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The make‐or‐buy decision of feed on livestock farms: Evidence from Ontario swine farms

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  • Max Zongyuan Shang
  • Ken McEwan

Abstract

We define the boundary of a livestock farm in terms of corn production as the percentage of homegrown corn in total corn required. A new theoretical model is proposed that explains how farm boundaries are shaped by the relative efficiency of two alternative transaction‐facilitating mechanisms: market and hierarchy. Using tax filer data from swine farms in Ontario, this article analyzes the impact that the mechanism efficiency has on farm boundaries. To identify the potential causal effect, the USD/CAD exchange rate is used as the instrumental variable for corn price in Ontario. The findings support the theoretical model: in‐house corn production expands due to not only higher price but also higher price volatility. The potential causal relationship we identified flowing from the mechanism efficiency to farm boundary may shed light on why swine and other livestock industries are shifting towards nonmarket arrangements. Nous définissons la frontière d'une ferme d'élevage en termes de production de maïs, soit le pourcentage de maïs autoproduit sur le total requis. Un nouveau modèle théorique est proposé qui explique comment les frontières des exploitations sont façonnées par l'efficacité relative de deux mécanismes alternatifs facilitant les transactions: le marché et la hiérarchie. À l'aide des données des fichiers fiscaux des fermes porcines de l'Ontario, cet article analyse l'impact de l'efficacité des mécanismes sur la frontière des fermes. Pour identifier l'effet causal potentiel, le taux de change USD / CAD est utilisé comme variable instrumentale du prix du maïs en Ontario. Les résultats appuient le modèle théorique: l'autoproduction de maïs augmente en raison non seulement de la hausse des prix, mais aussi de la volatilité plus élevée des prix. La relation causale potentielle que nous avons identifiée, qui va de l'efficacité du mécanisme aux limites de l'exploitation, peut éclairer les raisons pour lesquelles le porc et d'autres industries de l'élevage évoluent vers des arrangements non marchands.

Suggested Citation

  • Max Zongyuan Shang & Ken McEwan, 2021. "The make‐or‐buy decision of feed on livestock farms: Evidence from Ontario swine farms," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(3), pages 353-368, September.
    • Handle: RePEc:bla:canjag:v:69:y:2021:i:3:p:353-368
    DOI: 10.1111/cjag.12269
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