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Economies of Scale in the Canadian Food Processing Industry

Author

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

Abstract

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.

Suggested Citation

  • Gervais, Jean-Philippe & Bonroy, Olivier & Couture, Steve, 2006. "Economies of Scale in the Canadian Food Processing Industry," MPRA Paper 64, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:64
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    References listed on IDEAS

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    Cited by:

    1. Chris Ross, 2011. "A Detailed Analysis of the Productivity Performance of the Canadian Food Manufacturing Subsector," CSLS Research Reports 2011-07, Centre for the Study of Living Standards.

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    More about this item

    Keywords

    Translog cost function; Canadian food processing industry; returns to scale; double bootstrap;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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