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Evaluating Reforms in Canadian Chicken Marketing Mechanisms Using a Linear-Quadratic Inventory Model

Author

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  • Abbassi Abdessalem

    (Laval University)

  • Gervais Jean-Philippe

    (North Carolina State University)

Abstract

Marketing institutions in supply managed industries are evolving due to broad globalization pressures. The output and sales decisions of chicken processing firms under two different pricing mechanisms are modeled using a linear-quadratic inventory model. Decision rules lead to structural equations that relate output and sales to their own lagged values, lagged inventories and lagged prices and cost indicators. A Generalized Method of Moments (GMM) estimator is applied to the system of equations. The null hypotheses no adjustment costs in processing and no role for inventories in marketing are rejected. We simulate the impacts of reforming the chicken pricing mechanism, moving from producers vs. processors bargaining to a formula-based price (referred to as "cost-plus"). Output in the industry is higher under the bargaining pricing system mostly because processors pay a lower price than under the "cost-plus" mechanism. Simulations reveal that producers' expected profits are lower on average under the bargaining system than under "cost-plus." Moreover, the "cost-plus" system reduces the variability of profits.

Suggested Citation

  • Abbassi Abdessalem & Gervais Jean-Philippe, 2010. "Evaluating Reforms in Canadian Chicken Marketing Mechanisms Using a Linear-Quadratic Inventory Model," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 8(1), pages 1-24, February.
    • Handle: RePEc:bpj:bjafio:v:8:y:2010:i:1:n:1
    DOI: 10.2202/1542-0485.1263
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    References listed on IDEAS

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    1. Abdessalem Abbassi & Lota D. Tamini & Jean‐Philippe Gervais, 2012. "Do Inventories Have an Impact on Price Transmission? Evidence From the Canadian Chicken Industry," Agribusiness, John Wiley & Sons, Ltd., vol. 28(2), pages 173-186, March.
    2. Lambert, Remy, 2012. "A Primer on the Economics of Supply Management and Food Supply Chains," Working Papers 125246, Structure and Performance of Agriculture and Agri-products Industry (SPAA).

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