Brian W. Gould

Food Demand in Mexico: An Application of the Amemiya-Tobin Approach to the Estimation of a Censored Food System

The modeling of micro-level food demand patterns requires not only allowing for household heterogeneity, but also addressing the problem of censoring. In this article, we present a variation of the Amemiya-Tobin framework for estimating a censored demand system that allows for household heterogeneity. The unique aspect of our approach is the use of a procedure that ensures the adding up of both latent and observed expenditure shares and also imposes expenditure share nonnegativity. This system is applied to an analysis of food demand based on a random sample of urban Mexican households.

An Empirical Assessment of Endogeneity Issues in Demand Analysis for Differentiated Products

This article explores the issue of price and expenditure endogeneity in empirical demand analysis. The analysis focuses on the U.S. carbonated soft drink market. We test the null hypothesis that price and expenditures are exogenous in the demand for carbonated soft drinks. Using an almost ideal demand system (AIDS) specification, we strongly reject exogeneity for both prices and expenditures. We find that accounting for price/expenditures endogeneity significantly impacts demand elasticity estimates. We also evaluate the implications of endogeneity issues for testing weak separability. Copyright 2003, Oxford University Press.

Off-Farm Labor Market Entry and Exit

Through the use of a longitudinal data set, we determine those factors that are important to off-farm labor market entry and compare them with factors affecting off-farm labor market exiting. The model of labor market entry and exit takes into account the effects of changes in key economic variables over a four-year period. The data are for married farm women in Wisconsin who must make labor allocation decisions among home production, farm production, and off-farm employment. These decisions have important implications for the well-being of the families involved (who have been increasing in number) and for their communities.

At-Home Consumption of Cheese: A Purchase-Infrequency Model

For many commodities, zero purchases are recorded in household budget surveys even though positive consumption occurs. This may reflect a survey period that is shorter than the purchase cycle. The present study estimates a purchase-infrequency model for cheese using the 1987 BLS Consumer Expenditure Survey. Appropriateness of the Tobit specification is examined along with the assumption of independence of the two-stage expenditure decision process.

Household composition and food expenditures: a cross-country comparison

Abstract In the analysis of food expenditures, use of household member counts as an explanatory variable assumes each member has the same marginal food expenditure impact. In our analysis of Latin American food expenditures we reject this assumption via the estimation of endogenously determined adult equivalence scales that vary by household member gender and age. A series of hypothesis tests indicate significant differences not only in the male versus female equivalence scales but also across country. With the use of such equivalence scales in the definition of per capita expenditures we find significant differences in the distributions implying substantially different poverty rankings.

The Role of Health Knowledge in Determining Dietary Fat Intake

An endogenous switching regression model is used to estimate the effect that health information has on the food purchase decisions of meal planners. Specifically, we examine how information concerning the health implications of dietary fat intake influences the meal planners daily intake of total and saturated fat. This analysis uses the 1989 to 1990 and 1990 to 1991 Continuing Survey of Food Intake by Individuals (CSFII), and companion Diet and Health Knowledge Surveys (DHKS). Our results show that health information regarding dietary fat intake has a significant impact on meal planner food choices.

Quality versus quantity in Mexican household poultry and pork purchases

How food demand responds to changes in income, prices and household characteristics is important from a policy perspective when attempting to improve the dietary status of a particular population. This study develops a unique double-hurdle model of demand for a composite food, which endogenizes the commodities unit value. The model structure allows us to account for the inability to observe such values for non-purchasing households while simultaneously adjusting for quality-based demand effects for purchasing households. Our application to Mexican household pork and poultry expenditures shows the importance of controlling for composite good quality. We find that for these two aggregate commodities, expenditures depend on both quantity demanded and quality desired. JEL Classification: C51, D12

Mean-reversion in income over feed cost margins: Evidence and implications for managing margin risk by US dairy producers

With the increased volatility of feed prices, dairy farm managers are no longer concerned with managing only milk price volatility, but are considering the adoption of risk management programs that address income over feed cost (IOFC) margin risk. Successful margin risk management should be founded on an understanding of the behavior of IOFC margins. To that end, we have constructed forward IOFC margins using Class III milk, corn, and soybean meal futures prices. We focus on the characteristics of the term structure of forward IOFC margins, that is, the sequence of forward margins for consecutive calendar months, all observed on the same trading day. What is apparent from the shapes of these term structures is that both in times when margins were exceptionally high and in times when they were disastrously low, market participants expected that a reversal back to average margin levels would not come quickly, but rather would take up to 9 mo. Slopes of the forward margin term structure before and after most of the major swings in IOFC indicate these shocks were mostly unanticipated, whereas the time needed for recovery to normal margin levels was successfully predicted. This suggests that IOFC margins may exhibit slow mean-reverting, rather than predictable cyclical behavior, as is often suggested in the popular press. This finding can be exploited to design a successful catastrophic risk management program by initiating protection at 9 to 12 mo before futures contract maturity. As a case study, we analyzed risk management strategies for managing IOFC margins that used Livestock Gross Margin for Dairy Cattle insurance contracts and created 2 farm profiles. The first one represents dairy farms that grow most of their feed, whereas the second profile is designed to capture the risk exposure of dairy farms that purchase all their dairy herd, dry cow, and heifer feed. Our case study of this program encompasses the 2009 period, which was characterized by exceptionally poor IOFC margin conditions. We analyzed the dynamics of realized IOFC margins in 2009 under 4 different risk management strategies and found that optimal strategies that were founded on the principles delineated above succeeded in reducing the decline in IOFC margins in 2009 by 93% for the Home-Feed profile and by 47% for the Market-Feed profile, and they performed substantially better than alternative strategies suggested by earlier literature.

Identifying cost-minimizing strategies for guaranteeing target dairy income over feed cost via use of the Livestock Gross Margin dairy insurance program

Milk and feed price volatility are the major source of dairy farm risk. Since August 2008 a new federally reinsured insurance program has been available to many US dairy farmers to help minimize the negative effects of adverse price movements. This insurance program is referred to as Livestock Gross Margin Insurance for Dairy Cattle. Given the flexibility in contract design, the dairy farmer has to make 3 critical decisions when purchasing this insurance: 1) the percentage of monthly milk production to be covered, 3) declared feed equivalents used to produce this milk, and 3) the level of gross margin not covered by insurance (i.e., deductible). The objective of this analysis was to provide an optimal strategy of how a dairy farmer could incorporate this insurance program to help manage the variability in net farm income. In this analysis we assumed that a risk-neutral dairy farmer wants to design an insurance contract such that a target guaranteed income over feed cost is obtained at least cost. We undertook this analysis for a representative Wisconsin dairy farm (herd size: 120 cows) producing 8,873 kg (19,545 lb) of milk/cow per year. Wisconsin statistical data indicates that dairy farms of similar size must require an income over feed cost of at least

The demand for cheese in the United States: The role of household composition

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