IDEAS home Printed from https://ideas.repec.org/p/ags/aaea09/49409.html
   My bibliography  Save this paper

Vertical Economies of Scope for Organic and Conventional Dairy Farms in the United States

Author

Listed:
  • Mayen, Carlos D.
  • Balagtas, Joseph Valdes
  • Alexander, Corinne E.

Abstract

Studies of dairy farm structure have neglected issues of vertical organization of the farm. In this study we model and measure the potential for dairy farms to reduce costs of production through vertical integration. We estimate a multi-stage, multi-output cost function to assess vertical economies of scope in organic and conventional dairy farms. We model the cost of producing grains and forages, which are then used as inputs in the production of milk. We find negligible vertical economies of scope for conventional dairy farms. In contrast, we find significant vertical economies of scope in organic dairy production, suggesting that there is an economic incentive for vertical integration into feed production. The large vertical economies of scope for organic dairy farms are consistent with higher costs of obtaining organic feed through market transactions associated with an underdeveloped market for organic feeds.

Suggested Citation

  • Mayen, Carlos D. & Balagtas, Joseph Valdes & Alexander, Corinne E., 2009. "Vertical Economies of Scope for Organic and Conventional Dairy Farms in the United States," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49409, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea09:49409
    DOI: 10.22004/ag.econ.49409
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/49409/files/AAEA%20Selected%20Paper%20613544%20Vertical%20Economies%20of%20Scope%20for%20Organic%20and%20Conventional%20%20Dairy%20Farms%20in%20the%20United%20States.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.49409?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Harvey, A C, 1976. "Estimating Regression Models with Multiplicative Heteroscedasticity," Econometrica, Econometric Society, vol. 44(3), pages 461-465, May.
    2. Mosheim, Roberto & Lovell, C.A. Knox, 2006. "Economic Efficiency, Structure and Scale Economies in the U.S. Dairy Sector," 2006 Annual meeting, July 23-26, Long Beach, CA 21440, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Kaserman, David L & Mayo, John W, 1991. "The Measurement of Vertical Economies and the Efficient Structure of the Electric Utility Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 483-502, September.
    4. Tauer, Loren W. & Mishra, Ashok K., 2006. "Can the small dairy farm remain competitive in US agriculture?," Food Policy, Elsevier, vol. 31(5), pages 458-468, October.
    5. Kwoka, John E., 2002. "Vertical economies in electric power: evidence on integration and its alternatives," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 653-671, May.
    6. Azzeddine M. Azzam, 1998. "Testing for Vertical Economies of Scope: An Example from US Pig Production," Journal of Agricultural Economics, Wiley Blackwell, vol. 49(3), pages 427-433, September.
    7. Azzeddine Azzam & Cari S. Skinner, 2007. "Vertical Economies and the Structure of U.S. Hog Farms," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 55(3), pages 349-364, September.
    8. McBride, William D. & Greene, Catherine R., 2007. "A Comparison of Conventional and Organic Milk Production Systems in the U.S," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9680, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Carlos D. Mayen & Joseph V. Balagtas & Corinne E. Alexander, 2010. "Technology Adoption and Technical Efficiency: Organic and Conventional Dairy Farms in the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(1), pages 181-195.
    10. MacDonald, James M. & O'Donoghue, Erik J. & McBride, William D. & Nehring, Richard F. & Sandretto, Carmen L. & Mosheim, Roberto, 2007. "Profits, Costs, and the Changing Structure of Dairy Farming," Economic Research Report 6704, United States Department of Agriculture, Economic Research Service.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Almuhanad Melhim & Erik J. O'Donoghue & C. Richard Shumway, 2009. "Do the Largest Firms Grow and Diversify the Fastest? The Case of U.S. Dairies," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 31(2), pages 284-302, June.
    2. MacDonald, James M. & O'Donoghue, Erik J. & McBride, William D. & Nehring, Richard F. & Sandretto, Carmen L. & Mosheim, Roberto, 2007. "Profits, Costs, and the Changing Structure of Dairy Farming," Economic Research Report 6704, United States Department of Agriculture, Economic Research Service.
    3. Néstor Duch, 2005. "Vertical linkages, agglomeration and the organization of production in European regions," Working Papers 2005/6, Institut d'Economia de Barcelona (IEB).
    4. Joseph, Siny & Stephens, Greg, 2020. "Impact of “FarmStarts” on Mitigating Barriers of U.S. Organic Dairy Farming for Beginning Organic Dairy and Feed Producers in Twelve Mid-Western States," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304339, Agricultural and Applied Economics Association.
    5. Néstor Duch, 2005. "Vertical linkages, agglomeration and the organization of production in European regions," Working Papers 2005/6, Institut d'Economia de Barcelona (IEB).
    6. Richard Nehring & Jeffrey Gillespie & Carmen Sandretto & Charlie Hallahan, 2009. "Small U.S. dairy farms: can they compete?," Agricultural Economics, International Association of Agricultural Economists, vol. 40(s1), pages 817-825, November.
    7. Gillespie, Jeffrey & Nehring, Richard, 2014. "Pasture-Based versus Conventional Milk Production: Where Is the Profit?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 46(4), pages 543-558, November.
    8. Fetz, Aurelio & Filippini, Massimo, 2010. "Economies of vertical integration in the Swiss electricity sector," Energy Economics, Elsevier, vol. 32(6), pages 1325-1330, November.
    9. Triebs, T.P. & Pollitt, M.G. & Kwoka, J.E., 2010. "The Direct Costs and Benefits of US Electric Utility Divestitures," Cambridge Working Papers in Economics 1049, Faculty of Economics, University of Cambridge.
    10. Felix Höffler & Sebastian Kranz, 2011. "Imperfect legal unbundling of monopolistic bottlenecks," Journal of Regulatory Economics, Springer, vol. 39(3), pages 273-292, June.
    11. Simshauser, P., 2020. "Merchant utilities and boundaries of the firm: vertical integration in energy-only markets," Cambridge Working Papers in Economics 2039, Faculty of Economics, University of Cambridge.
    12. Xiaoheng Zhang & Xiaohua Yu & Xu Tian & Xianhui Geng & Yingheng Zhou, 2019. "Farm size, inefficiency, and rice production cost in China," Journal of Productivity Analysis, Springer, vol. 52(1), pages 57-68, December.
    13. Parcel Joshua D. & Schroeter John R. & Azzam Azzeddine M, 2017. "A Re-Examination of Multistage Economies in Hog Farming," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 15(2), pages 1-15, December.
    14. Thomas P. Triebs & David S. Saal & Pablo Arocena & Subal C. Kumbhakar, 2016. "Estimating economies of scale and scope with flexible technology," Journal of Productivity Analysis, Springer, vol. 45(2), pages 173-186, April.
    15. Brennan, Timothy J., 2005. "Alleged Transmission Undersupply: Is Restructuring the Cure or the Cause?," Discussion Papers 10723, Resources for the Future.
    16. Höffler, Felix & Kranz, Sebastian, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers 15/2007, University of Bonn, Bonn Graduate School of Economics (BGSE).
    17. Simshauser, Paul & Tian, Yuan & Whish-Wilson, Patrick, 2015. "Vertical integration in energy-only electricity markets," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 35-56.
    18. Russell Pittman, 2003. "Vertical Restructuring (or Not) of the Infrastructure Sectors of Transition Economies," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 5-26, March.
    19. Ryota Nakatani, 2024. "Food companies' productivity dynamics: Exploring the role of intangible assets," Agribusiness, John Wiley & Sons, Ltd., vol. 40(1), pages 185-226, January.
    20. John Kwoka & Michael Pollitt & Sanem Sergici, 2010. "Divestiture policy and operating efficiency in U.S. electric power distribution," Journal of Regulatory Economics, Springer, vol. 38(1), pages 86-109, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea09:49409. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.