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Economies of Scale in the Canadian Food Processing Industry

  • Gervais, Jean-Philippe
  • Bonroy, Olivier
  • Couture, Steve

Cost functions for three Canadian manufacturing agri-food sectors (meat, bakery and dairy) are estimated using provincial data from 1990 to 1999. A translog functional form is used and the concavity property is imposed locally. The Morishima substitution elasticities and returns to scale elasticities are computed for different provinces. Inference is carried out using asymptotic theory as well as bootstrap methods. In particular, the ability of the double bootstrap to provide refinements in inference is investigated. The evidence suggests that there are significant substitution possibilities between the agricultural input and other production factors in the meat and bakery sectors. Scale elasticity parameters indicate that increasing returns to scale are present in small bakery industries. While point estimates suggest that increasing returns to scale exist at the industry level in the meat sector, statistical inference cannot rule the existence of decreasing returns to scale. To account for supply management in the dairy sector, separability between raw milk and the other inputs was introduced. There exists evidence of increasing returns to scale at the industry level in the dairy industries of Alberta and New Brunswick. The scale elasticity for the two largest provinces (Ontario and Quebec) is greater than one, but inference does not reject the null hypothesis of increasing returns to scale.

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File URL: https://mpra.ub.uni-muenchen.de/64/1/MPRA_paper_64.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 64.

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Date of creation: Aug 2006
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Handle: RePEc:pra:mprapa:64
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  1. McCullough, B D & Vinod, H D, 1998. "Implementing the Double Bootstrap," Computational Economics, Society for Computational Economics, vol. 12(1), pages 79-95, August.
  2. Michael K. Wohlgenant, 2001. "Scale Economies and Consolidation in Hog Slaughter: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 1082-1083.
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  5. Catherine J. Morrison Paul, 2001. "Cost Economies And Market Power: The Case Of The U.S. Meat Packing Industry," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 531-540, August.
  6. Horowitz, Joel L., 2001. "The Bootstrap," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 52, pages 3159-3228 Elsevier.
  7. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
  8. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
  9. Baldwin, John R. & Sabourin, David & West, Donald, 1999. "Advanced Technology in the Canadian Food Industry," Advanced Technology in the Canadian Food Industry, Statistics Canada, Economic Analysis, number stcb4e, December.
  10. Ryan, David L. & Wales, Terence J., 2000. "Imposing local concavity in the translog and generalized Leontief cost functions," Economics Letters, Elsevier, vol. 67(3), pages 253-260, June.
  11. Milton Madison & James MacDonald & Michael Ollinger, 2000. "Technological Change and Economies of Scale in U.S. Poultry Slaughter," Working Papers 00-05, Center for Economic Studies, U.S. Census Bureau.
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