Evaluating Reforms in Canadian Chicken Marketing Mechanisms Using a Linear-Quadratic Inventory Model
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.
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Volume (Year): 8 (2010)
Issue (Month): 1 (February)
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- Andrew Schmitz, 1983. "Supply Management in Canadian Agriculture: An Assessment of the Economic Effects," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 31(2), pages 135-152, 07.
- Michele M. Veeman, 1982. "Social Costs of Supply-Restricting Marketing Boards," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 30(1), pages 21-36, 03.
- Michele M. Veeman, 1982. "Social Costs of Supply-Restricting Marketing Boards: Reply," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 30(3), pages 373-376, November.
- Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x.
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