Joseph Valdes Balagtas

Technology Adoption and Technical Efficiency: Organic and Conventional Dairy Farms in the United States

We compare productivity and technical efficiency of organic and conventional dairy farms in the United States. We address self-selection into organic farming by using propensity score matching and explicitly test the hypothesis that organic and conventional farms employ a single, homogeneous technology. Utilizing the 2005 Agricultural Resource Management Survey on Dairy Costs and Returns Report (ARMS) data, we reject the homogeneous technology hypothesis and find that the organic dairy technology is approximately 13% less productive. However, we find little difference in technical efficiency between organic and conventional farms when technical efficiency is measured against the appropriate technology. Copyright 2010, Oxford University Press.

The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach

This article extends the recent literature on the Prebisch-Singer hypothesis of a long-run decline in the relative prices of primary commodities. Our main innovation is testing for and estimating nonlinear alternatives to a secular deterioration. Specifically, we use bootstrap procedures to test the linear unit root model against models belonging to the family of smooth transition autoregressions (STARs) for twenty-four commodities, 1900–2003. In nineteen cases we reject the linear null at usual significance levels. In sixteen cases we are able to successfully fit STAR-type models. Simulation results show there is little support for the Prebisch-Singer hypothesis. Copyright 2009, Oxford University Press.

Measuring the Effects of Generic Dairy Advertising in a Multi-Market Equilibrium

We develop a multi-market equilibrium displacement model that allows demand linkages across downstream product markets, and supply linkages through the common use of a raw commodity as the key input. Applying the model to the dairy sector, we find that the effectiveness of producer-funded advertising depends on the demand relationships across dairy product markets (cross-price and cross-advertising elasticities) as well as the reallocation of milk toward the advertised market. We show that the previous literature, which ignores the horizontal linkages highlighted here, tends to overstate the effectiveness of generic commodity promotion for dairy, and thus results in too much advertising.

Effects of Milk Marketing Order Regulation on the Share of Fluid-Grade Milk in the United States

The share of raw milk meeting fluid quality (Grade A) standards in the United States rose steadily through the latter half of the twentieth century, but a shrinking portion of that was used in fluid products. Grade A milk exceeds the quality standards for the manufactured products for which it has been increasingly used. We present an econometric model that exploits regional and temporal variation in policy implementation to identify the effect of marketing orders on the Grade A share of milk. Results support the hypothesis that marketing orders significantly encouraged the growth in the Grade A share of milk.

Supply and Demand for Commodity Components: Implications of Free Trade versus the AUSFTA for the US Dairy Industry

During the negotiations on the Australia–US free trade agreement (AUSFTA), the US dairy industry vigorously opposed opening the US market to imports of Australian dairy products on the grounds that the US industry would be devastated. Subsequently, the agreement signed in February 2004 made an exception for dairy, providing for only limited quota expansion and no free trade, even at the end of the long implementation period. This paper presents a simulation model of world dairy markets, represented by supply and demand equations for fat and non-fat components of milk and manufactured dairy products. We use the model to analyse the effects on US milk markets of both a hypothetical agreement, allowing free bilateral trade in dairy products, and the actual AUSFTA. An important contribution to the literature is the derivation of explicit supply and demand relationships for milk components. The components model allows an analysis of long-term production, consumption, and trade patterns that is not tied to specific, fungible products. Simulations indicate that increased imports from Australia resulting from bilateral trade liberalisation would have resulted in small reductions in US milk prices and production. The much smaller increases in Australian access to the US market under the actual AUSFTA will have even smaller, almost negligible, impacts.

Vertical economies of scope in dairy farming.

With the exception of Azzam and Skinner (2007), the economic literature on farm structure has largely neglected issues of vertical organization of the farm. In this article we estimate a multi-stage, multi-output cost function in order to measure vertical economies of scope in organic and conventional dairy farms. In particular, we model the integration of production of grains and forages on dairy farms. We find negligible vertical economies of scope for conventional dairy farms but significant vertical economies of scope in organic dairy production. The large vertical economies of scope for organic dairy farms are consistent with higher costs of obtaining organic feed through market transactions associated with an underdeveloped market for organic feeds.

Revisiting the palm oil boom in South-East Asia: fuel versus food demand drivers.

In the past 30 years, palm oil production has increased ninefold, with almost all the growth occurring in Malaysia and Indonesia. This growth has been associated with extensive deforestation, with biofuels often named as the principal driver. However, other drivers have been less examined; in particular, restrictions on genetically modified food in Europe and on trans fats in many developed countries have led food companies to switch to using palm oil in production. This article uses a price analysis to examine the drivers of palm oil production growth during the 1980–2010 boom. Soya bean oil is used in the analysis as the leading vegetable oil, while crude oil represents the energy market; the prices of these oils, along with palm oil, are tested in vector autoregression (VAR) and vector error correction models. The two models consistently find that palm oil prices do not appear to respond to short-run fluctuations in crude oil prices. Rather, they are a function of lagged palm oil prices and current and lagged soya bean oil prices. Overall, the results indicate that while palm and soya bean oil markets have a potentially significant relationship, the crude oil market does not appear to have been an important driver of the palm oil boom.