A. J. Rayner

Inflation and Farm Tractor Replacement in the U.S.: A Simulation Model

Two recent contributions to this Journal (Chisholm; Kay and Rister) have been concerned to extend the literature on the replacement problem to encompass the real world decision milieu of the farmer via taxation considerations. These extensions, while welcome and useful, seem to us to be incomplete in the inflationary world of the 1970s: specifically, they make no explicit allowance for the link between optimal replacement age and the nature of the allowances permitted by the taxation authorities in an economy with rising prices. We would suggest that inflation has not been so negligible in most developed economies that it can be disregarded in this aspect of farm decision making. The principal purpose of this note, then, is an attempt to extend further the tax-adjusted replacement model to embrace relevant considerations of inflation. We shall extend the results of Kay and Rister, but whereas previous contributions have utilized discrete time models, we shall use a continuous time model. It may be noted that Perrin developed a continuous time depreciation model, but without consideration of taxation and inflation. His examples, however, utilized discrete, annual models only. It finds the optimal replacement age exactly, an advantage of some importance in its own right, but more important, one which enables the sensitivity of replacement to changes in other conditions to be assessed with greater precision.

Agricultural futures markets in LDCs: a policy response to price volatility?

Recent policy reform in LDCs has centred on liberalizing markets and removing state intervention. This is of great importance for exporters in these nations as they are becoming exposed to greater price risk. Given the prominent role played by primary commodities in the exports of LDCs it is of interest to see how producers in these markets respond to the new, more uncertain environment. Intervention is no longer feasible or desirable and thus market based measures and risk-management instruments are becoming more popular as a means of reducing risk. This paper discusses one such measure-futures markets-in the light of the possibility of their use in LDCs and explores some of the key issues surrounding the question of whether LDCs should establish new exchanges domestically or simply use existing (often DME) exchanges. To illustrate the effectiveness of futures markets, the paper provides a brief summary of recent attempts by producer nations to employ hedging to minimize price risk. Copyright

Buyer Power in U.K. Food Retailing: A 'First-Pass' Test

The potential existence of buyer power in U.K. food retailing has attracted the scrutiny of the U.K.s anti-trust authorities, culminating in the second of two comprehensive regulatory inquiries in recent years. Such inquiries are authoritative but correspondingly time-consuming and costly. Moreover, detection of buyer power has been dogged by the paucity of reliable evidence of its existence. In this paper, we present a simple theoretical model of oligopsony which delivers quasi-reduced form retailer-producer pricing equations with which the null of perfect competition can be tested using readily available market data. Using a cointegrated vector autoregression, we find empirical results that show the null of perfect competition can be rejected in seven of the nine food products investigated. Though not conclusive on the existence of buyer power, the proposed test offers a means via which the behaviour of the retail-producer price spread is consistent with it. At the very least, it can corroborate the concerns of the anti-trust authorities as to whether buyer power is potentially one source of concern.

Land prices, rents and inflation: A cointegration analysis

Abstract This paper examines the relationship between real agricultural land prices and real rents for farmland using annual data. Taking account of inflation as a third variable there is evidence to suggest that rents and land prices are cointegrated; that is, changes in rents are mirrored in the long run by changes in land prices. It is also found that the implied real rate of return in the land market is around 3%.

Agriculture in the Uruguay round: Prospects for long‐term trade reform

Abstract In this paper the case for long‐term reform of the agricultural trading system is re‐stated. The reform proposals advanced by the major players in the current Uruguay Round negotiations are reviewed and the main areas of contention identified. The prospects for resolving the major disagreements sufficiently for significant reforms to be achieved by the end of the Round are assessed.

Cointegration analysis and the UK demand for nitrogen fertilizer

Nitrogen fertilizer taxes have been proposed as a means of controlling agricultural ‘over-production’ and nitrate pollution of water courses in the EC. This paper constructs time-series models of fertilizer demand which provide quantitative information relevant to this issue. Time-series data on the use of nitrogen fertilizer in UK agriculture is found to have a unit root with non-zero drift coupled with a one-time change in drift after testing against the alternative hypothesis that the process is trend-stationary with a break in trend. The stochastic component of the nitrogen use series is cointegrated with the ratio of the price of nitrogen fertilizer to the price of agricultural output. Appropriate error correction models are estimated. Both the short-run and long-run price elasticities of the response of nitrogen use are found to be rather low. Some brief policy conclusions are drawn.

Trade liberalization and domestic price instability in an agricultural commodity market

Price instability appears to be a feature of many agricultural markets. In turn, reduction of instability is a key motive for intervention in industrialized countries. Where trade instruments are used for this purpose, they can sever the link between domestic and international prices. The consequences of market insulation for price variability are examined. A simple partial equilibrium model is developed and its predictions are examined against the experience of liberalization in the British main-crop potato market.

Aggregate measures of support in the Uruguay round: Application to the EC cereals sector

Abstract This paper examines the use of aggregate measures of support (AMSs) in the proposals for the long‐term reform of agricultural support tabled by the major participants in the Uruguay Round. The USA, the Cairns Group (CG) and the EC have proposed measures based on the OECDs Producer Subsidy Equivalent (PSE), adjusted to take account of only the most trade‐distorting policies, and using a fixed reference price to calculate the extent of market price support. If the proposed ‘adjusted PSEs’ are used, the reductions in internal support levels in the EC cereals sector from the base periods to 1995 range from 8 billion ECU under the US proposal to 4.5 billion ECU under the EC proposal. The resulting ‘producer prices’ would be almost 20% higher under the EC proposal than under the other two. In terms of percentage PSEs, support to farmers would be around 20 to 25 percentage points below present levels under the US and CG proposals and around 18 percentage points lower under the ECs plan.

Price transmission market power and industry technology: a note

Purpose - The purpose of this paper is to develop a theoretical model of price transmission from the farm to the retail sector, allowing not only for an interaction between oligopoly power, oligopsony power and non-constant returns to scale in industry technology, but also allowing for the market power conduct parameters to vary in response to an industry-wide exogenous shock. Also, the degree of price transmission under imperfect competition relative to that under perfect competition is evaluated. Design/methodology/approach - Conjectural variations are used to parameterize both seller and buyer market power conduct of the industry and then the equilibrium displacement approach is applied to solve a system of six structural equations which describe the demand for and supply of industry retail output and farm and marketing inputs. Findings - First, it is found that given empirical values of retail output demand elasticity, of farm and marketing inputs supply elasticities, of market power conducts, and of the returns to scale measure, the degree of price transmission under imperfect competition is greater than that under perfect competition. Second, it is found that the relative degree of price transmission under imperfect competition could be greater or smaller under the assumption of a varying market power conduct than one under the alternative assumption of a constant market power conduct, depending on whether market conduct is falling or rising, respectively. Originality/value - The paper makes two original contributions to the literature. First, it allows for an interaction between oligopoly power, oligopsony power and industry technology. Second, it allows both oligopoly and oligopsony power parameters to vary in response to industry-wide exogenous shocks.

Does the CAP fit the GATT?: Cereals and the Uruguay round

Abstract This paper uses a stochastic simulation model of the EU cereals sector to assess the compatibility of the MacSharry reform of the CAP with the Final Act of the Uruguay Round of the GATT. The implementation period of the Uruguay Round Agreement is 1995–2000. The results of the simulations suggests that the EU subsidized export volume and export subsidy costs will stay within the export subsidy provisions of the Uruguay Round Agreement in the early part of the implementation period. Indeed it is likely that the EU will be able to run down accumulated intervention stocks in the next few years and still abide by these provisions. However, the results also suggest that towards the end of the implementation period, it is very probable that the EU subsidized export volume, but not export subsidy costs, will be constrained by its GATT commitments. As a result of the incompatibility between internal policy and external constraints, stocks will begin to build‐up again unless there are offsetting structural...