Dynamic analysis of the livestock inventory in Inner Mongolia

Purpose - The purpose of this paper is to test hypotheses about the effects of economic and weather factors on the inventories of cattle, sheep and goats in Inner Mongolia Autonomous Region (IMAR). Design/methodology/approach - An equilibrium displacement model of livestock products is combined with an inventory relation proposed by Ruckeret al.(1984) to deduce hypothesis about the effects of expected price and feed costs, weather, and supply and demand shifters on herd size. Dynamics are incorporated using the partial adjustment and adaptive expectations models originally proposed by Nerlove (1956). The hypotheses are tested using both the structural equations implied by the model, and the reduced form. Findings - Results suggest livestock inventories in IMAR in general are more responsive to weather conditions than to economic conditions. This is especially true for cattle and sheep, where isolated 1 percent changes in weather variables, namely precipitation and radiation, were found to have a much larger effect on inventory than isolated 1 percent changes in expected price and forage costs. The effects of the weather variables, moreover, were found to be different for goats than for cattle and sheep, with goat numbers decreasing with improvements in weather, and cattle and sheep numbers increasing. This suggests herders respond to poor weather in part by substituting goats for cattle and/or sheep. Price was found to have a negative effect on cattle inventory, and no effect on sheep and goat inventory. Forage costs were found to have a positive effect on cattle and sheep inventories, and no effect on goat inventory. These results suggest policies to protect grassland by controlling inventory levels must be designed carefully if they are to be effective. Originality/value - The paper makes a methodological contribution in that the livestock inventory relation proposed by Ruckeret al.(1984) is extended to include supply and demand shifters for livestock products in a partial-equilibrium setting where the industry in question is a net exporter of livestock products. The paper makes an empirical contribution in that additional evidence is provided on the role that price plays in inventory behavior.