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Cost Economies in Hog Production: Feed prices matter

  • Duvaleix-Treguer, Sabine
  • Gaigne, Carl

In this paper, we assess the impact of farm size on the production cost and evaluate the marginal costs and margins by taking into account that input prices may change with the scale of production. By using French data at the hog farm level, we estimate a system of equations including feed price equation, input demand functions, a output supply function based on a technology approximated by a combined generalized Leontief‐Quadratic form. Our results suggest the marginal costs are over‐estimated whether the endogeneity of feed prices is not controlled for. We show also that cost economies associated with output size are related to lower feed prices and not to a better use of labor. More specifically, cost economies for large farms (enjoying highest levels of profits) arise from feed prices and not by technological scale economies. In contrast,farms with no hired labor exhibit technological scale economies and reach higher pricecost margins than the larger farms.

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File URL: http://purl.umn.edu/125261
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Paper provided by Structure and Performance of Agriculture and Agri-products Industry (SPAA) in its series Working Papers with number 125261.

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Date of creation: Jun 2012
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Handle: RePEc:ags:spaawp:125261
Contact details of provider: Web page: http://servsas.fsaa.ulaval.ca/index.php?id=12482&L=1

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  1. Draganska, Michaela & Klapper, Daniel & Villas-Boas, Sofia B, 2008. "A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7v13q46w, Department of Agricultural & Resource Economics, UC Berkeley.
  2. Tauer, Loren W. & Mishra, Ashok K., 2003. "Can the Small Dairy Farm Remain Competitive in U.S. Agriculture?," Working Papers 127239, Cornell University, Department of Applied Economics and Management.
  3. Douglas W. Allen & Dean Lueck, 2004. "The Nature of the Farm: Contracts, Risk, and Organization in Agriculture," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511851, June.
  4. Catherine J. Morrison Paul, 2001. "Market and Cost Structure in the U.S. Beef Packing Industry: A Plant-Level Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 64-76.
  5. Carl Gaigné & Julie Le Gallo & Solène Larue & Bertrand Schmitt, 2012. "Does Regulation of Manure Land Application Work Against Agglomeration Economies? Theory and Evidence from the French Hog Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 116-132.
  6. Key, Nigel D. & McBride, William D. & Mosheim, Roberto, 2008. "Decomposition of Total Factor Productivity Change in the U.S. Hog Industry," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(01), April.
  7. Antonio Alvarez & Carlos Arias, 2003. "Diseconomies of Size with Fixed Managerial Ability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(1), pages 134-142.
  8. Roberto Mosheim & C.A. Knox Lovell, 2007. "Scale Economies and Inefficiency of U.S. Dairy Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 777-794.
  9. 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, 09.
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