t h e same t i m e , r e c e i v e  and/or  received  contribute  subsidies  from  p r o v i n c i a l g o v e r n m e n t s , t h e n e t amount  the paid  i s equal to:  SPG  1  + FG  py  1  - PC  (41)  1  P  where: NTF  i s t h e t o t a l n e t amount r e c e i v e d by f a r m e r s as s u b s i d i e s f r o m t h e 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 ) o r the t o t a l n e t amount o f c o n t r i b u t i o n s t o t h e p r o v i n c i a l g o v e r n m e n t ( i f n e g a t i v e ) , i n month t (thousands o f d o l l a r s ) .  1  For amount p a i d  N  T  F  a  =  the case o f a f e d e r a l annual program, the or received  FG  3  P  - NSPG  a  by  farmers  annual  i s equal t o :  (42)  A c c o r d i n g t o e q u a t i o n (4 0) whenever t h e amount o f 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 , t h e n e t a n n u a l amount p a i d by t h e P r o v i n c i a l government e q u a l s z e r o .  2 7  61 where: NTF  i s t h e t o t a l n e t amount r e c e i v e d by f a r m e r s as s u b s i d i e s f r o m t h e 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 n e t amount p a i d as c o n t r i b u t i o n s t o t h e p r o v i n c i a l government ( i f n e g a t i v e ) , i n y e a r a (thousands of d o l l a r s ) .  a  4.4  Model  Validation  Validating  a model i n v o l v e s d e t e r m i n i n g  agreement between r e s u l t s o b t a i n e d those do  from the r e a l  this,  will  be  Naylor's used.  (a)  system b e i n g  the  f r o m t h e model  simulated  A rationalist  following three  step of ensuring  steps:  that  the  i n accord  relevant  and  experience,  To  procedure  a s s u m p t i o n s o f t h e model a r e theory,  of  with  (Anderson).  (1971) " m u l t i s t a g e v a l i d a t i o n "  I t i n v o l v e s the  level  with  general  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  t o 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 positive with  Regarding  the step  s t e p o f comparing model  real  system b e i n g  ( a ) , the  performance  simulated  (Anderson).  assumptions u n d e r l y i n g  the  p r e s e n t m o d e l have b e e n e s t a b l i s h e d i n a c c o r d w i t h  economic  theory,  assumptions,  in  and  i n the  specific  consultation with  values  experienced  people  of the p r o d u c t i o n  B.C.M.A. hog  have been b a s e d on  or set at reasonable  case  previous  levels  specialists.  Parameter  s t u d i e s wherever p o s s i b l e ,  according  w o r k i n g i n t h e hog  to the  advice  industry.  of  Regarding  62 step  (b), given budgetary  impossible  to subject  Therefore,  they are l e f t  (1971))  because  the assumptions as  Regarding  through h i s t o r i c a l  Historical validation  (Naylor,  r e a s o n s t o assume  step  ( c ) , the step of  with the data observed validation,  since  will  this  purposes.  i s p o s s i b l e because  y e a r s ; thus the o p p o r t u n i t y e x i s t s  the  British  t o compare  a c t u a l r e s u l t s w i t h t h e o n e s g e n e r a t e d by t h e  s i m u l a t i o n model. with  test.  Farm Income A s s u r a n c e P r o g r a m has o p e r a t e d f o r  almost f i v e its  to empirical  i s not intended f o r f o r e c a s t i n g  Columbia  i t is  "tentative postulates"  the model performance  be u n d e r t a k e n study  time c o n s t r a i n t s ,  t h e r e a r e no a p r i o r i  that they are i n v a l i d . comparing  and  zero  For that purpose,  computer  the model w i l l  v a l u e s o f the s t a b i l i z a t i o n  parameters  be  run  f o r the  28  period  January  1964  t o December 1973,  and w i t h t h e o n e s 29  reported Later,  i n T a b l e 4.1  from January  t o a s s e s s the degree  o f hogs p r o d u c e d  1974  to which  t o December  the simulated q u a n t i t i e s  o v e r t h e 36 month p e r i o d  conform  observed r e a l data, s t a t i s t i c a l  tests  ( t h e Mann-Whitney Rank Sum  and T h e i l ' s  Coefficient) the t i m i n g , performed  and and  Test  a graphical direction  (Freund>  o f "goodness  comparison,  Zwart  to the of  fit"  Inequality  t o check  of turning points, w i l l  MacAuley,  1976.  the  number,  be  (1973)).  With z e r o v a l u e s o f t h e s t a b i l i z a t i o n p a r a m e t e r s , the model w i l l reproduce r e a l world data f o r the p e r i o d being considered. i  The model was one f o r w h i c h  v a l i d a t e d over t h i s p e r i o d because FIAP d a t a e x i s t e d .  i t was  the  However, b e f o r e a p p l y i n g described related  to the  basic  historical  already  of  the  produced w i t h o u t FIAP. marketed under the run  possible produced.  E  the  the  period  Since  equilibrium Given that  e f f e c t s of  FIAP a r e  supply e l a s t i c i t y t o e s t i m a t e the The  relevant  quantities  the  known and b a s e d on  the  equilibrium equations are  assuming a  operation  hogs of  hogs  certain  studies,  q u a n t i t i e s of as  1974  that  of  quantities  previous  the  January  FIAP, i t i s n e c e s s a r y to d e s i g n a procedure  allows estimation  short  include  problem  data a v a i l a b l e .  hogs p r o d u c e d d u r i n g  t o December 1976 the  v a l i d a t i o n procedure  a b o v e , i t i s n e c e s s a r y t o overcome a  q u a n t i t i e s of  of  the  i t is  hogs  follows:  (43)  sr f pa  where: f pa  E  sr  is by  t h e w e i g h t e d a v e r a g e p r i c e f o r hogs f a r m e r s , i n month t ( d o l l a r s / c w t ) .  is of  t h e q u a n t i t y o f hogs p r o d u c e d ( t h o u s a n d s cwt) when t h e FIAP i s i n o p e r a t i o n .  is  the  From e q u a t i o n  (43),  short  run  hog  solving for  supply Q  elasticity.  received  64 - PH fpa e  1  Q  fc  =  Q  / 1.0+E sfi sr t  X !  .  (44)  PH* e 4.4.1  V a l i d a t i o n Procedure  A c c o r d i n g t o the v a l i d a t i o n procedure o u t l i n e d i n the p r e v i o u s s e c t i o n t h e r e are two c r u c i a l steps i n v o l v e d .  First,  the s e l e c t i o n o f parameter v a l u e s , and second, the comparison of the r e s u l t s generated by the model with observed d a t a . T h i s s e c t i o n c o n c e n t r a t e s on these two aspects o f the v a l i d a t i o n procedure. 4.4.1.1  Choosing Parameter Values  Modeling hog producers' r e a c t i o n s t o s t a b i l i z a t i o n programs ( s e c t i o n 4.3.1) needed  the s p e c i f i c a t i o n o f  seventeen "response" parameters, w h i l e the s t a b i l i z a t i o n schemes themselves r e q u i r e d t e n " p o l i c y " parameters. 4.4.1.1.1  "Response"  Parameters  "Response"  parameters can be c l a s s i f i e d i n t o three  groups: (a)  B e h a v i o r a l parameters; a l l o w f o r farmer response to changes  i n hog p r i c e s , i n p u t p r i c e s ,  retention subsidies more s t a b l e  gilt  ( i . e . , p r i c e e f f e c t s ) or a  (unstable) p r o d u c t i o n environment  ( i . e . , non-price e f f e c t ) .  As s t a t e d i n s e c t i o n  4.3.1.1, both e f f e c t s can have s h o r t and long run (b)  implications.  T e c h n i c a l parameters; i n c o r p o r a t e the more important t e c h n o l o g i c a l a s p e c t s o f the hog  65 production process (c)  i n B r i t i s h Columbia,  I d e n t i t y parameters;  account  for short  and run  resource c o n s t r a i n t s . 4.4.1.1.1.1 The and  a.  values  i n the  B e h av i o r a1 assigned  gilt  P arameters  to the b e h a v i o r a l parameters  r e t e n t i o n equation  b a s e d on  t h e e s t i m a t i o n by West e t a l  function  a t the  calculated and  farm  s h o r t run  the  feed p r i c e  points.  According  et  al  in  supply  (1974),  (1974), hog  level  the  hog  elasticity to the  o f -0.60  of supply  were u s e d as  equation  elasticities  specified refer  production  In o t h e r words, they  i n month t+18,  resulting  r e t a i n e d i n month t due  and/or i n p u t p r i c e s .  For  this  (one month) g i l t  assign i n i t i a l  values  study,  reflect  gilt  estimated  (the l a g i n p r o d u c t i o n  elasticities, at  zero  at  values  the g i l t  s h o r t run  t h e m o d e l was  values  and  g i v e n by  with  production  West change  (West e t a l changes i n the  hog  values  for  were n e e d e d  to  occur  assumed i n  this  (one month) g i l t r e t e n t i o n  run w i t h  a l l b e h a v i o r a l parameters  a l l technical  the p r o d u c t i o n  r e t e n t i o n subsidy  by  r e t e n t i o n parameters  f o u r t e e n months l a t e r estimate  starting  to changes i n  change i n hog  To  0.83  from changes i n  which would a l l o w the  study).  of  to the  retention elasticities  to the  supply  The  o f hogs m a r k e t e d e i g h t e e n months l a t e r  number o f g i l t s  to  o f a hog  Columbia.  elasticity  supply  s h o r t run  page 3 8 ) .  s h o r t run  (19 74)  for British  price  ( e q u a t i o n one) , were  and  identity  assumptions.  parameter  (a_)  By  parameters adjusting  the q u a n t i t y of  gilts  r e t a i n e d was  showed t h a t a one on  i n c r e a s e d by percent  average, a three  T h u s , by m a k i n g u s e  increase  percent of  one  percent. in gilts  increase  i n hog  t h e model i t was  The  results  retained  induced,  production.  p o s s i b l e to  estimate 30  s h o r t run The  hog  and  feed p r i c e g i l t  c a l c u l a t e d values  prices, values  respectively. (reported  (one month) hog  values  reported  bounds and  and  They p r o v i d e d  i n Table  N e x t , s i n c e no run  were 0.28  retention  4.1)  the  f o r hog  were a v a i l a b l e f o r  values  short  f o r a,„  two).  Given that h i s t o r i c a l  holdover  and  a, , c  ID  equation  v a l i d a t i o n was  the  upper  14  the b e h a v i o r a l parameters i n the  the  elasticities,  (1974) were t a k e n as  l a t e r used to estimate  feed  a^-  feed p r i c e supply  by West e t a l  and  base to a s s i g n  f o r a-^ and  estimations  and  -0.20  elasticities.  (equation  possible,  the  model was r u n s u c c e s s i v e l y t o o b t a i n i m p r o v e d e s t i m a t e s f o r an. and a,,-/ t h e p a r a m e t e r s r e f l e c t i n g f a r m e r r e s p o n s e 14 lb to  c h a n g e s i n hog  and  estimated  values  s h o r t run  elasticity  price  -0.30  and  are  (one  imply  t o c h a n g e s i n hog  gilt of  reported  f o r feed  These v a l u e s ses  input p r i c e s , r e s p e c t i v e l y . i n Table  month) o f  4.1  supply  and of  The  represent 0.4  for  a  hog  price. the  f o l l o w i n g about farmer  p r i c e s and  input p r i c e s .  respon-  Regarding  the  r e t e n t i o n r e s p o n s e , as p r i c e o f hogs i n c r e a s e s o r p r i c e  inputs  30 The hog defined over the in this  falls,  farmers w i l l  r e t a i n more g i l t s  for  breeding.  . . . . and f e e d 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 a r e as t h e p e r c e n t a g e change i n number o f g i l t s r e t a i n e d p e r c e n t a g e change i n hog o r f e e d p r i c e s . S h o r t r u n c a s e r e f e r s t o a one month p e r i o d .  Regarding  the holdover response  as p r i c e of hog i n c r e a s e s  farmers w i l l holdover l e s s hogs.  On the other hand, i f  e f f e c t i v e i n p u t p r i c e were lowered  i t i s assumed t h a t  farmers w i l l r e t a i n more hogs t o take advantage of the  lower  c o s t s of p r o d u c t i o n . F i n a l l y , the v a l u e s of the response g i l t r e t e n t i o n subsidy parameter  parameter to a  (a^) and the g i l t r e t e n t i o n  shift  (a^) were chosen i n an ad-hoc manner, l a c k i n g  p r e v i o u s estimates of these parameters. i n Table 4.1  The values r e p o r t e d  thus r e p r e s e n t o n l y approximations;  they  should,  however, p r o v i d e i n s i g h t s as to the l i k e l y e f f e c t s of these parameters. Next, an experiment were allowed t o vary was  where two b e h a v i o r a l parameters  undertaken  t o assess the extent to  which v a l u e s assigned t o them ( i n Table 4.1) i n determining the r e s u l t s o b t a i n e d . determine  were c r u c i a l  In other words, to  i f the r e s u l t s apply o n l y f o r the case of the  s i n g l e runs r e p o r t e d or whether they apply over a wide range of  parameter v a l u e s .  The b e h a v i o r a l parameters s e l e c t e d were  those considered most important  in influencing  farmer  31  production d e c i s i o n s .  The parameters chosen  and  the range  over which they were v a r i e d were:  a^, the g i l t r e t e n t i o n s h i f t e r , was i t s e f f e c t s are known a p r i o r i .  not i n c l u d e d because  In f a c t ,  will  shift  the  number of g i l t s r e t a i n e d any d e s i r e d p r o p o r t i o n and d i r e c t i o n depending o n l y on the value assigned to i t i n the model.  68 a, :  accounts f o r the e f f e c t of a change i n s l a u g h t e r hog p r i c e s , i 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. I t s s e l e c t e d range was from 0.0003 t o 0.0027 ( i . e . , a range i n terms o f e l a s t i c i t i e s o f 0.09 t o 0.84).  a-^.  accounts f o r the e f f e c t o f a change i n s l a u g h t e r hog p r i c e s , i n month t , on q u a n t i t y o f h o l d o v e r s . I t s s e l e c t e d range was from 0.0033 t o 0.030 ( i . e . , a range i n terms o f e l a s t i c i t i e s o f 0.13 to 1.20). Having s e l e c t e d a c e n t r a l composite d e s i g n t o s e l e c t  the values o f the two parameters, the model was run nine under d i f f e r e n t s e t s o f parameter combinations. of  times  The r e s u l t s  each run and the l e v e l o f the b e h a v i o r a l parameters v a r i e d  are given i n Appendix D, Table D-1.  The r e s u l t s are  c o n s i s t e n t with the ones obtained on the b a s i s o f a s i n g l e run.  In f a c t , viewing  the experiment's r e s u l t s i t can be  seen t h a t i n a l l nine runs the l e v e l s o f farmer hog p r o d u c t i o n are above i t s e q u i l i b r i u m l e v e l . variation  (measured through  income and Also, r e l a t i v e  the c o e f f i c i e n t o f v a r i a t i o n )  f a l l s c o n s i s t e n t l y below i t s e q u i l i b r i u m v a l u e .  Because  these r e s u l t s . o c c u r r e d under each parameter combination o f the experiment, they g i v e confidence to the r e s u l t s  obtained  from a s i n g l e run; i n other words, the s p e c i f i c parameter v a l u e s chosen f o r determining  and a ^ do not appear c r i t i c a l i n  the r e s u l t s o f the model.  v a r i a t i o n i n farmer  The value o f a b s o l u t e  income, however, i n some runs i s  i n c o n s i s t e n t w i t h the p r e v i o u s r e s u l t s .  This finding  i n d i c a t e s t h a t more c a r e f u l c o n s i d e r a t i o n should be g i v e n to  the a n a l y s i s b e f o r e drawing g e n e r a l c o n c l u s i o n s r e g a r d i n g  absolute v a r i a t i o n  in  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  All  and i d e n t i t y  Table .  o f farmer  technical  4.1 were a r r i v e d  .  parameter v a l u e s  a t through  presented  consultation with  .  33  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 4.4.1.1.1.3 Values  Policy  for policy  p o l i c y makers, such  hog  specialists.  Parameters  p a r a m e t e r s c a n be m a n i p u l a t e d  as a f l o o r  Their values are held constant  or c e i l i n g  price  by  f o r hogs.  i n e a c h s i m u l a t i o n r u n and  may be c h a n g e d between r u n s  to assess  relevant  summary measures..  Values  relevant  t o c u r r e n t programs  Table  Parameters  (FIAP  4.1 a r e t h e v a l u e s c u r r e n t l y  their  effects  for policy  on t h e  parameters  and ASA) r e p o r t e d i n in effect.  The r e s u l t s show t h a t when t h e g i l t r e t e n t i o n p a r a m e t e r i s above 0.0015 ( i . e . , an e l a s t i c i t y o f 0.47) t h e v a l u e o f t h e a b s o l u t e v a r i a t i o n o f f a r m e r income (measured i n s t a n d a r d d e v i a t i o n s ) t e n d s t o i n c r e a s e above t h e equilibrium value. T h e r e f o r e , t h e more r e s p o n s i v e f a r m e r s a r e i n t e r m s o f g i l t s r e t a i n e d , t h e more d e - s t a b i l i z i n g t h e e f f e c t s on p r o d u c e r income ( i n a b s o l u t e t e r m s ) . The u s e o f c o n s t a n t v a l u e s f o r t h e p a r a m e t e r s r e p r e s e n t i n g t h e p r o d u c t i o n a s s u m p t i o n s and a c o n s t a n t i n p u t mix n e e d e d t o p r o d u c e one h u n d r e d w e i g h t o f hog ( d r e s s e d 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 o r s u b s t i t u t i o n between i n p u t s , due t o c h a n g e s i n r e l a t i v e p r i c e s , was a l l o w e d . This a s s u m p t i o n w o u l d 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 t h e c a s e of a feed p r i c e subsidy. Removal o f t h i s a s s u m p t i o n w o u l d have r e q u i r e d c a p t u r i n g hog p r o d u c e r s i n v e s t m e n t d e c i s i o n s o v e r t i m e and, h e n c e , 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  CH-  0.0009  Behavioral  G i l t r e t e n t i o n response t o a change i n hog p r i c e s .  OI,  0.0 00 8  Behavioral  G i l t r e t e n t i o n response t o a change i n input p r i c e s .  a.  0.00002  Behavioral  G i l t r e t e n t i o n response t o a g i l t r e t e n t i o n subsidy.  01.  0.0037  Behavioral  G i l t r e t e n t i o n response induced by s t a b i l i z a t i o n efforts.  a,  0.0125  Identity  G i l t retention constraint.  a,  1.80  Technical  Weight i n c r e a s e from keeping an e x t r a g i l t u n t i l i t reaches average sow weight a t time o f slaughter.  0.10  Technical  P r o p o r t i o n o f sow c u l l i n g a f t e r f i r s t farrowing.  a,  0.20  Technical  P r o p o r t i o n of sow c u l l i n g a f t e r second f a r r o w i n g .  a,  0.25 .  Technical  P r o p o r t i o n o f sow c u l l i n g a f t e r t h i r d farrowing.  a 10  0.20  Technical  P r o p o r t i o n of sow c u l l i n g a f t e r f o u r t h farrowing.  a 11  0.15  Technical  P r o p o r t i o n o f sow c u l l i n g a f t e r f i f t h farrowing.  0.05  Technical  P r o p o r t i o n o f sow c u l l i n g a f t e r s i x t h farrowing.  7.75  Technical  Average l i t t e r s i z e s u r v i v i n g u n t i l average s l a u g h t e r weight.  12  l  l  13  Definition  71  Symbol  Value  Parameter Type. .  Definition  a  14  -0.01  Behavioral  Holdover response to a change i n hog p r i c e s .  a  15  0.01  Behavioral  Holdover response to a change i n i n p u t p r i c e s .  a  16  1.05  Technical  Weight i n c r e a s e from keeping s l a u g h t e r hog e x t r a month.  a  17  0.10  Identity  Holdover  a  18  0.75  Policy  P r o p o r t i o n of r e t u r n d e f i c i t guaranteed by c u r r e n t FIAP.  a  19  -  Policy  P r o p o r t i o n of hogs e l i g i b l e under any given program.  a  20  0.90  Policy  L e v e l of support of  a  21  0.90  Policy  L e v e l of support of the input (feed) subsidy program.  a  22  0.75  Policy  Determines the f l o o r p r i c e of hogs under the product p r i c e and product p r i c e premium subsidy schemes.  a  23  1.00  Policy  Determines the c e i l i n g p r i c e of hogs under the product p r i c e premium subsidy schemes.  a  24  1.00  Policy  P r o p o r t i o n of f i x e d c o s t considered to c a l c u l a t e the r e t u r n d e f i c i t .  a  25  1.00  Policy  Hog grade used to determine B r i t i s h Columbia market return.  an  constraint. the  the  72  Value  Parameter Type  Definition  a 26  1.00  Policy  Change i n t h e premium r a t e p a i d by f a r m e r s w i t h r e s p e c t t o t h e FIAP v a l u e i n 1975, a s s u m i n g t h a t premium a r e a f i x e d a n n u a l amount.  a 27  0.00  Policy  P r o p o r t i o n o f premium p a i d by f a r m e r s a s s u m i n g a s l i d i n g premium r a t e .  ESR  0.40  Behavioral  S h o r t r u n (one month) hog p r i c e e l a s t i c i t y of supply.  Symbol  4.4.1.2 For  R e s u l t s of the V a l i d a t i o n  validation  generate monthly  p u r p o s e s , t h e model was  levels  t h r o u g h December, 1976, parameters  real  (Freund)  calculated  only the o v e r a l l not  giving  tion,  the degree  comparison  was  R e s u l t s of the r e a l  T a b l e s B-2  and  (Sum  B-3,  and  reproduce  Rank) T e s t  was  coefficient  was  of over or  performed  reality,  underestima-  t o show t h e  turning points  and  measure  (Zwart,  s i m u l a t e d monthly  levels  t h e FIAP a r e g i v e n i n A p p e n d i x a graphical  comparison  B,  i s given i n  4.2. The  Whitney 99%  o f the model t o  o f the model t o r e p r o d u c e  about  hog p r o d u c t i o n u n d e r  figure  t h e g e n e r a t e d v a l u e s were  Given that both t e s t s  o f the model t o p r e d i c t  (1973)). of  (1973)).  insights  1974  o f p r o d u c t i o n o v e r t h e same p e r i o d .  the a b i l i t y  ability  a graphical  ability  Later,  and T h e i l ' s U i n e q u a l i t y  (Zwart,  to  p r o d u c t i o n from January,  o b s e r v e d d a t a , t h e Mann-Whitney  performed  used  u s i n g v a l u e s a s s i g n e d to the  levels  To d e t e r m i n e the  o f hog  i n T a b l e 4.1.  compared t o a c t u a l  Procedure  (Sum  level  rejected  calculated  v a l u e o f the c o e f f i c i e n t  Rank) T e s t was  of s i g n i f i c a n c e (i.e.,  that both  + 0.46.  the n u l l samples  T h i s means t h a t h y p o t h e s i s cannot  0.029, i n d i c a t i n g  at a be  come f r o m t h e same  p o p u l a t i o n , h a v i n g e q u a l means and d i s p e r s i o n ) . c o e f f i c i e n t was  o f t h e Mann-  that  Theil's  t h e model has  U  the  34 ability  to reproduce  reality,  while the g r a p h i c a l  analysis  34 A c o e f f i c i e n t of zero indicates perfect a b i l i t y to p r e d i c t or r e p r o d u c e r e a l i t y ; a c o e f f i c i e n t o f one,a complete l a c k of a b i l i t y .  M o n t h l y Hog  Production  showed t h a t  i n 97 p e r c e n t  o f t h e c a s e s i t was a b l e  predict  the d i r e c t i o n of turning  ability  o f t h e model t o r e p r o d u c e r e a l i t y ,  statistical comments.  t e s t s and g r a p h i c a l  points.  The r a t h e r  unusual  a s i n d i c a t e d by  a n a l y s i s , deserves  Two f a c t s a r e r e l e v a n t :  to accurately  some  a) t h e model was  built  t o p r e d i c t o n l y m a r g i n a l o r a d d i t i o n a l c h a n g e s i n hog rather  than t o t a l  supply,  to the behavioral West's e s t i m a t e s  and b) a l t h o u g h t h e v a l u e s  parameters  and  production assigned  were s e t a c c o r d i n g  (West e t a l ( 1 9 7 4 ) ) , t h e v a l u e s  to  o f a , , and a ,  were a r r i v e d a t f r o m s u c c e s s i v e good f i t .  In other  was c o n d u c t e d statistical the  w o r d s , t h e way t h e v a l i d a t i o n p r o c e d u r e  tests.  However, i t s h o u l d  t h e good r e s u l t s o f t h e n o t be f o r g o t t e n  that  r e s u l t s a r e a l s o h e a v i l y d e p e n d e n t on t h e s o - c a l l e d  technical In and  r u n s o f t h e model t o a c h i e v e a  i n d u c e d , t o some e x t e n t ,  and i d e n t i t y p a r a m e t e r s . summary, t h e r e s u l t s o f b o t h t h e s t a t i s t i c a l  the graphical.analysis  representation therefore,  imply  that  t h e model i s an  tests accurate  o f t h e B r i t i s h C o l u m b i a hog i n d u s t r y a n d ,  c a n be u s e d t o d e r i v e  a p p l i c a b l e t o the r e a l  world.  conclusions  which a r e  c  ID  ±4  76 Chapter THE  This by  chapter  RESULTS  illustrates  u s i n g the model t o s i m u l a t e  t o hog  producer  I t begins  by  outlining  Analytical The  will  the  of the  presented  t o be  i n Chapter  procedure  followed  relevant for policy  two  stages:  producers* one  income  impact  which i n v o l v e s a s i n g l e  of a l t e r n a t i v e  schemes and  Kennedy  5.1.1 As  Comparing E f f e c t s  p o i n t e d o u t above, the  the p r e v i o u s l y s p e c i f i e d cost, producer  t o compare a l t e r n a t i v e to put reasons  them i n t o  effect  f o r choosing  to  ( C a n d l e r and  and  run  of  estimate  Cartwright;  of A l t e r n a t i v e  Schemes  first  analysis  stage  of  run o f the model, under  s t a b i l i z a t i o n ,schemes, i n o r d e r  budgetary  makers.  (1973)).  involves only a single  on  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 Chudleigh;  3.  stabilization  t h e model w i t h t h e b a s i c v a l u e s o f t h e p a r a m e t e r s , the  approaches  s i m u l a t e d outcome o f c u r r e n t  schemes f o r hog  comprise  obtained  some o f t h e d i f f e r e n t  analytical  thought  t h a t can be  Procedure  analysis  alternative  results  income s t a b i l i z a t i o n  then p r e s e n t s r e s u l t s 5.1  5  different  t o e v a l u a t e program  summary m e a s u r e s ' ( e . g . ,  income s t a b i l i t y ,  stabilization  The  government Being  schemes, w i t h o u t  i n the r e a l world,  simulation.  etc.).  effects  was  model can  one be  of  able  having the  run, f o r  example,  under  identical  conditions except f o r the formula  that determines the l e v e l  of support; therefore,  in  r e s u l t s c a n be a t t r i b u t e d  of  this  in  t h e sense o f b e i n g a b l e  to the formula.  s t a g e i s t o p e r f o r m more d e t a i l e d  summary m e a s u r e s , 5.1.2 The  any d i f f e r e n c e  Another aspect  comparative analyses  to evaluate the e f f e c t ,  o f a change i n one s p e c i f i c  on t h e  parameter.  Performance F u n c t i o n s  e s t i m a t i o n o f performance  by C a n d l e r and C a r t w r i g h t ,  functions,  as d e s c r i b e d  complements t h e s i m u l a t i o n  analysis  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 p a r a m e t e r s and summary m e a s u r e s t o be o b t a i n e d w i t h o u t h a v i n g t o r e - r u n t h e model e a c h t i m e t h e v a l u e o f a p a r a m e t e r 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  parameters v a r i e d function  technique attempts t o approximate  The  derivation  I ti s  e x i s t s between t h e  and t h e summary m e a s u r e s ;  by means o f r e g r e s s i o n  several  i s changed.  the performance that  true  function  analysis. of a performance  s t e p s t h a t c a n be summarized  function  as f o l l o w s  implies ( C a n d l e r and  Cartwright): (1)  Choose t h e p a r a m e t e r s  and t h e r a n g e o v e r  they w i l l  The p a r a m e t e r s  be v a r i e d .  those considered summary m e a s u r e s . the  parameter  made w i t h o u t (2)  Set the l e v e l  to importantly The r a n g e  chosen a r e  a f f e c t the  selected  v a l u e s over which  which  determines  inference  c a n be  extrapolation. o f parameters which w i l l  remain  78 constant.. reported  For  the present  i n Table  4.1  and  case,  these  values  are  discussed in section  4.4.1.1. (3)  Choose a f u n c t i o n a l  form f o r the  function.  a priori  available  S i n c e no  that allows  functional  information i s  selection  of a  form, f o l l o w i n g p r e v i o u s  ( C a n d l e r and  Cartwright;  Chudleigh;  a second o r d e r p o l y n o m i a l If  approximating  i t does not  closely  will  be  specific studies Kennedy  used  approximate the  (1973))  initially. true function 2  using  the  coefficient  of multiple determination  as  a measure, a l t e r n a t i v e  be  tried.  Candler  and  functional  Cartwright  c a r e f u l c o n s i d e r a t i o n s h o u l d be square  estimates  polynomial,  and  determination In g e n e r a l  of the  indicate  given  coefficients  the c o e f f i c i e n t 2 35 (R ) .  forms need  to  that  to the for  (R )  least  the  of m u l t i p l e  form, the performance f u n c t i o n can  be  written  as:  "Note t h a t t h e o b s e r v a t i o n s were known w i t h c e r t a i n t y , so t h a t t h e r e g r e s s i o n m o d e l 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 n o t conform to a l l the assumptions of the General L i n e a r Model. Nevertheless, 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 p r o c e d u r e p r o v i d e d t h e c o e f f i c i e n t o f m u l t i p l e d e t e r m i n a t i o n i s r e g a r d e d as a measure o f t h e a d e q u a c y o f t h e p o l y n o m i a l i n a p p r o x i m a t i n g t h e shape o f t h e 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 s t a n d a r d e r r o r s o b t a i n e d f r o m 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" ( C a n d l e r and C a r t w r i g h t , page 1 6 4 ) .  S  = f  i  (x.) . ;  ±  n  i = 1  and j = 1  i  • • •  (45)  m  i  where: is  S. l  t h e summary measure b e i n g  are the parameters If  the performance  a second o r d e r p o l y n o m i a l estimated  function w i l l  considered  t o be v a r i e d f u n c t i o n i n (45) i s a p p r o x i m a t e d and two p a r a m e t e r s  by  are v a r i e d , the  be a s f o l l o w s : (46)  where: 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 estimated.  t o be  36 (4)  According values  t o some e x p e r i m e n t a l  o f the parameters  number o f o b s e r v a t i o n s needed this  a central  "the c e n t r a l  be p a r t i c u l a r l y be f i t t e d is  fixed"  define  t o be v a r i e d and t h e  on t h e r e s p o n s e  t o f i t the s e l e c t e d f u n c t i o n a l  study  because  design,  surface form.  c o m p o s i t e d e s i g n was composite design  In  chosen  appears t o  s u i t a b l e when t h e f u n c t i o n t o  i s g i v e n and t h e number o f o b s e r v a t i o n s 37 ( C a n d l e r and C a r t w r i g h t , page 1 6 3 ) .  F o r a more d e t a i l e d d i s c u s s i o n a b o u t s e l e c t i n g t h e a p p r o p r i a t e f u n c t i o n a l f o r m and e x p e r i m e n t a l d e s i g n , s e e Heady. A c e n t r a l c o m p o s i t e d e s i g n r e q u i r e s n i n e , f i f t e e n , and t w e n t y f i v e r e p e t i t i o n s t o e s t i m a t e a s e c o n d d e g r e e p o l y n o m i a l where two, t h r e e , o r f o u r p a r a m e t e r s a r e a l l o w e d t o v a r y (Heady, page 137) .  80 (5)  Run t h e m o d e l f o r e a c h s e t o f p a r a m e t e r combinations  and compute t h e 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  by means o f r e g r e s s i o n a n a l y s i s . case, because the polynomial linear  As  t o be f i t t e d i s t o be  O r d i n a r y L e a s t S q u a r e s c a n be  used.  p o i n t e d o u t above, performance f u n c t i o n s p e r m i t t h e  e s t i m a t i o n o f summary m e a s u r e s , o v e r parameters are allowed computer m o d e l . (a)  In the present  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  estimated,  form  to vary, without  having  to re-run the  P e r f o r m a n c e f u n c t i o n s c a n a l s o be u s e d t o :  determine in  the range t h e s e l e c t e d  t h e m a g n i t u d e and d i r e c t i o n  o f change  t h e v a l u e s o f summary m e a s u r e s g i v e n a m a r g i n a l  change i n t h e v a l u e o f a p a r t i c u l a r In o t h e r words, s e n s i t i v i t y performed  t o any p a r a m e t e r holding  a n a l y s i s c a n be  by t a k i n g t h e p a r t i a l  summary measure  parameter.  derivative  (dependant v a r i a b l e ) w i t h (independent  a l l other independent  variable), variables  of a respect  while constant;  and (b)  locate  "break-even"  p o i n t s , i . e . , values of the  parameters t h a t give a zero value predetermined measure.  value)  ( o r some  of a particular  summary  81 5.2.  • Outcome of Simulated Hog S t a b i l i z a t i o n Programs In Chapter 1, i t was  Producer Income  s t a t e d t h a t 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 o b j e c t i v e of t h i s  focussed  on e s t i m a t i n g  and  the c o s t and  study  e f f e c t i v e n e s s of e x i s t i n g  a l t e r n a t i v e s t a b i l i z a t i o n programs.  The  present  section  r e p o r t s the estimated outcome f o r some of these schemes from simulating  the mathematical model presented i n Chapter 4.  p a r t i c u l a r , i t r e p o r t s r e s u l t s from s i m u l a t i n g  the  In  following  38 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 e x i s t e d i n 1975  (referred  to as "FIAP (1975) ") ; (2)  A modified Program  (3) The  Swine Producers Income Assurance  ( r e f e r r e d to as "modified  and  A premium/subsidy program. e f f e c t s of each of these schemes as p r e d i c t e d  the model are presented below.  The  policy variables.  by  e f f e c t s are measured i n  terms of t h e i r impact on what are c o n s i d e r e d  to be  key  A l l schemes were run on a monthly b a s i s  over a t h i r t e e n year p e r i o d , January, 1964 The  FIAP");  l e n g t h of the s i m u l a t i o n p e r i o d was  to December,  1976.  chosen so t h a t i t  T h i s s e c t i o n r e p o r t s 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 s i n c e the f e d e r a l ASA never came i n t o e f f e c t d u r i n g the p e r i o d being simulated (see Appendix B, Table B-4).  82 comprised of  at least  two  t o t h r e e phases  the t h r e e t o f o u r year  Columbia  (West e t a l  (peaks  hog  production cycle  (1974)).  E a c h scheme was  the parameter v a l u e s r e p o r t e d i n T a b l e summary m e a s u r e s compared no  stabilization  and  4.1,  in  British  run once  and  t o the ones o b t a i n e d  program i n o p e r a t i o n  troughs)  with  resulting from  ( i . e . with  a run  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 ) . t h e computed particular modified  the  the  likely  useful  be  differences  attributed  to  a n a l y s i s was  of  the  performed  Finally,  t o make t h e r e s u l t s  more  t o p o l i c y makers, performance f u n c t i o n s  estimated. 5.2.1 E f f e c t s o f t h e B r i t i s h C o l u m b i a Swine P r o d u c e r s Income A s s u r a n c e P r o g r a m The  t h e FIAP  present  (1975) on  m e a s u r e s , had 1976.  section farmer  r e p o r t s the estimated income s t a b i l i t y  i t begun i n J a n u a r y ,  (1975) o v e r  and  196 4 and  I n o t h e r w o r d s , t h e model was  outcome o f t h e FIAP  this  used  the  effects  other  of  summary  ended i n December,  to simulate  thirteen  the  year p e r i o d .  N e x t , a c o m p a r i s o n between i t s r e s u l t s w i t h t h o s e in  the  Next, f o r the case  comparative  in  impact o f each i n d i v i d u a l m o d i f i c a t i o n  summary m e a s u r e s .  g e n e r a l and were  scheme i n o p e r a t i o n .  FIAP, a d e t a i l e d  to estimate on  summary m e a s u r e s c a n  Any  obtained  a b s e n c e o f FIAP p r o v i d e s an e s t i m a t i o n o f i t s l i k e l y  impact.  The r e s u l t s o f t h e r u n w i t h t h e e q u i l i b r i u m v a l u e s r e p o r t e d under "No scheme" i n T a b l e 5.1.  are  83 For (.19 75) pay to  the  were:  initial (a)  run,  farmers  and  b a s i s ; i n 1975,  the  farmer  t h e government premium was indemnity  a computed  support  and  the market p r i c e  If  a stabilization  perceived  in  i n the g i l t  level  farmers  equals  r e t u r n t o l a n d and s l a u g h t e r hogs  program such  To  account  r e t e n t i o n equation,  r e t a i n e d equal  1/3  t o 1.5%  and  and  receive below  75%  of  the  i s t h e d i f f e r e n c e between  as FIAP  was  an  management  (index  100).  (1975) i s environment,  shift  for this,  z e r o t o 0.0037, e q u i v a l e n t t o an  gilts  (b)  t o assume t h a t a r i g h t w a r d  f u n c t i o n would r e s u l t .  from  support  both  $1.50/cwt  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  i s reasonable  a^,  of  a  o f s l a u g h t e r hogs f a l l s  The  (including  government  premium was  where r e t u r n d e f i c i t  cost of production fee)  level.  FIAP  s l a u g h t e r hogs on  $2.25/cwt; and  when m a r k e t p r i c e  return d e f i c i t ,  it  the p r o v i n c i a l  a p e r h u n d r e d w e i g h t premium on 1/2  an  t h e main f e a t u r e s o f t h e  the  i n the  parameter  given a value  annual  average  annual  supply  ranging increase  increase i n  hog  40 production The FIAP  equal  t o 4.5  percent.  r e s u l t s presented  (1975) w o u l d be  capable  government g o a l o f r e d u c e d Absolute  variation  shown by  a fall  5.1  indicate  of a c h i e v i n g the  income v a r i a b i l i t y  of annual  i n standard  i n Table  gross  the  provincial f o r hog  income w o u l d be  d e v i a t i o n o f 14  that  producers.  reduced,  thousand  dollars.  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 t o be g r e a t e r i n t h e f i r s t y e a r s o f o p e r a t i o n o f t h e p r o g r a m ; more p r e c i s e l y , 9 p e r c e n t f o r the f i r s t t h r e e y e a r s , 6 p e r c e n t f o r the next t h r e e , 3 p e r c e n t f o r t h e n e x t f i v e y e a r s and z e r o f o r t h e l a s t two.  84 Table 5.1  Estimated E f f e c t s of FIAP (1975), 1964-19 76.  Variables  1.  LEVEL OF HOG PRODUCER INCOME  No Scheme  FIAP (19 75)  a  Difference  631  818  187  526  512  -14  83  63  -20  (average per year i n thousand d o l l a r s ) 2.  ABSOLUTE VARIATION OF HOG PRODUCER INCOME (average s t . dev. per year i n thousand d o l l a r s )  3.  RELATIVE VARIATION OF HOG PRODUCER INCOME (average c o e f f i c i e n t o f variation)  4.  LEVEL OF HOG PRODUCTION  8,509  9,136  627  0  1,194  1,194  0  504  0  1,698  (average per year i n thousand l b s . ) 5.  GOVERNMENT PREMIUM (thousand  6.  GOVERNMENT ADVANCE (thousand  7.  dollars/period)  dollars/period)  TOTAL NET GOVERNMENT PAYOUTS (thousand  5 04  1,698  dollars/period)  a Includes a parameter s h i f t e r i n the g i l t r e t e n t i o n equation, to account f o r an assumed more s t a b l e p r o d u c t i o n environment. Source:  Appendix C, Tables C - l and C-2.  85 R e l a t i v e v a r i a t i o n of annual gross income would a l s o 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  variation. In a d d i t i o n to s t a b i l i z i n g producer would have r a i s e d producer year, or 30 p e r c e n t .  income 187  On average,  income, FIAP  thousand d o l l a r s  (1975) per  hog p r i c e s i n c r e a s e d by  3 percent w h i l e hog p r o d u c t i o n i n c r e a s e d s l i g h t l y over  seven  41 percent.  From the standpoint of the budgetary  c o s t 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 t h i r t e e n year p e r i o d of 1.7  million dollars  (1.2 m i l l i o n i n 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 M o d i f i e d B r i t i s h Columbia Swine Income Assurance Program Having estimated  the e f f e c t s of FIAP  step i n the a n a l y t i c a l procedure e f f e c t s of a m o d i f i e d FIAP.  (1975),  the  i n v o l v e d e s t i m a t i n g the  The m o d i f i e d FIAP to be  i n c o r p o r a t e s the f o l l o w i n g f o u r m o d i f i c a t i o n s of FIAP (1)  Support  (2)  Farmer premium i n c r e a s e d 50%; lowered  (3)  l e v e l i n c r e a s e d to 100%  50%  next  considered (1975):  of r e t u r n d e f i c i t ;  government premium  ( i . e . , share b a s i s l / 2 ; l / 2 ) ;  Land r e t u r n and management fee removed from c o s t of p r o d u c t i o n c a l c u l a t i o n s ;  and  The seven percent i n c r e a s e i n hog p r o d u c t i o n i s comprised of 4.5 percent i n c r e a s e due to the s h i f t i n the supply f u n c t i o n and a 2.8 percent i n c r e a s e due to higher hog p r i c e s . This l a t t e r f i g u r e i m p l i e s a p r i c e e l a s t i c i t y of supply of 0.93, s l i g h t l y g r e a t e r than the one r e p o r t e d by West e t a l (19 74) of 0. 83.  86 (4)  Market p r i c e of s l a u g h t e r hogs changed to . index  The  103.  f i r s t three m o d i f i c a t i o n s have been suggested by 42  the B r i t i s h Columbia M i n i s t e r of A g r i c u l t u r e . m o d i f i c a t i o n was  incorporated  The  fourth  i n t o 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 m o d i f i c a t i o n alone w i l l presented,  be  f o l l o w e d by the combined e f f e c t s of a l l four  modifications. 5.2.2.1 The  E f f e c t s of Isolated Modifications  r e s u l t s of running  i n i s o l a t i o n are r e p o r t e d usefulness information  the model f o r each m o d i f i c a t i o n 43  i n Table  5.2.  They i l l u s t r a t e  of the model i n p r o v i d i n g p o l i c y makers with about the impact of s p e c i f i c changes i n the  o p e r a t i o n 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. if  the only m o d i f i c a t i o n to FIAP  the support  the  l e v e l from 75%  (1975) was  to 100%  For  example,  an i n c r e a s e i n  (modification (1)), t h i s  would have an i n c r e a s i n g 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  increased,  v a r i a t i o n of annual gross  shown by an i n c r e a s e i n standard d o l l a r s , while  income would be  d e v i a t i o n of 13  thousand  r e l a t i v e v a r i a t i o n would be decreased  slightly,  A c l a r i f i c a t i o n of p o i n t s r e g a r d i n g these p r o p o s a l s can be found i n 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 News Release, February 23, 1978. 'Since the d i f f e r e n t m o d i f i c a t i o n s could have v a r y i n g e f f e c t s on the supply curve, the s h i f t parameter was s e t equal to zero f o r the runs r e p o r t e d  i n Table  5.2.  87  shown by a f a l l o f 4 i n the c o e f f i c i e n t o f v a r i a t i o n . P r o v i n c i a l government budgetary c o s t would be considerably  compared to the c o s t under FIAP  increased (1975) (750  a d d i t i o n a l thousand d o l l a r s , or 4 6 % ) . Each o f the o t h e r m o d i f i c a t i o n s  ( ( 2 ) , ( 3 ) , (4))  would have a lowering e f f e c t on producer income. the farmer premium from 1/3 to 1/2  Raising  share, f o r example, would  lower producer income 26 thousand d o l l a r s per year. I n t e r e s t i n g l y enough, t h i s r e d u c t i o n to i n c r e a s e d by removing  i n producer income due  farmer premium i s l e s s than the r e d u c t i o n  caused  land r e t u r n and management fee (43 thousand d o l l a r s )  as w e l l as i n c r e a s i n g index to 103  (29 thousand  dollars).  44  Modifications  (2), (3),  and  (4) each would have  reduced a b s o l u t e v a r i a t i o n of hog producer income, but not relative variation.  A l s o , each of these m o d i f i c a t i o n s  would  have reduced t o t a l net government payouts. The reasons t h a t support m o d i f i c a t i o n Elsewhere  (3) are w e l l known.  (Hudson, B a r i c h e l l o ) i t has been i n d i c a t e d t h a t where  f i x e d c o s t s are i n c l u d e d i n determining the support l e v e l , a problem of endogeneity of c o s t s appears. due to the o p e r a t i o n  Excess p r o f i t  earned  of the program w i l l be c a p i t a l i z e d i n t o  44  Among the proposed changes to FIAP (1975), removing of some items (management fee and r e t u r n to land) from the c a l c u l a t e d f i x e d c o s t used t o determine the r e t u r n d e f i c i t i s an important one. A c c o r d i n g to the 1975 FIAP c o s t s t r u c t u r e removing the above mentioned items r e p r e s e n t s a r e d u c t i o n i n the f i x e d c o s t f i g u r e e n t e r i n g 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 of about 17%.  88  the value of the f i x e d a s s e t s thus i n c r e a s i n g average c o s t . As a consequence, the support  l e v e l , which i s determined  i n p a r t by f i x e d c o s t , w i l l be i n c r e a s e d 5.2.2.2  Combined E f f e c t s  T h i s s e c t i o n presents  too.  of M o d i f i c a t i o n s  the r e s u l t s  e f f e c t s of the four m o d i f i c a t i o n s to FIAP these r e s u l t s  are a l s o given i n Table  of the  combined  (1975), l i s t e d  5.2.  The  l e v e l of  producer income, f o r example, would have averaged 734 d o l l a r s per year, had  the m o d i f i e d  1964-1976.  Comparing the two  conclusions  regarding  FIAP operated  sets of e f f e c t s  above; hog  thousand  from  implies  certain  the l i k e l y impact of the combined  m o d i f i c a t i o n s r e l a t i v e to FIAP  (1975).  The  combined  m o d i f i c a t i o n s would have: (1)  a lowering  e f f e c t on the l e v e l of hog  income r e l a t i v e to FIAP thousand d o l l a r s (2)  (1975) (on average,  l e s s per  standard  49  year);  a s t a b i l i z i n g e f f e c t with r e s p e c t to v a r i a b i l i t y of hog  producer  producer income  absolute  (average  d e v i a t i o n f a l l s 19 thousand d o l l a r s  per  year); (3)  a de-stabilizing  e f f e c t with r e s p e c t to r e l a t i v e  v a r i a b i l i t y of hog  producer income  c o e f f i c i e n t of v a r i a t i o n (4)  a lowering  (average  i n c r e a s e s by 2 per  e f f e c t on the l e v e l of hog  (on average, 79 thousand l b s . l e s s per (5)  a lowering (295  year);  production year);  e f f e c t on cumulative government premium  thousand d o l l a r s  less);  89  T a b l e 5.2  Comparative E f f e c t s o f Proposed FIAP, 1 9 6 4 - 1 9 7 6  Modified  a  Effect of Isolated Modifications FIAP Variables  1. LEVEL OF HOG PRODUCER INCOME (average in  p e r  Differences Due t o Total Modifications  75%100% Level Support  1/3 to 1/2  783  734  49  69  500  481  19  1 3 - 1 5  64  66  8,719  8,640  1,146  - 26  Removal Land Return and Management fee  Index 100 t o 103  - 43  - 29  -  -  year  dollars)  th.  2. ABSOLUTE VARIATION OF HOG PRODUCER INCOME (average per  Modified FIAP  year  st. i n  5  5  dev. t h .  d o l l a r s )  RELATIVE VARIATION OF HOG PRODUCER INCOME ( c o e f f i c i e n t variation)  4.  (average t h .  p e r  0  - 79  96  - 38  - 65  851  -295  14  -292  - 10  485  234  -251  736  0  -454  -310  1,631  1,085  -546  750  -292  -464  -318  response  to  o f  LEVEL OF HOG PRODUCTION in  -4  45  year  lbs.)  5. GOVERNMENT PREMIUM (th. d o l l a r s / period)  6. GOVERNMENT ADVANCE (th.  d o l l a r s /  period)  7. TOTAL NET GOVERNMENT PAYOUTS (th.  d o l l a r s /  period)  Assuming  a  zero  supply  government  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  (7)  (251 thousand  dollars  less);  a lowering e f f e c t on t o t a l n e t government (546 thousand  5.2.3  dollars  payouts  less).  E f f e c t s o f a Premium/Subsidy Scheme  Given a g o a l o f producer income s t a b i l i t y , i t seems l o g i c a l t o r e q u i r e farmers t o pay a premium i n times o f h i g h hog p r i c e s  (or wide margin) but not r e q u i r e them t o pay a  premium when p r i c e s are low. Hudson  (1977) r e c o g n i z e d t h i s  l o g i c i n h i s p r o p o s a l o f 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". Below a d e s c r i p t i o n o f a premium/subsidy scheme which incorporates t h i s thinking i s given. A f l o o r p r i c e f o r s l a u g h t e r hogs would be pre-determined, p o s s i b l y r e l a t e d to cost of production.  When market p r i c e  fell  below the f l o o r p r i c e , farmers would r e c e i v e a subsidy from a s t a b i l i z a t i o n fund t o r a i s e e f f e c t i v e p r i c e r e c e i v e d t o the floor.  The s t a b i l i z a t i o n fund c o u l d be i n i t i a t e d w i t h a  government advance.  There would be no government premium,  only a farmer premium.  When market p r i c e exceeded the c e i l i n g ,  farmers would pay premiums i n t o the s t a b i l i z a t i o n fund so t h a t the e f f e c t i v e p r i c e they r e c e i v e equals the c e i l i n g .  The  o p e r a t i o n o f the scheme i s p o r t r a y e d i n F i g u r e 3.1. The estimated e f f e c t s o f a premium/subsidy scheme, had one operated from 1964-1976,  are r e p o r t e d i n Table 5.3.  f l o o r p r i c e was s e t equal t o the support l e v e l o f FIAP  The (1975)-  i . e . , 75% o f 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 equals 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 t o land and management fee)  minus market p r i c e of s l a u g h t e r hogs c e i l i n g p r i c e was  (index 100).  s e t 2.5% above the f l o o r p r i c e .  of no scheme and FIAP  The The r e s u l t s  (1975) from Table 5.1 are a l s o r e p o r t e d  i n Table 5.3 f o r comparative purposes.  The r e s u l t s of a  premium/subsidy scheme can be summarized as f o l l o w s : (1)  Average l e v e l of hog producer income would be i n c r e a s e d markedly, from 6 31 t o 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 d e v i a t i o n from 526 to 481 thousand d o l l a r s per year;  (3)  R e l a t i v e v a r i a b i l i t y of hog producer income would a l s o 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)  L e v e l of hog p r o d u c t i o n would be i n c r e a s e d from 8,509 to 9,123  (5)  thousand pounds per year;  T o t a l net government payouts would be approximately 1.7 m i l l i o n  dollars.  In comparing the e f 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 t h a t  both schemes would have c o s t the government about 1.7 d o l l a r s over the p e r i o d 1964-1976.  million  The two schemes would  have l e d to i d e n t i c a l l e v e l s of hog producer income and almost i d e n t i c a l l e v e l s o f hog p r o d u c t i o n .  However, the schemes would  have d i f f e r e d w i t h r e s p e c t 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 o f 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  1.  LEVEL OF HOG PRODUCER INCOME  No Scheme  EIAP (1975)  Premium/Subsidy Scheme  631  818  818  526  512  481  83  63  59  (average per year i n thousand d o l l a r s ) 2.  ABSOLUTE VARIATION OF HOG PRODUCER INCOME (average s t . dev. per year i n thousand d o l l a r s )  3.  RELATIVE VARIATION OF HOG PRODUCER INCOME (average c o e f f i c i e n t o f variation)  4.  LEVEL OF HOG PRODUCTION  8,509  9,136  9,12 3  0  1,698  1,682  (average p e r year i n thousand l b s . ) 5.  TOTAL NET GOVERNMENT PAYOUTS (thousand  Source:  dollars/period)  Appendix C, Table C - l , C-2 and C-4.  caused  a greater reduction  variability. the  same f o r b o t h schemes, t h e m o d e l r e s u l t s  almost  suggest  a  scheme w o u l d a c h i e v e a g r e a t e r r e d u c t i o n i n  v a r i a b i l i t y of producer  expenditure  relative  S i n c e n e t g o v e r n m e n t p a y o u t s w o u l d be  premium/subsidy the  i n b o t h a b s o l u t e and  income p e r d o l l a r  t h a n w o u l d FIAP  o f government  (1975).  5.2.4  Self-Financing  Stabilization  Through  r e l a t i v e l y minor  adjustments  Schemes the s t a b i l i z a t i o n  schemes compared above c o u l d be made s e l f - f i n a n c i n g . the  c a s e o f FIAP  the  f a r m e r premium commensurate w i t h g o v e r n m e n t  Similarly, advances to  (19 7 5 ) , t h i s  f o r a premium/subsidy  became l a r g e  reduce  government s u b s i d i e s  approaches  following  scheme, as  t h e f l o o r and  Below, t h e e f f e c t s it  c o u l d be done by  and  advances.  government  increase  farmer  (1975) so  are examined.  In y e a r s  t h e f a r m e r premium  an amount d e t e r m i n e d  by d i v i d i n g  an  lowered  premiums.  FIAP  a government advance,  i n c r e a s e d by  increasing  c e i l i n g c o u l d be  of adjusting  self-financing,  For  that  was  existing  government a d v a n c e by e x p e c t e d p r o d u c t i o n t h e coming y e a r . Results level  f o r a run i n c o r p o r a t i n g  r e m a i n i n g a t 75%  T a b l e 5.4.  of return  For comparative  i n Table  5.4.  deficit,  purposes  (1975) w i t h o u t a s l i d i n g premium reported  t h i s adjustment,  with  support  are r e p o r t e d i n  the r e s u l t s  ( f r o m T a b l e 5.1)  o f FIAP are  also  94  Table 5.4  Comparative and FIAP  E f f e c t s o f FIAP  (1975) With  (1975)  Sliding  Premium, 1964-1976.  No Scheme  Variables  1. LEVEL OF HOG PRODUCER INCOME  FIAP FIAP(19 75)with (197 5) S l i d i n g Premium  631  818  693  526  512  427  83  63  62  (average per year i n thousand d o l l a r s ) 2. ABSOLUTE VARIATION OF HOG PRODUCER INCOME (average s t . dev. per year i n thousand d o l l a r s ) 3. RELATIVE VARIATION OF HOG PRODUCER INCOME (average coef. o f v a r i a t i o n ) 4. LEVEL OF HOG PRODUCTION  8,509  9,136  8,961  0  1,698  246  (average p e r year i n thousand l b s . ) 5. TOTAL NET GOVERNMENT PAYOUTS (thousand  Source:  dollars/period  Appendix C, T a b l e s C - l , C-2 and C-5  From Table 5.4 i t can be seen t h a t the s l i d i n g premium adjustment  l a r g e l y achieves s e l f - f i n a n c i n g , as t o t a l n e t  government payouts over the p e r i o d 1,698  t o 246 thousand d o l l a r s .  1964-1976 are reduced  One r e s u l t o f the reduced  from  government c o s t i s lowered hog producer income, from.818 t o 693 thousand d o l l a r s per year.  Note, however, t h a t the  r e s u l t i n g l e v e l of income (693) i s h i g h e r than t h a t of the no scheme s i t u a t i o n  (631).  Even a t the lower government  c o s t , 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 a b s o l u t e 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 d e v i a t i o n of hog producer income from 512 t o 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 t o 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 p r o d u c t i o n . 5.3.  Performance F u n c t i o n s The f i n a l stage i n the a n a l y t i c a l procedure i n v o l v e d  the e s t i m a t i o n of performance f u n c t i o n s more g e n e r a l and u s e f u l .  to make the r e s u l t s  The performance f u n c t i o n s were  estimated f o l l o w i n g the steps o u t l i n e d i n s e c t i o n 5.1.2. 5.3.1  Performance F u n c t i o n s to Assess M o d i f i c a t i o n s t o FIAP (19 75)  T h i s s e c t i o n r e p o r t s on the e s t i m a t i o n of performance f u n c t i o n s to assess the e f f e c t of changes i n two  policy  parameters on farmer income l e v e l and s t a b i l i t y , hog p r o d u c t i o n l e v e l , and p r o v i n c i a l government budgetary c o s t , assuming a program s i m i l a r to FIAP  (1975) was  i n operation.  The  estimated performance f u n c t i o n s are r e p o r t e d i n Appendix 5.3.1.1  Change i n P o l i c y  Parameters  Performance f u n c t i o n s , where two p o l i c y were allowed t o vary, were e s t i m a t e d .  that  parameters  Having s e l e c t e d a  D.  second degree p o l y n o m i a l to approximate the t r u e f u n c t i o n , and a c e n t r a l composite d e s i g n t o s e l e c t the v a l u e s of the two parameters, the model was parameter combinations. of  run nine times under  different  The r e s u l t of each run and the l e v e l  the p o l i c y parameters v a r i e d are r e p o r t e d i n Appendix  Table D-2.  Performance f u n c t i o n s r e l a t i n g the two  D,  policy  parameters t o s e l e c t e d summary measures were estimated u s i n g Ordinary Least Squares.  They are given i n Appendix D, Table  D-3. The p o l i c y parameters v a r i e d were those c o n s i d e r e d important i n d e t e r m i n i n g the v a l u e s of the summary  measures.  The p o l i c y parameters v a r i e d and the range over which they were v a r i e d were: a  2 2  :  the percentage of the r e t u r n d e f i c i t supported by the p r o v i n c i a l government. I t s range was from 0.75 (current FIAP) to 1.0 0 (proposed m o d i f i e d FIAP).  0I24  :  the percentage of the f i x e d c o s t s allowed to e n t e r the c a l c u l a t i o n of r e t u r n d e f i c i t . I t s s e l e c t e d range was from 0.75 to 1.00 (net margin).  Next, an example of each of the p o s s i b l e uses of performance f u n c t i o n s to  illustrate  ( i n d i c a t e d i n s e c t i o n 5.1.2) i s g i v e n  t h e i r usefulness.  Since a l l performance f u n c t i o n s showed c o e f f i c i e n t s of m u l t i p l e d e t e r m i n a t i o n r a n g i n g from 0.985 t o 0.999, a second degree p o l y n o m i a l can be regarded as a good approximation of the t r u e f u n c t i o n .  97 5.3.1.1.1 If, assessing cost the  of  Estimation  f o r example, p o l i c y makers were i n t e r e s t e d i n the  e f f e c t on  a change i n a  the  p r o v i n c i a l government  and/or a ^ ,  2 2  they could  f o l l o w i n g performance f u n c t i o n .  D-3,  column f o u r ,  relationship and  Summary M e a s u r e  the  two  the  make use  From A p p e n d i x D,  performance f u n c t i o n  between t h e  budgetary  that  of  Table  depicts  the  p r o v i n c i a l government b u d g e t a r y  s e l e c t e d p a r a m e t e r s can  be  written  as  cost  follows: 2  P r o v . Gov.  If,  Cost =  331  +  4a  2 4  +  given  2 2  - 469  a  3874 a ^ a ^  for i l l u s t r a t i v e  were a r b i t r a r i l y after  - 2359 a  + 1092  2 4  of a  s u b s t i t u t i n g those values  two  = 0.85  2 2  i n equation  over the  simulated,  million dollars.  1.4  5.3.1.1.2  Sensitivity  Sensitivity  analysis.can  partial  d e r i v a t i v e of  with respect  t o any  all  other  parameters constant.  the  level  of  provincial follows:  f a r m e r income o f  government s u p p o r t  parameters  and  a^^  (47)  =  0.80,  the p r o v i n c i a l  t h i r t e e n year period  being  Analysis be  c a r r i e d out  a summary measure  parameter  +  (47)  government b u d g e t a r y c o s t , would e q u a l  2 2  ,  purposes, the  values  a  (dependant  (explanatory As  an  by  2 2  example, the  can  be  the  variable)  v a r i a b l e ) , holding  a u n i t change i n t h e ( a )  taking  effect level  calculated  as  on of  98  .3. farmer, income  8  If (a  a  =  2  + 323a  2  and a  22  values  = 1.00), a n n u a l  i n the support  Finally, relative  2 4  (48)  average producer  income  24  increase  a  ,  o f t h e c u r r e n t FIAP were u s e d  w o u l d have i n c r e a s e d by 3.0 t h o u s a n d d o l l a r s  cost  2 4  22  the p r e v a i l i n g  =0.75  -168 + 177 a  are presented  percent  elasticities  i n Table  5.5..  increase i n provincial  with  government  budgetary  respect to a  2  I t shows, f o r example,  increase i n the support i n c r e a s e i n farmer  75 t o 76 p e r c e n t ) .  i n c o m e , a b s o l u t e and  o f income, p r o v i n c i a l  and hog p r o d u c t i o n  0.32 p e r c e n t  (e.g., from  a s a summary, t h e g r o s s  variation  a one p e r c e n t  level  f o r each u n i t a r y  gross  l e v e l would  cost.  and that  cause a  income and a 1.22  government  2  99  Table  Parameters  5.5  Gross I n come p e r year  G r o s s 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 o f Income, P r o v . Gov. B u d g e t a r y 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„„ and  Hog Prod, Prov.Gov. Relative Absolute per year C o s t V a r i a t i o n Variation p e r p e r i o d o f Income o f Income sd. d e v . per year  a a  22  a  24  b  coef. of variation  0. 32  0.02  0.23  1.22  0 .02  0.24  -0. 05  -0.23  1.78  0 .03  :  percent of return d e f i c i t government.  supported  by t h e P r o v .  :  percent of fixed costs that enter return d e f i c i t calculations. N o t e t h a t t h e f i g u r e s i n T a b l e 5.5 measure t h e e f f e c t o f an i n c r e a s e i n t h e p e r c e n t a g e of t h e f i x e d c o s t s t h a t e n t e r the r e t u r n d e f i c i t calculation. F o r a r e d u c t i o n , t h e s i g n s must be reversed.  100  5.3.1.1.3  "Break-even"  Points  L o c a t i o n o f "break-even" of  points allows  p a r a m e t e r s v a l u e s t h a t g i v e some p r e d e t e r m i n e d  relevant  summary m e a s u r e s .  FIAP  (i.e.,  Gi2  1.0 m i l l i o n a  22'  1.0  Y  k  =  e  equation  (47) becomes a q u a d r a t i c  a  2  + 1092  2  (1975),  will  government e q u a l 5.3.2  To  (49)  t  level  under the c o n d i t i o n s o f  represent a cost to the p r o v i n c i a l t o one m i l l i o n  dollars.  Comparison o f Performance F u n c t i o n E s t i m a t e s w i t h R e s u l t s from A c t u a l Runs o f t h e M o d e l  determine  how good t h e e s t i m a t e s o b t a i n e d  p e r f o r m a n c e f u n c t i o n s a r e , e s t i m a t e s were o b t a i n e d from  P^itive  i e  I n o t h e r words, a s u p p o r t  52 p e r c e n t o f t h e r e t u r n d e f i c i t ,  FIAP  form  ,  f o r 0:22' *  the quadratic equation  r o o t g i v e s a v a l u e o f 0.52. of  ' under t h e c u r r e n t  written as:  - 134 + 1515  Solving  (0*22)  makers  = 1.0), g i v e s a c o s t t o t h e government o f  4  dollars, MA  value of  F o r example, i f p o l i c y  wanted t o know what l e v e l o f s u p p o r t  in  determination  t h e model.  To o b t a i n c o m p a r a t i v e  results  from t h e  directly  directly  from t h e  t h e model t h e f o l l o w i n g t h r e e r u n s were made: (1)  Support  level  (o^)  w  a  s  raised  t o 85 p e r c e n t o f  the r e t u r n d e f i c i t  and t h e f i x e d  cost  in  (0*24) reduced  t o 80 p e r c e n t .  i t s calculation  Next t h e p r o v i n c i a l  entered  g o v e r n m e n t c o s t was  computed.  101 (2)  To e s t i m a t e  the e f f e c t  change o f one p e r c e n t a 2 2  on f a r m e r  income o f a  i n t h e l e v e l o f support,  was s e t e q u a l t o 7 6 p e r c e n t  of the return  d e f i c i t , and (3)  Given  t h a t the performance  indicated  t h a t a 52 p e r c e n t  function estimation support  represents a cost to the p r o v i n c i a l equal  t o 1.0 m i l l i o n  dollars,  level government  t h e m o d e l was r u n  under t h i s c o n d i t i o n . The  results  Table  5.6  from  these  runs  are reported i n Table  Comparison o f Performance Estimates with  5.6.  Function  R e s u l t s from  Actual  Runs o f t h e M o d e l .  Use  of Perf. Function  Summary Measure  Perf. Function Estimate  Model Result  (1) Summary m e a s u r e estimation with a , = 0 . 8 5 and a - . = 0.80  government cost  1.47 m i l l i o n dollars  1. 37 million dollars  (2) S e n s i t i v i t y a n a l y s i s (change i n s u p p o r t l e v e l (a ) f r o m 75  Change i n farmer xncome  2.8 t h d o l l a r s  3.0 t h dollars  Gov.  1.0 m i l l i o n dollars  0.99 million dollars  to (3)  76  percent)  "Break-even" P o i n t (a„„ = 52 p e r c e n t )  cost  102 With estimates  a support  l e v e l o f 85 p e r c e n t ,  government c o s t  t o be  1.37  million dollars  an e s t i m a t e  o f 1.4 7 m i l l i o n d o l l a r s was  performance  function.  estimates  obtained  approximations  From T a b l e . 5 . 6  from performance  of r e s u l t s  obtained  t h e model  obtained  i t c a n be  while  from the seen t h a t  f u n c t i o n s are very from the model.  the  good  103 Chapter 6 CONCLUSIONS  This conclusions  chapter  will  summarize t h e most  t h a t c a n be drawn f r o m t h i s  methodological  aspects,  conclusions  comparison o f t h e s t a b i l i z a t i o n text 6.1  and some e x t e n t i o n s Methodological (1)  Since  followed  f o r further  include  from t h e  schemes d i s c u s s e d  study  i nthe  research.  concentrated  on a s s e s s i n g t h e  sets o f assumptions, a "positive"  a i m was o n l y  decisions  Simulating  i t consistently  so t h a t more  a  informed  than attempt t o  plan.  a m a t h e m a t i c a l model o f t h e B.C. hog  i n d u s t r y p r o v e d t o be an e f f e c t i v e determining  In f a c t ,  p o l i c y makers w i t h  c a n be made, r a t h e r  d e t e r m i n e an " o p t i m a l "  schemes u n d e r  economic approach.  to provide  wide range o f r e s u l t s  (2)  resulting  They  of alternative stabilization  different  its  study.  Aspects  this  effects  important  way o f  t h e l i k e l y impact o f a l t e r n a t i v e  stabilization  schemes. 46  (3)  As p o i n t e d general  o u t above, t h e model  and f l e x i b l e .  was b u i l t  t o be  I t can determine the e f f e c t s  The computer model u s e d i n t h i s s t u d y i s a v a i l a b l e f r o m t h e Department o f A g r i c u l t u r a l Economics, U n i v e r s i t y o f B r i t i s h Columbia.  104 o f a number o f to p r o v i n c i a l including  flexibility  allows  any  subsidy  program. (a)  Its  calculate three,  moving average p r i c e s and/or a gross  proportion  of  margin, a  fixed  cost  to c a l c u l a t e return d e f i c i t ;  restrictions for  i t to:  year  any  retention  subsidy  (b) work w i t h  margin, or relevant  a gilt  a feed  five  margins;  schemes i n a d d i t i o n  d e f i c i e n c y payments p r o g r a m s ,  t h e ASA,  p r o g r a m , and  f o u r , or  stabilization  on  the  p r o g r a m ; and  considered (c)  number o f hogs t h a t  f e d e r a l and/or p r o v i n c i a l (d) be  run  net  impose  qualify  stabilization  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  desired  combination. Some i m p o r t a n t validation  conclusions  procedure.  emerged f r o m  They can  be  the  summarized  as  follows: (a)  the  validation  estimates  o f West e t a l  (18 month) hog  and  give  support  to  the  (1974) o f a s h o r t  feed e l a s t i c i t y  of  (0.83  and  respectively).  i s an  indication  that  i n B r i t i s h Columbia are  more  producers  This  -0.60  responsive  t o c h a n g e s i n hog  and  than those  i n other  regions;  i t was  Canadian  p o s s i b l e to obtain a  run  supply  f o r B r i t i s h Columbia  hog  (b)  results  feed  prices  preliminary  105 estimate  f o r a hog  of g i l t (c)  retention  i t was (one  the  month) hog (0.4  values  identity  (0.28  and  and  of  C o l u m b i a hog  r e s p e c t i v e l y ) ; and t o the  the  assumed  appear  crucial and  l a g of  supply  the  other  basic  p o s s i b l e to  function for  p o i n t , and  validation  t o check the  validity  useful.  later  procedure, of these  Estimations  response parameter to a  retention  subsidy  (ct^) and  shift  a c c o u n t f o r a more s t a b l e p r o d u c t i o n  for  of  further  were a s s i g n e d these  research.  further  were  not  gilt  parameter  to  environment  ad-hoc v a l u e s .  parameter values  (1974)  preliminary  f o r the  the  (in  refining  available  estimates  assign  British  w o u l d be  so t h e y  British  some p r o b l e m s  estimates  (a^)  British  14 months i n  u s i n g West's e t a l ' s  a starting  them by means o f research  main  b e h a v i o r a l parameters  two)  o f a hog as  the  o f hogs i n  and  values  Columbia  and  t h e m a t h e m a t i c a l model o f t h e  A l t h o u g h i t was  estimates  technical  of  valid.  parameters' v a l u e s  one  short-run  -0.3  industry presented  t o the  a  feed p r i c e e l a s t i c i t y  information.  equation  respectively);  "estimate"  characteristics  production,  elasticity  -0.20  parameters r e p r e s e n t i n g  C o l u m b i a , and  M a k i n g use  price  and  assigned  production  regarding  feed  a l s o p o s s i b l e to  supply (d)  and  Empirical  w o u l d be  useful  106 Regarding b a s i c i n f o r m a t i o n needed, g i v e n t h a t the FIAP uses n e g o t i a t e d monthly c o s t of p r o d u c t i o n f i g u r e s i n s t e a d of a  pre-determined  formula based on p u b l i s h e d d a t a , i t was to  necessary  estimate the c o s t s e r i e s used i n t h i s  The e s t i m a t i o n proved to be d i f f i c u l t and consuming.  In f a c t , i t was  study. time  necessary t o take the  c o s t s t r u c t u r e r e p o r t e d by FIAP f o r 1975  as a  b a s i s and then, through s u c c e s s i v e i t e r a t i o n estimate the i n p u t s 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  v a l i d a t e d a g a i n s t an 18 month p e r i o d 19 75 through June 1976)  was  (January  of known FIAP c o s t d a t a .  Once the estimated c o s t showed not to be significantly different  (in a s t a t i s t i c a l  sense)  from the known f i g u r e s , the remaining years were 47 estimated by means of the Farm Input P r i c e Index.. (6)  Performance f u n c t i o n s were estimated and shown to be a convenient mechanism f o r producing i n f o r m a t i o n of  i n t e r e s t t o p o l i c y makers, without having to  r e - r u n the model.  The 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 of  runs  the model showed t h a t they are very good  approximations  of the r e s u l t s obtained d i r e c t l y  from the model. The exact formula used t o c a l c u l a t e the c o s t f i g u r e s i s presented i n Appendix A.  107 6.2  C o n c l u s i o n s Drawn f r o m t h e C o m p a r a t i v e A n a l y s i s o f t h e 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  dependant  out e a r l i e r ,  the r e s u l t s  on t h e v a l u e s a s s i g n e d p a r a m e t e r s  p a r t i c u l a r model used.  t h e model a p p l i e d Finally, ability  showed t h a t  the r e s u l t s  validation  the r e s u l t s  on a number o f a s s u m p t i o n s  and  of t h i s  the f o l l o w i n g  as w e l l  subsidy  scheme w o u l d  conditions.  study are  dependent  f o r hog  producers, p o l i c y  t o s u p p o r t hog  as s t a b i l i z e  it,  producer  a premium/  be p r e f e r r e d  t o FIAP  F o r a g i v e n government e x p e n d i t u r e , b o t h are e q u a l l y  capable of i n c r e a s i n g  a premium/subsidy of reducing  income v a r i a b i l i t y .  schemes  A  not only  however i n terms  premium/subsidy through  f a r m e r s i n t i m e s o f low p r i c e s  also requiring high prices;  (1975).  income;  scheme i s a d v a n t a g e o u s  scheme r e d u c e s v a r i a b i l i t y subsidizing  a  conclusions:  I f the government wished income,  values.  t h e m o d e l u s e d , and g i v e n  government g o a l o f income s t a b i l i t y  (1)  o b t a i n e d from  p r o c e d u r e showed t h e  o f t h e model t o r e p r o d u c e r e a l w o r l d  Given the caveat t h a t  information.  critical  o v e r a wide range o f parameter  the h i s t o r i c a l  makers a r e o f f e r e d  the  sources of  the experiment performed w i t h the  b e h a v i o r a l parameters  and  study are  R e a s o n a b l e v a l u e s were a s s i g n e d  p a r a m e t e r s by r e v i e w i n g a l l a v a i l a b l e Moreover,  of t h i s  them t o pay  by  a premium i n t i m e s o f  i n o t h e r words, i t c o l l e c t s  premiums i n a s t a b i l i z i n g  but  way.  farmer  108 (2)  I f the government wished t o achieve income s t a b i l i t y a t low c o s t , m o d i f i e d FIAP would be p r e f e r a b l e t o FIAP  (1975).  Cost over the p e r i o d  1964-1976 would be 33% l e s s f o r m o d i f i e d FIAP than f o r FIAP (1975). (3)  I f the government wished t o reduce c o s t f u r t h e r ,  this  c o u l d be done through i n t r o d u c i n g a s l i d i n g premium i n t o FIAP  (19 75).  By a l l o w i n g farmer premiums t o  s l i d e upwards i n response t o government advances, cost o f FIAP  (1975) would be reduced 85%.  Not o n l y  would government c o s t be reduced s u b s t a n t i a l l y by a l l o w i n g the premium t o s l i d e , but a g r e a t e r r e d u c t i o n i n income v a r i a b i l i t y would r e s u l t than f o r e i t h e r FIAP  (1975) without a s l i d i n g premium o r m o d i f i e d 48  FIAP.  The p r i c e o f reduced government c o s t and  reduced income v a r i a b i l i t y due t o the s l i d i n g premium would be a lower l e v e l o f income f o r hog producers. (However, i t i n c r e a s e s the l e v e l o f producer income over the e q u i l i b r i u m  situation).  In summary, t o the extent t h a t income support i s the predominant government g o a l , the premium/subsidy scheme i s the p r e f e r r e d c h o i c e .  To the extent t h a t  reduced government c o s t i s the predominant g o a l , FIAP (19 75) w i t h a s l i d i n g premium could achieve  this.  The s l i d i n g farmer premium was thus a s t a b i l i z i n g i n f l u e n c e on producer incomes. T h i s occurred because years o f i n c r e a s ed farmer premiums happened t o c o i n c i d e with years o f high hog p r i c e s . Were the p r i c e c y c l e d i f f e r e n t (as i t i s f o r b e e f ) , the s l i d i n g premium c o u l d w e l l be d e - s t a b i l i z i n g .  109 6.3  E x t e n s i o n s o f t h e Model Some u s e f u l e x t e n s i o n s . o f (1)  t h e model a r e :  Government s t a b i l i z a t i o n can  be e x p e c t e d t o have an i m p a c t b e y o n d  gate. this the  p r o g r a m s f o r hog p r o d u c e r s the farm  T h u s , t h e f a r m l e v e l model d e v e l o p e d i n study could  processing  be u s e f u l l y e x t e n d e d  and r e t a i l  to include  l e v e l s o f t h e hog  industry. (2)  With  some m i n o r m o d i f i c a t i o n s ,  developed  i n this  study could  income s t a b i l i z a t i o n This the  would i n v o l v e relevant  well (3)  be u s e d  t o study  programs f o r beef  a new s u b r o u t i n e  production  as t h e a p p r o p r i a t e  Since  t h e computer m o d e l  producers.  incorporating  assumptions  f o r b e e f as  set of basic  data.  t h e m o d e l i s an a g g r e g a t e one i t d o e s n o t  identify  individual beneficiaries of various  stabilization studies  programs.  suggest that  A number o f e c o n o m i c  s u c h p r o g r a m s have  regressive  49 distributional considering a  fairly  that  small  there  (Barichello).  In f a c t ,  e x i s t s some i n d i c a t i o n t h a t  p e r c e n t a g e o f hog p r o d u c e r s large proportion  have  recieved  a relatively  payments  ( H u d s o n ) , i t w o u l d be o f i n t e r e s t t o  extend  t h e model i n o r d e r  evaluation 49  effects  to allow  of indemnity  a quantitative  of d i s t r i b u t i o n a l e f f e c t s .  A w e l l documented r e v i e w o f t h i s t o p i c . c a n be f o u n d i n D. Gale. J o h n s o n , W o r l d A g r i c u l t u r e i n D i s a r r a y , (London, 1973) , M a c M i l l a n P r e s s , C h a p t e r 9.  110 L I S T OF  REFERENCES  A g a r w a l a , R. "A S i m u l a t i o n A p p r o a c h t o t h e A n a l y s i s o f 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 S t u d y " . J o u r n a l of A g r i c u l t u r a l Economics, V o l . X X I I , No. 1, J a n u a r y , 1971 A g r i c u l t u r e Canada. 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Ontario A g r i c u l t u r a l College, 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 AEEE/76/11. M e i l k e , K.D. "Another Look a t the Hog-Corn R a t i o . " 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 . 59, No. 1, February, 1977, pages 216-219. N a y l o r , Thomas H. Computer S i m u l a t i o n Experiments w i t h Models o f Economic Systems, New York, John Wiley & Sons, 1971 N a y l o r , T.H. e t a l . Computer S i m u l a t i o n Techniques, New York, John Wiley and Sons, 196 8.  113  O r c u t t , Guy H. Economic  " S i m u l a t i o n o f Economic S y s t e m s . " American Review, V o l . L, No. 5, December, 1960.  Petrie,  T.M. " S e a s o n a l , C y c l i c a l and T r e n d V a r i a t i o n s i n t h e Hog I n d u s t r y . " 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 E c o n o m e t r i c M o d e l o f t h e C a n a d i a n L i v e stock-Feed Grains Sector. U n p u b l i s h e d M.Sc. T h e s i s , U n i v e r s i t y o f S a s k a t c h e w a n . Mimeograph. May, 197 3.  S t a t i s t i c s Canada. 1971 C e n s u s o f A g r i c u l t u r e - B r i t i s h C o l u m b i a , C a t a l o g u e 96-711, V o l . IV, P a r t 3, May, 1973. 62-004,  . Farm I n p u t P r i c e Quarterly. .  Farm C a s h  .  Price  .  Industry Price  Index, C a t a l o g u e  R e c e i p t s , C a t a l o g u e 21-201,  1975. and P r i c e  Indexes, Catalogue  62-002. Indexes, Catalogue  62-011. Shubik, M a r t i n . " S i m u l a t i o n o f t h e I n d u s t r y and t h e F i r m . " A m e r i c a n E c o n o m i c Review, V o l . L, No. 5, December, 1960. Tryfos,  P. "The D e t e r m i n a n t s o f P r i c e and Employment i n t h e C a n a d i a n Meat I n d u s t r y " .. C a n a d i a n J o u r n a l o f A g r i c u l t u r a l E c o n o m i c s , V o l . 21, No. 2, J u l y , 1973.  T w e e t e n , L. and J . S . P l a x i c o . "Long Run O u t l o o k f o r A g r i c u l t u r a l A d j u s t m e n t s B a s e d on N a t i o n a l Growth." J o u r n a l o f Farm E c o n o m i c s , XLIV, December, 19 64. T y n e r , F. and T w e e t e n , L . " S i m u l a t i o n a s a Method o f A p p r a i s i n g Farm P r o g r a m s . " American J o u r n a l of A g r i c u l t u r a l E c o n o m i c s , V o l . 50, No. 1, F e b r u a r y , 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 o f Hogs a t t h e N a t i o n a l and R e g i o n a l L e v e l . " C a n a d i a n Farm E c o n o m i c s , V o l . 10, No. 2, A p r i l , 1975. West, D.A. and S m i t h , H.W. " I n s t a b i l i t y i n t h e Hog P o r k Industry." C a n a d i a n Farm E c o n o m i c s , V o l . 8, No. 2, April, 1973.  114  West, D.A., C h i n , S.B., and Pando, J . L . " N a t i o n a l and R e g i o n a l Hog S u p p l y F u n c t i o n s . " A g r i c u l t u r e Canada, E c o n o m i c s B r a n c h P u b l i c a t i o n No. 74/15, September, 1974. Z w a r t , A. and M a r t i n L . "The N o r t h - A m e r i c a n P o r k S e c t o r A n a l y s i s o f i t s E c o n o m i c 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 . " Ontario 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. Z w a r t , A n t h o n y C. "A R e c u r s i v e S p a t i a l A n a l y s i s American Pork S e c t o r . " U n p u b l i s h e d M.Sc. U n i v e r s i t y o f G u e l p h , A u g u s t , 1973.  of the North Thesis.  114 a  APPENDICES  APPENDIX A  CALCULATION OF COST FIGURES USED IN THE ANALYSIS  115 Cost Figures The dressed  cost  f i g u r e s needed t o p r o d u c e one  carcass,  estimated 1.  Calculations  as  reported  i n t a b l e s A - l , A-2  cost,  1.1.  and  of  hog  A-3  were  follows:  T o t a l V a r i a b l e C o s t was feed  cwt  labour  cost  F e e d C o s t was of  decomposed and  (or 3.50  hog).  This  boar feed,  feed  carcass of  using  a r a t e of  t o p r o d u c e one  l b s . t o p r o d u c e one rate of conversion  e s t i m a t e d t o be  words, t o produce  160  FIAP c a l c u l a t i o n s and  pound  can  0.9 5 l b s .  In  live and  other  (dressed 852  f i g u r e was be  of  e x c l u d e s sow  assumed t h a t This  conversion  pound o f  l b s . of pork  w e i g h t ) i t was  f e e d were n e e d e d .  items:  costs.  estimated  4.375 l b s . o f  pork  other  into three  lbs.  taken  decomposed  from  as  follows: 50  l b s of  s t a r t e r mash and  650  l b s g r o w e r mash  152  l b s ground  852  lb in  P r i c e of British  creep  barley  total.  g r o w e r mash and  ground b a r l e y  Columbia r e t a i l p r i c e s taken  Statistics  are  from  Canada P u b l i c a t i o n , P r i c e and  Indexes, Catalogue  62-002  October,  from I n d u s t r y  Catalogue  feed  1975)  and  62-011, s t a r t i n g  ( f r o m 1964  Price  until  Price  Indexes,  November, 1975  until  116 December, Since  1976.  FIAP c a l c u l a t i o n s i n c l u d e  prices  of  83%  the  of  10  TON  loads  retail  bulk  which are  p r i c e s , i n the  feed  approximately case of  mash, w h o l e s a l e p r i c e s were o b t a i n e d ing  g r o w e r mash p r i c e s by  ground b a r l e y , increasing 1.2.  Cost of  retail  To  estimate  a v e r a g e wage r a t e o f  the  FIAP i n 1975 means o f  rated)  In the  g r o w e r mash p r i c e s by  labour.  was  the  the  20  1.3.  simulated  was  Statistics  2.  sow  equivalent  to  means o f  1975,  costs  insurance,  T o t a l Fixed.Cost. by  and  the  the  B a s e d on  c a l c u l a t i o n i t was  variable  The  period  s u c h as and 4%  the  estimated veterinary  1975  FIAP  that and  of  total  the  labour  fixed  plus  other medicine,  c o s t was by  feed  also the  Canada, Farm I n p u t P r i c e I n d e x . The  fixed  c a l c u l a t e d by  FIAP  f o r 1975  was  cost.  estimated  FIAP  Farm B u i l d i n g I n d e x , t a k e n  Statistics cost  being  b o a r r e p l a c e m e n t , e t c . , were  average f i g u r e reported  L a n d and  Index,  estimated.  Other V a r i a b l e Cost. cost  by  (hourly  from  the  labour,  Later,  Canada P u b l i c a t i o n s , Farm I n p u t P r i c e r e s t of  by  hour used  a base.  f o r Western Canada, t a k e n  of  percent.  Index o f Farm L a b o u r  62-004, t h e  case  cost of  $5.37 p e r  t a k e n as  Catalogue  multiply-  p r i c e s were o b t a i n e d  the  by  0.83.  by  grower  for  from  average  $20.93 p e r  hog  117 or  $13.08 p e r cwt.  The  Land  and  Farm B u i l d i n g  Index  f o r W e s t e r n Canada i n c l u d e s : b u i l d i n g  replacement,  building  and  repair, fencing  mortgage c r e d i t , p r o p e r t y  construction t a x e s and  farm  repair, rent.  ***  PRICE  OF F E E D NEEDED  TABLE A - l  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  18.04  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  18.57  18.69  18.54  1 8 . 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  19.18  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  24.79  2 5 . 55  27.98  28.40  31.84  33.44  33.33  33.58  1974  34.16  35.30  36.14  36.82  37.55  37.46  36.63  36.82  38.99  40.65  40.86  40.70  1975  40.55  41.38  40.48  40.58  39.49  39.10  39.11  39.34  40.03  39.79  39.15  38.43  1976  37.45  37.82  37.82  37.82  38.77  39.49  38.87  39.84  39.89  38.94  38.56  38.24  SOURCE : S T A T I S T I C 62-011.  CANADA  ESTIMATION  :  PRICE  BASED ON T H E  AND  PRICE  INDEXES,  1975 F . I . A . P .  COST  CATALOGUE 6 2 - 0 0 2 STRUCTURE.  AND  INDUSTRY  PRICE  INDE XE S, C ATALOSUE  * * * 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  1964  21.54  21.51  21 .55  1965  21.77  21.66  1966  22.25  1967  APR  HAY  JUN  JUL  AUG  SEP  21.62  21.63  21.52  21.52  21.54  21.69  21.74  21.74  21.79  21.96  22.01  22.06  22.07  22.07  22.14  22.33  22.50  22.90  22.97  23.07  23.59  23.74  23.69  23.66  23.43  23.47  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  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  21.57  OCT  21.66  NOV  21.62  DEC  21.65  SOURCE:STATISTIC CANADA ; PRICE AN 0 PRICE INDEXES, CATALOGUE 62-002 AND INDUSTRY PRICE INDEXES .CATALOGUE 6 2 - 0 1 1 . ESTIMATION BASED ON THE 1975 F . I . A . P . COST STRUCTURE.  \XJ  * * * 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  ***  SIMULATED  FARM  (RESTRICTIONS  TABLE B - l  **»  FLOOR P R I C E FOR  INCOME ASSURANCE  ON WHAT HOGS  DOLLARS  PER  JAN  FEB  MAR  APR  MAY  JUN  1974  51.46  50.57  47.13  45.21  43.16  42.75  1975  58.25  59.53  56.45  58.65  63.59  1976  70.77  71.41  68.91  65.23  66.57  PROGRAM  OUALIFV  HUNDRED  JUL....  HOGS  FOR  THE PROGRAMI  WEIGHT  AUG  SEP  OCT  NOV  DEC  45.61  53.21  55.83  55.68  54.43  56.48  68.76  75.02  77.44  84.52  79.22  72.76  72.73  66.27  66.10  64.39  63.63  59.45  56.11  58.58  S O U R C E : T A B L E A - l FOR CDST DATA AND A G R I C U L T U R E CANADA, L I V E S T O C K AND MEAT TRADE HOG P R I C E S . F . I . A . P . F I G U R E S FOR THE NUMBER OF HOGS MARKETED UNDER THE PROGRAM.  REPORT • FOR  EQUILIBRIUM  ***  QUANTITIES  OF  HOG PROOUCED  TABLE  UNDER  B-2  *•»  THE FARM INCOME  ASSURANCE  PROGRAM  1974-1976  THOUSANDS  8.43  10.92  10.06  9.07  11.50  8.13  7.72  10.56  8.35  7.52  9.05  8.05  8.12  9.37  7 . 19  8.98  14.70  8.12  8.43  10.72  7.31  9.57  APR  MAY  1974  6.39  6.75  9.87  7.97  7.75  1975  9.20  8.49  11.10  8.78  1976  7.08  7.49  8.64  7.05  CANADA L I V E S T O C K  OCT  10.06  MAR  AGRICULTURE  SEP  AUG  FEB  :  WEIGHT  JUL  JAN  SOURCE  OF HUNDRED  AND MEAT  TRADE  JUN  NOV  OEC  REPORT  NJ  » * * TABLE B-3 * * *  SIMULATEO QUANTITIES  OF HOG PRODUCED  FARM INCOME ASSURANCE PROGRAM (RESTRICTIONS ON WHAT HOGS QUALIFY FOR THE PROGRAM) THOUSANDS OF HUNDRED WEIGHT OCT  8.27  10.69  10.04  9.03  11.41  8.38  7.94  10.67  8.68  7.85  9.36  8.38  8.43  9.52  7.37  8.63  14.16  FEB  MAR  APR  MAY  JUN  JUL  AUG  1974  6.39  6.77  9.86  7.83  7.44  9.69  7.67  1975  9.17  8.23  10.97  8.57  8.23  11.01  1976  7.50  7.86  8.99  7.65  7.54  9.79  NOV  DEC  SEP  JAN  M CO  * * » TABLE B-4 » * *  AGRICULTURAL STABILIZATION ACT FLOOR PRICE FOR HOGS AND PER UNIT FEDERAL  1964-1976 DOLLARS PER HUNDRED WEIGHT YEAR  EOUI. PRICE  FLOOR PRICE  FED.SUB.  1964  25.3900  20.6920  0.0300  1965  34.4900  20.5544  0.0000  1966  32.1000  21.5168  0.0000  1967  27.6000  21.9752  0.0000  1968  30.6600  21.7184  0.0000  1969  36.0200  21.9312  0.0300  1970  26.9600  23.1160  0.0000  1971  25.4900  23.3264  0.0000  1972  38.6100  23.3864  0.0000  1973  51.7900  24.2352  0.0000  1974  48.5700  26.3288  0.0000  1975  69.2900  45.6656  0.0000  19 76  57.7200  50.7970  0.0000  SUBSIDY  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 MEAN (ANNUAL MEAN (MONTHLY STAND. DEV. (MONTHLY BETWEEN STANO. DEV. (MONTHLY WITHIN STAND. DEV. ( ANNUAL  AVERAGE ) AVERAGE) AVERAGE YEARS I AVERAGE YEARS) AVERAGE)  30.64 12.33  HOG PRICES  HOG PRODUCTION  S/CWT  38.43 16.68  TOTAL REVENUE  GROSS INCOME  TH. CWT  TH. $  85.09 7.09  3369.90  630.81  1793.46  526.18  TH.  $  2.39 23.53  FEDERAL GOVERNMENT TOTAL AND NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS. PROV. GOV. TOTAL FARMERS TOTAL  AND NET CONTRIBUTIONS TO OR RECEIPTS FROM FARMERS AND/OR THE FED. GOV.  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  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).  0.000 0.000  »** TABLE C  2 ***  PRODUCT P R I C E SUPPORT MEAN AND STANDARD  4/CWT AVERAGE) AVERAGE! AVERAGE YEARS 1 AVERAGE YEARS) AVERAGEI  PRODUCED AND FARMERS INCOME AND REVENI  P R I C E S , QUANT I T I ES OF HOG  O E V I A T I O N OF HOG  VAR. INPUT PRICES  MEAN (ANNUAL MEAN I MONTHLY STAND. DEV. (MONTHLY BETWEEN STAND. DEV. (MONTHLY WITHIN STAND. DEV. (ANNUAL  PROGRAM.  30.64 12.33  TOTAL REVENUE  HOG PRODUCT ION  HOG PRICES S/CWT  TH.  CWT  TH. *  91.36 7.61  39.59 16.35  GROSS INCOME TH. t  3755.30  818.08  1979.58  5 12.2*  2.63 25. 10  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 F E D . GOV. TOTAL PAYMENTS (-» AND/OR RECEIPTS ( • ) .  NET PAYMENTS (-) AND/OR RECEIPTS («•).  THOUSANDS OF DOLLARS FED. GOV. ANNUAL PROGRAM FED. GOV. MONTHLY PROGRAM PROV. GOV. MONTHLY PROGRAM B.C. HOG PROOUCERS  0.000 0.000 -2294.748 -596.993  -1697.753 1697.753  INCLUDES A SHIFTER PARAMETER OF THE SUPPLY FUNCTION TO ACCOUNT FOR A MORE STABLE ( I F P O S I T I V E ! OR UNSTABLE ( I F NEGATIVEI PRODUCTION ENVIROMENT, DUE TO S T A B I L I Z A T I O N EFFORTS. NO FEDERAL S T A B I L I Z A T I O N SCHEME INCLUDED. PROVINCIAL SUPPORT LEVEL AT 7 5 . 0 1 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. PRICE CF HOGS BASED ON HOGS INDEX 100 (DRESSED CARCASS WEIGHT). RETURN D E F I C I T USED TO CALCULATE THE FLOOR AND C E I L I N G PRICES FOR H3GS BASED ON INDEX 100 HOG P R I C E S .  ***  PRODUCT  MEAN AND STANDARD D E V I A T I O N  FEDERAL  FARMERS  TOTAL  SUPPORT PROGRAM.  OF HOG PROOUCEO AND FARMERS  HOG PRODUCTION  S/CWT  30.64 12.33  INCOME  TOTAL REVENJE  ANO R E V E N U E .  GROSS INCOME  T H . CWT  TH. *  90.56 7.55  3677.58  767.03  1938.21  493.15  39.12 16.26  TH.  t  2.60 24.73  GOVERNMENT TOTAL  PROV. GOV. T O T A L  3 ***  HOG PRICES  S/CWT  AVERAGE I AVERAGE) AVERAGE YEARS) AVERAGE YEARS) AVERAGE)  PRICE  C  OF HOG P R I C E S , O U A N T I T I E S  VAR. INPUT PRICES  MEAN I ANNUAL MEAN (MONTHLY STAND. D E V . (MONTHLY BETWEEN S T A N O . D E V . (MONTHLY WITHIN S T A N D . D E V . [ANNUAL  TABLE  AND NET CONTRIBUTIONS  AND NET C O N T R I B U T I O N S  AND NET CONTRIBUTIONS  TO OR R E C E I P T S  TO OR R E C E I P T S  T O T A L PAYMENTS (-1 AND/OR R E C E I P T S ( + • •  TO OR R E C E I P T S FROM FARMERS  FROM FARMERS. AND/OR THE F E D . GOV.  FROM THE PROV. G O V . AND/OR  NET PAYMENTS AND/OR R E C E I P T S  THE F E D . GOV.  «-) !•).  THOUSANDS OF DOLLARS  FED. FED. PROV. B.C.  GOV. ANNUAL PROGRAM G O V . MONTHLY PROGRAM G O V . MONTHLY PROGRAM HOG  PRODUCERS  • 0.000 0.000 -2013.863  — -1126.633  -887.228  1126.633  INCLUDES A S H I F T E R PARAMETER OF T H E SUPPLY F U N C T I O N TO ACCOUNT FOR A MORE S T A B L E ( I F P O S I T I V E I OR UNSTABLE ( I F N E G A T I V E ) PRODUCTION ENVIROMENT, DUE TO STABILIZATION EFFORTS. NO F E C E R A L S T A B I L I Z A T I O N SCHEME I N C L U D E D . PROVINCIAL SUPPORT L E V E L AT 100.0% OF NET MARGIN OR RETURN D E F I C I T . 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 PROGRAM. PRODUCER PREMIUM INCLUDED IN A L L MONTHS. PRODUCER PREMIUM CHANGED BY 5 0 . O S .COMPARED TO THE 1 9 7 6 F I A P RATE OF S I . 5 PER CWT OF HOG PRODUCED (DRESSED CARCASS) . P R I C E CF HOGS BASED ON HOGS INDEX 1 0 0 (DRESSED CARCASS W E I G H T ) . RETURN D E F I C I T USED TO C A L C U L A T E THE FLOOR AND C E I L I N G P R I C E S FOR HDGS BASED ON INDEX 1 0 3 HOG P R I C E S . NET MARGIN C A L C U L A T E D AFTER REDUCING THE TOTAL AMOUNT OF F I X E D COSTS TO A 8 3 . 0 * OF THE F I A P F I G U R E S .  »»*  TABLE  C  *  PREMIUM-SUBSIDY  MEAN  AND  STANDARD  DEVIATION  CF  HOG  VAR.  P RI C E S . QU A N T I T I  TH.  AVERAGE!  (MONTHLY  AVERAGE >  30.64  39.54  DEV  (MONTHLY  AVERAGE  12.33  16.03  (MONTHLY  817.53  1957.99  480.83  24.90  AVERAGE)  GOV.  GOVERNMENT  TOTAL  TOTAL  AND  AND NET  NET  TOTAL  AND  NET  CONTRIBUTIONS  CONTRIBUTIONS  TO  CONTRIBUTIONS TO  OR  OR  TO  RECEIPTS  RECEIPTS  TOTAL  PAYMENTS  (-)  AND/OR  RECEIPTS  (•!.  OR  FROM  FROM  THE  RECEIPTS  FROM  FARMERS  AND/OR  PROV.  GOV.  NET  RECEIPTS  PROGRAM PROGRAM  0.000  PROGRAM  -2280.930  -1681.581  -599.348  1681.581  INCLUDES  A  UNSTABLE  (IF  FEDERAL  PROVINCIAL FIXED  RETURN  OF  PARAMETER  NEGATIVE!  OF  SCHEME  SUPPORT  AT  ON  PRODUCER HOGS  DEFICIT  LEVEL  WHAT  THE  PRODUCTION  STABILIZATION  RESTRICTIONS PRICE  PRODUCERS  SHIFTER  HOGS  SUPPLY  FUNCTION  ENVIROMENT,  FED.  GOV.  (-) (•).  DUE  TO  T3  ACCOUNT  FOR  STABILIZATION  A  MORE  STABLE  (IF  POSITIVE)  OR  EFFORTS.  INCLUDED.  75.0*  QUALIFY  PREMIUM  THE  GOV.  0.000  ANNUAL MONTHLY  HOG  FED.  DOLLARS  GOV.  MONTHLY  THE  PAYMENTS  AND/OR OF  FARMERS.  AND/OR  GOV. GOV.  t  TH.  3748.10  FED. B.C.  NO  i  FED. PROV.  INCOME  2.59  THOUSANDS  NO  TH.  CWT  REVENUE.  GROSS  TOTAL REVENUE  ION  AND  YEARS)  FEDERAL  FARMERS  INCOME  7.60  AVERAGE  (ANNUAL  PROV.  FARMERS  YEARS)  WITHIN DEV.  AND  91.23  (ANNUAL  STAND.  PRODUCED  PRODUCT  t/CWT  MEAN  DEV.  HOG  HOG  MEAN  STAND.  OF  PRICES  $/CWT  BETWEEN  PROGRAM.  HOG  INPUT  PRICES  STAND.  ES  **»  OF  NET  MARGIN  FOR  THE  PROVINCIAL  OR  RETURN  DEFICIT  AND  CEILING  2.5*  ABOVE  THE  FLOOR  PROGRAM.  INCLUDED.  BASED  ON  HOGS  USED  TO  CALCULATE  INDEX  100 THE  (DRESSED FLOOR  AND  CARCASS CEILING  WEIGHT!. PRICES  FOR  HOGS  BASED  ON  INDEX  100  HOG  PRICES.  PRICE.  * * *  SELF-FINANCING  MEAN  AND  STANDARD  DEVIATION  OF  HOG  VAR.  INPUT  STAND.  —  38.49  DEV.  (MONTHLY  AVERAGE  12.33  15.91  (MONTHLY ( ANNUAL  NO  GOV.  GOVERNMENT  TOTAL  TOTAL  AND  AND NET  ANNUAL  PROGRAM  GOV.  MONTHLY  PROGRAM  PROV.  GOV.  MONTHLY  PROGRAM  FEDERAL  PROVINCIAL  NET  TOTAL  AND  NET  CONTRIBUTIONS  CONTRIBUTIONS  TO  CONTRIBUTIONS TO  OR  OR  TO  RECEIPTS  RECEIPTS  TOTAL  PAYMENTS  (-1  AND/OR  RECEIPTS  (•).  SCHEME  PREMIUM  PRICE  HOGS  OF  RETURN SLIDING  OF  AT  PRODUCER  LEVEL HOGS  INCLUDED  IN  ALL  ON  HOGS  TO  CALCULATE  WITH  THE  QUALIFY  USED  PREMIUM  »  692.36  1842.34  427.49  FROM  FROM  THE  FARMERS PROV.  NET  FARMERS  FARMERS.  AND/OR  GOV.  THE  AND/OR  FEO.  THE  PAYMENTS  AND/OR OF  FROM  GOV.  FEO.  GOV.  (-1  RECEIPTS  (•).  DOLLARS  0.000  INDEX  SUPPLY  FUNCTION  E N V I ROME N T <  -244.956 244.956  DUE  TO  TO  ACCOUNT  FOR  STABILIZATION  A  MORE  STABLE  (IF  POSITIVE)  OR  EFFORTS.  INCLUDED.  75.0%  BASED  DEFICIT  TH.  3563.23  RECEIPTS  - 2 2 3 6 . 160  PRODUCTION  SUPPORT  WHAT  OR  -1991.201  PARAMETER  NEGATIVE)  ON  $  0.000  PRODUCERS  STABILIZATION  RESTRICTIONS  TH.  24.25  AVERAGE)  GOV.  SHIFTER  GROSS INCOME  YEARS)  FED.  (IF  CWT  REVENUE.  2.53  AVERAGE  FED.  A  TOTAL  AND  7.47  THOUSANDS  INCLUDES  INCOME  YEARS)  FEDERAL  UNSTABLE  FARMERS  REVENUE  89.61  30.64  HOG  AND  PRODUCTION  —  AVERAGE)  B.C.  PROGRAM  PRODUCED  TH.  AVERAGE I  FARMERS  HOG  J/CWT  (MONTHLY  PROV.  SUPPORT  HOG  (ANNUAL  DEV.  ***  HOG  VE A N  WITHIN STANC•  OF  PRICES  MEAN  DEV.  5  PRICE  PRICES,QUANT I TIES  HCWT  BETWEEN  C  PRODUCT  PRICES  STAND.  TABLE  OF  NET  MARGIN  FOR  THE  PROVINCIAL  OR  RETURN  DEFICIT.  PROGRAM.  hM  1  MONTHS. 100 THE  (DRESSED FLOOR  CONTRIBUTING  AND  CARCASS CEILING  100.0*  AND  WEIGHT). PRICES  THE  PROV.  FOR  HOGS  GOV.  BASED 0.0*  OF  ON  INDEX  THE  100  TOTAL  HOG  PRICES.  PREMIUMS  PAID.  ***  SELF-FINANCING  MEAN AND STANDARD  STAND.  MEAN (ANNUAL AVERAGE) MEAN (MONTHLY AVERAGE) D E V . (MONTHLY AVERAGE BETWEEN Y E A R S ) D E V . (MONTHLY AVERAGE WITHIN YEARS) D E V . (ANNUAL AVERAGE!  FEDERAL PROV. FARMERS  GOV. TOTAL  • * *  HOG PRODUCTION  B.C.  HOG  ANNUAL MONTHLY MONTHLY  89.18 7.43  3543.14  PROOUCERS  AND  REVENUE.  GROSS INCOME TH. S  687.29 —  —  2.39 23.84  TOTAL  AND NET CONTRIBUTIONS  AND NET CONTRIBUTIONS  AND NET CONTRIBUTIONS  PROGRAM PROGRAM PROGRAM  INCOME  TOTAL REVENUE TH. S  TO OR  RECEIPTS  TO OR R E C E I P T S  1815.49  TO OR R E C E I P T S  FROM  FROM FARMERS  AND/OR  FROM THE  (-) {+). THOUSANDS  GOV. GOV. GOV.  ANO FARMERS  T H . CWT  38.35 15.51  TOTAL PAYMENTS AND/OR R E C E I P T S  FED. FEO. PROV.  PROGRAM.  OF HOG PRODUCED  S/CWT  30.6* 12.33  GOVERNMENT  TOTAL  6  P R E M I U M - S U B S IOV  HOG PRICES  S/CWT  STAND.  C  D E V I A T I O N OF HOG P R I C E S t QUANT I TI ES  VAR. INPUT PRICES  STAND.  TABLE  PROV.  409.79  FARMERS. THE F E D .  G O V . AND/OR  NET PAYMENTS AND/OR R E C E I P T S OF  GOV.  THE F E D .  GOV.  (-) (•).  DOLLARS  0.000 0.000 -1585.072  -254.517  -1330.554  254.517  INCLUDES A S H I F T E R PARAMETER OF THE SUPPLY F U N C T I O N TO ACCOUNT 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 ) PROOUCTION E N V I R O M E N T « DUE TO STABILIZATION EFFORTS. NO F E D E R A L S T A B I L I Z A T I O N SCHEME INCLUDED. PROVINCIAL SUPPORT L E V E L AT 7 5 . O S OF NET MARGIN OR RETURN D E F I C I T AND C E I L I N G 1 . 5 * ABOVE THE FLOOR P R I C E . R E S T R I C T I O N S ON WHAT HOGS OUALIFY FOR T H E P R O V I N C I A L PROGRAM. S L I D I N G PREMIUM WITH FARMERS C O N T R I B U T I N G 1 0 0 . 0 % AND THE PROV. G O V . 0 . 0 * OF THE TOTAL PREMIUMS P A I D . NO F I X E D PRODUCER PREMIUM INCLUDED. P R I C E OF HOGS BASED ON HOGS INOEX 100 ( D R E S S E D CARCASS W E I G H T ) . RETURN D E F I C I T USED TO C A L C U L A T E THE FLOOR AND C E I L I N G P R I C E S FOR HOGS BASED ON INDEX 1 0 3 HOG P R I C E S . NET MARGIN C A L C U L A T E D AFTER R E D U C I N G THE TOTAL AMOUNT OF F I X E D COSTS TO A 8 5 . 0 * OF THE F I A P F I G U R E S .  APPENDIX D NUMERICAL RESULTS OF SIMULATION RUNS AND ESTIMATED REGRESSION COEFFICIENTS  Table  D-l  Numerical Results  of Simulation  Change i n B e h a v i o r a l  Runs f o r FIAP  (1975)  Parameters  (1964-1976)  Run  Independant V a r i a b l e s  a  l  a 14  Summary M e a s u r e s Average Gross Income per year (th o f dollars)  Absolute Variation o f Income (st.dev i n th of d o l lars)  Relative Variation o f Income (Coef. o f Variation)  Net P r o v . Gov.Payouts (th o f d o l l a r s per period)  Hog Production (th o f lbs)  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 Results of Simulation Change i n P o l i c y  Runs f o r FIAP  (1975)  Parameters  (1964-1976)  Run  Independent V a r i a b l e s  a 22  24  Summary Average Income per year (th o f dollars)  Absolute Variation o f Income (Average dev.in t h of d o l l a r s  Measures  Relative Variation o f Income (Coef. o f Variation)  Net Prov. Gov.Payouts (th o f d o l l a r s per period)  Hog Production (th o f lbs)  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  T a b l e D-3  Estimated  Regression  Functions  C o e f f i c i e n t s o f Performance  f o r t h e FIAP  Change i n P o l i c y  (1975)  Parameters  (1964-1976)  Independant Variables  Summary M e a s u r e s  Average Gross A b s o l u t e V a r i a t i o n o f Income ( s d . d e v . Income P e r in th of dollars) Year (th o f d o l l a r s )  Hog R e l a t i v e V a r i a t i o n Net Prov. P r o d uction Gov.Payo f Income outs (th o f (Coef.of V a r i a t i o n ) lbs) (th of dollars)  654.3  602.9  91.9  331.0  9,030.7  a 22  -167.9  -107.5  -16.5  -2,358.8  -431.7  a 24  -  1.8  -165.5  -16.5  -  -  88.5  32.1  0.0009  7.5  64.2  0.001  322. 8  96.9  0.0005  Intercept  2  a  )  2  )  2  ;  22 R'  -  a  24  0.988  0.997  0.999  469.1  94.6  1,091.5  217.1  3.5  24.6  3,873.9  484. 3  0.988  0.978  CO CO  

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