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Investment behavior of Canadian Egg Producers: Analyzing the Impacts of Risk Aversion and Variability of Prices and Costs of Production

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  • L.D. Tamini
  • M. Doyon
  • M.M. Zan

Abstract

Animal 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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Bibliographic Info

Paper provided by CREATE in its series Cahiers de recherche CREATE with number 2014-2.

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Date of creation: 2014
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Handle: RePEc:lvl:creacr:2014-2

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Related research

Keywords: Eggs production; Risk aversion; Uncertainty; Expected mean-variance model; Prices and cost volatility;

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References

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  4. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
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  6. Martins, M. Belem & Marques, Carlos, 2007. "Methodological aspects of a mathematical programming model to evaluate soil tillage technologies in a risky environment," European Journal of Operational Research, Elsevier, vol. 177(1), pages 556-571, February.
  7. Martin, Larry J. & Kruja, Zana & Alexiou, John, 1998. "Prospects For Expanded Egg Production In Western Canada," Final Reports 18147, George Morris Center.
  8. Adam M. Komarek & T. Gordon MacAulay, 2013. "Farmer responses to changing risk aversion, enterprise variability and resource endowments," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(3), pages 379-398, 07.
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  10. Moawia Alghalith, 2010. "The theory of the firm under multiple uncertainties," Economics Bulletin, AccessEcon, vol. 30(3), pages 2075-2082.
  11. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
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