Daniel A. Sumner

The Off-Farm Labor Supply of Farmers

Theoretical and empirical models are developed to examine the off-farm wages, labor force participation, and hours of work of farmers. Econometric estimates use data from a 1971 survey of Illinois farmers. The off-farm wage depends on farmer human capital and the local labor market. The major result confirms the. sensitivity of off-farm work to economic incentives. A 10% increase in the off-farm wage entails an 11% increase in hours of off-farm work holding farm characteristics constant. Results also indicate effects of seasonality, risk, and life cycle factors on off-farm work.

Measurement of Monopoly Behavior: An Application to the Cigarette Industry

A simple scheme is proposed to measure monopoly pricing behavior. The coefficient of the tax rate term in a price equation identifies the ratio of price to marginal cost. No direct measurement of costs is required, so a major problem for other empirical studies of monopoly is avoided. Empirical results for cross-section time-series data support rejection of atomistic competition but also provide evidence against the operation of an effective cartel in the cigarette industry. The model represents an alternative interpretation of related results in a recent paper by Barzel. Application of the methodology to other markets is feasible.

Traceability, Liability, and Incentives for Food Safety and Quality

Recent food scares such as the discoveries of Bovine Spongiform Encephalopathy and E. coli-contaminated spinach have heightened interest in food traceability. Here, we show how exogenous increases in food traceability create incentives for farms and marketing firms to supply safer food by increasing liability costs. We model a stylized marketing chain composed of farms, marketers, and consumers. Unsafe food for consumers can be caused by either marketers or farms. We show that food safety declines with the number of farms and marketers and imperfect traceability from consumers to marketers dampens liability incentives to supply safer food by farms. Copyright 2008, Oxford University Press.

Restricting the Market for Quota: An Analysis of Tobacco Production Rights with Corroboration from Congressional Testimony

Regulatory programs that restrict output levels often impose restrictions on the transfer of rights to produce or to use particular inputs. In this paper, we use a unique cross-section, time-series data set from North Carolina to quantify the welfare effects of transfer restrictions for poundage quota under the U.S. flue-cured tobacco program. We find that the deadweight costs of such restrictions are small but that the distributional effects are substantial. We analyze congressional testimony on quota transfer legislation and conclude that our estimates of the distributional effects are consistent with expressed views of market participants.

Sustainability of egg production in the United States—The policy and market context

The US egg industry is being pressured from many directions to change its production practices, particularly to address concerns about hen welfare in conventional cage systems. Responding to similar pressures, in 1999, the European Union banned conventional laying cages starting in 2012. This now impending European ban has led to the development of several alternative housing systems. These include noncage systems like aviaries and modified (enriched or furnished) cages that include perches, areas in which the hens can forage and dustbathe, and nests. Understanding the European experience is valuable as the United States considers the future direction of the egg industry. In the United States, the proportion of eggs produced in alternative systems is small (less than 5% of output) but growing, in part due to market and political incentives for systems that provide hens with more behavioral freedom than conventional cages. Animal welfare, however, is only one element of a sustainable production system. Other elements include those related to public values, the environment, economics, worker health, and food safety and quality. Eggs are a primary source of animal protein globally, and the United States is the third largest producer of eggs in the world, behind China and the European Union. The national table egg flock comprises about 280 million hens housed in all regions but with approximately 60% of eggs produced in the 10 leading states. Adopting new housing systems will have substantial effects on costs and other aspects of egg production on both a regional and national scale, with some positive effects but also potential negative effects that need to be carefully considered. This paper discusses the US egg industry in the context of legislation and standards related to hen housing systems. It also addresses initiatives by retailers, nongovernmental organizations, and private certification organizations to shape production practices in the egg industry as well as how those initiatives might affect various aspects of the sustainability of egg production.

Implications of the US Farm Bill of 2002 for Agricultural Trade and Trade Negotiations

The US Farm Bill of 2002 is the latest in a 7-decade history of farm subsidy laws that transfer funds to farmers and regulate and subsidize production of selected commodities. Fruit, tree nut, ornamental and vegetable crops, hay and meats remain outside scope of main subsidy programs. The new law continues many innovations of the 1996 Act, such as removal of authority for annual land idling and crop price floors accompanied by government stockholding. Government payments remain the primary focus of commodity programs. The total amount of these payments are likely to remain similar to the amount paid in the period 1999–2001, but with some changes in the form of the programs. For example, allowing owners to update acreage and yield payment bases creates additional incentives for farmers to link current planting decisions to anticipated farm subsidies. Similarly, the new program that ties “counter-cyclical” payments to the price of a specific crop also has production stimulus. A new program, estimated to add about 5–10 per cent to marginal milk revenue for smaller farms, makes ‘deficiency’ payments to dairy farms when milk prices are low. Despite the new programs with added links to stimulating production, new USA programs stimulate production only marginally more than the subsidies of the 1999–2001 period, which were replaced. Furthermore, the USA has flexibility to avoid explicitly violating its WTO commitments. Nonetheless, this US Farm Bill of 2002 has curtailed the previous trends toward lower farm subsidies and smaller production stimuli, and the negative publicity surrounding it has made negotiating reductions of farm trade distortions more difficult.

Quotas without Supply Control: Effects of Dairy Quota Policy in California

Unlike the federal milk marketing order system, Californias system includes a milk quota program. Oddly, this quota restricts neither production nor marketing. In aggregate, the quota program leads to more milk production than a typical marketing quota, but less milk than blend pricing without the quota. The California program generates more producer surplus and smaller welfare losses than a federal-style program without quota. When class 1 milk sales expand, production expands less under the quota program than with blend pricing without a quota. Finally, increases in aggregate quota lower production because they lower the marginal price of milk facing producers. Copyright 1996, Oxford University Press.

Economic and market issues on the sustainability of egg production in the United States: Analysis of alternative production systems

Conventional cage housing for laying hens evolved as a cost-effective egg production system. Complying with mandated hen housing alternatives would raise marginal production costs and require sizable capital investment. California data indicate that shifts from conventional cages to barn housing would likely cause farm-level cost increases of about 40% per dozen. The US data on production costs of such alternatives as furnished cages are not readily available and European data are not applicable to the US industry structure. Economic analysis relies on key facts about production and marketing of conventional and noncage eggs. Even if mandated by government or buyers, shifts to alternative housing would likely occur with lead times of at least 5 yr. Therefore, egg producers and input suppliers would have considerable time to plan new systems and build new facilities. Relatively few US consumers now pay the high retail premiums required for nonconventional eggs from hens housed in alternative systems. However, data from consumer experiments indicate that additional consumers would also be willing to pay some premium. Nonetheless, current data do not allow easy extrapolation to understand the willingness to pay for such eggs by the vast majority of conventional egg consumers. Egg consumption in the United States tends to be relatively unresponsive to price changes, such that sustained farm price increases of 40% would likely reduce consumption by less than 10%. This combination of facts and relationships suggests that, unless low-cost imports grew rapidly, requirements for higher cost hen housing systems would raise US egg prices considerably while reducing egg consumption marginally. Eggs are a low-cost source of animal protein and low-income consumers would be hardest hit. However, because egg expenditures are a very small share of the consumer budget, real income loss for consumers would be small in percentage terms. Finally, the high egg prices imposed by alternative hen housing systems raise complex issues about linking public policy costs to policy beneficiaries.

Postretirement Adjustments of Pension Benefits.

This paper examines why pension plans increased their liabflities by giving benefit increases to persons no longer working even though almost al lof them were not required to do so by any legally enforceable contract. In our model workers and firms have implicit contracts under which post-retirement increases in benefits are purchased by workers through lower wages or initial benefits. Such arrangements permit both plans and workersto share the risk of uncertain rates of return. They also allow beneficiaries to invest at a higher net rate of return than they could obtain elsewhere because of tax advantages and, in large plans, economies of scale. We also discuss how post-retirement adjustments can be used to influence turnover. Some empirical implications of the model are tested over a sample of beneficiaries of defined benefit plans. The major empirical findings are:(1) There is strong evidence of compensating differentials in final salary and initial pension benefits for beneficiaries receiving post-retirement adjustments.(2) Regardless of how the size of pension plans is measured(beneficiaries, participants, amount of benefits paid), large pension plans provide larger post-retirement benefit increases.(3) Beneficiaries of collectively bargained plans are more likelyto receive benefit increases and, among those receiving benefit increases, receive larger increases.(4) Benefit increases are larger in percentage terms for those who have been retired the longest and for those with the most years of service.

Crop Supply Dynamics and the Illusion of Partial Adjustment

We use field-level data to estimate the response of corn and soybean acreage to price shocks. Our sample contains more than 8 million observations derived from satellite imagery and includes every cultivated field in Iowa, Illinois, and Indiana. We estimate that aggregate crop acreage responds more to price shocks in the short run than in the long run, and we show theoretically how the benefits of crop rotation generate this response pattern. In essence, farmers who change crops due to a price shock have an incentive to switch back to the previous crop to capture the benefits of crop rotation. Our result contradicts the long-held belief that agricultural supply responds gradually to price shocks through partial adjustment. We would not have obtained this result had we used county-level panel data. Standard econometric methods applied to county-level data produce estimates consistent with partial adjustment. We show that this apparent partial adjustment is illusory, and we demonstrate how it arises from the fact that fields in the same county are more similar to each other than to fields in other counties. This result underscores the importance of using models with appropriate micro-foundations and cautions against inferring micro-level rigidities from inertia in aggregate panel data. Our preferred estimate of the own-price long-run elasticity of corn acreage is 0.29, and the cross-price elasticity is −0.22. The corresponding elasticities for soybean acreage are 0.26 and −0.33. Our estimated short-run elasticities are 37% larger than their long-run counterparts.