Roberto Mosheim

Profits, Costs, and the Changing Structure of Dairy Farming

U.S. dairy production is consolidating into fewer but larger farms. This report uses data from several USDA surveys to detail that consolidation and to analyze the financial drivers of consolidation. Specifically, larger farms realize lower production costs. Although small dairy farms realize higher revenue per hundredweight of milk sold, the cost advantages of larger size allow large farms to be profitable, on average, even while most small farms are unable to earn enough to replace their capital. Further survey evidence, as well as the financial data, suggest that consolidation is likely to continue.

Nitrogen in Agricultural Systems: Implications for Conservation Policy

Nitrogen is an important agricultural input that is critical for crop production. However, the introduction of large amounts of nitrogen into the environment has a number of undesirable impacts on water, terrestrial, and atmospheric resources. This report explores the use of nitrogen in U.S. agriculture and assesses changes in nutrient management by farmers that may improve nitrogen use effi ciency. It also reviews a number of policy approaches for improving nitrogen management and identifi es issues affecting their potential performance. Findings reveal that about two-thirds of U.S. cropland is not meeting three criteria for good nitrogen management. Several policy approaches, including fi nancial incentives, nitrogen management as a condition of farm program eligibility, and regulation, could induce farmers to improve their nitrogen management and reduce nitrogen losses to the environment.

Decomposition of Total Factor Productivity Change in the U.S. Hog Industry

The U.S. hog industry has experienced dramatic structural changes and rapid increases in farm productivity. A stochastic frontier analysis is used to measure hog enterprise total factor productivity (TFP) growth between 1992 and 2004 and to decompose this growth into technical change and changes in technical efficiency, scale efficiency, and allocative efficiency. Productivity gains over the 12-year period are found to be explained almost entirely by technical progress and by improvements in scale efficiency. Differences in TFP growth rates in the Southeast and Heartland regions were found to be explained primarily by differences in farm size growth rates.

Livestock Gross Margin-Dairy Insurance: An Assessment of Risk Management and Potential Supply Impacts

Public risk management policies for dairy producers have the potential to induce expansion in milk supplies, which might lower farm-level prices and offset risk-reduction benefits. An evaluation of USDA’s Livestock Gross Margin-Dairy (LGM-Dairy) insurance program finds economic downside risk significantly reduced, with potential to induce modest supply expansion (0 to 3 percent) if widely adopted. Supply impacts are likely limited due to relatively low participation levels and a minimal (“inelastic”) supply response to risk. LGM-Dairy is more flexible and convenient than other risk management tools, such as hedging directly in futures or options markets, especially for small farms.

Costs of Nitrogen Runoff for Rural Water Utilities: A Shadow Cost Approach

This paper explores the interactions among scale and density economies, productive efficiency, water quality, and customer characteristics, and their impact on the costs of delivering treated drinking water. Implicit benefits of nitrogen abatement are also derived and hypothesis tests concerning their hypothesized drivers are conducted. Key findings are that nitrogen removal costs increase with rising raw water nitrogen concentration coming from agricultural activities, and that network density and system size matter in determining average total costs of community water systems. Merging water systems to take advantage of scale economies may be difficult due to the heterogeneity of the sector, however. (JEL Q25, Q53)

Livestock Gross Margin-Dairy: An Assessment of Its Effectiveness as a Risk Management Tool and Its Potential to Induce Supply Expansion

An evaluation of the risk-reducing effectiveness of the Livestock Gross Margin–Dairy (LGM-Dairy) insurance program, using historical futures price data, predicts economically significant reductions in downside margin risk (24–41%) across multiple regions. Supply analysis based on the estimated risk reduction shows a small supply response, assuming minimal subsidization. A decomposition of the simulated indemnities into milk price and feed price components shows comovements in futures prices moderating the frequency and levels of indemnities.