Investment behavior of Canadian Egg Producers: Analyzing the Impacts of Risk Aversion and Variability of Prices and Costs of Production
AbstractAnimal welfare is a major concern for consumers. This concern has not gone unnoticed by sector stakeholders, especially egg producers. One of the fundamental changes likely to affect egg producers regards modes of production, specifically changes in housing systems, ranging from conventional cages to free range. From farmers’ perspective, changing their mode of production generates a technological and economic/marketing risk. This study documents the level of risk in the Canadian egg sector (conventional and specialty eggs) using data from 2009 to 2011. Our results indicate multiple uncertainty sources (technological, cost of production, price of eggs) that vary according to the types of eggs. We use a quadratic programming approach applied to expected mean-variance models to analyze the impact of risk on decision to invest when the resources must be allocated to different types of production that have different risk levels. Overall our results show how, given risk aversion parameters, producers minimize their risk levels by devoting their resources to the least risky type of eggs. An important result of our study is that supply management, by reducing the perceived risk level, has favored the development of specialty eggs, for the benefit of consumers.
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Date of creation: 2014
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Eggs production; Risk aversion; Uncertainty; Expected mean-variance model; Prices and cost volatility;
Find related papers by JEL classification:
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
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