Nigel Key

Production Contracts and Productivity in the U.S. Hog Sector

This article measures the impact of contracting on partial and total factor productivity and the production technology of U.S. hog operations. A sample selection model accounts for the fact that unobservable variables may be correlated with both the operators decision to contract and farm productivity. Results indicate that the use of production contracts is associated with a substantial increase in factor productivity, and represents a technological improvement over independent production. Results also identify determinants of farmers decisions to contract and other factors influencing farm productivity. Copyright 2003, Oxford University Press.

Government Payments and Farm Business Survival

Using farm-level panel data from recent U.S. Agricultural Censuses, this study examines how direct government payments influence the survival of farm businesses, paying particular attention to the differential effect of payments across farm-size categories. A Cox proportional hazards model is used to estimate the effect of government payments on the instantaneous probability of a farm business failure, controlling for farm and operator characteristics. Results indicate that an increase in government payments has a small but statistically significant negative effect on the rate of business failure, and the magnitude of this effect increases with farm size.

Nonpecuniary Benefits to Farming: Implications for Supply Response to Decoupled Payments

We develop a household model wherein farmers allocate labor to maximize utility from leisure, consumption, and nonpecuniary benefits from farming. The model shows that farmers with decreasing marginal utility of income respond to higher decoupled payments by decreasing off-farm labor and increasing farm labor, resulting in greater agricultural output. We then estimate the difference between farm and off-farm returns to labor using data from three nationally representative farm household surveys. The finding of a large on-farm/off-farm wage differential provides compelling evidence of substantial nonpecuniary benefits from farming.

Agricultural Payments and Land Concentration: A Semiparametric Spatial Regression Analysis

Over the last twenty years, both crop production and agricultural payments have shifted toward larger operations. This study examines whether payments from federal farm programs contributed to increased concentration of cropland and farmland. Using zip code—level data constructed from the microfiles of the 1987–2002 agriculture censuses we examine the association between government payments per acre and subsequent growth in land concentration. A semiparametric generalized additive model (GAM) controls for location and historical concentration, sales per acre, and ratio of cropland area to zip code area. Findings indicate, both with and without nonparametric controls, government payments are strongly associated with subsequent concentration growth. Copyright 2008, Oxford University Press.

Does the Prevalence of Contract Hog Production Influence the Price Received by Independent Hog Producers

The increasing use of production contracts in the hog sector has reduced the number of spot market transactions and raised concerns about price manipulation by packers. These concerns have helped spur legislative efforts to restrict packer ownership of livestock and to regulate livestock contracts. Using panel data from the 2002 and 2007 Census of Agriculture, this study looks for evidence that production contracts are associated with market manipulation by examining whether the local prevalence of production contracts affects the price of finished hogs received by independent producers. The empirical approach examines whether changes in the prevalence of contracting at the county level are correlated with changes in the spot market price received by individual farmers. By comparing differences over time, this approach controls for unobservable time-invariant individual and county characteristics—such as product quality and location—that might be correlated with price and contracting prevalence. Results are sufficiently precise to rule out an economically significant negative relationship between contracting prevalence and the spot price as statistically unlikely.

The Income Volatility of U.S. Commercial Farm Households

This study uses a newly created panel dataset drawn from the 1997 to 2013 Agricultural Resource Management Survey to provide the first national estimates of income volatility for commercial farm households in the United States. Results show that the income of commercial farm households is substantially more volatile than that of all U.S. households—though the volatility of farm income is not more volatile than income from nonfarm self-employment. Using a regression analysis, we identify operator, operation, and regional characteristics associated with higher income volatility, providing information that could improve targeting of risk-mitigating programs. We find that farm income volatility has declined for farms specializing in program crops in recent decades, supporting the hypothesis that the expansion of the federal crop insurance program helped reduce farm income risk.