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Cost-Based Model of Seasonal Production, with Application to Milk Policy, A


  • David A. Hennessy
  • Jutta Roosen


Milk production is seasonal in many European countries. While quantity seasonality poses capacity management problems for dairy processors, a European Union policy goal is to reduce price seasonality. After developing a model of endogenous seasonality, we study the effects of three E.U. policies on production decisions. These are private storage subsidies, production removals, and production quotas. When cost functions are seasonal in a specified way, then arbitrage opportunities interact with storage subsidies to reduce both price and consumption seasonality. But production seasonality likely increases because storage subsidies promote temporal market integration. Conditions are identified under which product market interventions increase quantity seasonality.

Suggested Citation

  • David A. Hennessy & Jutta Roosen, 2003. "Cost-Based Model of Seasonal Production, with Application to Milk Policy, A," Center for Agricultural and Rural Development (CARD) Publications 03-wp323, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  • Handle: RePEc:ias:cpaper:03-wp323

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    References listed on IDEAS

    1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    2. Chambers, Robert G & Quiggin, John, 1997. "Separation and Hedging Results with State-Contingent Production," Economica, London School of Economics and Political Science, vol. 64(254), pages 187-209, May.
    3. Allen, Douglas W & Lueck, Dean, 1998. "The Nature of the Farm," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 343-386, October.
    4. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
    5. Innes, Robert, 1993. "Two-Season Subsistence Farming, Urban Food Subsidies and Optimal Agricultural Policy," Oxford Economic Papers, Oxford University Press, vol. 45(4), pages 668-690, October.
    6. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275, March.
    7. Richard J. H. Caine & D. Peter Stonehouse, 1983. "Adjusting the Seasonality of Milk Shipments in Canada: Problems, Economic Impacts and Potential Policies," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 31(3), pages 331-350, November.
    8. Washington, Andrew A. & Lawson, Robert W. & Kilmer, Richard L., 2000. "An Evaluation of the Effectiveness of the Florida Cooperative's Seasonal Pricing Plan on Seasonal Production Variability," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 32(01), pages 113-121, April.
    9. Saha, Atanu, 1994. "A two-season agricultural household model of output and price uncertainty," Journal of Development Economics, Elsevier, vol. 45(2), pages 245-269, December.
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    Cited by:

    1. Smyth, Paul & Harte, Laurence & Hennessy, Thia C., 2009. "Seasonality and Costs of Production on Irish dairy farms from 2000-2007," 83rd Annual Conference, March 30-April 1, 2009, Dublin, Ireland 51076, Agricultural Economics Society.
    2. David Hennessy, 2007. "Region marginalization in agriculture, seasonality, dedicated capital, and product development with reference to North Europe dairy sector," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(2), pages 467-486, June.
    3. Hennessy, David A. & Lapan, Harvey E., 2004. "Market Cycles for a Non-Storable Product Under Adjustment Costs," Staff General Research Papers Archive 12208, Iowa State University, Department of Economics.
    4. Heinschink, Karin E. & Shalloo, Laurence & Wallace, Michael T., 2011. "Seasonality in the Irish dairy processing industry," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108939, Agricultural Economics Society.
    5. HEINSCHINK, Karin & SHALLOO, Laurence & WALLACE, Michael, 2012. "Application of an optimisation model for analysing production seasonality in the Irish milk processing sector," International Journal of Agricultural Management, Institute of Agricultural Management;International Farm Management Association, vol. 1(4), July.


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