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UBC Theses and Dissertations

A pricing model for forage in British Columbia Haggard, Trenton John


The production of forage in British Columbia plays and integral role in sustaining livestock herds within the province. Forage is an important component in the daily feed requirements of horses, sheep, and cattle. Fluctuations in the availability of forage due to drought or bad weather conditions can impose considerable costs on farmers who raise livestock. Wide—spread drought conditions can significantly limit the availability of forage crops within certain regions, causing prices within those regions to become inflated. Under standard insurance in British Columbia, farmers are only insured against shortfalls in production; there is no compensation provided against increases in the price of forage. For those purchasing forage, a Wide—Spread Drought (WSD) insurance scheme would provide insurance against the price—risk associated with drastic weather conditions. However, since forage prices are required to operate such a policy and are non—observable, a mechanism is needed in order to estimate them. A regional spatial price—equilibrium model which relates regional prices to regional production is developed in this thesis. The model will eventually be used to predict prices and hence determine whether a particular region is eligible for a payout under the WSD insurance scheme. A key assumption behind the model is that according to the ‘Law of One Price’; prices are perfectly arbitraged. In a competitive setting, in which agents maximize individual welfare, total welfare is maximized and prices between regions will not differ by more than the transportation costs. This spatial price—equilibrium model is applied to British Columbia forage production. The regions incorporated in the study include the Peace River, Central Interior, Cariboo—Chilcotin, Thompson—Okanagan, and Kootenay Regions. The Lower Mainland/Fraser Valley and Vancouver Island are excluded as they do not typically fall under the forage crop insurance plan in British Columbia.

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