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An examination of the impacts of eliminating government payments on the Canadian beef sector Yang, Hae Young 1989

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A N EXAMINATION  OF T H E IMPACTS  OF ELIMINATING  GOVERNMENT  PAYMENTS ON T H E CANADIAN B E E F SECTOR by HAE YOUNG YANG B.Sc.  Korea University, 1981  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR T H E DEGREE OF MASTER OF SCIENCE  in THE FACULTY OF GRADUATE STUDIES Department of Agricultural Economics  We accept this thesis as conforming to the required standard  THE UNIVERSITY  OF BRITISH COLUMBIA  March, 1989  © H A E YOUNG YANG, 1989  In presenting  this thesis in partial fulfilment of the  degree at the  and  study. I further agree that permission for extensive  copying of this thesis for scholarly purposes may or  by  his or  her  representatives.  be  permission.  Department The University of British Columbia Vancouver, Canada  granted by the head of  It is understood  publication of this thesis for financial gain shall not be  DE-6 (2/88)  advanced  University of British Columbia, I agree that the Library shall make it  freely available for reference department  requirements for an  that  copying  allowed without my  my or  written  ABSTRACT  The  objective  government trend  of  government  liberalization  payments  to  some  p l a n n i n g horizon.  been  operative and/  over m a n y differ  by  payments  research  subsidies on the  towards  directly  this  at  years.  As a  trade  agricultural  a g r i c u l t u r a l sectors  federal  to  the  result  The  by  and  beef  (GATT be  considers the  reduced  provincial  hypothesis  through  of  an  increase  and  the  the  is positive i n the  market  approach  plus  zero,  government  long  run.  government  the  herd  payments.  A  beef  the  is  recent  many  is  that  eliminated over beef  They  thesis  sector  have  been  paid  have different  programs  to beef  producers  that  when  these  expected  reduction of herd  to  by  each  consist of returns  from  When  decrease  size leads  as  to  i n terms of  relationship between  of cattle  producers  payments.  producers  t h a t the  number  E a r n i n g s to  assistance  size  or  of  v a r y b y province.  it assumes  producer  to  economic behaviour of cattle  of  elimination  F T A ) suggests  payments  this  and  price  of  and/  levels.  investment a n d d i s i n v e s t m e n t rules expected  and  governments  producers  impacts w i l l  impact  C a n a d i a n beef sector. The  the  in  the  of these v a r i e d programs  primary  eliminated, the  This research  of  both  indirectly  examine i n the  Assistant programs  or  are  to  s u p p l y response  the  the  province.  is  retained  government a  result  changes  payments  of  i n the  decreased production,  trade and income levels.  Given beef In  industry  the  industry  "base" and  the  theoretical  and  empirical  is a n a l y z e d a s s u m i n g case  the  various  considerations  elasticities of the  s i m u l a t e d result represents the  represents  a  government p a y m e n t s . I n order  situation  where  to analyze the ii  of the  the  current  cattle  model,  a  simulated  long-run supply curve. structure  producers  of the  have  beef  received  liberalizing effect of trade on the  beef  sector three scenarios are considered. The three scenarios assume different own price elasticities.  The base year for this analysis is  1986.  Opening stock numbers of cows,  replacements and stackers are estimated at approximately 7.7 million heads for the national level. In terms of herd size Alberta share is largest  with 37% of total  herd, Saskatchewan has 21% and Manitoba and Ontario fall relatively further down with approximately 19% and 10% of the total herd. Total government payments to the beef sector in the base case are estimated at $243 million. The beef sector in the Prairie provinces and Ontario receives generally less than the relative herd size of their cow-calf herds in terms of government payments while Quebec with only 5.9% of the national cow herd receives 23.8% of the total amount of payments. Changes between  the base case and each of the scenarios are analyzed in  terms of aggregated measures. At the national level the change in the breeding herd size is downwards with a range between 2% for scenario #1 and 12% for scenario #3.  Comparing the base case with scenario #1,  herd size in Quebec is reduced by  approximately 10% whereas the adjustment for most other provinces is about 2%. Quebec $161.60  producers in the  per head while  Ontario  finishing  sector  producers have  received  payments  received amounts  amounting to of $20.45 per  head. Ontario has supported this sector at a lower level than other provinces and therefore is at a competitive advantage when subsidies are removed. In this sense, if the base case and scenario #1 are compared at the provincial levels, high quality beef yield in Quebec is down significantly by 19.4% while that in Ontario is up by approximately  3.5%  in spite  of a herd  size reduction of  1.6%.  Therefore, when  payments to this sector are eliminated the observed impacts will vary by province. iii  Canada the  base  i n the  case,  net  imports in the  base case  exports  eastern  a decrease  i n net  C a n a d a decreases  In  the  of  $1.04  billion  no  net  respectively.  thousand  head  A s a result of the  decrease  returns  i n farmer's  and herd  a n i m a l s . U n d e r scenario #1 the  head  net  elimination sizes, there  the eastern  base of 230 thousand 258  and  Canada  and  western  thousand.  sector earnings to beef producers amount to $1.4 billion. $ 2 4 3 million  payments  payment  258  230 thousand head.  of live  amounted  government  represent  region are  their exports b y 3 6 , 0 0 0 head from  base case  which  the  western  7 5 , 0 0 0 head from  Government payments absence  and  exports  increases i m p o r t s b y  the  region are  of government p a y m e n t s is  in  is a net exporter of feedlot yearlings and calves. In  amount  situation When  and therefore  to  earnings  $1.2 are  government  net sector e a r n i n g i n the  billion. $1.17  In  the  billion,  payments  three $1.14  are  corresponding reduction i n the beef sector earnings is more t h a n $243  iv  scenarios billion  and  eliminated  the  million.  T A B L E OF CONTENTS ABSTRACT  ii  LIST  OF TABLES  vii  LIST  OF FIGURES  viii  ACKNOWLEDGEMENTS Chapter  -.  1 Introduction  ;  1  1.1 B a c k g r o u n d 1.2 P r o b l e m S t a t e m e n t 1.3 Objectives 1.4 R e s e a r c h Procedures 1.5 Thesis O u t l i n e Chapter  Chapter  Chapter  ix  .-.  2 Theoretical Considerations 2.1 G o v e r n m e n t P r o g r a m s i n C a n a d a 2.2 B e e f T r a d e 2.3 I n v e s t m e n t and D i s i n v e s t m e n t B e h a v i o u r of B e e f Producers 2.4 D e m a n d Considerations 2.5 S u m m a r y 3 A n E m p i r i c a l M o d e l of T h e B e e f Sector 3.1 T h e G e n e r a l S t r u c t u r e of C R A M 3.2 A n O v e r v i e w of M a j o r Changes 3.3 T h e B e e f Sector of C R A M . 3.3.1 B e e f Production Activities 3.3.2 T h e T r a d e Block 3.3.3 T h e B e e f D e m a n d Block 3.4 Incorporation of Retention F u n c t i o n into Models 3.5 T h e E q u a t i o n s of the Beef M o d e l 3.6 T h e E m p i r i c a l M o d e l 3.6.1 B e e f D a t a Files 3.6.2 B e e f Coefficient Files 3.6.3 B e e f Retention F u n c t i o n Files 3.6.4 G o v e r n m e n t P a y m e n t s 3.6.5 T r a n s p o r t a t i o n Cost D a t a 3.6.6 D e m a n d D a t a 3.7 S u m m a r y 4 Results 4.1 4.2 4.3 4.4  2 6 8 9 10  Model Validation T h e Scenarios To B e E v a l u a t e d A n a l y s i s of the B a s e Case A n a l y s i s of E a c h Scenario 4.4.1 Changes i n H e r d Sizes 4.4.2 C h a n g e s i n Supplies to M a r k e t 4.4.3 I n t e r p r o v i n c i a l T r a d e and E x p o r t v  .  .:. ,  11 11 15 18 30 32 33 33 37 40 40 45 50 51 55 60 61 63 64 66 66 68 70 71 71 77 82 85 86 88 91  4.4.4  Analysis of Production Cash Costs and Feed Grain Use Levels 4.4.5 Beef Sector Earnings 4.5 Summary Chapter 5 Summary and Conclusions 5.1 Summary and Conclusion '. 5.2 Recommendations for Further Study BIBILOGRAPHY  ;  96 99 102 103 103 107 110  vi  List of Tables 1.1:  A  Partial  Period  Listing  of D i r e c t  Payments  to  Livestock  Producers  over  the  1980-1986  5  2.1: D i r e c t F i n a n c i a l Transfers 3.1: Input Requirements  from P r o v i n c i a l a n d F e d e r a l  and Y i e l d b y A n i m a l  Categorj'  Government  14  in Alberta  61  3.2: P h y s i c a l V a l u e s of Beef Cattle  63  3.3: Beef Retention  Function F i l e s  65  3.4:  Costs  Transportation Between  3.5: D e m a n d  Canada  Data  4.1: A Procedure 4.2:  Comparison  4.3: Retention  of Cattle  a n d Dressed  Provinces  and 67  at N a t i o n a l L e v e l  69  for Model V a l i d a t i o n of Statistics  74  Canada  Estimates  of H e r d  Size  with  Model  Estimates 76  F u n c t i o n Elasticities  79 Model  Sizes b y Province, M a r k e t Returns,  B e e f sector  Earnings  for B a s e  81  Government  Payment  Levels and  Case  83  4.6: B r e e d i n g H e r d Size b y Province under Different 4.7: H i g h  Between  and W o r l d  4.4: Retention F u n c t i o n Elasticities i n F A R M 4.5: H e r d  Beef  Scenarios  Q u a l i t y B e e f Yields on Feedlots  87 90  4.8: N e t Interprovincial and E x p o r t Trade  of Feedlot C a l v e s and Y e a r l i n g s  93  4.9: N e t Interprovincial and E x p o r t T r a d e  of H i g h  95  Q u a l i t y Beef  4.10: Production C a s h Costs  97  4.11: U s a g e  98  of B a r l e y on Beef Sectors  4.12: N e t Beef Sector  Earnings  100  vii  List of Figures  2.1: Derivation of Retention Function  25  2.2: Demand Curve and Retention Function facing Canadian Cattle Producers  28  3.1: General Structure of Model  35  3.2: Calf and Yealrling Ranching and Feeding Alternatives  42  3.3: Beef Production Matirx Using Retention Function Activities  44  3.4: Trade Block of Weaned Calves  47  3.5: Beef Demand Matrix for Beef Yields in Western Area  50  Vlll  ACKNOWLEDGEMENTS  I Graham,  would  like  for  personal  his  generosity.  I  suggestions  and  and  would care  to  like in  express  my  comment to  appreciation  to  thank  this Tim  r e v i e w i n g the  to  my  to t h a n k  my  would  family  not completed  for encouraging  encouragement  Hazeldine  and  Harry  am  grateful  draft.  without their  and  his  and  I  P a t r i c i a B a r k m a n for their contribution i n editing the  w o r k . T h i s thesis  supervisor,  research,  final  for  major  to  for  Steven  and their  Guiton  E n g l i s h composition of this  assistance.  Finally,  supporting me to continue  ix  Paarsch  John  my  I would education.  like  CHAPTER  1  INTRODUCTION  This research attempts to measure  and evaluate the impact of  payment programs upon regional production patterns  government  and supply responses for the  beef sector in Canada. Government assistance to a sector can take many different forms depending upon the implemented.  However,  and  sources  federal  international  way  other  policies  conflict  agricultural  with  trade.  the  For  (GATT,  recent  affecting  agricultural  reduction in the level of government  or payments  1986)  been designed  and  from both provincial  trend  towards  the  Uruguay  example,  a  liberalization  Round  of  of  GATT  and the recent Canada-U.S. free trade  (FTA) stress restricting the use  measures  or programs have  direct financial transfers  negotiations launched in 1986 agreement  the  of all direct and indirect subsidies and  trade.  Thus,  examining  the  impact  of  a  assistance and a move towards market prices  in a single sector is timely and important.  Beef producers make investment profits.  Producer  incomes  and  their  and production decisions based upon expected cost  structures  programs which in some instances supplement depending  on  the  program  and  province  affected  by  government  market returns and/or reduce costs,  involved.  provincial support programs exist and the  are  Both  current level  federal  programs  of payments  and  to producers  varies accordingly. Changes representing Adherence  in government  payments  a capital good, and the to  the  GATT  and  flow  to  beef  imply that  herd size,  of beef to the market will be  F T A agreements  1  producers  will  require  that  the  affected. Canadian  2 government distorting.  reduce, This  equalize, or eliminate direct and indirect subsidies that  change  in a g r i c u l t u r a l policies  is expected  to  affect  the  are  trade  structure  of  the beef i n d u s t r y .  Martin to  the  their  beef  and sector  estimates  to  v a n D u r e n (1987) have  estimated  by  federal  both  provincial  represent  examine  changes  that  proposed  under  GATT.  example,  direct  benefits  current  result  as  head, w h i l e M a n i t o b a is the  Any future  net  adjustment benefits  from  producers  will  expands  aggregate  short  imply  less  and  and/or  between  provinces, a n d  supplies  trend to suppress  widely  greatest  cow-calf  their  herd  size.  s u p p l y to the trade  affect between  Regional shipments Canada  fluctuations of cattle  future  When  market,  patterns.  or and  and  use then  with  those  province.  Quebec  will  change  net  at  For  $162  changes the  movements  the  benefits  sizes  per  are  are  expected decreased  decreased,  beef prices, a n d longer-run,  differences  the  by  in  herd  Over  price  line  will  head.  producers  When  in  (DFTs)  caused  of cattle  U . S . , and  these  affects  smaller  herds  local  excess  by and  this  dressed  trade  beef  movements  and beef prices.  BACKGROUND  At forces  run  to  breeding herd.  markets.  demand  1.1  the reduce  to  vary  are  study  to producers  more  payments  transfers  This  adjusted  lowest p a y i n g , $16 per  international  supply  are  producers  in payments  cow-calf  interprovincial  policies  DFT  cow-calf  governments.  levels of D F T p a y m e n t s  our  Current to  and  direct financial  the aggregate level, a n analysis of the beef sector  influencing  producers'  market  economic  supplies  behaviour  at  and the  prices firm  is e x t r e m e l y level  can  and the m a n y economic complex. H o w e v e r ,  be  considered  cattle  within  a  3 traditional and  microeconomic framework.  postulates  cattle  producers'  Jarvis  behavior  (1974)  as  discussed cattle  as  economic  goods  follows:  "Cattle are considered to be c a p i t a l goods w h i c h are held by producers as long as their capital value i n production exceeds their slaughter value. In essence, producers become portfolio managers seeking the optimal combination of different categories of animals to complement their non-cattle assets, given e x i s t i n g conditions and future expectations."  By  applying  theoretical  economic  model i n w h i c h  profits  from  at the  end of some  slaughter breeding  herd  of size  when  increases  market  in  (1984)  and  the  build  up  supplies  to  to  a  a  the  market,  long  prices  and  inventory  (1987)  have long  run.  This  calves  when of  levels  short  in the  run  phase  a  value of  the  are  herd  further  scenarios cattle  same analyses  market long  will  ranchers  expected  profits.  to  and  add  to  sell  or  decrease.  which  accelerates  the  i n the  short  run  but  up  and  beef  explanation are  their  decrease,  run  account and  current  expand  maximizes  cow-calf  prices  prices  two  the the  breeding  decreases These  over  future  the  to  developed differently. T h e i r a n a l y t i c a l techniques  section.  develop  present  and  behaviour  supplies  reduction  presented  and  retain  heifers. herds  reduction  the  are  of  m i n i m i z e loss in  scenarios  producers  Retained  in  over  Trapp  discounted  to  m a x i m i z e d discounted present value of profits  their  run.  Alternatively,  decision. T h e i r  a later  cattle  retention  short  economic  in  cow,  through  results  cycle of  possible  cow  turn,  down  I f the  m a x i m i z e the  is  that  This,  prices  producers  it  that  cattle  increases  management  is greater t h a n  their  of  cattle  herd  slaughter  increases  to  period from r e t a i n i n g a cow i n the  ranchers  supplies.  in  cattle  their breeding herd.  value  However, price  principles  the  as  for  the  industry. Jarvis  same,  Gordon for  this  although  the  w i l l be briefly  reviewed  4 In follow  practice,  some  difficult  of  to  the  since  factors  are  economic  predict  Furthermore, important  producers  the  price  market  must  be  beef  shown in Table  sector  example, Alberta were of  have  under  producers  $70.1  various  Livestock western  the  for  cows  Drought  conditions Assistance  provinces  maintain  Beef  Cattle  1980-1984  were  provided  province has  head,  profits  other  in  were  their  assistance  financial  different  in  each  breeding  determine policies  programs  stock  in  1986.  can  after  for  programs  vary  widely  towards  liberalization of agricultural trade to  million  the  other  programs, etc.  for  the  For  the in  over cows.  crop sector  years.  damaging  drought.  w i n t e r i n g their  the  provided to  under  producers  to  amounts  producers  1984  is  paid effects  Prairie  the  four  Under  the  the  period  Furthermore,  which  affect  the  supplies.  payments  subsidies  these  and  were  to the  help  Quebec  programs  government  of government  to  the  amounts  by  year.  i f we assume that total returns from  It  profits,  The  to  information.  over m a n y  payments  of $67.0  1985  herds  assistance  assistance  province,  in  program,  assistance  imperfect  not  program,  Payments  made  Assistance  these various  of producers  to  of  model.  (a p a r t i a l listing of programs)  qualifying  1985.  attempting  i n policies and prices, feeding cost,  various  indirectly through feed  Given per  does  in  maximizing  million. T h i s p r o g r a m was introduced i n response weather  beef sector  and  this  i n c l u d i n g government  L i v e s t o c k Special Assistance  Wintering  each  through  difficulties  because  alone  1.1, direct p a y m e n t s  operated  in  cattle  mechanism  considered  several  detailed  of  inter-provincial and international changes  As  with  principles  future  the  faced  assistance  producers.  Changes  of government  These  programs  consist of the  market  programs.  However,  the  requires  reduction  or  a  i n these payments  will  payments affect  the  price  and  recent an  trend  elimination  affect  returns  5  Table 1.1 A Partial Period 1980-1986  Listing of Direct Payments ('000 Dollars) Mar.  1980 Herd Maintenance Wintering Beef Cattle Livestock Podder Procurement 1981 Beef Cattle Assistance Herd Maintenance Compensation for Animal Losses Wintering Beef Cattle Livestock Podder Procurement 1982 Beef Cattle and Sheep Support Beef Cattle Assistance Beef Enhancement Herd Maintenance Compensation for Animal Losses Wintering Beef Cattle Livestock Compensation 1983 Beef Enhancement Wintering Beef Cattle Compensation for Animal 1984 Livestock Drought Wintering Beef Cattle Compensation for Animal Livestock Transportation Beef Enhancement 1985 Livestock Drought Compensation for Animal Livestock Transportation Beef Cow-Calf Assistance Beef Enhancement  to Livestock Producers Over the  Que.  Ont.  Man.  Sask.  Alt.  6030  12108  578  80  250  8  10496 1183  13013 118  2760 355  1586  1355  85  B.C.  4114  37133 59  2381 3551  1412  65  141611 20328 7034 323  677 3017  1470  648  5900 22  331  13  15  136  6484 Losses  15  2326 457  1265  1798 143  Losses  823  267  17  63  2838  21152  16142  283  145 247  307  28  36379 42 385  29537 212  3972 14  70087 41325 594  938 10  45  Losses  1986 Livestock Special Assistance Livestock Drought Compensation for Animal Losses Livestock Transportation Beef Cow-Calf Assistance Beef Enhancement  57  22  638  1087 258  100 15  46  766  131  Source: Agriculture Economic Statistics, Cat 21-603E,  1987  300  1349 71 447  6 to  producers.  market  Optimal  w i l l be  Canadian  beef  programs  as  producers.  Producers  who  not  their  industry. no  average  Apart  market  from  in  when  has  It  equate  costs  is  smaller  the  they  m a r g i n a l revenue  with  under  of  where  government budget.  have  their  one  province  will  social . welfare  the  second  are  is  increased  move  elimination to  lower  towards  the  comparative  supplies  level  of  problems  advantage  -  expressed  the  to  the  province.  programs  associated  with  of  through  to  stay and  to to  those in  the  assuming leads  result  in  to  social  by  this.  as  natural  and  one  often  finds  counteract  those  of  to  to  One the  the  burden  is the  trade  (1987),  allow  market  will  between  require  the  -  of  market.  greater  forces  a  burden of  difference  given b y the  Warley  and  receiving r e l a t i v e l y  contribute  agricultural  agriculture  to  sector  arising from  A s noted  tend or  producers  Producers  value of beef output  in  cost  will  them  motivations  governments  cost  to  profits  taxpayers.  can  social  government  increased  tend  beef  programs  liberalization  protection  to  respective  of  various  will  high  come from  by  of trade-distorting p r o g r a m s . the  alone  these  introduce  There the  by  by  D F T payments  of  A n expansion  government p a y m e n t levels a n d the  A  and  m a r g i n a l cost  price  differed  lobbied  outlays.  make  Subsidies  have  province.  The  base  have  market  exit  allocation.  payments  neighbouring  herd  supported  clear  governments  lack  resource  benefits  situations  the  been  welfare losses since g o v e r n m e n t p a y m e n t s  Direct  of  that  considerations  failures  inefficiencies  sector  noted.  capacities  covering  size  STATEMENT  assistance  expand  and  affected.  1.2 PROBLEM  The  composition  to  the  purpose  is  scope  for  determine  7 economically efficient international patterns of production and exchange. Since Canada is a net exporter of live cattle and dressed beef to the U.S. and the American governments has already placed countervailing duties on our hog industry, there is the possibility that the U.S. could do the same to the cattle industry if it can be shown that assistance U.S.  payments to the Canadian beef sector are  beef industry. To avoid  these difficulties  and  to  allow  harmful to the  greater  scope  for  comparative advantage in Canada and between our trading partners it- is essential that our industry considers and examines changes that will result in the different provinces as governments adjust their programs. Supply responses show different results according to the assumptions of the model. As noted by Tomek and Robinson (1981), the price elasticities of- supply and demand are critical in determining this impact. They describe the  importance of  elasticities as follows: . "The slope of the demand and supply schedules are critical in determining the costs to the government of supporting prices above equilibrium by making deficiency payments to producers. If the supply curve is relatively flat so that producers respond to the guaranteed price by adding substantially to total output, and if the demand curve is relatively steep so that a large reduction in price is required to induce consumers to buy the additional output, the gap between the guaranteed and market price will be large and hence costs to government will be high."  Since elasticities are often difficult to estimate it is necessary to bear this in mind as one considers changes in the levels of assistance programs.  8 1.3  OBJECTIVES  The provincial  major and  these relate  objective  federal  to m a r k e t  the  supplies  prices  and  expected  policies and  size  of  returns)  p l a y i n d e t e r m i n i n g investment  allow  herd  levels.  size  The  closing  exogenously economic period,  to  optimal  stock set  breeding  and  and policies as  beef  specifically,  to  sector  they  changes in  examine  the  industry shows  and  a  to  any will  size  and  the  sector  impacts  then  on  as the  examine  relationship  between  the  market  Model of  role and  and  changing  so  is  does  concepts  full  that  the  non-market producers.  i n order  to  expected  profit  currently  given  not  consider  However, within  given  of closing herd  (CRAM)  CRAM  period.  change,  both  to  examine  in  stock)  single  incorporates  the  beef  their  the  (including  function  herd  within  a  the  specific  information,  if  full  developed i n objective (1)  sizes.  model, thus representing  the  current  Canadian  government  payments  now operate.  i n the different  changes  as  opening  verify  cattle  profits  to  allows p a r t i a l adjustment  (4) To e x a m i n e the  breeding  size  i n the  that  are:  Regional A g r i c u l t u r a l  (c/s)  herd  play  role  or disinvestment behavior of beef  decrease  equal  the  by province, and  herd  and  or  of ranchers  (3) To validate  to  Canadian  is possible. T h i s study  and therefore  beef sector  prices  increase  (generally  behaviour  adjustment  the  programs  of the  breeding  and  modify  evaluate  function" w h i c h  current  (2) To  to  of this study  models  "retention  cattle  is  and demands,  theoretical  concept' of a  expected  research  T h e subobjectives  (1) To r e v i e w detail the  this  government  C a n a d i a n beef sector.  in  in  i n beef  beef industry provinces  are  when  the  reduced  production levels, feed  or  eliminated.  usage,  beef  More  slaughter  9 and  beef trade that result  from  changes  i n government  payments  to this  sector  and  d r a w policy conclusions therefrom.  1.4 RESEARCH  To (1)  fulfill  Based  developed expected other  on  the  function  producers  are  government  market  i n the  to e x p l a i n  expected  the  to  programs.  differences  are  returns  those  of payments  changes  analysis,  a  retention  cow  herd  size,  to  are  an  function  to  forecast  between  level.  to  the  on  market  the  is and  cattle  and  Government this  the  clarified.  future  from  programs  is  is  adopted:  function  slaughtered  aggregate  derived  are  current  also incorporated into  received  in market  retained,  role of these  hard  Government  level  procedures  between  executed  price, the  be  following  empirical  retention  price, i t is  assumed  past  the  of breeding heifers  market  market  above  relationship  concepts  Since  expected  current  the  supplement  relationship. and  and  total n u m b e r  These  which  described  theory  displays  prices, the  variables.  current  objectives  economic  which  payments  define  PROCEDURES  retention  basis  Although  of  the  we  can  prices. Returns  to  market  and  received  via  sector  are  detailed  and  beef  provinces noted.  conditions i f provinces  A  model is  move  presented  towards  returns  dedicated b y m a r k e t prices only. (2) In order to evaluate under  the  which  incorporates the  (3) I n  discussed  by  followed  McCarl and  i n supply and- d e m a n d conditions i n the beef sector  above,  the  CRAM  model  above endogenization procedures  order to test the  suggested been  scenario  changes  validity  (1984) these  are  are  of the  results  introduced.  presented.  is  will  used.  Validation  is  revised  CRAM  be detailed.  derived from  S e v e r a l steps  A  the in  model, the  methods  model validation  examined  primarily  relationship between expected short-run and long r u n behavior of cattle  have  for  the  producers  and  10 the in  relationship between closing, cattle  stock  are  in  herd  observed  changes  compared  to observed  (4) Results changes  in  from  incomes. These function,  The graphical  of  that  addition,  subsidies  the  model  from  over  time.  different  and  Market  cost,  scenarios domestic  w i l l be undertaken  results  and herd these  supplies  sizes. are  are  Fluctuations  compared  with  estimated  and  levels.  production  are and  examined  as  international  w i t h different  these trade,  relate and  elasticities for the  to beef  retention  evaluated.  chapters  mathematical In  revised to  explained.  will  summarize  chapter  CRAM  are  methods 3, the  model  is  organized used  demand  Model this  and  presented.  follows:  and  The  this  are  closing stock  some  are  relationships presented  of  the  2 will  retention relates  for beef numbers  results  discuss  chapter  generate the  international trade  validation and study  to  as  e m p i r i c a l model as  closing livestock numbers  domestic  are  thesis.  size  model and  size,  remaining  and  relate  captured  and  OUTLINE  analysis. the  i n prices  slaughter  analyses  and the  1.5 THESIS  this  the  herd  changes  in  present  functions  to  the  variables  used in  beef of  sectors  activities  p a r t l y endogenized. as  these  chapter  problems  of  are  the  In  modelled  4. Chapter developing  5 this  CHAPTER  THEORETICAL  The size  and  structure  following  trends  describe the  the  as  toward  the  roles that  as  one  components;  subsidies chapter  moves  that  may  also  programs  and  trade issue are  policies  producers  this  categories:  have  i n beef  and  they  government and  affect  trade.  details  this  sector  in  trade  and  change  the  this  payments  chapter  beef we  in  industry we  sector of  establish  production that  trade.  A t the  firm  a  may level,  prices. O u t p u t prices consist of  payments. of p a y m e n t s  of the  In  will  p l a y e d i n the  direction of l i b e r a l i z i n g  economic model presented.  PROGRAMS  elements;  (1987) direct,  indirect payments 1.  agricultural  involved  role of g o v e r n m e n t  economic structure  as  directly  beef  There  are  also  input  made  are  noted.  This  sector  i n order  to  A r e v i e w of government and  IN  some  of the  GATT  provide payment and  free  CANADA  section we analyze government p r o g r a m s  into two  Duren  less  sector  also noted.  2.1 GOVERNMENT  In  C a n a d i a n beef  upon input a n d output  prices  the  of  changes  be of importance  reviews  the  programs  the  i n the  based  some background to the  van  government  to examine  market  that become  model depicting s t r u c t u r a l  expected  CONSIDERATIONS  liberalization  the  production decisions are two  suggested  governments  economy. In order  simplified be  previous chapter  2  classify indirect  market  returns  government payments  payments  government to  cattle  capital  grants.  to producers can be grouped as  follows:  subsidies to encourage production,  and  and  i n order  The  to divide returns  payments. producers types  Martin under  of  direct  to and  three and  12 2.  subsidies to compensate  3.  payments  4.  subsidies to reduce  5.  payments extreme  output  credit  to  and  compensate  which  market.  Programs  the  red m e a t  classify  Regulatory  input  Financial  Transfer  or  livestock  of a n  payment  the  costs  Programs  Transfer  red  (DFT),  a g r i c u l t u r a l research,  direct public  are  executed  expenditures.  a g r i c u l t u r a l labour  such  animal  through  and market  Programs  four  as  meat  channels:  to slaughter examples  of  and  facilities programs  to farmers. M a r t i n and  producers  as  coming  from  Government Expenditure  five  direct government  expenditures  this  research  or  affect  classification  output  market,  payment  programs meat  to regional slaughter  market  conditions without  of expenditures,  input  three  ( O G E ) and  not paid directly to red made  van  markets,  programs  productivity  infrastructure.  that  increase  productivity w i l l  because  their i m p a c t is indirect and difficult  factors  and  market  made  R T expenditures  Following  through  of feed,  this category include grants etc.  by  infrastructure.  Other  (RT). D F T covers the  caused  price of livestock operate  electronic auction are  to  losses  reasons.  the  market.  above. O G E includes government  any  factors  or other  reduce  and  crop  do not cover a l l p a y m e n t s  producers. E x p e n d i t u r e s under facilities,  for  producers through m a r k e t  government  Direct  described  the  which  establishment  Direct payments  sources:  producers  stabilize or supplement  through  for  affect  Duren  returns,  affect p r o d u c t i v i t y . M a r k e t information services, grants  grants  which  expenditure on f a r m inputs  climate conditions, disease  operate  extension  for low market  to stabilize income,  Programs the  producers  infrastructure  are  be  not incorporated into this a n a l y s i s  to estimate.  executed  through  E x p e n d i t u r e s on productivity many  different  institutions  13 and  intergovernmental  Expenditures  falling  agencies  into  this  payments  made  the  share of expenditure.  major  Table 1981/82  to  Payments in  over  this  noted  per  the  in  local  the  represent head  an  affect  loading affect  producers  and  input  to  therefore  loading programs  supply  curve  input  to  the  markets.  It  to  That  that  and  is,  hence  represent  firm's  this  four  feedlot  year  period.  A s indicated  per  $100  received  received  estimate  implemented thereby  payments  producers  O n t a r i o have  are  period  of government  Quebec  and  the  its  $20.45  from  the  is $ 4 . 2 5 . A s  own  increase  generally  have  assistance  the  size of  administered  by  p r o v i n c i a l levels.  versus  output  top is  over  of cash receipts.  in  has  loading  response  is, therefore,  over  amounts  producers  subsidize  Government  supply or a movement along the  $100  producers  "top"  lower the  right.  estimate.  included. These  i n M a n i t o b a the  province  federal and  their  Bottom  to  study  producers  level  producers  cattle  generally costs.  this  are  cow-calf  per  whereas  returns  terminology  programs  only  difficult  in  additional $ 4 5 . 2 0  each  Payments  the  also  ignored  average  shown  sector  industry.  programs,  and  is  cow-calf  several departments at both the  "Top"  it  feedlot  to  are  received different  while  chapter,  to  and  head  i n order  also  programs  an  basis  example,  previous  Sometimes  are  payments  is paid to Quebec producers  programs the  In  on per  values  •'.  DFT's  They  For  $161.61  group  province has  period.  head.  market  1985/86. noted  their  input and output  shows  2.1, each  received per  2.1  are  Table  under  and  prices  loading a  payments  supply curve.  to  cost are  loading  while  programs  movement  average  necessary  "bottom"  "bottom" increase  along  curve  the  and  the  effects  loading  supply  paid  used.  prices  thereby  simultaneously  separate  is  curve.  shift in  of a  to  the  output shift in  14  Table 2.1 Direct Financial Transfers From Provincial and Federal Government (Input and Output Programs Only - Average 81/82 to 85/86) Payment per Head  Payment per $100 of Cash Receipts  Cow-Calf  Finish  Cow-Calf  Finish  B.C.  52.39  70.64  11.96  8.31  Alt.  30.13  32.99  7.66  9.52  Sask.  40.68  44.39  10.13  13.81  Man.  16.41  40.09  4.25  5.39  Ont.  21.40  20.45  5.35  4.67  Que.  162.63  161.61  45.20  9.48  Mar.  40.93  35.10  9.70  16.98  Source: Martin and van Duren  15  2.2 BEEF  TRADE  Differences provinces Canada beef.  and has  and  excess  between  products  transportation the  two  other  beef, takes  finished  and  demand  t r a d i n g partners.  but  Western  place  i n both  in  Historically  Canada  terms  conditions  of  an  dressed  W e s t e r n C a n a d a and between  demand  between , Eastern  excess  supply of  beef  and  Eastern Canada  formulated  this  trade  minimum-transport-cost" markets  causes  a  price  model  approach. difference  using  live  Canada and  In  the  which  is  the  model,  the  cost  i n any  is  less  one  than  the  region. T r a d e  difference  in  between  the  prices  so-called geographic  represented  cost, a s s u m i n g no trade barriers. Inter-regional trade takes  transportation  excess  for  supply  livestock shipped. T r a d i n g patterns  (1952)  "Koopmans-Hitchcock of  its  regions  are  affect  movements.  Samuelson  separation  and  demand  these  and  show s i m i l a r  levels  Canada  Feedlot a n i m a l s  beef  U.S.  support  between an  Trade  animals.  in  continues  the  place w h e n  resulting from  regions  by  positive  until  excess  d e m a n d becomes zero. The S a m u e l s o n formulation entailed given regional demand  and  supply  and  levels.  Takayama  and  Judge  s u p p l y functions. T h e y constructed net  social payoff  For noted  the  several  shown b y the  analysis of a assumptions.  A l l live and slaughter homogeneous and  final  with  endogenized  these  as  a quadratic objective function w h i c h  spatial equilibrium  These  demand  m a x i m i z e s the  are as  restated  model, T o m e k a n d to  fit  the  beef  cattle  surplus.  Robinson domestic  (1981) trade  follows:  a n i m a l a n d dressed beef to be traded i n each region  respect  consumers  later  s u m m a t i o n of producer's a n d consumer's  block into sub-matrices of C R A M 1.  (1964)  for  to live  q u a l i t y and animal  and  appearance. dressed  In beef  addition, are  are  intermediate  assumed  to  be  16  indifferent as to the source of supply. 2.  No physical or institutional barriers exist to prevent the movement of live and slaughter animal and dressed beef.  With  these  descriptions and assumptions  of spatial  equilibrium, beef cattle trade  between provinces takes places and this is also associated with the larger American beef cattle market.  Government  intervention  in the beef  industry affects  the determination of  equilibrium prices and quantities in our market system. They affect the imports and exports of beef products through their influence upon production and consumption. In 1986, 90% of all Canadian exports of dressed beef and veal went to the U.S. while 40%  of Canadian imports of dressed beef and veal came from the U.S. The United  States imposes a tariff of 1 cent per pound for imported live cattle and two cents per  pound  for dressed  approximately Consequently,  1100  beef  and veal  lbs is levied  $11  from  Canada.  in tariffs  For example,  when  exported  a  cow of  it to the U.S.  tariffs imposed by American governments at the border have minimal  effect on the trade but health regulations and other indirect measures can be more important. Tariffs  imposed  on beef  cattle  and dressed  beef  and veal may  restrict  bilateral trade depending on their level. However, direct government assistance in its various forms may need to be withdrawn as a pre-condition to establish a non-tariff systems for the two countries. Elimination of government payments to a specific industry or commodity is consistent with the provisions of the General Agreement on Tariffs and Trade  with respect to subsidies. The GATT agreement of the Uruguay  Round in September 1986 states, in part, as follows:  17 "Negotiations s h a l l a i m to achieve greater liberalization of trade in agriculture and b r i n g a l l measures affecting import access and export competition under strengthened and more operationally effective GATT rules and disciplines, taking into account the general principles g o v e r n i n g the negotiations, by: (1) i m p r o v i n g m a r k e t access through inter alia the reduction of i m p o r t barriers; (2) i m p r o v i n g the competitive environment b y increasing disciplines on the use of a l l direct and indirect subsidies and other measures affecting directly and indirectly a g r i c u l t u r a l trade, including the phased reduction of their negative effects and dealing w i t h their causes; (3) m i n i m i z i n g the adverse effects that sanitary and phytosanitary regulations and barriers can have on trade i n agriculture, t a k i n g into account the relevant international agreements."  Canada agreement from to  and  in  1987  those of the  of  U n i t e d States  between GATT.  trade i n goods,  liberalization  the  (mainly, products  themselves. The  (2) facilitate  conditions and  for  to refrain  each  so long as  country  that  basic  conditions  of fair etc."  F T A aims  lead  in principle  principles  F T A are  of the  to  competition, Specific  to  to  "(1)  a  free  F T A vary eliminate  beef  trading  expand sectors  any  years, quantitative  restrictions  on g r a i n  no significant changes i n g r a i n support to  little  barriers  (3) significantly  the  trade  as follows:  w i t h i n 10  there are  would  agreed  of the  from imposing or reimposing  g r a i n products in  The  investment,  feed) the  also  objectives  (1) e l i m i n a t i n g a l l a g r i c u l t u r a l tariffs (2)  have  significant  change  in  imports  from  under  their  and  programs the  other  countries, (3)  exempting  m e a t import (4)  trade  on  and  other  from  import  restrictions  imposed  respective  laws,  agreeing  achieve,  each  that a  their  primary  global basis,  agree  to  work  m u l t i l a t e r a l trade negotiations  the  goal  with  respect  to  agricultural  elimination of a l l subsidies achieve  this  subsidies  w h i c h distort  goal,  by  is  to  agricultural  together  to  methods  like the  U r u g u a y R o u n d (Richard and D e a r d e n ,  such  as  1987).  18  Accordingly, eliminating  GATT  government  talks  and  FTA  agreement  aim  assistance  payments  to Canadian  some planned horizon. It is assumed  that the  U.S.  removal  the  the  of Canadian  government  subsidies  countries phase into the free-trade stage case,  the  to  and  the  at  Even  or  beef producers over  government will require the beef industry  likewise for U.S.  when  the  producers.  requirement of removal of government subsidies will be  GATT and FTA  reducing  two  In this  based  on  the  provisions as noted above.  though  there  are  arguments  about  advantages  and  disadvantages to  freer-trade, Warley (1987) describes it as a necessity. This research concentrates  on  the beef sector and the changes expected as one attempts to implement some of the preconditions for freer trade.  2.3  INVESTMENT  AND  DISINVESTMENT  BEHAVIOUR  OF  BEEF  PRODUCERS The  purpose of this section is to review theory which describes the cattle inventory  cycle both in the  short and  long run  periods. Since  retained or slaughtered is mainly related to how  the  number of cows to be  a farmer's assets will be changed  into income, asset replacement principles are introduced following the early work of Chisholm  (1966) and  Perrin  (1972).  According  to  Chisholm,  expanded upon earlier work by Faris (1960), the aim  who  criticized  and  in replacement problems is to  select the particular production period for assets which, over a planning horizon, will maximize  the  net  present  value  of  future  profits.  production period, the following elements of marginal important: (a) the annual operating costs or annual variable cost,  In  selecting the  particular  cost with respect to time are  19 (b) the  interest  (c) the  amortized value of the net  The using  a  relative  the  revenue  value  investments optimal  is  to  age  is  or  by fire,  capital  goods  value  over  an  is of  consider  compounded  important  probability follows  interest of  the  asset  life  conditions  factors  He  and  over  in  the  optimal  Chisholm assumed  time  earnings  is  calculated  following present  Chisholm,  value  opportunity  returns  of  cost.  period w i t h o u t  The  on  states  marginal optimal  consideration of  the  replacement  decision process. as  develops  the  exponential  expected time  time  they  introduces  relationship  period.  present  He  earning stream  distribution The  value  of  Problems  affect a g r i c u l t u r a l  criterion.  uncertain future  continuous  the  into the  a  i n order,  between  the  using  the  function  replacement marginal  criterion  revenue  to  horizon.  and S h u m w a y (1976) developed a model useful i n d e t e r m i n i n g  replacement  and P e r r i n .  the  p h y s i c a l injury  then an  a  equating  Waters  and  of c a p i t a l , the  (1972),  marginal  infinite  and  expected m a r g i n a l cost over an infinite  Bentley,  cost  when  of chance  disease  risk.  rate  asset,  stream.  introduced elements  production  present  the  Perrin  probability distribution of asset life into the to  versus  either  assets  present  insects, death, are  earnings  preference.  replace  future  sale of the  return.  represents  determined  (1965)  caused  to  obtainable from  future  time  the  uncertainty of the  Burt  of  which  time  equal  replacement the  total revenue  discounted rate  alternative that  on the  age  of  a  H o w e v e r , they  herd  size to be  Melton  (1980)  followed  genetic  progress  constant this  of cows into  up a  brood assumed  and by  they  cow  constant  extending  the  work  input a n d output  also assumed  incorporating  model. T h e  by  technical  a  given change  o p t i m a l replacement  of  Burt,  prices. T h e y  p l a n n i n g horizon. in  age  the under  form  of  average  20 1967-1976 He  cattle  illustrates  prices, and  the  cows culled and  One  cattle  of  run.  between the  the  more  described  cattle  producer's  selling  weight age  is  (1985)  models.  in  the  quality  argues  producer  over and  time,  that  short  the  makes. that  each  short  factors  was  determined.  of prices and  number  cattle  industry  is  the  prices over both the Jarvis  run  and  Gordon  of  the  sector cow  He  sale  animal  in  the  basis  date that  cow-calf/feedlot  short  and  and long r u n . T h e y state  on the  assumes  cattle  distinguished  r u n but becomes, positive i n the  cow-calf  that  the  chapter,  over the  i n the  of  in cattle  previous  response  He  aspects  to changes  analyzes  decision a constant  and  i n genetic  a given period i n view  important  supply c u r v e is negative  Faustmann's  over  i n response  As  Paarsch  the  cycle  changes  replaced.  producers' behaviour long  allowing for  can the  operator  herd  of the vary  beef  has  Jarvis's  and  depending  is  the  long r u n .  price per  herd  that  of  same  upon  unit of  homogeneous  calving/growth  properties.  First, for  the  based  economic  on the  work by Jarvis, Paarsch  behaviour  of  feedlot  and  that the  sale date of each a n i m a l i n the  changes.  This  result  is  similar  long r u n . H o w e v e r , the determine optimum  the age,  postponement with  the  foregone  sale  (the  marginal on  last  for  beef  producers  expected cost  the  of  period's  value  cow-calf  feedlot herd  Jarvis  cow-calf producers  date  cow-calf  to  price  derives  results  comparative  producers.  for  heifers  According  and  static  to  his  not  argument,  m a r g i n a l revenue  of a  calf  plus  value  potential  income,  one plus  period  of a  cow's  feeding  costs,  additional  cost  of  price  a n a l y s i s can  expected  (the  with  the  the  postponement  shows  cows over  equate  the  rules  analysis  is positively related  i n his comparative  changes.  The  static  at  the  product  from  weight  gain)  the  calving).  interest Given  these the  first order conditions for m a x i m i z i n g relationship  between  changes  in  the  sale  expected discounted profits, he  date  and  changes  in  beef  derives  price.  relationship shows an indeterrminancy of sale date. A c c o r d i n g to his argument, cow-calf price  operators  of beef  can use  rises,"  the  brood cows for either ambiguous  more  operators  will  costs  r e l a t i v e l y lower, and cows as  capital  gains  cow w h e n  seek  to  created  as  relationship  relatively  are  profitable  sell  calf  meat-producers off older  But  meat  beef prices rise is indeterminant,  as with  are  captured." and  "that  beef  brood  price kept  The  depends  on  "since  production, w h e n cows  calf-producers.  producers  by weight g a i n can be  meat  suggests,  than  cows.  or  This  Thus  the  become cow-calf  increases,  feeding  longer, so that  holding the  or  selling  expected  the of a  b i r t h rate  and weight gain.  Second, operators  using  assumes  an  discounted and the shows to  another  modification  infinite of  comparative  of  the  static  Faustmann  analysis  model.  the  price. T h a t  relatively more  is,  modification,  and  considers  a  stream  of profits.  this  additional assumption  perpetual  Given  means  that  all future "sale  is  the the  sale  increases  brought  forward  cow-calf producers i n the modification  O n the  of  negative.  interest  the  hand,  sale the  of  present  operators According  foregone  i n proportion t h a n  because  of F a u s t m a n n ' s  price is  cost  more  other  a n a l y s i s for feedlot  and  opportunity  herds  lucrative t h a n before."  date  the  he  objective function  this  profit from  this  feedlot/cow-calf  for a n  relationship between  argument,  In  for  time horizon  modified objective function, a comparative static  potential beef  derives  a  value  that  his  he  the  future  on  rise i n herds  is  economic behaviour of  model shows  similar  results  as  those based on the J a r v i s work.  As  shown  in  Paarsch's  study,  the  feedlot/cow-calf  producers'  economic  22 behaviour  c a n be  assumptions in  methods  weight g a i n  not  consider  categories then is  and  v a r i e d depending on the  and  the  the  as  Another based  a  fall  after  they  be  culled.  In  cows  A  in  ranchers carried  (generally  if  a  then  and  finds  pregnant  the  a n d she  has  can  being  be  in  are  for  though  possible.  This  gains  for  of ranchers  cows  are  not  to  to  T h e y are the  market  market  that  very  feed  one  add  substantially.  a  weight  when  in J a n u a r y Weight  and  for  short lost  can only be sold after  grazing  or steer  and  to  most and  gain  period.  i n this  culled  is  not c a r r y i n g a calf  will  they  purchases ranchers  to  In  the  are  February be  lose  open  hold  culled  situation  summer  in  when  added  when  of the  sold  price  the  supplies  through  fall to this  short-run. H o w e v e r ,  then that a n i m a l m u s t During  a  i n the  this  advantage  cows  can  paper  the  period.  take  the  in  during  a cow for breeding purposes summer  five  category.  cows  weight g a i n can be captured over the  to keep  uses  spring w h e n  cow through  attempting  between  prices  in the  for  does  category,  generally  are  c o m m o n , is  them  also  that  culled  changes  model, each category of cattle  a n i m a l belonging to  Animals  use  paper  paper  heifer  will  the  considered, this  weight  sometimes  attempting  from  winter  Even  g r o w n , it becomes  each  for pregnancy.  attempt  reduced  T h e benefits  over  a calf  allowing  although  November) and are  as  attempt to replace  pasture.  producer w a n t s  carried  not  tested  generally  one  market  feeding.  for  option,  on r o u g h  of P a a r s c h .  not consider weight g a i n w i t h i n a n y one  addition, cows  fall  cows  traditional practice  have  are  differences  the  the  third  the  is, after  does  Ranchers will  market.  for  class b y itself. W i t h  reason  on  those  B a s e d on these a n i m a l flows i n the  model i n this paper  calf.  gain  of cattle. T h a t  considered  from  probability of b i r t h rate  weight  cow or b u l l .  that  different  model specification. T h i s research  the  her calf is weaned i n the  winter fall.  she  be is  23  Instead specification, and  of  allowing  this study  cow-calf gain  by  though  younger  have  cows  is  assumed  fall.  It  is also noted  life cycle and then at  average  based  shock  production  and  cows  over  cows culled the  are  weight  several are  in  years  taken  not  and  in  early  model  their  herd.  to.  Even  years,  their  tends to  fall  slightly  to be a given weight and it  for cows increase study  Paarsch's  catered  their  option of a t t e m p t i n g  off gradually. In this  in  into the  categories  cycle  gain  shown  incorporated  heterogeneous  can  constant  do not have  (1986)  suggests t h a t the  upon their v i e w  to add weight i n  i n the  earlier  b i r t h rates are  the  parts of their  exogenously given  that  results  in a  permanent  market  supply,  current  increases  i n beef prices are  in  the  longer-run  increase  in  ranchers  will  from  the  transitory  price  will  need  to  up  price  beef  generally  make  producers  at  price changes  transitory  or permanent.  sell  and  are  more  the  in  reduces with  relative  herd  smaller market  immediately  decrease  prices  breeding  On  immediate  Future  are  feed  increased.  increases  increase.  for  increase  associated  supplies  of  decisions of cattle  of whether  increases  but  are  as  levels for each province and weight g a i n b y cows is ignored.  Rosen are  prices  single  t h a t b i r t h rates  fall  cows  a  older. Therefore,  that ranchers  by  of  within  replacements  cows become  gain  animals  weight gain generally remains as  weight  assumes that expected  operators  Weight  for  supplies  in  order  supplies  i n herd  the  will  size  the  to  firm  level  market  inventories.  A  price  Permanent  supplies i n the  short  other  transitory  to to  hand the  a  market  maximize  because  their  be  reduced  because  that  resulted  from  run  benefits ranchers  this  earlier  selling off.  Trapp To  develops  m a x i m i z e profits  investment in  the  herd,  and  disinvestment  cattle  producers  rules have  for to  fluctuating  find  the  herd  optimal  sizes. culling  24 age  and  herd  discounted market the  earnings  value at  optimal  producers cattle  size.  try  to  value are  occurs  sequentially  a  present  if  the  to  Culls  herd.  present  of  net  present have  value  The  culling  value.  The  oldest  maximize  the  contracted  (disinvested) every y e a r  is  animals  entire  age  age  group  group  herd  size,  Given  zero,  cattle  with  i n the  Rather,  r e m a i n i n g age  herd.  negative  largest  Therefore,  is  net  culling  no  the  given  negative  largest  the  size  age.  the  the  until  herd  value.  than  having  specific  showing  continued  the  discounted  Conversely, when  the  group  which  present values. In addition,  not restricted to any age  at  market  greater  positive net  animal,  are  that  current is  to  each  as  of production plus her  replacements.  the  the  year  age  is equal to her  with  is generally the profits  next  culling  purchase  applied  starting  negative  value  is  the  her  animals which  culled.  in  optimal  of that y e a r  want  age  the  cow over  age,  will  present  value  a  retain  culling  defines  end  culling  optimal  shows  for  the  producers  present  He  expanded  net group  negative  i n order  to  (invested)  or  u n t i l discounted m a r g i n a l cost is equated  with  the  this  producers  discounted m a r g i n a l revenue.  Given will  retain  discounted animals each the  these cows  animal. market.  If current selling  i f the  expected  retained A  considerations, expected  market  i n the positive  research  discounted  assumes  value  value) is greater  than  (discounted the  implies  the  e x p e c t e d . future  price  (P )  of  The  relationship  between  P  e  and  earning  cattle  the  plus  the  discounted expected value of  contraction of c u r r e n t  price (P ), cattle producers w i l l be encouraged them.  cattle  value. The number of  These relationships will be described graphically as  the  the net  current  herd is positively related to the relationships  that  increases  supply  into  s h o w n i n F i g u r e 2.1.  relative  to  that  the  to keep their stocks instead of number  of cattle  retained  Panel (b)  Figure 2.1: Derivation of Retention Function  Panel (a)  26 will be called the  Panel  "retention" function as  (b)  of  Figure  2.1  s h o w n i n panel (a) of F i g u r e 2.1.  describes  the  reaction  of  cattle  producers  using  e "expected" price (P ) i n some future m a r k e t period as this relates to current price c • . e c c (P ). I n order to show this relationship between the P and P , P is t a k e n as given and then P  e  c w i l l be equal to P , greater  than  P  c  c or less t h a n P . 6  Panel  (b)  of F i g u r e  2.1  shows  that  relative  less than, equal to, or greater t h a n Panel and  (c) of F i g u r e 2.1  is function of the Q  =  C  prices between  6  c  P"  and  c  P (P /  P )  1.  shows  that  the  s u p p l y curve  of cattle  to  the  market  current prices . I n general,  f(P , P , P ) c  are  e  (1)  f  f where P  is price of feed. The relationships between  independent  variable in equation (1) are 9Q /9P  C  >  0  9Q /9P  e  <  0  9Q /9P  f  <  0  C  c  c  Panel retained  (d)  (Q^)  in  and  R cattle  (Q  showing  2.1  shows  of cattle  the  sold  dependent variable and  the  follows:  relationship  currently  between  ( Q ) , since C  number  the  total  of  cattle  number  of  c plus  the  Figure  number  s h o w n as  the  Q )  is  relationships  given.  Panel  between  the  (d)  represents  number  of  the  cattle  total to  be  balance sold  and  of  cattle,  retained.  T h a t is, 9Q /9Q R  Using  those  relationships e  relationship  between  P  and  in  R Q .  C  <  0  panel Panel  (2) (b), (a)  (c)  and  (d)  and  (c)  show  we  can  construct  the  market  supplies  and  number of animals retained. If P reduce market supplies and As  e  is greater than P  c  e c (i.e. P /P >  increase their herd size as shown by  1), they  may  the broken line.  shown in panel (a), the curve of the retention function has a positive slope. At  this point, for simplicity, we  suppose that the inflow of and  outflow of cattle at  R each period are the same so that Q expected to be  can be interpreted as the number of cattle  sold in the future. Consequently, the retention function becomes a  supply function of cattle at different times. Gordon (1984) states that beef and livestock prices in Canada are bounded by import  and  export  approximately  90%  prices. Trade of total  between  Canadian  livestock prices  ranchers.  affect Canadian  Gordon explains  this  U.S  and  exports of cattle  Canadian exports of total dressed beef and or  the  Canada  and  accounts  calves  and  veal. Changes in the U.S.  beef prices  and,  relationship using  the  in turn,  the  85%  for of  price of beef behaviour  demand curve as  of  shown in  panel (a) of Figure 2.2 -- the import ceiling price becomes an upper bound for beef prices and  the export floor price becomes a lower bound for prices in Canada.  does not, however, show the specific range between import ceiling (P^) and floor price (P I P  EX  ). He  defines P  I  and P  EX  He  export  as follows as:  us =  P '' +  P^^=  p"" u  s  Transportation cost from U.S.  to Canada +  - Transportation cost from Canada to U.S.  where P ' ' =  price of beef products in the  Tariff  - Tariff  U.S.  Even though the particular range is not specified, Gordon's bound concept of prices is introduced  to limit the retention function shown in Figure  2.1. Adding  P^  EX and  P  to Figure  2.1, the retention function can be redrawn as shown in panel  (b) of Figure 2.2. Beef price and  number of cows to be retained depends on these  28  Price ($)  Panel (a)  D  q  0 Price($)  Quantity  p e l (b) an  Import Ceiling  Export Floor . .0 Figure  -•  Quantity  2.2:Demand Curve and Retention Function facing Canadian Cattle Producers  29 prices established  in the  market  and  the  rancher's  future  expectation of the  current  prices.  It used  is  unnecessary  to derive  based  on  a  the  to  geometrically declining  be estimated  all of the simply  available information at  it is difficult model.  a trend or a  to forecast  Therefore  average  any  from the  the  be derived as  expected"  of p a s t  price  prices  price changes  are  used  such  as  the  "expected" price the  autogressive  etc. In addition, expected prices  other  variables. I n other  values to be incorporated into the often  procedure  time. T h e estimation of expected price  relationship between  specific  in  concept of r a t i o n a l expectation by using  current  analysis w i l l be allowed to v a r y between  Current  and  autogressive/moving average,  i n reduced form  represents  "current  retention function. Econometric models have  process, m o v i n g average, may  specify  taken  as  exogenous  to  models  the bound levels set by the  and expected beef prices received b y cattle  producers  words,  programming and  in  this  U . S . market.  are  assumed  to  follows;  P = c  PM + c  GP c  (4)  P  PM e  GP  (5),  e  =  +  e  where P=  Prices per  head received b y  PM  =  Market  prices per head received b y  GP  =  G o v e r n m e n t payments  c  =  Current time,  e  =  Future  In  this  per head  producers,  received b y  producers,  time.  study  government  producers,  market  payments  prices change.  both  current  Given  an  and  future  adherence  to  are the  held  constant  principles of  and  only  GATT  and  30 the  recent  free  trade  agreements,  GP  is  g  expected  to  decrease  or  be  eliminated  entirely.  2.4 DEMAND  To To  model  facilitate  endogenous described the  the in  industry  analysis,  own  The  Canadian  in  a  price  Canadian  following  that  the  in  plus  the  a  size  In  dressed  the  is  demand of  panel  The export  supply  and  function  Duloy  and  upper ten  is  demand.  linear  and  (1975).  As  and flower bounds  for  Norton  times  the  Canadian  prices.  and  beef.  both  approximately  (a) The  U . S . in Canadian  tariff.  consider  method  Canadian  diagram. for  to  function, we introduce  between  function  of beef  markets  assume  sets import and export  simple  domestic  necessary  U . S . market  relationship  represented  is  retention  the  therefore  it we  prices  assuming  and  the  the  i n deriving the  price  market  as  CONSIDERATIONS  American  beef  prices  of  2.2,  DD'  i m p o r t ceiling price dollars  floor  Figure  price  plus (P  EX.  can  be  shows  the  (P^) is  defined  transportation ) is defined  costs  as  the  to beef  I price  in  the  represent the price.  The  number beef. the  plus  range  larger  demand is a n  relevant the  transportation  in which  size  of i m p o r t a n t  If Canadian  Canada the  U . S . less  the  of the  Canadian  implications for vary  is  domestic  exporter, demand  U . S . demand  then curve for  to  within  the  relative  the  shape  the  range  demand.  Canadian  Canadian  beef.  a  tariff.  P  If  to  Canadian  cattle This  the  Canadian  and to  prices  fall  below  P  the U . S .  market  of the aggregate d e m a n d I EX P to P , the relevant  C a n a d i a n beef becomes for  U . S . less  price w i l l be varied relative  U . S . market  prices  curve  costs  EX  has  curve  demand  can  is be  the  P  domestic  drawn  for  portion of EX and  competitive i n U . S . m a r k e t s  producers  a  and  demand  horizontal  at  price  (segment  will  not  beef  becomes  below  C E ) to  U . S . beef  affect  to  producers  the  prices.  result  in  linear demand  on  these  assumptions  >  0.0, b  <  0.0,  =  T R is  P  * Q  total  d e m a n d equation  about  a is  +  b*Q  the  beef  following revenue  =(a-b*Q)*Q  revenue.  (1) as  = P  rise  the U . S .  above  P \ U.S.  A reduction i n C a n a d i a n beef in  Canadian market  relevant  demand  and  curve  supply  prices for  being  Canadian  curve facing C a n a d i a n  the  demand  curve,  we  can  B C i n panel (a) of F i g u r e 2.2 as  curve for segment  T h i s equation provides the  where  the  to  exports  i n panel (a) of F i g u r e 2 . 2 .  is thus represented  P  TR  case  Canadian  i f C a n a d i a n prices  entering  this  that  is horizontal at price P ^ (segment A B ) . The demand  Based  a  Meanwhile,  i n U . S . beef  P^. Consequently,  beef producers  where  assumption  competitive on C a n a d i a n m a r k e t s .  O q would  reduced  indicate  We  =  find  the  follows: (1)  price  and  Q  equation for  a*Q - b * Q  can  specify  the  is  the  quantity  demanded.  producers: (2)  2  "quasi"  consumer  surplus  under  the  follows: 2  W where  = f P dQ  J(a-b*Q) d Q  W is "quasi" consumer Equations  incorporating by  =  Duloy  (2) and  these  and N o r t o n  (1973).  a*Q - 0.5*b*Q  (3)  z  surplus.  (3) are  equations  =  into  represented the  in  mathematical  quadratic  forms.  programming  The  model  method has  of  shown  32 2.5  SUMMARY  The  purpose  structure  of  requiring  the  to  the  beef  the  of this beef  sector.  reduction and/or sector the  were  payments  on  theoretical  considerations.  economic  chapter  behaviour  and these changes  beef  In  was order  elimination  presented.  sector  were  Based  of cattle  to  on  present to  framework  analyze  liberalized  agricultural  government  impacts  reviewed  producers  theoretical  of the  The  the  a  on  investment changes  of the and  eliminating basis  of  profit  the  the  the  disinvestment  i n future  should, i n turn, lead to changes  subsidies,  for  the  trade,  payments government  aforementioned rules  levels  i n i n d u s t r y size a n d  are  and  the  expected  structure.  CHAPTER 3 AN  this  The  beef  section  as  Parts  it  inventory an  Since C R A M  to  to  develop  elsewhere  poultry beef  cattle  which  analysis model  sector since  the  3.1  THE  beef  components  section  sides,  sector  is  developed  sector  components  is  entire  in  modelled.  thereof  will  livestock sectors in each  producers.  model include trade  in  this  is  both  a  economy  be  be  province,  CRAM  model i n  T h i s has  been  done  crop  between  CRAM  OF  and these  beef  and  d a i r y cattle,  hog  and  of  these  industries.  Only  the  analysis  in  a  alone  to  beef cattle  related  in  sectors  linked  general  the  components paper  w i t h the  of the  may  links  beef  crop and  agricultural  presents  details  the  beef  of cattle  STRUCTURE  thereof  model  the  to  Canadian  behaviour  of the  keeping  GENERAL  relate  chapter  of the  and  examined  other  n  w h i c h the  previous  structure  in C R A M  e m p i r i c a l testing  This  demand  the  framework,  for  CRAM  and  the  1986)  a g r i c u l t u r a l sector  beef  in  detail the  the  marketing is  in  both  and  describe  sectors  sector  the  presented  these  describes  (Webber,er al,  production,  as  present  and  Livestock  the  structure  is unnecessary  order  model  e m p i r i c a l model  of C R A M ' s  detailed.  EMPIRICAL MODEL OF T H E B E E F SECTOR  partial  is considered.  are  these  explicitly other  structure,  inventory  Interactions  accounted  between  for  in  this  sectors  within  the  CRAM  beef  sub-block  is  adapted  a  model.  CRAM  overview of the to  equilibrium  the  livestock sectors,  33  rest  of  model i n order the  agricultural  sectors  dealing  trade  between  with  that  the  beef  economy.  The  both  provinces  supply and  and trade  34 between  Canada  The included  broad  the  Canadian  nations.  objectives  specification,  crop  specified,  and other  and  of  CRAM  estimation  livestock  when  and  sectors.  the  model  validation  Several  was  of  a  subobjectives  developed  regional  in  the  model  earlier  emphasis  production in  the  each  of  given  the  recognized  a  disaggregation  the  a  production  crop  sector  provinces,  base  constraints  the  sectors  is  being  but  economic  opportunities  that and  cost  were  of regions  with  structures  eastern and  The  for  22  crop  between  at  a  of  livestock herds i n  Political provincial  the  boundaries  were  level,  and  trade  several  crop  provinces  for each of the  activities each  of  These  that  the  and  inputs  input/output  activities i n the  represent  regions  between  major  crop  transportation  and  coefficients model.  and  livestock  routes  from  areas.  economic impact  of the and  introduction of m e d i u m - q u a l i t y wheat to  examine  for m o v i n g P r a i r i e g r a i n on the  western  model  link  important.  each  into  chosen because cropping activities  coefficients.  on C a n a d i a n agriculture  the  the  work  region  specifies technical relationships  the  rate  Prairie  the  specified  within  the  and  the  was yet  (4) . To evaluate Prairies  of  and  production alternatives  production to m a r k e t i n g  freight  of  specified.  data  represent feasible detail  the  livestock  are  resource  To  and  between  (2) . To develop outputs,  being emphasized  provinces  with  place  were  producing regions  (3) .  to  regions. T h i s regional disaggregation  provinces  takes  1986  these being:  (1) . To conceptualize a model that divides the country into a n u m b e r special  in  the  impacts  of  on  alternative  a g r i c u l t u r a l economies of both  provinces.  represented  seven  provincial  regions:  British  Columbia,  Alberta,  PRODUCT ICH  INVENTORY  Province 2 (W*rt«rn)  Province 1 (Ve.tertO jt V  M  0  o  CL  « • >  CL  •>  o i*  o v>  u  u  Crop  Province 3 (E&itarh) -X v a « >  o. o  L) u  c  c M  «  u  rt  k < s k. ft. '— o  n  C*«h  Costa  e  Crop  A  2.1  + c  A  i.a +  c  + 1.1  C  4-  + l.<  C  LIvt • tock .  Ueic  a. o u  M  f- —'  + l.«  +  +  +  + 1.10  c  2,2  A  +  C  + 1.U  Hstlonil  tot  .*  o  * «j  Ob]«ctlv« function + l.l  DOMESTIC DEMAND  TRADE  5\ > +  V  u  Ck  O u  U+  o •  • > +  K«t C-o»Cs o  o  u -f  »icnT HAND SIDt  w -J T c  -1 l.  < _a  +  2,»  i»»  (Wcatarrt)  +  Livestock Crop  A  4,J  ^4  A  Proline* 2 {Wvstarn) Liv«itock  A  •  5,4  Crop  A  6,S  A  «,9  4,10  °4, 11  x  «*.»  »S,U  t,6  (E*«t«rn) Llvsatock Port 1 (Wattsrn)  Crop  Port 2 (L*at«rn)  Crop  A  7,6  i»j  *7.11  *  Crop  A  Lirtstock  10,1  A  A  U,2  10,J  A  A  ll,4  •1 °10,16  10,S A  ll*»  0  i  0  0 0  •13,11  Struct tar t l loundi  Figure 3.1:  i  i  »1T,11  World Livestock  0  i +1  Livestock Tr*d« Poo  i  »2  »4  »6  »7  »U  »11  »1*  A  14  Genral_ Structure of Model  CO.  36 Saskatchewan, major  Manitoba,  submatrices--each  inventories structure points,  of C R A M .  Under  i n the  of s t r u c t u r a l  either  demand  C . . :row vector  i n the  Maritimes. Each  production, concepts,  balances  trade,  as  follows:  and  row, j^  1  with  column  has  four  demand  Figure 3.1 shows  between  imports  region  domestic  or  the  general  producing regions,  demand  exports  column position of a larger  associated  i^  the  and  defined  i ^ row, j * ^  bounds  and  these basic  S u p p l y and  i n F i g u r e 3.1 are  A . . :submatrix  costs or  to  i n t e r p r o v i n c i a l movements  symbols used  J  Quebec  referring  of commodities.  and  B . :set  Ontario,  are  illustrated.  The  matrix,  set,  column position of a larger  matrix,  dealing w i t h  prices, th  Cj :row vector of objective  function coefficient i n the j  I^  D . . :diagonal m a t r i x i n the Rj :set  of r i g h t  hand  " + " : a l l values  superscript  "-" : a l l values  : positive  a  : negative  The  general of  incurred  of  structural  a  n  d  produced for  other  associated  w i t h the  i ^ row  of m a t r i x or vector are of m a t r i x or vector  are  set.  non-negative non-positive  bound  surplus  Ag ^  c o l u m n position,  coefficient  row  the  1  coefficient  b : structural  function  row, j ' *  side values  superscript  a  1  column position.  A^^ by  the  inputs  structure  of the  model  accounts  the by  model is illustrated i n F i g u r e for  a  m a x i m i z a t i o n of consumer  those sectors specified i n the  specification  of  the  livestock  S u b m a t r i x A ^ ^ represents the cropping to  the  sector.  Rows  livestock,  3.1. T h e  and  numbers  model. In order  activities  consider  objective  and  producer  to detail the submatrices  use b y livestock of g r a i n or  columns  within  and  transfers  submatrix of  Ag ^  animals  logic A  9  „,  forages account  from  one  category are  to another w i t h i n  accounted  province  for  other  There  or  livestock  to  export.  the  w i t h use  provinces  (Dg ^ ) .  or add  the  or  are  products  These  a  province,  illustrated  pool.  Exports  directly.  CRAM  different  sectors or sub-matrices  Specific  changes  r e v i e w the  has,  are  since  take  its  revised beef sector  i n the  A,_ ^  from  this  and  then  (Webber, more  a  et  details  al).  is  specified  move  livestock  from  pool,  the  and from,  in  each  section  of the  into  provinces of  structure of the  This  on each  shipped  s  from or deposits  modified  basic  *  which draw  or  iin  A ^ g)  national  A^, ^  been  yields  and  ( A g ^)  that  and  pool,  4  demand  which draws  development,  elsewhere  supply or  for  A ^  model  and  without changes i n the  detailed  ( A - ^ ^,  provinces  A ^ ^  place  accounts  p r o v i n c i a l use  A^  original  ^  p r o v i n c i a l level,  between  and through  deal w i t h livestock yields w h i c h  supply  activities  through  may  with  and  livestock t r a d i n g  between  are  pool,  (Ag ^ )  they  Submatrix  A t the  export  to, provincial supplies  national  national  (D^  to  also  time period, and  provincial level.  1, w h i c h supplies  being balanced to  at  the  its  model.  will  briefly  changes w i l l  be  noted.  3.2  AN  OVERVIEW  In  the  closing stock numbers allow single that would  for  period. an not  initial were  within any  OF MAJOR  period.  of  This  changes i n cattle The  period  equilibrium  closing cattle  specification  the  given exogenously,  some  change  CHANGES  within  numbers  the  and  was year.  i n accordance  were  assumption,  numbers  modelled  situation  beef  by  production generally being  for  w i t h respect CRAM  being  was  examined  to  one in  set  cattle  equal  long-run price year  which  Revisions incorporated w i t h price or other  matrix,  in  numbers  to opening analysis,  fluctuations and  stock  did  not  within  it  was  the  size  of  this  study  variable  of  a  assumed the  herd  endogenizes  changes d u r i n g  the  38 period. in  A s noted  cattle  derived  prices. in  2, cattle  i n chapter Therefore, 2  chapter  is  to  producers  reflect  changes  incorporated  into  Hence opening a n d closing stock numbers particular,  closing  stock  numbers  are  are  assumed  in cattle the  are  beef  to  respond  prices, the production  to  changes  retention  function  matrix  of  CRAM.  no longer necessarily set equal and, i n  adjusted  to  changes  in  other  variables  within  the model.  In may  addition  also  adjusted for  be  herd  size  some  The  upon some  in  both  levels.  level,  shorter-run  evaluated.  based  changes  to  and  approach  price  are by  is  allows opening  changes  difficult  to  followed  and  within  a  forecast  cost  levels,  closing  herd  year  in C R A M  prices.  year,  longer-run  and  size  may  these  to  be  also  derive  expected  changes  must  As consist  earlier,  the  of two components, by  to be  Government herd  changes  sizes,  both  market  current  farm  be  adjust  to  changes  affect  a priori  at  examined.  The  future  product  and  respond to  possible changes  prices  changes  input  and  in the  prices changes  future.  government  To  policy  be anticipated.  noted  determined assumed  price  to  is also detailed i n this section.  Both  price a n d profit levels w i t h  will  set  be  i m p o r t a n t because i n their economic behavior cattle producers comparing current  adjustments  numbers  position that ranchers  production  future  a  allows opening stock  input  and  method of incorporating this adjustment  It  within  longer-run e q u i l i b r i u m  product  This  adjustments  the  forces  of  price and  supply  and  exogenously determined  payments and  market  represent  government  the  policies  gate  demand  amounts  to  producers  government  by m a r k e t  change  price  paid over  and forces  payments.  to each time. The  assumed  Market  Canadian i n the  is  prices  to  price is  are  often  larger U . S . m a r k e t .  producer, reason  often  based  for dividing  on  farm  39 gate returns into two components is to examine the economic impacts of reducing or eliminating payments to the beef sector.  To  simplify  elasticity  of  payment  sources  the incorporation of expected  price  response  is  of  assumed  producers  to  to be similar to  price changes into the model, the returns that  received  from  government  for returns from the market  price. It is possible to change this assumption but a literature search has not found studies that have catered to this problem. That is, estimates of supply elasticities for  own market price changes as distinguished from these for changes in payments  from governments are not available.  Accounting rows and columns have also been added to the model in order to account  for  the  values  of  economic  activities  in  each  province.  These  relate  specifically to the livestock sector and include production levels, interprovincial trade, export  levels,  government  payments,  cash  costs,  and  feed  usage.  These  values  facilitate the calculations of net sector earning for livestock producers. In  the  earlier  version  of  CRAM,  domestic  demand  levels  for  beef  were  predetermined. The revised CRAM modifies this using an endogenized demand curve. The  purpose of incorporating an endogenized demand curve into the model is to find  the market clearing price. This requires the estimation of appropriate elasticities for each commodity in the model and requires a quadratic objective function which can measure consumer surplus areas. This formulation and approach is detailed later. It is also assumed that Canada is a price taker with the U.S. setting price. However, depending on Canadian supply and demand, Canadian price can differ from that of the  U.S. as  noted earlier. For example,  if Canada is an exporter, local demand  price will differ by transportation costs (tariffs ignored) and this is represented by a  40 position on the  The  demand  objective  agricultural  sector  The  in  competitive  function  for  function  and  surplus. the  curve different  demand  was  did not  to the exogenous  previously  evaluate  activities account economy.  With  a l l commodities,  to model a competitive  the  consumer  specified  changes  only for the  the  U . S . price.  in  net  value  added  producer  and  areas under  implementation and  as  producer  of  the  surplus  to  the  consumer  the demand  function  endogenized  demand  concepts  are  now  used  economy.  3.3 THE BEEF SECTOR OF CRAM This activities,  section the  details  retention  the  approach  function  component  activities. D a t a detailing these components  3.3.1  Beef Production  The describe are  beef  the  divided  carry  beef  into  animals  and  calves  and  replacements.  to  heavier  then  feed  A  in  block  production two  weight.  types  herd.  Cow-calf Feedlot  is  activities of  specified  their  to  of  model  the  of the  production  production  activities,  sector  and  trade  demand  model is presented.  Activities  production  beef  used  as  reviewed in  operators; cows,  the  in  order  model. F o r  cow-calf,  replacements,  Producers  feed  producers  sell calves or  operators  to  six  purchase  and  detail  convenience, feedlot  stockers,  kinds  of  from  structure beef  producers.  bulls, feedlot  animals  sometimes  calves  its  and  carry cow-calf  producers Producers yearlings  produce animals  and  calves through  producers  and  to m a x i m i z e profits.  simple beef cycle describing these two  types  of operators  is represented  in  41 Figure  3.2.  March.  Cow-calf operators  end  As  of  the  retained  as  stock  starting  The  stockers be  yearlings,  the  fall.  will  either  a  become  rancher  over sold  calves the  as  light  producing calves time to  kept  operators  buy  weaned  the  are  either  (t+1).  calf  feedlot  grown  period  feedlot  be  sold  retained  culled  every  (t)  are  to  feedlot carried  and  Bred  depending  on  the  or on m a r k e t for  feedlot  i n as  about  the or  opening  as  feedlot  replacements  will  requirements  of  conditions. Cows  ten  calves from cow-calf producers.  as  around  operators  slaughtered  yearlings.  year  born  upon open range u n t i l  Stackers  decision is made  a  calves or  next period (t+1)  and  culling  produce  period  or  current  then  feeders,  replacements  the  the  calves to graze  are  next  cows  at  in  cows and  as  are  the  to  calves  bred  generally  at  allow  weaned  either  or  point,  years.  Feedlot  Feedlot  calves  yearlings being fed high protein/  feed  requirements.  The  beef  programming  production  format  matrix  represented  representing  by  Figure  3.2  is  specified  in  Figure  3.3.  R o w s i n the  model  are  accounting  row  in  which  keeps  a  linear  grouped  as  follows: 1.  Government payments  2.  Input in  to producers  requirements:  an  on a per  rows  that  head  basis.  specify  inputs  a traditional Leontief production function  2.1) c a s h  3.  payments:  forage,  2.3)  pasture,  2.4)  barley. opening  current  model  required  per  unit of each  track  of  activity  sense:  costs,  2.2)  Beef  the  stock:  investment  the  right  level for  hand  producers.  side  of  the  model  that  represent  the  Figure  3.8:  C a l f and Y e a r l i n g  Ranching  and_ Feeding  Alternatives  43 4.  Beef  balance  rows: balance  classes w i t h i n the 5.  Constraints specified  on  in  equations  that  keep  track  of a n i m a l flows  time period of the model.  number  order  to  of  replacements:  keep  track  of  technical  production  constraints  relationship  that  must  between  a n i m a l classes i n the model. These include replacement ratio a n d cull 6.  Beef  closing  balances Beef  7.  stock: the  right h a n d  output  during  the  number of beef slaughtered, 8. All  B u l l s : rows i n the column  activities  in  this  2.  w i t h i n y e a r activities  3.  closing stock activities  4.  retention function activities  5.  government  balance Third, bulls)  opening a n d  given  constraint.  the  the  closing  number  exogenously  Second, there  row  end of the  period  period is  A B C beef yield,  of  categorized  various  ratios.  representing  and as  feeders.  three  items;  and D beef yield.  ratio bulls per cow.  the  beef  production  submatrix  may  be  shown  in  payment.  3.3. F i r s t , is  the  be  sets, n a m e l y :  opening stock activities  stock  production  section  1.  Figure  at  model that specify the  grouped into five major  The  sides  required for continuous production by cow-calf operators  yield:  between  categories.  number  are The  stocks  are  divided  into  six categories  of animals i n each of these as  a  right  six  "within  other  two  hand year"  rows  side  are  four  used  of a n i m a l s i n each of these categories  is determined  o w n elasticities, from  endogenously the  through  balance  retention function.  and  six categories  variable  groups,  as  as as  in  the  of w h i c h  opening  appropriate are  replacement closing stock  replacement  at  ratios,  used  ratio  as  rows.  (except of with  their  X. *  c «; Z -  -  < j( - -  T  • •= o T3 T3 ffl « W I*. In  S  = "1  * • °  m ° •* o v *% — -*  - * 3 ^ n x o (2 (Z <  a  a  T T  Cash Cost  a  a a a a a  a a a a a  a  Provincial Crop Balance  Forage Pasture Barley  a a  a a a a  a a a  a a a a a a a a a a a  a a  a  Beef • Opening Stockers  Breeding herd Replacements Stockers Feedlot Calves Feedlot L. yearlings  I  Breeding herd Replacements . Weaned Calves Yearlings Culled Replacements  i"  Beef Balance  Beef Cloaing Stockers  Heifers and Steers  livestock  Cows  Yield  Total cattle ABC  and Bulla  Production  0.  • >  4J J  r  s  !  «J - i  c *» 2 *. £ ~ " « ° o 5 „  X>  oJ ^  —. —  j «•= t; -a -o OJ O- X •• V J CQ Ct£ 03  o « 41  V  U. U.  £  0  a  £  0  a  £ £ £  0 0 0  £ £ £ £ £  a a a a a  £ £ £ £ £  0 0 0 0 0  £ £ £ £ £  0 0 0 0 0  0 0 0 0 0  I a ,  1  1  1  1 T  l l  "a a a"  i  1  "a  l  1  1  a  T  a  T I  a  1  1  T  a a  T  a  1  a  l %  T a a T Z a  a l a  T i  l  iT  X a  X a  £ £ £ £ *  £  a  1  £ £ £  0 T 0  1  T  1 1 X X  Matrix  f  1  (VS Bulla Balance O S Bulls Slaughter  Flfiinj 3.1 J W  £ •  I  beef  D boef  a  £  1  Breeding herd . Replcements Stockers Feedlot calves Feedlot L. yearlings  Provincial  Bulls  a  !  * O 1J)  Government Payment  a  Culled bull. Slaughter Reduced Cow Cull  •  *9 "  m s  Retention Fn. Activities  Bulls  O/S Bulls Culled Bulls C/S Bulls  Feedlot yearlings Culled replacements  5c S2  Slaughter  Closing Stock  Breeding herd Replacements Stockers Feedlot calves Feedlot L. yearlings  Opening Stock  Using  Retention Function  Activities  T1 T  45 The  annual  b a r l e y . A s the between  diet  stock  T h e split is based  by  an  stage of the  opening  d u r i n g the  of  year.  certain  beef.  The  stock  to produce  life  on the  and  provinces  of the  breeding  calves based  as  herd  and  on a n  assigned feedlot  to  one  long  grade  exceeding beef  at  average  the  during  the  replacements  for  period  (t).  In  The  feedlot  number  of  closing stock  long  the  yearlings  animals  3.3.2 The Trade  As based  current and  columns.  animal  culled  categories  supplemented  yielding  transfer  per  is  as  either  (t)  as  D  as  a  period  (t):  closing  opening  are  death  endogenously  a  the  Those yielding  and  long  category.  Meanwhile,  determined  are  yearlings,  bulls.  yearlings  loss.  or  They  culled  animal varying with for  current  carried over  feedlot  stock  calves,  grade  stocker  yearlings.  requirements  feedlot  adjusted  bulls  (t)  period  the  yield  except  corresponding elasticities s h o w n i n the  and  diet is split  period (t+1). Stackers  replacement  is  is  replacements  breeding  addition,  high q u a l i t y beef;  of  next  categories  closing stock  herd  period  current  the  the  provincial b i r t h rate d u r i n g the  current  start  yearlings produce slaughter  growth stages and  the  four  yearlings,  replacements ABC  of  finish  (t-l)  year,  pasture  corresponding closing stock  opening  calf yielding A B C grade beef for the period  a calendar  opening breeding  feedlot  previous  of forage,  required.  (t).  the  calves  mixture  f r o m a provincial supply w h i c h c a n be  period  from  the  r e l a t i v e length of the  proportion  remaining  of a  cycle model spans  F e e d is d r a w n  Weaned  consists  a c t i v i t y numbers  grains shipped between  A  animal  by  the their  retention function activities of F i g u r e 3.3.  Block  described i n chapter  on price differences  2, we  between  assume  regions  and  that beef  and  transportation  live  animals  costs.  These  are two  traded basic  46 factors  are  incorporated  production of  the  and  demand  herd i n each  Figure and  the  3.4  details  trade involves the as  intermediate any  trading  province and  routes  and  The  beef  the  the  U . S . alone.  them from is  and  are  seven  slaughter  heifers  yearlings, is  high  modelled  in  into the  that  and a  is  a more  described as  world the  then In  the  types and  since  are  model  a  As  a  always  trading  not  have  place.  The  of  beef  fashion  the  shipment  matrix  Imports  for  Canada  of  beef  and a l l  acting  as  trade  or  this  an with  pool,  equal  quantities  structure  to  for  the those  producing  shipped  the  weaned)  one  and  trade  of  via  their  world  blocks  calves,  these  the  of  feedlot  commodities  explanations  are  3.4.  weaned  calves  of eight sets of activities:  province and pool  of each province from the  in  (or  any  a portion of the  The columns consist  3.  province  Canadian  capacities  activities  calves, presented i n F i g u r e  detailed explanation,  each  size  routes.  trade  Trade between  a  pool m a y  than any  Since  2.  between  external  this  less  low quality beef.  Interprovincial trade  or  pre-condition  bulls, feeder  1.  on  relative  livestock pool  and  cows,  follows.  the  trade between  steers,  similar  by  based  it is inefficient to identify a l l shipping  pool does a  Since most  define  levels are  decisions.  provinces,  addition,  model.  pool  acts only as  s i m i l a r to that for weaned  For  between  analysis w i l l  pool avoid defining a l l specific  CRAM:  upon producer  is specified i n C R A M .  rest of the  reason  consuming beef  There  trade  being determined  location is included i n the  quantities  shipped-in. or  world  incorporate  shipped-out  how  with  production  provinces and  U . S . , this  trade  spatial e q u i l i b r i u m model. Trade  levels w i t h  of the  rest of the  countries  into the  trade  matrix  Interprovincial Trndt  o o o c = i>o >o >o :^ >  1-  OCfa.  So 32  oo o o o o o o o o— n « C 3 G.a.Tuo.0.  £SSe  SSSS3SS3333  3 3 3 33  22332  Aggregate Trad Import Cost Levc  Exp.  Imp. J « cZ «  N'et Exports Net Imports  Inlerprovincial Trnde  Trade between  Province & Pool  222S2S  3 3 -'c " •i ' - « o S a "Oo"0o"0o"oo"oo ooo • s l ! = - 2£ °-2 < i o 5 o ore. 5 'a. o. a. a. a. < (/> O Gfz. c  < < < to co wS ^ ^ o cy  ^• a  c 01  si  e  c  3  •-S* « J o o — « ™ ?. o £ c  So  c  o? a 7 s 0  Obj. a a a a i a a . a a a a a a a a a a a a aa a aa a a a a a  T.C. B/A  Alt Suk. M.n. Ont Que. Pool Wor.  Exp. Alt Suk. Man. Ont Que. Pool Wor. Imp. AIL. Suk. Man. Ont Que. Pool Wor. T.C. Alt Suk. Mu. Ont Que. Pool Wor.  Hcun  T  HIT  r  111  T  1 1  T i l l  T  T T  1  T  T  T 1  1 l 1  1  T  1  TTTI I  l l l l i  1  n i  i i  11111  l l l l  l l  l  l. 1  l 1  l  1  l l  1 l  l l l 111111  11111  a  a  >  a a  a  a a  a a  a  a  a aa  a  a  Trade Block of Weaned Calve.  T  T  0 0 £ 0 5 0  i  T  T  £ 0 £ 0  I T T T  l l  £ £ £ £  0 0 0 0  £  0  £ 0  1 T '  a  1  S 0 S 0  1  a  T  £  T  l  1  l  i  T 1  i l l  £  1  IT  i l  1  1  i l  1 1 1  I  T l l l i i  0 0  £ Q £ 0 £ 0  1  T T •T T  l 1 I 1  £ £  1  1  TI T  s 0  T  T  T  T  T  £  0  £ £ £ £ £  0 0 0 0 0  £ 0 £ 0  48 4.  E x p o r t s of each province to the  5.  N e t exports  6.  N e t imports from  7.  Aggregate i m p o r t cost for each  8.  E x p o r t s and  to each  destination  each  imports  The rows consist of five  world  at  destination  the  destination  national level.  categories:  1.  T r a n s p o r t a t i o n costs (recorded at  2.  Beef balance  3.  E x p o r t rows at  each  location: each province, pool,  world  4.  Import rows  each  location: each province, pool,  world  5.  Import costs at  each location: each province, pool,  world  rows  at  The cost of the row  and  rows  this  in  is  Figure  originating  point  at each location: each province, pool,  shipment  summed 3.4,  into  "+  and  appears the  to  upon  while  imports  are  (or imports)  i n the  world  function  at  the  national  level  exceed imports in  the  objective  payment for cost  the  is  and  level.  summarizes then  function  and  shown  as  rows  net  receives  For the -1  is,  Based  numbers columns  for  on  the  each  account  shown  to  revenue  (or  external  trade  for  originating point transportation  from  Alberta  to  and costs  +1  and  into  the  section  draw net  objective at  If  the  exports  positive coefficients  than  exports,  import  destination. of  and  addition,  calves.  the  greater  export  as  column  weaned  income corresponding to  rows,  the  cost)  activities  balance  from  supplies. In  trade  are  the  cost  calves  exports  are  add  model. In  weaned  the  balance  for  of  world  provide  national transportation  example,  and  world  of the  shipments  pool  That  the  Canada  objective  function r o w . H o w e v e r , i f imports  required.  traded  rows  national  " + a" i n the  destination.  Manitoba, Ontario,  exports  as  represents  Saskatchewan, supplies  national level)  import  rows  then  a  account  Finally, animals  import from  6  49 originating  points.  3.3.3 The Beef Demand  As from  a  noted  linear  i n the  function  suggested  a technique  or  an  objective  (1975)  curve  requires  chapter, the  with  a  objective  quantity  special  Based  quadratic  on  algorithm.  this  function of a model is derived  demand  being  To  function  variables  mathematical  problem by linear  a  overcome  for approximation of non-linear  function.  solved the  note the  previous  demand  quadratic  Block  this,  involved in  technique,  as  prices.  Hadley  Duloy  approximation. M c C a r l  efficiency of linearizing non-linear variables  of  A  (1964)  constraints and  Norton  and Tice  (1982)  follows:  "One would apply a quadratic p r o g r a m m i n g a l g o r i t h m t h a t w o u l d w o r k on the K u h n - T u c k e r conditions of the problem. T h i s leads to a larger s y s t e m of equations and also requires the complementary conditions to be dealt w i t h . Efficiency software for large problems of this sort is not w i d e l y available. The approximation problems above then m a y be desirable for large problems that are to a great extent linear w i t h a few quadratic variables A p p r o x i m i z a t i o n of quadratic variables does not make any significant errors."  With  these advantages  demand  curve i n C R A M  Based high  of approximation,  and  equations:  low the  Canada  and  involved  or  activities,  on  this  approach,  quality  beef  weighted Western a  beef  takes the  per  values  Canada capita  3.5  western of  function  illustrates Canada.  population  w h i c h can disappearance  price, quantities  objective  form of a step-wise  Figure  in  the  demanded  be  for on  basis, and  It  the  beef  contains  population total  the  derived  beef  function.  distribution a  from  of  demand five  revenue  sets  demand  basis  for rows  convexity constraints.  matrix  The  of in  the  for basic  Eastern provinces  and initial  column value  50  ObJ. HQ ac. b«ef Alt Suit Man. Revenue Price Demand Convex Constraint LQ ac. beef Alt  Sdflk.  Han. Revenue Price Demand Convex Constraint  E  I  o,_8 linearized Activities %. D. 31x2x3x4x5x8x7x8x0x10 a a a a a a a a a a  H P. yl y2 y3 y4 y5 y8 y7 yfl vfl yl 0  *>  linearized Activities a a a a a a a a a a  s! oo 0 0  a  50  so so so so so  a a _ a a a a a a a a a a 1^ a a a a a a a a a a I a a a a a a a a a a 1 1 1 1 1 1 1 1 1 1  <0 <0  r a a a a a a a a a a a a a a l a a a a a a a a a a I a a a a a a a a a a 1 1 1 1 1 1 1 1 1 1  Figure 3.5: Beef Demand matrix for Beef Yields in Western Area  50 50  <o  i  50 50 50 50  51 for  the  and  beef  the  price  last  illustrated  value  in  function,  is  figure  total  prices  coefficient  which  is  corresponding  the  2.2.  revenue  beef  retention  producers'  description  3.5  The  retention  proposed  function to  satisfy  the  will  is  closely  even  point,  Trapp  sets  export  elasticities,  values  calculated  within  i n the  these  ceiling  floor of  as  objective  to  bound  price)  price)  the  according  two  follow  INTO  previous  variations.  related  paper,  import  the  are  presented  i n his  a  set  levels.  of  Data  as  In  it  chapter  this  is  MODELS  section,  incorporated  to  investment  (or  and  substitute  for  though  i n order  Trapp  uses  a  a  to  more  into  relate detailed  the  model.  disinvestment)  rules  some  basic  of  the  different  methodology  model.  starting  the is  optimal  objective a  cow  value  the  end  culling  to  over  age  up  age  which the  is  to  select  year  is  the  is  greater  next  optimal than  size for  current  year  is equal  discounted  that of  to  culling zero,  the  price.  age.  age  the  heifer  The  objective  present  which  the  her  market net  will  objective  necessary  plus  this  value  producers. net  at  current If  present  The  production her  net  cattle  maximizes  of  her  a  v a r y i n g herd  that  function  of t h a t  variable  by  culling  different  for  choice  be  (i.e.  FUNCTION  price  suggested  earnings at  future  rules  find  optimal  function  to m a x i m i z e profits  price  the  to  (i.e. the  later.  derived  These  a  future  was  Trapp.  to solve his  As  steps  is presented  function  function  by  approaches  is  this  estimated quantities  ten  price  price  OF RETENTION  behaviour  of  the  into  bound  bound  demand  divided  to F i g u r e  upper  lower  Given  and  3.4 INCORPORATION  The  is the  be  value  condition  discounted  discounted value.  present placed  when  in  the  net  market  A t this value  to  at  time the herd.  52 Otherwise, the heifer or cow  will be sold for slaughter. Since each cow  in the herd  is of a different age, it is important to note that the optimal culling age depends on the conditions noted above and culled - before younger optimal culling  age  it can be expected that older animals will be  animals. When  new  heifers  is extended, the herd  size  are  added  is expanded  into as  the  herd  and  a result of this  investment by cattle producers. Changes in herds sizes often implies changes in both fixed and variable costs. Conversely, disinvestment can occur by cattle producers and this too will change optimal replacement times.  Variations of herd size over time  are closely related to fixed and  variable  production costs. Changes in herd size will affect total costs per unit of product. Variations in herd size, by adding or culling animals, will change average production costs if some factors are fixed and  the discounted net present value flows of all  other assets currently being held by cattle producers. Decisions to expand herd size by adding replacements eventually drive up fixed producion cost per unit and hence total costs. Likewise, contraction from a larger herd size will change average costs. Therefore, to maximize the net present value for the entire herd it is necessary to consider changes in fixed costs as herd size is expanded or contracted. Hence, the decision rule becomes a comparison of discounted marginal revenues for the entire herd with that of discounted marginal costs. To  operationalize these rules, a large amount of information is required a  priori including: 1.  the expected prices of feeders, slaughter and cull cows over relatively long time horizons between 8 and 16 years,  2.  the age distribution of all cows in the herd,  53 expected  3.  feed  and  maintenance  costs  of  a  cow/calf  pair  over  the  planning  horizon, 4.  expected  w e a n i n g rates of calves born to a cow at various  5.  expected  death  6.  expected  w e a n i n g weights  of a heifer or steer raised b y a cow of a given  unreasonable  expect  It  is  different  ages over a  However, beef  utilizing  cattle  short  some  that  ages,  this  type  horizon w i l l be  of T r a p p ' s  sex and  various  age  information  readily available at  assumptions  some  of  it  groups  is possible  should be  to  for  age.  cows  of  aggregate levels.  determine  whether  retained  or culled over  into the  CRAM  for  following  a  time horizon.  alternative approach would  a  that T r a p p ' s  approach  also  for  to  accurately. functions  algorithm  also  allow  Instead,  w i l l be  Initially, of  necessary  his a n a l y s i s  special  feasible  has  rules  are  difficult  been  proposed.  to incorporate  Other  reasons  include (a) a m u l t i - y e a r period r a n g i n g of 8 to  be  required  cattle  to  long time  divided b y  Given  and  losses of cows at  ages,  the  stock retention  to  disaggregate  the  herd  is not available. I f the for  solving  for  the  problem  investment  econometrically  and  not  16 years  size  by  groups,  preceding information were was  constructed,  behavioral  then  (b) it  (c)  data  available  it would  decision  rules  responses  of  an  Trapp's  is required,  age  disinvestment  estimated  model  be  more  retention  used.  it is necessary various  classes  function is as  to and  specify price  the  relationship  changes.  between  Assume  the  inventory of beef  general  form  of  the  follows; S  = S(X),  X  =  ( i> x  x  x 2  } n  '  ( 1 )  54  Taking the total differential for equation (1) dS = Z  9S/9x.* dx.  (2)  where the right hand side term determines the amount of change in the retained stock, S, resulting from an infinitesimal change in one of the independent variables. If we  assume that the retention function is linear for simplification,. S  =  a„  +  a *x.  0  1  1  +  a *x„  2  2  +  + a *x n  "  (3)  n  Then, taking partial derivatives for equation (3) with respect to X, ds/dx.= a. Equation (2) can be changed as follows,  In discrete time, equation (5)  (i=l,  dS=  Ea.*dx.  can  be  (4)  n)'  (5)  written  for a specific choice variable i (i.e.  ceteris paribus except variable i) as the following difference equation: S  t 1 +  " t = S  a  i* t+l " t ( x  x  }  ( 6 )  where S  =  fc  Stock at time t (opening stock),  Sj. ^ =  Stock at time t+1  +  x.  =  i,t  Level of variable i at time t (current price),  x. 1jt  = i  (closing stock),  Level of variable i at time t+1  (expected price).  _L  The  elasticity of the retention function with respect to x. can be defined  as  follows: E=  (dS/dx.)*(x. ,/S) 1  (7)  1. b  Therefore, each partial derivative can be derived from the corresponding elasticity as follows:  55  a.  =  1  Consequently, (x.)  at  given  time  t  the  and  opening  t+1, and  stock  the  (S7x. J * E t i,t  dS/dx. = I  set  (S^.), the  levels  (8)  of each  of elasticities, the  independent  closing stock  (S  variable can  be  explained i n order  to  t +  ^)  computed.  In describe  the the  production  previous  matrix  price  coefficients,  contained  of the  of a.,  the  W i t h o u t the  CRAM,  the  beef  beef in  right  the  retention  required.. In  function. chapter  with  this  section  hand  side  different  function  the  was  a single period. T h e  activities  constraints  were  value  prespecified  are  into  as  the  i n the  are  each  provided  this  by  the  Therefore,  the  beef  earlier  production version  of  given elasticities of  a n i m a l class for  beef  partial  determined  above.  according to the  of elasticity for  elasticities  showing  noted  incorporated  is determined  A n estimation 4  matrix  O p t i m a l closing stocks  animal  size of closing stocks  retention  production  production activities w i t h i n  closing stocks.  derived  matrix.  the  the  relationship between  enodogenization future  section  these  specified  different  is  animal  categories.  3.5 THE EQUATIONS  The  preceding  reference  to  equation  form  equations  define  the  beef  sections  representative  sector  coefficients  OF THE BEEF  each other  variables  w i t h the  described  matrix  equation  not  the  tableaus.  defined  rest of the  is avoided i n order  MODEL  in  structure This  this  economy.  to clarify  this  section  portion  specific to the  of  beef  of  the more  presentation.  model  clearly  CRAM.  sector  A numeric  beef  but  with  restates  Some necessary  of  in  these to  link  definition of variables  and  56  A. Beef sector constraints 1. Beef opening stocks NUMBER OF EACH TYPE OF ANIMAL FED AT START OF YEAR  <  SPECIFIED OPENING STOCKS OF EACH TYPE OF ANIMAL  <  COWS AT START OF YEAR - CULLED COWS + REPLACEMENTS AT START OF YEAR - COW AND REPLACEMENT DEATH LOSS  2. Beef balance rows (a) Cow balance COWS RETAINED AT YEAR END + CULLED REPLACEMENTS  (b) Weaned calf balance STOCKERS + FEEDLOT CALVES RETAINED AT YEAR END + FEEDER CALVES SHIPPED OUT OF PROVINCE  BIRTHRATE TIMES (COWS + REPLACEMENTS) AT START OF YEAR + DAIRY CALVES TRANSFERRED TO FEEDLOT + FEEDER CALVES SHIPPED INTO PROVINCE  (c) Yearling balance FEEDLOT YEARLINGS + REPLACEMENT HEIFERS AND BULLS + FEEDLOT LONG YEARLINGS  STOCKERS AT START OF YEAR  (d) Bull balance NUMBER OF BULLS RETAINED AT YEAR END  BULLS AT START OF YEAR + REPLACEMENT BULLS  (e) Replacement heifer cull REPLACEMENTS CULLED (f) Bull cull  <  REPLACEMENTS AT START OF YEAR  57  NUMBER OF BULLS CULLED  CULL RATE TIMES BULLS AT START OF YEAR  3. Beef closing stocks SPECIFIED STOCK CHANGE COEFFICIENT TIMES NUMBER OF E A C H TYPE OF ANIMAL AT START OF YEAR  NUMBER OF EACH TYPE OF ANIMAL RETAINED AT YEAR END  4. Number of beef animals slaughtered NUMBER  SLAUGHTERED  NUMBER OF BEEF AND DAIRY COWS SLAUGHTERED + NUMBER OF FEEDLOT CALVES AT START OF YEAR + NUMBER OF FEEDLOT LONG YEARLINGS AT START OF YEAR ADJUSTED FOR DEATH LOSS + NUMBER OF FEEDLOT YEARLINGS + NUMBER OF REPLACEMENTS CULLED + NUMBER OF BULLS CULLED + NET IMPORT OF SLAUGHTER ANIMALS  5. High and low quality beef balance (HQB and LQB) < QUANTITY OF DRESSED HQB (LQB) SHIPPED OUT OF PROVINCE + NUMBER OF SLAUGHTER ANIMALS SHIPPED OUT OF PROVINCE TIMES AVERAGE HQB (LQB) YIELD OF EACH ANIMAL + QUANTITY OF HQB (LQB) REQUIRED TO MEET PROVINCIAL PORTION OF DOMESTIC DEMAND  NUMBER OF ANIMALS SLAUGHTERED IN PROVINCE TIMES AVERAGE HQB (LQB) YIELD OF EACH + QUANTITY OF DRESSED HQB(LQB) SHIPPED INTO PROVINCE  6. Government payments to beef sector (a) Cow-calf subsector GOVERNMENT PAYMENTS TO COW-CALF RANCHERS  NUMBER OF COWS, REPLACEMENTS, AND STOCKERS TIMES  58 GOVERNMENT PAYMENT ASSOCIATED WITH EACH  (b) Feedlot subsector GOVERNMENT TO FEEDLOT  PAYMENTS  NUMBER OF FEEDLOT ANIMALS SLAUGHTERED TIMES AVERAGE GOVERNMENT PAYMENT  7. Convexity constraint for demand functions THIS CONSTRAINT ENSURES THAT ONLY ONE STEP (OR A OF TWO  COMBINATION  ADJACENT STEPS) WILL BE CHOSEN ON THE DEMAND FUNCTION.  8. Total level government payments TOTAL L E V E L OF  LEVELS OF GOVERNMENT GOVERNMENT PAYMENTS PAYMENTS FROM EACH SECTOR  B. Accounting rows 1. Cash costs (a) Cow-calf and feedlot CASH COSTS TO BEEF SECTOR  OPENING + CLOSING OF A L L TYPES OF ANIMALS TIMES CASH COSTS ASSOCIATED WITH EACH TYPE + NUMBER OF YEARLINGS PRODUCED TIMES YEARLING CASH COSTS  (b) Feedlot only CASH COSTS TO FEEDLOTS  OPENING + CLOSING STOCKS OF FEEDLOT CALVES AND FEEDLOT LONG YEARLINGS TIMES CASH COSTS ASSOCIATED WITH EACH + NUMBER OF YEARLINGS PRODUCED TIMES YEARLING CASH COSTS  59  2. Feed use AMOUNT OF E A C H TYPE OF FEED USED IN FEEDLOT SECTOR  OPENING + CLOSING STOCKS OF FEEDLOT CALVES AND FEEDLOT LONG YEARLINGS TIMES AMOUNT OF EACH TYPE OF F E E D REQUIRED BY E A C H + NUMBER OF FEEDLOT YEARLINGS PRODUCED TIMES YEARLING FEED REQUIREMENTS  3. Provincial yields (a) Cow-calf and feedlot AMOUNT OF HQB (LQB) PRODUCED BY BEEF SECTOR  TOTAL NUMBER OF BEEF ANIMALS SLAUGHTERED TIMES AVERAGE HQB (LQB) YIELD OF E A C H  (b) Feedlot AMOUNT OF HQB(LQB) PRODUCED BY FEEDLOT SECTOR  NUMBER OF FEEDLOT CALVES, YEARLINGS AND LONG YEARLINGS SLAUGHTERED TIMES AVERAGE HQB (LQB) YIELD OF EACH  4. Production cost TOTAL PROVINCIAL COSTS C.  TOTAL LIVESTOCK COSTS + TOTAL CROP COSTS  Objective function  MAXIMIZE TOTAL AREA UNDER CHOSEN STEP OF DOMESTIC DEMAND CURVE FOR EACH COMMODITY + REVENUE FROM EXPORTS TO WORLD - COST OF IMPORTS FROM WORLD -TOTAL CASH COSTS OF PRODUCTION FOR CROPS AND LIVESTOCK  60 - T R A N S P O R T A T I O N COSTS (REGION TO PROVINCE, INTERPROVINCIAL, AND INTERNATIONAL) + TOTAL L E V E L OF G O V E R N M E N T P A Y M E N T S TO A G R I C U L T U R A L SECTOR  These with  other  sector. in  structural sectors  particularly  A s s u m i n g that  the  beef  impacts  sector  the  section  these pertain previous  marketing. Technical d a t a as  are  Since Report  if  are  specify  composed of  the  (Webber,  the  beef  and  sector  forage  is  sectors  closely and  linked  the  dairy  ignored, it is possible to analyze  changes  ignored  and  changes  feed g r a i n prices  specified i n  in  one  sector  impact upon beef  its  production  CRAM.  et  matrices.  major  used  1988),  data  base  as  specified as  T h e activities i n the  of three  data al,  of the  in  this  sectors:  CRAM paper  will  model, as  production,  is  detailed only  in  CRAM  noted  in  shipment  elsewhere  describe  part  and in  of  a this  study.  Files  for  to  grains  not  portions  model and  most  feeding  model  corresponds  or  present  it relates to this  presented  columns  will  section,  Costs, the  alone  that  MODEL  to the  3.6.1 Beef Data  in  the  these l i n k s are  and these l i n k s are  3.6 THE EMPIRICAL  as  show  on another. F o r example,  decisions  This  equations  requirements  each  in  Table  the the  of the 3.1  activity inputs,  and  yield  data  p r o v i n c i a l herds in  order  given  to  and  the  a  to  are  two  each  class  required.  illustrate  particular last  for  these  category columns  of a n i m a l  These data  data needs.  of beef. specify  the  The  specified  for A l b e r t a Each  row  first  four  yields  to  be  Table  3.1 Input Requirements and Y i e l d b y A n i m a l  CowsReplacements  C a s h Cost (Dollars)  Category i n A l b e r t a  Feedlot Calves  Feedlot Yearlings  Stocker  Feed.L. Yearlings  Bulls  26.33  13.00  9.29  6.38  5.03  16.52  26.33  Forage (Tonnes)  2.39  2.39  1.832  0.515  1.02  0.283  2.37  Pasture (Tonnes)  3.324  3.324  --  1.49  4.32  Barley (Bushels)  --  --  59.755  46.067  14.96  47.01  A B C beef Pounds)  --  533.8  618.67  671.83  --  718.8  597.6  --  --  -  --  --  D beef (Pounds)  866.2  62 expected from  Cash pasture, animal of  costs  forage  and  product  from  to  are  and  estimates barley  of the  cost to c a r r y one  requirements  specify  i n a p a r t i c u l a r category over one year.  high  and  each a n i m a l category.  low q u a l i t y beef younger  bulls result another  animal  as  pass  categories  the  a n i m a l s is  i n low quality beef they  class  beef  specify  through  have  no  possible  yields from  (D grade). beef  yield  The  diets  one  required  The A B C beef a n d  u s u a l l y high  the  a n i m a l over one year.  culled  Animals  cycle.  associated  transfer  fed  categories  animals.  ( A B C grade). from  Consequently, with  feed  D beef  and  q u a l i t y beef  to  one  some  The Cows  category  intermediate  them  (e.g.  stocker,  beef  herd  such  and  culling  pasture  yearling).  3.6.2 B e e f  Coefficient  Table rates,  specifies  replacement  provincial the  3.2  herd.  balance  ratio  is  biological  ratios, c a l v i n g  These  that  used  the  breeding  the  herd.  lost a n n u a l l y .  and  for  death  important dependent  determine and  the  the  calving  loss and cattle  rate  rates,  rates  supply demand  culling  for  each for  upon these coefficients: provincial  cull  of beef  herd related rates. T h e culling is culled heifers  determines  deaths represent  as  balances  beef cow herd number  the  i n that  ratios, calving rates a n d other  herd,  Calf  are  proportion of the to  parameters  rates,  coefficients are  rows i n F i g u r e 3.2  rates, replacement represents  Files  the  the  annually. The  reserved number  as  replacement  replacement  of calves  proportion of the  rate  calf  for  entering  and  cattle  63 Table 3,2 Physical Values of Beef Cattle (Percentages) Province  Cull Rate  Replacement Ratio  Calving Rate  Calf Losses  Cattle Deaths  Bull Cull  B.C.  0.15  0.195  0.74  0.099  0.031  0.377  Alt.  0.09  0.135  0.89  0.044  0.025  0.377  Sask.  0.115  0.160  0.85  0.081  0.023  0.377  Man.  0.15  0.195  0.86  0.090  0.020  0.377  Ont.  0.15  0.195  0.72  0.078  0.026  0.377  Que.  0.08  0.195  0.78  0.078  0.019  0.377  Mar.  0.15  0.195  0.71  0.093  0.02  0.377  64 3.6.3  Beef Retention  The  Function  Files  function  files  retention  for  beef  are  specified  for  each  province  corresponding to five categories of beef -- cows, replacements, stockers, feedlot calves and  feedlot long yearlings. Retention function information, as shown in Table 3.3, is  specified by animal type and includes: opening stock level number  of  arguments  in the  retention  function where  each  argument is a  variable determining closing herd size for  each argument: (1) elasticity of stocks with respect to price of the good,  (2)  current market price of  producer  of  the  good,  (4)  the  good,  expected  (3)  current government  market price,  (5)  payment to  expected  government  payment to producer. For  example, in Table 3.3 beef cattle stocks are a function of the price of beef and  the price of feed grain. All prices and payments are expressed as a percentage of current market price which is set at 100% (i.e. government payments are expressed as dollars per $100 of market receipts). The government payment (adjusted for any division of market price from the index of 100) is added to the market price to determine change  in  the  effective  effective  price, or  unit  producer price is  revenue,  to  the  producer. The  determined exogenously  percentage  through changes in  market forces and changes in policies as these affect producers. Elasticities shown in Table 3.3 for each animal category will be explained in more detail later when the different scenarios to be analyzed are detailed. Given the above information, the closing stock level can be determined, and the closing stock coefficient  is then calculated as the closing stock divided by the  Table 3.3  Beef Retention Function Files  Category of Beef  Option  Coefficient  Number of Arguments  Opening Rang Stocks  COWS ELAS = 0.25 ELAS = -0.22  1 1.0 CMKT=100 CUGP = 7.66 CMKT=100 CUGP =  EMKT=100 EMKT = EMKT=100 EMKT =  REPLACEMENT ELAS = 0.44 ELAS = -0.22  1 1.0 CMKT=100 CUGP = 7.66 CMKT=100 CUGP =  EMKT=100 EMKT = EMKT=100 E M K T  STOCKERS ELAS = 0.20 ELAS = -0.20  1.0 CMKT=100 CUGP = 7.66 CMKT=100 CUGP =  EMKT=100 EMKT = EMKT=100 EMKT =  FEEDERS ELAS = 0.20 ELAS = -0.20  1 1.0 CMKT=100 CUGP = 7.66 CMKT=100 CUGP =  EMKT=100 EMKT=100  F.L.Y. ELAS = 0.50 ELAS = -0.30  1 1.0 CMKT=100 CUGP = 7.66 CMKT=100 CUGP =  EMKT=100 EMKTEMKT=1'00 EMKT =  1,130,000  0.£  138,000  0.£  1,008,510  0.£  273,093  0.£  225,902  0.1  :  CMKT = CURRENT MARKET PRICE CUGP = CURRENT GOVERNMENT PAYMENTS EMKT = EXPECTED MARKET PRICE EXGP = EXPECTED GOVERNMENT PAYMENTS  EMKTEMKT-  66 opening  stock  change  level.  The  range  i n stock levels, and  additional  items  coefficient.  is expressed  specified i n Table  Three  options  the  for  specified,  then  retention  function approach closing  closing  bound  on  option  1 is requested  file  parameter  stocks  as  are  determining  stock  then  the  the  right  on  the  proportion of opening stocks. The  two  the  to  Option  a  biological  number  stocks  provided  hand  set  option  closing  described above. as  used a  coefficient  are  will  and  limit  closing  stock  allowed. If option  1 is  be  the  used.  Option  2 is  the  3 allows one to specify the lower  side  of  the  appropriate  opening stock levels specified i n the  should be equivalent to the  sides'  3.3  is  constraint.  If  retention function  corresponding opening stock values i n the  'right hand  file.  3.6.4 Government Payments  Government Table  2.1  base  case  are  the  described  and  in  examined  recorded  level,  payments  at  then  objective  each  in  are  section  2.1  this  study.  provincial  aggregated  function.  Thus,  Government  functions  as explained i n the  As on  the  noted  the  payments  Cost  i n the  sets  with  the  For  production  level  are  national level level also  and  producers  in  the  government  payments  calculated  first  provincial  from  the  to  model.  purposes,  which  d i s t r i b u t i o n of  affect  activities i n the  of p a y m e n t s  accounting  level. P a y m e n t s  to the  solution.  3.6.5 Transportation  associated  they  to the are  transferred  payments  will  solution  via  stock  of beef  or  the  affect  to the  retention  previous section.  Data  previous  section,  concept of a s p a t i a l equilibrium  shipment  live  model. T r a n s p o r t a t i o n costs  animals are  is  based  considered  to  Table 3.4 Transportation Costs of Cattle and Dressed Beef Between Provinces and Between Canada and World Routes'  B.C. to Alt. Alt. to Sas. Alt. to Man. Alt. to Ont. Alt. to Que. Alt. to Mar. Sask. to Man. Sask. to Ont. Sask. to Que. Sask. to Mar. Man. to Ont. Man. to Que. Man. to Mar. Ont. to Que. Ont. to Mar. Mar. to Que. B.C. to Wor. Alt. to Wor. Sas. to Wor. Man. to Wor. Ont. to Wor. Que. to Wor. Mar. to Wor.  Slaughter Heifer &Steer ($/10001b)  Feeder Calves ($/5001b)  Feeder Yearlings ($/7001b)  Dressed Beef ($/lb)  ± 35.130 24.321 45.940 116.202 137.821  ± 17.565 ± 12.211 ± 23.070 58.101  ± 36.35 -18.46  -0.021  -  —  21.619 91.881 113.500 140.262 ± 70.262 91.881  —  ± 21.619 ± 48.643 27.024 3.783 ± 9.458 8.918 ± 3.783 ± 7.026 3.783 ± 3.783  — — — ~  —  ~  87.15  —  16.31 68.91  — —  35.131  52.70 68.91  ± 10.810 24.321 -13.512 ± 1.892 4.729 4.459 1.892 ± 1.892 ± 1.892 1.892  ± 16.22 -36.48  — —  Note "±" means the costs of shipment out and in. (i.e. 35.130 means B.C. to Alt. or Alt to B.C.) "-" means the opposite direction. (i.e. -0.021 in B.C. to Alt. is the cost of Alt. to B.C.)  —  -  2.84 7.10 6.69 2.84 -5.27  — —  — —  0.070 0.083 0.098  —  0.056 0.069 0.084 0.042 0.056 0.071 ± 0.015 0.029 -0.017 -0.202 0.006 0.005 0.002 -0.204 -0.202 -0.202  68 be  important  costs  for  model,  in  live  for  determining  animals  example,  both  directions  or  both  directions  due  model.  Some  routes are  3.6.6 D e m a n d  demands  no  bound  we  change  function  and  is  1.  for  Table  specified to  generated  as  of the  the  live  beef  In  cattle  on  this could  are  reduce  be  that  provinces  transportation defined  can  means  3.4  two  the  executed  trade  are  in  in  routes  specified  in  in  the  model size. H o w e v e r a l l trade  required.  generally  quadratic  case be  consumption  assumption  becomes  CRAM  exported  demand  domestic  demand  was  approximated be  demand by  function parameters including a point on the  a n d the  demand  the  segment  3.  the  step function row codes for the  step  met  take  perfectly  function,  place.  If  elastic.  If  the  linear  before  objective segments.  domestic demand curve  was  (price-quantity  file: pair),  elasticity,  2.  constraint.  be to  piece-wise  specified i n the  price  or  specified i n the  to  needed  and  additional information m u s t  had  imports  i n the  eastern  domestic  or  prices  is  western,  model, a fixed  of exogenous this  at  level of consumption w a s  domestic  then  specified  demand  The  regions  Since shipments  between  older version of the  section.  placed  T h e following  not  in  objective function and a fixed  bounds  beef  "±"  represents  Data  i n the  dressed  a  3.4  some  Alberta.  differences  are  Table  beef between  only,  price  routes  n a t i o n a l levels. I n the  structural  way  to  amounts.  B . C . and  deriven and are  Domestic  stated  dressed  between  one  trade  data  and  shipped  of the d e m a n d  A revenue  function  curve to be  considered,  price- quantity  pairs,  and  for the  convexity  row is also specified.  will  be  calculated  over  the  segment  of the  demand  curve  Table 3.5 Demand Data at National Level Import Price  Export price  Elasticity  HQ Beef  4336  3390  0.74  LQ Beef  2920  2400  0.41  Weighted Values of Population  B.C.  0.39  Ont.  0.50  Alt.  0.32  Que.  0.37  Sask.  0.14  Mar.  0.13  Man.  0.15  70 specified. bound  This  segment  becomes  the  2.  The  When  a  chapter  is  defined  import  export  price  and  by  an  and  the  import  upper  and  lower  lower bound  prices  include  the  bound  price.  export  The  price  as  both  transportation  beef  demand,  upper  noted . i n and  tariff  effects.  objective  function  corresponding longer  linear  net  to  approximation  is the  revenue,  replaced various  but  rather  is  by  a  steps.  basis  consumption  are  levels.  weighted values  3.7  distributed Table  of the  to  areas  levels once  the  its  price  in  the  demand  objective  function  surplus.  In order  is  no  to allow  for  or  base  per  on  elasticity,  population  upper  and  or  lower  the  curve  calculated on a western  provincial  demand  under  reason,  plus producer  each  shows  of  this  consumer  for  eastern capita  bound  and  population.  SUMMARY  The  purpose  of this  model  considered  i n the  order  to  the  CRAM sector  3.5  set  For  consumption i n each province, demand Canada  requested  develop  was were  previous  empirical  considered. also  chapter  production m a t r i x  included  in each  matrix  of s t r u c t u r a l  in  the  beef  trade  and  demand  were  were  empirical  describe  described. Information  its  sector,  In  basis  structure  the  overall  matricies  of incorporating the  specified.  equations  an  to  detailed. T h e method  into the  present  and  model  Production,  were  to  chapter  function  coefficients  was  related  for and  In  framework  of  to  elasticities of the  explained i n this  data  used  chapter.  beef  data.  addition, behavioural  and  the  the  beef  retention equations  to determine  the  CHAPTER 4  RESULTS  This chapter details the results of the study. There are five sections. Section 4.1 examines problems in model validation and describes the procedures followed in order to validate the model developed in this study. Section 4.2 provides a basis for the  sensitivity  selected  analysis conducted  in this  study. These  results depend . on  the values  based  upon  different  own  retention function elasticities chosen. Section  4.3 briefly  elasticity  parameters  are important because introduces  some of the  economic measures selected to summarize and characterize in the beef sector in the base case where 1986 is selected as the base year. Section 4.4 analyzes the results from  the model  and details  some  of the changes  that  may  be  expected if  government payments to producers are removed. Section 4.5 briefly summarizes this chapter.  4.1 MODEL  The  VALIDATION  model developed in this study examines and evaluates  changes in  the  Canadian beef sector under both the current and future policies as these relate to this  sector. It is therefore  abstracts from  reality  important  to consider  whether  the model adequately  and is useful as a policy analysis tool. On the issue of  validation, McCarl (1984) suggests; "A model need not mirror the perceived reality perfectly; rather it needs to abstract "adequately" for the model's anticipated use Exercise of model validation, referring to activities designed to determine the usefulness of a model, can improve model credibility; provide a "better" platform from which to make policy or operational decision recommendations; contribute to evidence on the usefulness and applicability 71  72 of theory and modeling methods; provide insights into proper w a y s of modeling; and increase the likelihood of models and their results being used b y decision m a k e r s . "  He  argues  further  exploration, exploration  that  models  can  be  used  prediction, and prescription. T h e current and  to examine  the  consequences  for  three  purposes:  model is developed for  of e l i m i n a t i n g the  degree  errors  to w h i c h  resulting  structural  government  i n beef sector. V a l i d a t i o n for predictive power is also important the  structural  payments  since; (a) it indicates  predictions should be believed, (b) it helps i n avoiding prediction  from  invalid  models,  and  (c)  it  permits  statements  regarding  the  model's ability to predict.  Given  this  background,  attempt v a l i d a t i o n as  follows:  Plausibility  — this  1.  test  McCarl  test  presents  examines  seven  whether  categories  or  methods  the  model  creates  is  possible  to  "plausible"  results. 2.  Possibility  test  — this  test  examines  whether  it  for  the  model  to  duplicate a situation realistically. 3.  S u p p l y function test — this test e x a m i n e s production is close to the  4.  Dual  supply  observed the 5.  function  price  is  to  — this the  expected price, and output  Prediction  test  outcomes,  when  — this  test  specified  the model's m a r g i n a l cost of  observed price.  test  close  whether  with  test  examines  observed  production.  c o m p a r e d w i t h actual examines  the  parameters  ability  whether Here,  production prices  are  at fixed  the at  output. of  "identical" to  the  model  those  to  leading  predict to  that  outcome. 6.  Predictive change  test  — models  may  not  need  to  predict  exactly  as  long  as  73  they 7.  predict the  magnitude  Predictive  tracking  inadequate  i n terms of validation.  Validation procedures  test  or possibly even the  — the  of  the  beef  model  presented  by  McCarl.  4.1. Initial specifications of the  ability  to  predict  detailed  in  this  The  basic  model did result  logic, equations  these tests, it was  beef  sector  of the  In  model  ignoring the  too closely linked. T r a n s f e r the  transfer  of calves  and animals between model in  on  a  single  various  data  the  sector  basis,  or  and  the  sources  required  assumptions  ageing  animals  from  and over  statistics the  transfers deaths,  short and  ante  are over  a  ten  run,  the  ex post  ones  cyclical.  different  transfers  the  fluctuations  one  shipments  plus  payments ex  are  with  Therefore,  on  a  birth  "to  those  equal  and  number  depending an  less  shipments  of cattle But,  animals  Canada.  size  of  of  necessary  animal to  which of  the  to e x a m i n e  the  In  the  the  basis. by  In  a  stocks  validate  by  of beef the  beef  age  transfer  or  classifications  terms  of v a l i d a t i o n  plus  births,  plus  sales,  plus  plus of  to producers in  sector,  various  and  stock  is  Inconsistencies  the  evaluation  herd  beef  shipment  closing stock,  without p a y m e n t  the  solutions  Agriculture Canada  than  out.  Table  to v a l i d a t e  rates  of opening  the  in  to the  on price and profit levels of the  accounting was  or  listed  the  province  death  of Statistics  in,  are  and  of  a g r i c u l t u r a l economy  it difficult  of  flow  The  be  re-examination  beef herd,  another.  accounting  are  crop sectors  to the  classification  category from  the  province b y  typical  out  horizon  sectors.  may  several  p a r t i c u l a r l y difficult  links makes  regarding  payments.  over time  year  d a i r y sector  provinces and other  categories of  non-beef  requires  accurately.  time  follows  followed  Misspecification  of feed supplies from  from  on  i n infeasibilities and  structure.  data.  change  paper  procedures  m e a n t misspecification of the and  direction of change  government  are  Canada  less has  industry  category  livestock balances  and for  than shown  and  these  provinces different  74 Table 4.1 A Procedure for Model Validation Step 1.  Enter the parameters, constraints, alternatives, etc. which implement the particular validation test.  Step 2.  Obtain a solution to the model.  Step 3.  Evaluate the results. There are two possibilities for the results. Either the model has been solved with an answer or the model has failed. (a)  If the model has "failed", discover why. Programming models may either unbounded or infeasible. Simulation models may exhibit numerical difficulties or may incorporate equations which can not feasibly represent the particular variable values. Repair the model and go to Step 2; otherwise go to Step 6.  (b)  If the model has a solution, then utilize association measures to discover the degree of correspondence between the outcomes set and the model solution. These measures should be applied to all possible output variables, and imputed prices. Aggregates, such as income and total land area, should be examined. Go to Step 4 if measures indicate a sufficient degree of association. Go to Step 5 otherwise.  Step.4  Prepare to do a more complex validation test going to or, going to Step 1, or determine that the model is not invalid for use and terminate the validation.  Step 5.  Consider whether (a) the "reality" parameter-outcome set data are consistent and correctly calculated, (b) the data are properly entered into the model structure, and (c) the assumptions underlying the model structure are proper and correct. If the deficiencies in the model leading to the invalid solution are corrected, go to Step 2 and repeat the validation test, otherwise go to Step 6.  Step 6.  If the model is judged invalid then consider whether the model needs to be revised, discarded or qualified. If the model is revised then go back 'to either Step 2 or one of the earlier validation tests dependents upon the extent of model revision. If the model is qualified then either continue this validation text -- if there is anything remaining to be done (go to Step 2), move on to higher validation texts (go to Step 1), or accept the model for use (terminate the validation exercise with qualifications).  Source: McCarl (1984)  75 provincial  herd  sizes.  Estimates  of  these  livestock  data  are  described  4.1  to  solution  in  the  next  model  and  section.  Steps an  2  evaluation  the  and  of the  ability of the  many used  different and  3  described  results.  model to  solutions,  reported.  Tests  input  series  duplicate  also The  year  1986  data  direction  of  the  of change needs  indicated,  following  the  exactly provided they accurately. beef  In  economic  represented obtained in  this  the  and  predict  research,  Jarvis  these v a r y  base  case  are  Trapp.  w i t h the  validation of this model over and policy  analysis sense, has  Given are is  noted required  the  from  the  approximately been  elimination in  the  4.2. T h e volume  1982  not the  to  scenarios  the  levels  and  part of  1986.  The  even  the  or  closely. A s  need  to  predict  direction of change payment  beef  cattle  of predictive  assumed.  are  1986.  of government of  sets  although  examined  may  regarding examining  set  magnitude  been  terms  elasticities  After  at  those for  the  models  different  different  are  model has  reviewed  Three  period  or possibly even  an  the  outcome  year,  The  FARM  model  and  fifteen  years,  w h e n used  values  are used  testing  in a  on  theory  elasticities  extensive  and  forecasting  done.  complexity of model v a l i d a t i o n , p a r t i a l results  in Table since  of  base  year  where  test,  magnitude  carefully  derived  test  change  impacts  are and  the  five  with  variables  the  reported,  the  to  examined.  consistent  as  the  change  are  decision  is used  considered  predictive  activities  by  to be  fixing  model, as  predictive  base  model  over  a  "possibility test", questions  1986  the  involved  involves a n n u a l  terms  the  of  levels of livestock activities i n the  In  lead  considering the  solutions  e x a m i n i n g model results. the  In  i n Table  classification of the of slaughter  beef  beef  herd  supplied to  into the  of the the  possibility test livestock  market  is a  classes function  Table 4.2 Estimates  Comparison  of  Statistics  N u m b e r of Cattle on  Canada  Estimates  of  Herd  Size  with  Model  J a n u a r y l s t ( 1 9 8 6 ) — Statistics C a n a d a ('000 Head)  Cows  Heifers  Steers  Calves  Bulls  Total  B.C. Alt. Sask. Man.  180.0 1130.0 760.0 325.0  43.0 271.0 154.0 87.0  34.0 315.0 110.0 73.0  220.5 1075.0 590.0 280.0  11.5 61.0 37.0 18.0  489.0 2852.0 1651.0 783.0  Western  2395.0  555.0  532.0  2165.5  127.5  5775.0  Ont. Que. Mar.  325.0 172.0 56.2  268.0 50.0 •27.5  405.0 47.5 36.8  700.0 263.0 88.4  30.0 27.5 4.8  1728.0 560.0 213.7  Eastern  553.2  345.5  489.3  1051.4  62.3  2501.7  Canada  2948.2  900.5  1021.3  3216.9  189.8  8276.7  Source: Livestock and a n i m a l products statistics, (Cat. 23-203), 1986. O p e n i n g Stock N u m b e r s i n M o d e l ('000 Head) Breeding Replacement Herd  Stokers  F.Long Yearlings  Feedlot Calves  Bulls  Total  B.C. Alt. Sask. Man.  180.0 1130.0 760.0 325.0  37.0 138.0 111.0 55.0  103.6 1008.5 490.4 230.5  40.0 225.9 153.0 61.6  59.5 316.1 106.3 100.9  12.5 64.0 38.0 19.0  432.6 2882.5 1658.7 792.0  Western  2395.0  341.0  1833.0  480.5  582.8  133.5  5765.8  Ont. Que. Mar.  325.0 172.0 56.2  93.0 40.0 15.1  432.9 129.8 51.1  507.3 17.0 0.0  352.0 310.2 59.4  31.0 27.0 4.8  1741.2 696.0 186.6  Eastern  553.2  148.1  613.8  524.3  721.6  62.8  2623.8  Canada  2948.2  489.1  2446.8  1004.8  1304.4  196.3  8389.6  77 of  these  categories.  numbers data  w i t h categories  needed  feedlot  to  be  operators  Canada there  A  are are  comparison used i n this  redefined  defined  not  suitable  small  of  in  study  based this  from  on  the  production  The  biological  between  Canada  animal  is shown. E s t i m a t e s  research.  a  differences  Statistics  of Statistics  schedule  for  opening  As  stock  and  Canada  cow-calf  classification categories  modeling aspect.  observed  categories  shown  of  and  Statistics  i n Table  numbers  and  4.2, model  estimates.  In  summary,  the  literature  process  is p a r t l y  scientific and  is  examine  all  to  the  4.2 THE SCENARIOS  Opening determine market  the  in  Current  opening  level  of  functions  on  government and  considerations. with  and the  the  each  stock  to  beef  validation  approach  different  levels  any  suggests  adopted  that  i n this  scenarios  and  the study  test  for  results.  important  usage been  on  different supply  structure of  levels to  of the the  will  response  responses  will  and  vary  elasticities.  of  to  eventually  based with of  the  time  upon changes  producers'  market  elasticities frame  changes  depend  these  E c o n o m e t r i c a l l y , it  of supply  model, the  producers  that  established  the  impacts  in  levels  size changes  of a n i m a l . Estimates  estimate  payment  feed  depending  regarding  are  have  herd  elasticities for  the  sector  trade,  earlier,  category  researcher,  respect  the  assumptions  Therefore,  The  many  payments  cow-calf  by  the  market,  A s described  to estimate  basis  depending  policies  numbers  prices.  behavior.  subjective.  model  EVALUATED  to  difficult  regional  TO BE  stock  with  model and observed behavior and  supplies  retention is  under  beef  investment in  partly  results  inconsistencies between  dealing  upon  in  and  on  a  vary other  government the  elasticity  78 estimates  used.  elasticities  and  are  research  changes  to  with  curve the  noted  of  the  three  Canadian  beef  scenarios  sector  previous  animals  run.  equilibrium  at  1.83.  Within  evaluate  the  the  Given  current  this several  changes  in  using  a  different  comparative  supply  static  sense  in  case Under  #1:  functions been  shown  in  Table  4.4  function  on  supply  or  simultaneous  the  and  the  study base  function  is associated  Jarvis  and  since as  the  this  positive  slope  selects  long-run  argued,  becomes  deals  i n Table  estimated  a  with a  but  study  shown  has  Gordon  r u n can be negative  Generally,  this are  related  has  to  As  elasticities,  with  4.3,  elasticities  Solutions  are  supply  the  supply  positive a  extracted  ranges  from  defined  at  over  long  are  estimates from three sources  solution.  to  revised  based  a  fourth  demand because  case  with  opening  run from  0.4  to  i n order  specified  the  C a n a d i a n beef  the  most  quarterly quarter  elasticities it uses the  recent.  period  of are  over  1983  to  points  not  sector.  stock  their  are  model  as  estimated  beef  sector  of the  The  extended  period.  This  model  estimates  estimated.  at  numbers  an  eastern  set  set  1986.  FARM  covering the for  payments  closing  levels for  by  reestimated  government and  on observed  provided  the  and  are  a  situation  Elasticities  model  1972  short  represents  exogenously. H e r d sizes  inventory  retention  function.  base  Scenario  the  level.  result  these ranges this  levels.  various  farm the  literatures.  retention  The  the  over  situation,  published  chapter,  prices. T h i s characteristic  of beef a n i m a l s long  the  i n the  respect to future  response  of  provides  reported.  As  on  This  period and The  from  western model  the  The  is  FARM  estimates  the  livestock  first  Canada.  from  quarter  Provincial  dynamic  simulated values of lagged endogenous variables  and and  Table 4.3 Retention F u n c t i o n Elasticities Elasticity  Country  Time Period  Period of Analysis  4.4  Canada  Long Run  1972-1983  0.6  U.S.  Long Run  1910-1980  Gordon  1.41  Canada  Long Run  1956-1982  Goddard  1.83  Canada  Long Run  1970-1980  0.4  U.S.  Long Run  1970-1980  1.00  EC  Long Run  1970-1980  Zealand  Long Run  1970-1980  0.45  Japan  Long Run  1970-1980  &  0.6  Canada  Long Run  1961-1983  Anderson  0.72  U.S.  Long Run  1961-1983  1.02  EC  Long Run  1961-1983  0.80  Japan  Long Run  1961-1983  FARM  See  Gardner  Table  0.42  Tyers  New  80 also  uses the  the  equations.  model  may  model,  as  simulated values Even be  a  debated,  whole,  Therefore,  we  model, as  our most  was  elasticity the  variables herd  impacts  of  it  well  when  are  of u s i n g  the  herd  size  in  his  model,  changes aggregate  for  He as  all  at  level  also  shown the  a  has  the  to  FARM  east.  His  sense. 0.6.  His This  assumption  focus  to of  on  the  by  the  a  estimated  the  cow-calf  sectional  data.  1.41  and  rancher.  western  cattle  procedure  represent  4 . 3 , is  held  Canadian  estimation  cross  i n Table  animals  with a  The  FARM  model lagged price  greater  than  and  less  than  examine  supply  sectors model  includes  and  estimated  represents  Canada.  His  the  response  0.6.  producers  This  U.S.  own  we  that  expectation  The  of the  and  is  west  the  terms  used  value  model i n the  His  the  period.  the  estimated  elasticity w i t h  (ARIMA)  in  own-price  e m p i r i c a l tests  level.  from  approach.  the  the  forecast  of elasticities  In  studied  regression  estimates,  or  4.4,  function  1980.  4.3, is  for the  the  side of  study.  estimates  Nerlovian  i n Table  aggregate  form.  within  historical  production  1910  a  in  i n this  provided  over  shown  Gordon  examined  1982.  a  right-hand  insignificant  i n a l l provinces is equal and g i v e n as  functional  is  over  results  using  run  estimated  equations  statistically  simulated  has  yearlings  m o v i n g average  model to  #3:  inventories  integrated  1956  this  beef producers  Cobb-Douglas  The  feeder  some  scenario  data  long  behavioral  on the  elasticities provided i n Table  estimated  annual  the  has  estimated  size, as  only  Scenario  in  and  elasticities of beef cow numbers  elasticity  of  using  endogenous variables  of  Gardner(1987)  commodities  for  some  important  #2:  estimated  dependent  fits  adopt the  Scenario agricultural  though  of the  is an  focused  based  on  for  data  covers  long r u n response is  T h i s estimate  on the  autoregressive  process  the  estimate  and  derived  prices. from  elasticity to for  is greater  price the than  Table 4.4 Retention F u n c t i o n E l a s t i c i t i e s i n F A R M  Model  Own  P r i c e Elasticities  Feed Price  Elasties  Western Canada  Eastern Canada  Western Canada  Eastern Canada  Cows  0.25  0.40  -0.22  -0.14  Replacement  0.44  0.40  -0.22  -0.14  Stackers  0.20  0.25  -0.22  -0.14  Feeders  0.20  0.25  -0.20  -0.08  F. Yearlings  0.50  0.75  -0.20  -0.08  82 that  provided  by  the  represent a f a i r l y  Harling government their  (i.e.  0.6  they  and  properties  1.41)  long-run  Thomson  method  to  as  eastern  values curve  will in  are  be  Table  value, Gordon's  It for  and  in  4.3  is  base  opening  stock  government  range  values  this  FARM  Even  the  numbers  of  payments  to  study  to  though  of supply  0.2  of the they  to  this  more  curves.  In  0.75  suitable  shown  Using  as  for  the  two  beef cases  represent  the  in  the  set  a  shown each  Table  4.3,  Harling  and  range in  of  0.4  Table  animal  in  4.4,  western  others and these m i n i m u m  elasticity value  latter  do not  elasticities  more detailed than  though  of  model.  as  However,  largest  effects  and demand  values  countries.  The  as  this  m a x i m u m elasticities for  several  values.  are  in  economic  using supply  even  can  of  the  be  used  long as  run a  supply  maximum  because it is closer i n range  to  model.  CASE  to review provincial herd  of  the  (1988),  from  study.  1.83.  chosen  Anderson  for  maximum  OF THE BASE  year  analyzed  elasticity  estimates  estimate is chosen  is i m p o r t a n t  the  and  the  model  is  a n i m a l and province i n the  elasticities  These  used  have  reasonable  Tyers  and  FARM  and  changes.  Therefore,  of each  of a n a l y s i s ,  the estimates o f the  4.3 ANALYSIS  1.87.  supply  Canada.  (1983)  considered  minimum  from  Gardner  range of m i n i m u m and  and  (1988)  estimate  and  the  for a l l classes  elasticities  and  on C a n a d i a n agriculture  set  0.56  Goddard  1.83  Thomson  intervention  between  model  elastic response to price  and  analysis  sector  FARM  model. herd the  The sizes  beef  base are  sector  sizes and government year  noted in  each  for in  this Table  provinces  payment  analysis 4.5. are  is  Shares  1986 of  estimated  levels and total from  Table Beef  4.5 H e r d Sizes b y P r o v i n c e , M a r k e t R e t u r n s , Sector E a r n i n g s for B a s e C a s e  Herd Size  % of Total  Market Earnings  ('000 Hd.)  (%)  ($ Mil.)  (%)  B.C.  399.10  5.16  40.13  Alt.  2839.50  36.69  Sask.  1640.80  Man.  % of  Government  and  Total Earning  ($ Mil.)  (%)  ($ Mil.)  69.15  17.9  30.85  58.0  517.91  87.48  74.1  12.52  592.0  21.20  178.85  79.51  46.1  20.49  224.9  764.70  9.88  137.01  88.10  18.5  11.90  155.5  Western  5644.10  72.94  873.90  84.80  156.6  15.20  1030.5  Ont.  1489.10  19.24  248.72  91.34  23.6  8.66  272.3  Que.  454.50  5.87  60.28  50.97  58.0  49.03  118.3  Mar.  150.70  0.00  24.15  82.35  5.2  17.65  . 29.3  Eastern  2094.30  27.06  333.15  79.34  86.7  20.66  419.9  Canada  7738.40  100.00  1207.05  83.22  243.34  16.78  1450.39  t  Note f:  Provincial  share  as  % of t o t a l  provincial  earnings.  % of  Levels  t  Earn,  Gov't Payments  Payment  Earn,  84 average beef  payment  incomes  base case. western  estimated  and eastern  feedlot  of the  hold  19%  total  10%  aggregate  herd  share  associated  for  divided In  is  herd  to be  sizes  finishing  operators.  as  receives  payments  Quebec  with  Based earnings price.  In  T o t a l sector payments.  beef  generally  herd  estimated  the  4.5  are  and  for  divided  the  on  a  of herd  size, with  cows,  Alberta's 21%  size. T h e  that  of  eastern  that  most  production, earnings  share  and  herd  implies  replacements,  is largest  Ontario  western area of  stackers, with  and  Manitoba  provinces'  share of  is  27%.  the  The  economic  and other  larger  activities  economic indicators  to  sector  T h i s expenditure  varies  and  sector  less  than  the  by in the  the the  in  the  sizes  of  Saskatchewan, size  situation  b y provinces depending  relative  relative  base  upon  cow-calf  Manitoba  of their  national cow herd receives  the  and  cow-calf  23.8% of the  are  and  Ontario  herds  while  total  amount  payments.  on  are  earnings  represents results  i n Table  beef  levels  only 5.9% of the  of government  sizes a n d  Market  country.  million.  The  1985/86.  categories:  is next  Canada  such  payment  five  while  payments  $243.3  and  into  of total  73%,  Western  government  to  given herd  terms  respectively size  1981/82  provinces represented  higher i n this region of the  estimated  the  Saskatchewan  w i t h this sector  Total  the  basis.  calves.  herd,  and  relative  the  Canada  and  over  with  composition is  yearlings  37%  are  are  made  F o r convenience,  Herd  the  levels  absence  size as  though  slaughter  sales,  billion.  market  market  numbers  of a l l government  income is $1.4 Even  and  Hence  earnings  or  earnings shipments  payments  these  are  multiplied amounts  17% of this is i n the i n each  province  estimated.  are  by  are  farm $1.2  f o r m of  related  Market gate  billion.  government  to herd  sizes,  85 the  large  share  relationship.  For  approximately  sector  reduction 4.4  the  costs are  the  scenarios  income,  and  4.4 ANALYSIS  Under be  producers  are  changes  that  structure  would  individual  provinces  an  elimination  assumed considered  of  and is  the  Aside  from  of these  for  this  Quebec,  at  alternative may  payments  represent  of  toward liberalization w i l l require  payments  input  changes  elasticities.  a n a l y s i s . T a b l e 4.6  this  to  the  beef  sector.  In  be  expected  when  these  a  section  levels of production, trade,  province  cash  payments  between with  reported.  The  study  has  payments The  results  to 4.13 w i l l  than  supply  eliminate  on  output range  all  are  government  likely  to  of  provinces analyzed  them.  in  show these changes.  changes For  that  responses  and  The  remaining,  alternatives  examine  elasticities  assumed.  payments  that  details  terms  of  that  payments  to examine  policy  provinces are  chosen for  if  e x a m i n i n g changes  different  based  programs,  is  it is also feasible  rather  scenario  one  basis,  selecting  payments this  section  parameters  i f agreements  all  supply  in by  eliminating  different  B . C . and  government  trend  that  province  This  in  trade  changes  reported  extensive.  expected  static  all  between  distorts  SCENARIO  reduce  or  payments  elasticities of retention function assumed.  a  allow  recent  represent  for each  would  similar  that  chosen  eliminated.  r e p o r t i n g changes  shares  government  other  on  are  of the  scenarios  expected,  large  the  OF EACH  the  sizes  government  head, while beef income i n Quebec is twice that i n B . C .  earnings,  e l i m i n a t e d , given the  may  herd  relatively  elimination  three  and  example,  gross  or  income, in Quebec, from  4 0 0 thousand  Despite beef  of beef  and policy model within  example, could  be  could  be  may  estimates a  to  be for  comparative  A s noted i n the  previous  86 section,  scenario  Western  and  #1  Eastern  provincial differences is  assumed  has  different  Canada within  in scenario #2  own-price elasticities  and  by  animal  elasticities for  each of these two regions. A n own-price elasticity of  0.6  i n scenario #3  for  category.  These  both no  1.41  differ  feed  are  and  they  and  a l l categories  of animals i n  Canada.  4.4.1 Changes in Herd Sizes Present  herd  analysis.  Currently,  per  i n the  in  head each  of  between were  the  herd  shown  as  changes  each of the  At a  range  shown case  provinces and  the  been  section.  depend  2% for  upon  scenario below  with  scenario  #1,  the  show  adjustment  much  breeding  #1  the  and  herd  for  most  least  change  herd  Quebec  It  by  starting  receives  these  payments is  a  the  point  on  assumed  relative  a  largest  levels.  The  province b y  that  size  12%  changes size  in  other  assistance by  shares  to  payments  province  from  government  will  basis change  payments. the  for for  scenario each  Quebec  is  provinces  is  #3.  changes  C o m p a r i n g the  reduced  by  about  2%.  in  p a y m e n t levels.  Percentage  scenario.  The  market  breeding herd size is downwards  approximately Manitoba  with are base 10%  cow-calf  (i.e. $ 1 6 . 4 1 per head) a m o n g a l l provinces  comparison  amount  this  relationships  a l l producers  received  i n expected  i n the  for  decisions and herd sizes of producers  influenced  change  absolute  the  who receive the  Manitoba's  2.1,  provinces and upon the changes  of  represents  a reduction or a n e l i m i n a t i o n of government  brackets  not  Table  government  previous  will  province  and i n v e s t m e n t  the national level the  producers do  in  have  total  in  whereas  each  shown  their herd sizes following relative  in  cow-calf sector  sizes in  size  0.98%  with  other  provinces.  i n scenario #1.  In  Changes  scenario #2  in and  Table  4.6  Breeding  Herd Size by Province under different Replacements, and Stockers) ('000 Head)  Base Case B.C.  Scenario #1  Scenario #2  Scenarios  (Cows,  Scenario #3  320.6  311.9 (-2.71)  300.2 (-6.36)  272.4 (-15.03)  Alt.  2276.5  2238.3 (-1.68)  2178.4 (-4.31)  2047.2 (-10.07)  Sask.  1361.3  1329.9 (-2.31)  1286.7 (-5.48)  11.84.8 (-12.97)  Man.  610.5  604.5 (-0.98)  595.6 (-2.44)  575.4 (-5.75)  4568.9  4484.9 (-1.85)  4360.9 (-4.55)  4079.8 (-10.70)  Ont.  850.9  836.7 (-1.67)  825.3 (-3.01)  790.0 (-7.16)  Que.  341.8  305.4 (-10.65)  277.9 (-18.70)  191.8 (-43.89)  Mar.  122.3  118.6 (-3.03)  115.8 (-5.31)  107.1 (-12.43)  Eastern  1315  1260.7 (-4.13)  1219 (-7.30)  1088.9 (-17.19)  Canada  5883.9  5745.3 (-2.36)  5579.9 (-5.17)  5168.7 (-12.16)  Western  88 3  which have larger elasticities than those of scenario #1 adjustments are much  larger. Changes in herd  size are generally  proportional  to the supply  elasticities  used.  At  the provincial level, if base case and scenario  #3 are compared, the  following changes in breeding herd are noted: B.C. down 15%, Alberta down 10%, Saskatchewan down 13%, Manitoba down 6%, Ontario down 7%, Quebec down 44% and  Maritime down 12%. Each province  shows fairly dramatic changes, proportional  to the elasticity of retention function, as one moves to a situation where government payments are eliminated.  4.4.2  Changes in Supplies to Market  Beef supplies to the market are closely related to changes in the breeding herd size. These are also influenced by slaughtering capacities and per unit cost of slaughtering  cattle.  provincial slaughter  In the model,  bounds  capacities. Capacity  on  slaughter  animals  are based  on  limitations also have a role in determining  the transfer flow of animals from lower capacity locations to higher ones. Lockhart (1987) notes that the per unit cost of slaughtering cattle relative to the major United States plants is a major concern of the western Canadian packing firms. Most of the western packing firms do not always have sufficient capacity to slaughter cattle which are fed in western regions. Animals can also be supplied and slaughtered in the United States. He notes that western Canadian livestock is moved into eastern Canada and United  States for slaughter when the price spread exceeds  the transfer cost. Thus, western Canadian firms not only compete among themselves but also with eastern Canadian and United States firms for a share of the available  89 supply of fat livestock for the  fresh beef and processed meats markets. The per  unit cost of slaughtering cattle is thus an important element of the firms' financial performance.  Given these considerations, Table 4.7 provides an estimate of the high quality beef production levels. As noted in the previous discussion, a reduction of herd sizes in  each  province  affects  production  levels.  scenario are shown in brackets. Positive  The  increases  percentage  changes  under  each  in high quality beef yields for  some provinces, in Table 4.7, can be explained by the imports of live animals from other provinces. Feed costs, excess capacities and unit cost for beef slaughter result in a transfer of live animals between provinces.  Another important consideration is that payments to the finishing sector differ by province. As noted in Table 2.1, Quebec producers in the finishing sector received payments  amounting to  $161.60 per head  amounts of $20.45 per head. Ontario has  while  Ontario  supported this  producers have sector  received  at a lower level  than other provinces and therefore is at a competitive advantage when subsidies are removed.  In this  provincial levels,  sense, if the  base case and scenario #1  are compared at  high quality beef yield in Quebec is down significantly by  the  19.4%  while that in Ontario is up by approximately 3.5% in spite of a herd size reduction of  1.6%.  Therefore,  when  payments  to  this  sector  are  eliminated  the  observed  impacts will vary by province. Since shipments of animals increase to Ontario, the changes noted are observed. In general, because of shipments between western and eastern regions, there is a positive 0.94%  increase in production in eastern Canada  but a 4.2% decrease  as  in western  Canada  shown in scenario #1  of Table  4.7  However, high quality beef yields in scenario #2 and #3 are dramatically reduced in  Table 4.7 High Quality Beef Yields on Feedlots ('000 Tonnes)  Base Case  Scenario #1  Scenario #2  Scenario #3  B.C.  20.5  20.1 (-2.14)  19.1 (-7.20)  16.9 (-17.50)  Alt.  260.9  257.4 (-1.32)  249.6 (-4,32)  234.4 (-10.14)  Sask.  58.5  52.6 (-10.03)  55.1 (-5.83)  50.5 (-13.71)  Man.  71.5  63.9 (-10.69)  62.5 (-12.53)  48.1 (-32.80)  Western  411.4  394.0 (-4.23)  386.3 (-6.11)  349.9 (-14.95)  Ont.  164.4  170.2 (3.53)  158.0 (-3.93)  149.0 (-9.35)  Que.  26.2  21.5 (-19.44)  23.0 (-13.46)  21.0 (-20.97)  Mar.  12.7  13.9 (10.14)  "12.8 (1.12)  12.6 (-0.80)  Eastern  203.7  205.6 (0.94)  193.8 (-4.86)  182.6 (-10.34)  Canada  615.1  599.6 (-2.52)  580.1 (-5.70)  532.5 (-13.43)  91 both eastern and western Canada because of smaller herd sizes. At the level,  decreases of the  high quality beef  amount to  scenario as compared with base case. Larger changes noted. Hence, the  3%, 6% and  aggregate  13% in each  at the provincial levels are  amount of high quality beef produced is closely related to the  smaller herd sizes noted.  4.4.3 Interprovincial Trade and Export . In chapter 2, the retention function was bounded by the export price on the lower level and by import price at the upper level. Given that export and import prices  are  relatively  held stable  constant and is  exogenously, endogenized  domestic by  the  beef  demand  is  demand function  assumed  within the  Based on these assumptions, changes in herd sizes, as noted in Table 4.6, interprovincial movements demand levels.  and the  In Table 4.8  to  be  bounds. influence  exports of live animals more dramatically than  and 4.9,  a positive  sign implies net exports  and a  negative sign implies net imports. Before describing these shipment results, we need to  understand the  methods  of  modeling  shipment  activities  in  this programming  framework. The following example is used: The reduction in herd size resulting from the elimination of government payments changes the size of the interprovincial trade and exports. It is relatively difficult to examine interprovincial trade since cost data on alternative routes and modes of transport, finishing and slaughter  costs, retail  margins and other factors affecting the market are difficult to specify accurately. For example, if we assume that the transportation cost of a animal from Saskatchewan to Manitoba is $10, from Manitoba to Ontario $15, while direct from Saskatchewan to Ontario it is $27, then Manitoba may appear to be importing when it is only an interim destination.  Transportation costs between Saskatchewan  and Ontario, in  92 reality, may be less than the summation costs for the indirect route noted above. Therefore, the defining  solution from the programming model, depending on the method of  transport  overcome  some  routes,  of  these  can  appear  difficulties,  differently  from  the  interprovincial trade  actual  is  situation.  analyzed  based  To on  western/ eastern regions.  As shown in Table 4.8, Canada in the base case is a net exporter of feedlot yearlings  and calves.  Net exports  are estimated  as the difference between exports  and imports for the western  and eastern areas. In the base case, net exports in  the western region are 258  thousand head and net imports in the eastern region  are 230 thousand head. Thus, Canada exports 28 net thousand head to the U.S. as a domestic surplus. As a result of the elimination of government payments and the decrease in farmer's returns and herd sizes, there is a decrease in net exports of live animals. Under scenario #1  eastern Canada increases  imports by 75,000 head  from the base of 230 thousand head and western Canada decreases their exports by 36,000 head from 258 thousand. Therefore, Canada imports a net 12 thousand head in scenario #1.  At export  a regional level-, western  position  regardless  of  exported amounts for western  Canada in scenario #1  reduction  of  the  breeding  and 3,  herd  maintains an  size. Furthermore,  Canada increase with the elimination of government  payments. In base case it exports 258 thousand head while under scenario #1 to #3 it exports 294,  280 and 320 thousand head respectively. This change is difficult to  account for but it is related to high quality beef export levels. Fat animals can be sold to the  market or processed  and then sold in beef. The relationship between  costs and returns in these two market levels needs to be accurately captured. If  Table  4.8 Net Interprovincial and Export Trade of Feedlot Calves ('000 Heads)  Base Case  Scenario  #1  Scenario  and Yearlings  #2  Scenario #3  B.C.  28.4  27.0 (-4.75)  28.0 (-1.37)  27.4 (-3.38)  Alt.  -94.9  -98.2 (3.39)  -87.2 (-8.13)  -76.5 (-19.38)  Sask.  347.7  359.1 (3.28)  331.2 (-4.74)  308.5 (-11.28)  Man.  -23.6  5.7 (-124.30)  7,8 (-133.24)  60.1 (-355.05)  Western  257.5  293.7 (14.04)  279.8 (8.64)  319.5 (24.05)  Ont.  -398.7  -434.0 (8.84)  -391.5 (-1.83)  -381.1 (-4.42)  Que.  155.1  120.7 (-22.19)  106.8 (-31.10)  84.1 (-45.76)  Mar.  13.9  7.4 (-46.57)  11.6 (-16.48)  10.3 (-25.79)  -229.8  -305.9 (33.12)  -273.0 (18.82)  -286.7 (24.76)  27.8  -12.2 (-143.94)  6.8 (-75.60)  32.8 (18.12)  Eastern  Net  Export  94 not,  the  decrease  in dressed  exports. The changes  beef  exports  can offset  this  increase  in fat  cattle  also relate to the excess supply position of western Canada  relative to its trading partner — eastern Canada. As noted in Table 4.6, changes in the breeding herd size in eastern Canada are greater than those in western Canada. Breeding herd sizes in western Canada are adjusted downwards to 1.8%,  4.5% and  10.7% for each scenario, but are 4%, 7% and 17% down respectively in eastern Canada.  These  more  significant  changes  in  the  breeding herd  sizes  in  eastern  Canada change its demands for fat cattle relative to the base situation. Under these considerations,  imports  of  feedlot  calves  and  yearlings,  in  eastern „ Canada,  are  adjusted upwards to 33%, 19% and 25% for each scenario. Together with changes in the interregional shipments, it is expected that Canadian net export position for live animals will change.  Table 4.8  does not show explicitly that the current net export position for  feedlot yearling and calves will be maintained. It is thought that export numbers of live animals are dependent upon the elasticities of the retention function. However, the base case for high quality beef in Table 4.9 shows that each province is either an exporter or importer. In base  case,  Alberta,  Saskatchewan  and Manitoba are  exporters but the other provinces are importers. If base case and each scenario are compared, export amounts in western Canada are adjusted downwards by 7%, 10% and 24% respectively as one moves to increasing elasticities of retention function. At the  national level  changes  of  17%,  exports  of  high  quality  38% and 89% respectively  beef  change  fairly  for each scenario.  dramatically with This  means  that  Canada in the base case exports 93 thousand tonnes of high quality beef but in scenario #1 this decrease to 77 thousand tonnes, to 58 thousand tonnes in scenario #2  and to  10 thousand tonnes in scenario #3.  These decreasing amounts in each  Table  4.9 N e t I n t e r p r o v i n c i a l and E x p o r t T r a d e of H i g h ('000 Tonnes)  Base  Case  Scenario  #1  Quality  Scenario  Beef  #2  Scenario  #3  B.C.  -40.3  -40.7 (1.09)  -41.8 (3.78)  -43.9 (8.91)  Alt.  210.3  206.8 (-1.64)  199.0 (-5.35)  183.9 (-12.55)  Sask.  37.1  21.8 (-41.33)  33.7 (-9.20)  25.8 (-30.54)  Man.  48.8  50.7 (3.79)  39.9 (-18.29)  28.8 (-41.10)  Western  255.9  238.5 (-6.79)  230.8 (-9.81)  194.5 (-23.98)  Ont.  -13.0  -7.2 (-44.75)  -19.5 (49.59)  -28.4 (117.96)  Que.  -113.1  -118.2 (4.58)  -116.6 (3.17)  -118.6 (4.94)  Mar.  -37.1  -35.8 (-3.46)  -37.0 (-0.38)  -37.2 (0.27)  -163.2  -161.3 (-1.18)  -173.1 (6.07)  -184.2 (12.89)  92.7  77.3 (-16.65)  57.7 (-37.77)  10.3 (-88.89)  Eastern  Net  Export  96 scenario are r o u g h l y proportional to the  4.4.4 Analysis of Production  The size, will in  consequently  be  concerned  Table  4.10,  are  the  costs  changes  about  the  as  noted  of the sizes  in  they  derived  changes  i n cattle  demand  that  use  decrease  are  4.10  reduces  almost  $126  million,  $123  It is also i m p o r t a n t to  the  forage,  scenarios pasture  reported. and  barley.  cash cost i t e m , changes reduction derived  in  demand  estimated Under  herd  the  barley  size  from use  scenarios  beef  noted cattle  sector,  of barley  in Table  the  reported  base use  three scenarios  feed use  feed  4.6  can  case levels  is  4.10  herd  the  are  scenario  base $28  case million  4.1  million  decline  2%,  three most  these  relate  categories  —  important  feed  shown in Table 4.11.  The  use  due  to  at  the  national  that tonnes  5%  by  in Quebec.  of  barley  shows  in size  case  i n each  patterns as  be  fed are  decreases  Table  4.10  $ 7 . 4 million. These decrease  cost of b a r l e y fed is the  amount  producers.  million  spend  i n the  shown  base  Ontario  In  Since the  i n the  and  changes  As  breeding  Saskatchewan are  inputs  i n Table  In  to note the  of  costs  $114  of  a l l provinces,  11.5%.  37% for each of the  in the  in  and  costs  herd  proportional decrease  that  cash  for  and  million respectively. Quebec's cash costs 1 1 % , 16% and  to  market.  costs  The  their  Suppliers  4.9%  and  m u c h as  million,  2.5%,  cash  as  $48  million  Alberta's $22  are  input  similar  national level  of  falls.  of their  head.  A t the  decreases  decreasing  Production cash  cash cost per is  size  assumed.  Use Levels  producers  the  varies.  function  Grain  of inputs  4.6.  representing costs  decline  times  Table  i n Table  $ 1 2 9 million,  results  e l i m i n a t i o n of . p a y m e n t s  herd  shown  respectively;  the  magnitude  calculated  cash  Costs a n d Feed  e l i m i n a t i o n of p a y m e n t s  and  although  Cash  elasticities of retention  and  for  the  12%.  a  reduced  beef Quebec  level sector. feeds  Table 4.10 Production Cash Costs ,($ Million) Base Case B.C.  Scenario #1  Scenario #2  Scenario #3  7.0  6.9 (-1.95)  6.6 (-5.50)  6.0 (-14.15)  Alt.  48.4  47.5 (-1.69)  46.4 (-4.13)  43.7 (-9.68)  Sask.  28.3  27.4 (-3.01)  26.8 (-5.33)  24.7 (-12.60)  Man.  13.7  13.3 (-2.46)  13.2 (-3.89)  12.4 (-9.63)  Western  97.3  95.2 (-2.20)  92.9 (-4.55)  86.8 (-10.84)  Ont.  22.1  21.9 (-0.75)  21.5 (-2.49)  20.8 (-5.95)  Que.  7.4  6.6 (-11.49)  6.2 (-16.28)  4.7 (-37.21)  Mar.  2.4  2.4 (-1.32)  2.3 (-4.11)  2.2 (-10.10)  Eastern  31.9  30.9 (-3.28)  30.1 (-5.82)  27.6 (-13.53)  Canada  129.3  126.1 (-2.47)  123.0 (-4.86)  114.4 (-11.51)  -  Table 4.11 Usage of Barley on Beef Sectors ('000 Tonnes)  Base Case  Scenario #1  Scenario #2  Scenario #3  B.C.  151.6  149.0 (-1.72)  140.6 (-7.26)  125.7 (-17.10)  Alt.  1812.5  1790.3 (-1.23)  1734.7 (-4.29)  1630.0 (-10.07)  Sask.  517.6  479.0 (-7.47)  488.1 (-5.71)  448.1 (-13.44)  Man.  478.8  439.6 (-8.19)  430.4 (-10.10)  353.2 (-26.24)  2960.5  2857.8 (-3.47)  2793.8 (-5.63)  2556.9 (-13.63)  Ont.  899.3  922.4 (2.57)  879.2 (-2.24)  851.1 (-5.36)  Que.  156.0  132.3 (-15.17)  132.6 (-15.00)  111.9 (-28.26)  Mar.  70.1  74.6 (6.43)  69.5 (-0.76)  67.2 (-4.14)  Eastern  1125.3  1129.3 (0.35)  1081.3 (-3.91)  1030.2 ' (-8.46)  Canada  4085.8  3987.0 (-2.42)  3875.1 (-5.16)  3587.1 (-12.21)  Western  99 relatively  less  that  other  of  because  of the  provinces.  in  scenario  #1.  shipments  of  animals  from  to changes  reduction i n  However,  Maritimes  this movement is from  greater  This  are  positive  other  western  there  to eastern  size  positive  change  provinces  i n some of transportation  the  to  is  of the  changes  closely  Ontario  C a n a d a , but  herd in  related  and  relative  Ontario to  numbers  are  and  changes  Maritimes.  In  fairly  to  in  general, sensitive  costs and other coefficients of the model.  4.4.5 Beef Sector Earnings Table the  4.12  sections  important  estimates  above. target  It  beef  income  is- important  which  often  to  by  analyze  influences  of  sector  earnings  production. T o t a l  The  revenue  animals  is  out  of  are  revenue  adjusted the  for  of  animals  province variable value to the  are  is cash  important  credited costs  of shipments  changes  sector  received b y the beef sectors  and are  are are  and the  a  into the  as  in  production value  as  also treated are  sector,  incomes taken  described  as  by  this  is  in an  farmers  and  minus  total variable  costs  multiplied  by  of i n v e n t o r y ,  revenue,  and  farmgate  shipments  government  price. of  live  payments  as income. S h i p m e n t s between provinces  accounted  importing  position  total revenue  the  credited  summation  for  in  province  of cash  the  debited.  sense On  that the  production costs,  as  well  as  the  i n the  base  case  cost  feed  transportation  the  exporting side,  costs,  costs  total  and  which  the  accrue  i m p o r t i n g province.  N e t beef sector earnings in  derived  sector  changes  provincial.  calculated as  is  beef  the  government policy makers, both federal a n d  Net  s u m m a r i z i n g the  Table 4.5, government p a y m e n t s  i n the  amount  base case  to $ 1 . 4 5 billion. A s shown  amounted  to  $243  million  and  100  Table  4.12 N e t Beef Sectors E a r n i n g s ($ Million)  Base Case  Scenario  #1  Scenario  #2  Scenario  #3  B.C.  58.0  39.5 (-31.94)  43.7 (-24.64)  49.3 (-15.08)  Alt.  592.0  508.7 (-14.07)  493.6 (-16.62)  462.6 (-21.87)  Sask.  224.9  168.5 (-25.10)  162.9 (-27.59)  140.6 (-37.50)  Man.  155.5  123.3 (-20.69)  121.1 (-22.12)  97.7 (-37.18)  1030.5  840.0 (-18.48)  821.4 (-20.29)  750.1 (-27.21)  Ont.  272.3  259.8 (-4.59)  242.3 (-11.03)  230.3 (-15.43)  Que.  118.3  50.6 (-57.23)  52.2 (-55.89)  45.3 (-61.69)  Mar.  29.3  26.0 (-11.33)  24.2 (-17.45)  23.6 (-19.58)  Western  Eastern  419.9  336.4 (-19.89)  318.6 (-24.12)  299.2 (-28.75)  Canada  1450.4  1176.4 (-18.89)  1140.0 (-21.40)  1049.3 (-27.65)  101 therefore  net  billion.  sector earnings  Earnings  situation,  are  for  $1.2  level beef sector for  scenario  a  each  billion,  and  absence  scenario, $1.1  3.  and  represents $1.0  billion  19% for scenario #1,  Government  17% of total  of government payments  which  billion  earnings fall by  #2  approximately  i n the  sector  payments  earnings  and  reduction is s u b s t a n t i a l  example,  at  the  aggregate  but sector earnings  fall  Interprovincial c o m p a r i n g the made. 25%, by  In  These  payments scenario results some sector  by  in terms  are  not  of the  substantially  respectively. A t the  national  the  therefore  base  no  are  herd  size  under  scenario  sector  earnings  these  down  32%,  in  2 1 % , i n Ontario b y correspond  market  clarified.  2 1 % and  declines b y 6 2 % w i t h  respect  payments  net  affect  are  to  eliminated and  3  noted i n breeding herd size. F o r #3  is  where  Alberta  decreased  by  12%  examined  by  no government p a y m e n t s  are  by  may  14%,  5%, i n Quebec by  approximately  price changes  In  on changes  decline b y  amount  is noted. In scenario #2  changes  for  s u r p r i s i n g i n this  are  case  w h e n these  to  the  sense.  change v a r i e s b y province.  feed  herd  in  Saskatchewan  government  results  are  and  3 beef  sector  size.  A t the  therefore  the  interesting i n that trade  earnings  flows fall  and quite  national level  the  28% respectively. E a r n i n g s i n Quebec, in scenario  #3,  to the  sector  breeding herd  of  noted i n Table 4.5. This  sizes, production levels, 2 and  by  57% and i n M a r i t i m e s  price changes  H o w e v e r , the  scenario # i n the  or  be  amounts  of relative values of total beef earnings  based  does  subsidy  the  interrelationships between  earnings  government  than  to that of scenario #1  changes  assumed  earnings  changes  B . C . earnings  11%.  level  $1.2  27%.  base case  in Manitoba  more  no  to  by 2 1 % and 28% respectively  in  corresponding reduction i n the beef sector earnings  the  a  amount  base case. Hence, the  earnings  of beef  producers  elimination of government and  the  impact  on  net  102  4.5 SUMMARY In  summary,  of  beef  is  expected  Canadian  sector  reduced  by  elimination  beef industry. The  held  constant.  beef  prices  are  more  e a r n i n g is dependent  that  The not  results held  of  elimination  that  previous section, w h e n $ 2 4 3 million of g o v e r n m e n t are  of an  show  the  earnings  case  examined  be  other  in the  scenarios  will  sector  reduced  the  than  government  of g o v e r n m e n t  this  upon the  estimates  payments  obtained  constant  and  using a  Even  assumes  size  static or  in  eliminated, beef the  the  reduction  function, it structure  t h a t U . S . beef prices  analysis  assumptions is considered, results described i n the  herd  A s noted  retention  change  comparative  dynamic  are  though  of the will  breeding  payment.  payments  amount.  model i n this study are  current  analysis. perhaps  of are  If U . S .  change  previous section w i l l v a r y .  in  CHAPTER 5 SUMMARY A N D CONCLUSIONS  The to  study  changes  in  producers.  has  described changes  policies  This  and  chapter for further  5.1 SUMMARY  AND  different and  move  the  policy  international the in  levels  sense  an  of different  it  dealt  with.  directly or and  elimination  producers  the  Canadian  beef  and  Duren  can  sector  relate  payments  are  drawn,  to and  trade  may  though affects  subsidies  may  domestic losses  threaten  to  the  Agricultural  these  assumption  that  forces. the  or  cost  one is dealing w i t h  between  can result i n fairly  vulnerable to the  the and  differently.  forces  trade  benefit  countries  industry.  is  an  Executing  different  groups  stability  and  and  income  production is  seasonal  d r a m a t i c price  changes  This  study  beef  sector  programs  which  has will  analyzed follow  the  liberalization of a g r i c u l t u r a l trade.  provincial  add  have  be  with  government  livestock producers'  they  Even  a g r i c u l t u r a l sectors  therefore  increase  these  government  conclusions  agricultural  indirectly  of  and  Each  of  F T A provides gains  International m a r k e t  towards  results,  as  study are provided.  a n d biological.  move  direct  i n different sectors depending on the subsector  principles of G A T T this  involve  the  liberalization  changes  issue,  C a n a d i a n beef sector  CONCLUSION  towards  producers  which  summarizes  recommendations  A  programs  i n the  to  producers'  shown that  has  assistance  incomes. D i r e c t incomes and  direct  and  payment  programs  impact upon  trade  indirect government  103  protect  encourage  levels.  payments  production,  Martin  per  and/or  head  and  van  for  beef  104 producers varies widely by provinces.  This study has and  future  producers in  the  returns per  returns  of  a  subsidies  to  are  is  a  positive  over  the  long  and  supplies.  It  is a s s u m e d  of a  market  Following  producers  cattle  associated  that supply responses of producers depend on  animal.  subsidy.  received b y  earnings There  of a n  a n i m a l consists  form  government  assumed  are  producers  with  a  return  move  investment  situations  and  and  result  market  expected  size  to in  cattle  government  a g r i c u l t u r a l trade,  and,  only.  therefore,  Changes  rules  price  leads  changes  from  liberalized  reduced),  the  received b y  payment  disinvestment  the  in  amount  a  towards  come f r o m  A n y reduction of herd  These  the  e l i m i n a t e d (or  relationship between  run.  that  current  future  in  future  of decision-makers.  of beef  and  herd  size  changes  i n excess  demand  quantities  shipped  between  provinces and between C a n a d a and U . S .  Chapter study.  The  developed CRAM this  3  detailed  CRAM  in  chapter  detailed  2  the  model. S u p p l y  elasticities  model  specified  explained i n order  the  a n a l y t i c a l methodology  was  into  method  introduced  the  empirical  in  response  to changes  for  retention  the  order  model.  of modeling beef  and to  The  data  incorporate beef  production,  used  in  this  to detail the coefficients i n these given  used the  sector  trade  i n prices is related  function  sets  in  this  situations  submatrices  and  demand  in  within  to coefficients of supply study.  Data  submatrices  and  sets  were  structural  equations.  In elasticities  chapter were  4  introduced  m a x i m u m changes. payments  to  the  results in  of  the  order  study to  cover  are  presented.  some  Changes that m a y be expected at beef  sector  are  examined.  ranges  Three between  different  minimum  a regional level as  Currently,  total  supply  estimated  and  government government  105 payments  to  payments  versus  province.  Using  elimination Canadian was  the  of  are  market  returns  ranges  a  cattle  comparative  to  decrease  base case  replacements terms  and  of  stockers  herd  approximately  19% and  province  and  Quebec  amount  terms  case  two to  to  to  9  this  study  breeding herd  twelve percent  million.  percent  The  shown  in  the  structure  size  at  the  depending  share  of  on  the  that  the  of  the  depending  has  changes  only  per  5.9%  aggregate  upon the  level  elasticities  total  the  with  a  #1,  adjustment  largest  with  Ontario fall herd  head  size.  at  37%  the of  national  the  T h e beef  in payments  n a t i o n a l cow herd  sector  than  herd,  down  i n the  i n the  receives  level.  total  r e l a t i v e l y further  case  supply  size  in  for most other  while  the  Ontario  supported  each  of 2% for  different  in  and  of  the  A t the national level the  range  herd  producers  O n t a r i o has  base  measures.  represent  head,  million  of cows,  with  Prairie  relative  herd  23.8% of the  total  payments.  between  scenario  Quebec $161.60  10% of the  and  of the  scenarios  the  Manitoba  is  with  downwards  with  share  generally less  of aggregated is  a p p r o x i m a t e l y 7.7  Alberta  2 1 % and  of government  whereas  head.  leads  Ontario receives  Changes  These  by  49  analysis,  size of the  are  size  has  size  from  $243  for this analysis is 1 9 8 6 and opening stock numbers  Saskatchewan  size.  static  subsidies  industry. The  approximately  retention function assumed.  The  In  producers  government  estimated  of the  cattle  this  change  scenario #1  elasticity  Quebec  is  producers sector  at  sector have a  and  reduced  are  12% for  in  by  scenario  #3.  C o m p a r i n g the  base  approximately  10%  2%.  received  payments  received  amounts  lower level  analyzed  in the breeding herd  situations.  provinces is about  finishing  scenarios  than  other  amounting of  to  $20.45  per  provinces  and  106 therefore  is  at  a  competitive advantage  if the base case beef yield  payments  3.5%  in  spite  to this sector  Canada, the  base  i n the  case,  are  base  net  net  thousand  elimination  head  to  of government  western  Canada  decreases  amounts,  million  greater  and  than  government  saves  $30  in  scenario  #3.  losses  i n the  to  the  that  in  million  net  exporter  western  of the  this  analysis  this  sense,  high quality  that in Ontario is up b y of  1.6%.  and  the  Therefore,  net for  beef  i n farmer's  when  decline  head  by a  earnings  $67 move  million towards  are  U . S . prices  $243  three  which  are  returns  from  258  million  in the  scenarios. These payments.  i n scenario #2 liberalized  Even  of  and  the herd  eastern  head  and  thousand.  base  case.  million,  amounts  are  though  the  losses exceed this  and by  million  a g r i c u l t u r a l trade  causes  losses  functions.  exogenous  exports  $158  T h e net  retention  head  #1.  beef sector, net  for beef producers. for  head  i n scenario  government  elasticities a s s u m e d  result  decline by a p p r o x i m a t e l y $ 2 7 3  of the  in  a  base of 230 thousand  36,000  earnings  As  calves.  thousand  a n i m a l s . U n d e r scenario #1 the  by  258  head. T h u s , C a n a d a  decrease  sector  each  to  surplus.  from  exports  yearlings a n d  domestic  of live  head  the  of feedlot  region amount  12 thousand  to  conclusion,  values  removed. I n  provincial levels,  2 3 0 thousand  exports  their  i n scenario #1,  sector  the  reduction  $243 million i n subsidies to the  In  are  19.4% while  size  U . S . as . a  75,000  million  absolute  by  region are  beef sector  $401  the  by  net  payments  a  i n the  C a n a d a imports a net  absolute  is  i n net  imports by  $310  c o m p a r e d at  herd  payments  increases  In  case,  the  Canada  Government  a  subsidies  eliminated the observed impacts w i l l v a r y b y province.  eastern  sizes, there is a decrease  Therefore,  of  exports  and net imports i n the 28  are  i n Quebec is d o w n significantly  approximately  In  and scenario #1  when  are  It  held  are proportional should be constant.  noted In  a  107 multilateral  agreement  where  all  levels this a s s u m p t i o n m a y be  5.2 RECOMMENDATIONS  The  beef  restricting  sector  governments  FOR FURTHER  over to  some  and  This  approach  section  the  achieved  this  scenario  model over  changes  reduction  with  detailed  suggests  government  in  some  some  than  subsidies  being treated  u s i n g parametric  planned  horizon  this  improvement  eliminate  is  as  and  in  expected  a  therefore  change  Canadian but  market  then  offset  Gardner  (1987)  of  world  the  protected  could  has  estimated  price  through been  for  import  and F T A , the  a g r i c u l t u r a l sectors  prices were held constant this  several  of  the  model's  to  be  implemented  single change.  subsidies  therefore  required  until  the  This  the  time  It  the  full  path  some  have  supported,  during  1985/1986 and hence  and  this  conditions  farm  of  the  on  and  may  for  voluntary  average,  two  reduction  of  income  The  adjustment  held  to  impact upon  exports.  losses  In  constant.  three  direct government payments  beef  agreements. percent to the  study  U.S.  i n supplies to  noted  in  this as  cattle  a  the  study. percent  sector  American  above  or  U . S . prices  this  price programs  American  restraint  is  static.  of a decrease  commodity support  U n i t e d . States.  can  U . S . government w i l l also reduce  i f prices rise because  tariffs  prices  market  is possibly  approach  this study, U . S . beef cattle prices have been  principles of G A T T  subsidies to its  payment  assumptions.  could be reported. T h i s analysis was comparative and  F o l l o w i n g the  study  p r o g r a m m i n g methods.  proportional decreases  Second, throughout  and  of  time horizon r a t h e r  examine  solve  any  subsidy  STUDY.  a n a l y t i c a l ability through a r e l a x a t i o n of some of these  First,  decrease  questioned.  model  assumptions.  national  is beef  world  prices  A m e r i c a n beef  sector  108 are  r e l a t i v e l y unimportant.  cattle  production, have  above  world  payments of and  on  crop  been  prices d u r i n g  to  these  H o w e v e r , corn,  the  crop  market  sector  supported  1985-1986.  sector  prices  are  are  an  to  A s noted  or  be  and  average  indirectly  need  reduced  wheat  barley,  of fifteen  i n the  which to  previous  related  to  the  considered.  If  these  e l i m i n a t e d , U . S . cattle  are  inputs  twenty-five section,  beef  sector  percent  government  and  estimates  to  U . S . beef  payments  prices  in  should  not  be  held  constant.  Third,  elasticities of the  more  specific  been  estimated  Canada. and  to  estimated and  agricultural  for  region.  category  of  preferable. U . S . and  Since each  economy,  functions  beef  feed  for  b a r l e y needs. A l t h o u g h in  the  addition  specification  Canada  of  of  submatrices  feeding options facing  Fifth, the  future  the  number  this  the  diets,  the  feedlot  an  will  provide  more  its  retention  in  FARM  should model  western  and  be  have  eastern  estimated by G a r d n e r  own  supply  function,  according to characteristics  for  each  beef  satisfactory.  includes  possible there  allowance for a  the  study  without classification  producers  particularly  and  the  forage  changes accurate  forage,  pasture  and  is r o o m for improvement component  i n diets  by  representation  costs of  thereof.  This  i n the some  beef  of  the  producers.  study  assumed  expected price a n d of  and  v a r i a t i o n s i n diet are  of more feeds  production  cow-calf  from  cattle  province has  elasticities  i n this  The elasticities as  a n i m a l category, i n each province, would be more  Fourth,  specified  a n a l y s i s . Elasticities  each  P r o v i n c i a l elasticities are  category  the  needs of this  according  G o r d e n were  animal in  to the  retention  retained  the  animals  that  the  number will  give  retention function has of retained an  expected  a  positive slope for  a n i m a l s . E x p e c t e d price revenue  to  cattle  times  producers.  109 This  expected  revenue  function,  differentiated  shape of convex curve  w i t h positive second  characteristics  retention  of  the  separable or integer these two to larger the  quadratic  within objective  methods is to an  further analyzed.  is work  difficult is  to  derivatives. I n  into  the  model,  to be  move  function  say  allowing  to  for  a  prices,  order it  have  the  to incorporate  these  recommended  that  is  of a n y  it is possible to convex  may  Since a c o m m o n aspect of  from s m a l l values  allowance of constraints,  situation is v a l i d over a short-run  It  respect  p r o g r a m m i n g methods be investigated.  programming values  function  with  total  starting  find  revenue  point  solutions of curve.  This  p l a n n i n g horizon.  which  undertaken.  of It  these  recommendations  depends  on  the  is  problem  most or  important  if  issue  be  to  BIBILOGRAPHY  Agriculture Canada,  " A g r i c u l t u r e Economic Statistics.",  Agriculture Canada,  " L i v e s t o c k and  Bentley, _  Ernest,  James,  Elements."  Burt,  Oscar,  Chisholm, J.  Duloy,  R.  Anthony  H.  J.M  Agriculture."  R.E.  J.E.  Gardner,  (Cat.  C. Richard Shumway.  23-203),  1986.  "Determining Optimal  13-18.  Under Risk." J . 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