2120 final report.pdf - Agra CEAS Consulting

APPENDIX 2: THIRD COUNTRIESpaper are simple, the analysis contains important information (e.g., elasticities) for the analysisconducted here. As Trewin explains, increases in animal welfare result in an upward parallel shift inthe supply curve of eggs (see Figure 2, page 25). In an EDM this can be modelled as a change in anexogenous variable.There are also a number of papers in the literature that have attempted to model the egg productionindustry in the US more generally. Chavas and Johnson (1981) describe an econometric model ofthe US egg industry. This paper is informative regarding the necessity of viewing egg production as asequential business decision. In terms of their model, they find that the price elasticity of demand foreggs is -0.34. They also note that there is a price link between shell and processed eggs. As theprice of shell eggs increases, the production of processed eggs declines significantly. It is also notedthat as egg production increases more eggs are used in processing. Another interesting finding in thispaper is the responsiveness of production to changes in price and cost. It is clear that production ismore responsive earlier in the process and that at the point of egg production, egg producers arevery unresponsive to changes in feed costs (see Table 2, p. 328 for details).In related research, Babula and Bessler (1990) employed a Vector Autoregression (VAR) model tomeasure the response in US egg prices (farm and retail) to an increase in feed costs. They found thatupward shocks to the cost of feed (i.e., corn) led to increases in the farm gate price of eggs which inturn led to an increase in retail prices. They measured the magnitude of this response to be a 0.4%increase in farm-gate egg prices (0.32% for retail egg prices) for each 1% increase in feed costs. Theshock to the system lasted almost one and a half years, again indicating the inelastic nature of eggproduction to changes in input prices. Another egg model developed in the US by Salathe et al.,(1983) is the Food and Agricultural Policy Simulator (FAPSIM). This model includes a poultry/eggsectorsub-model. The model was validated using historical data and used to examine the effects ofan increase in broiler production.The distinction between farm-gate and retail in terms of price response has been considered inrelation to US egg production in several studies. Wohlgenant (1989) argued, and empiricallydemonstrated, that farm-level demand elasticities are as large or larger than retail elasticities for eggsas well as a number of other commodities. However, both elasticities are found to be very inelastic.At the farm level the derived demand is -0.15 (Table 5, p 251). Holloway (1991) employed the samedata as Wohlgenant to examine if there is evidence of imperfect competition in the food-marketingsector. He found no evidence of a departure from perfectly competitive markets for output for eggsas well as all other commodities examined.A different aspect of the US egg industry is modelled by Martinez and Norton (1986). They evaluatethe returns to research funded by private and public organisations. The relevance of this research isthat they examine the surplus implications of how research money is spent. To do this theyemployed various elasticity estimates. They used 0.13 for the supply of eggs and -0.22 for demand.They report consumer and producer surplus estimates for various industry scenarios and in additionthey conducted sensitivity analysis. The sensitivity analysis revealed that larger supply elasticity and401