2120 final report.pdf - Agra CEAS Consulting

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APPENDIX 2: THIRD COUNTRIESTable A3.1: Summary of elasticity values for EDMDomestic Egg DemandCaged Shellη (Qc, Pc) -0.5η (Qc, Pp) 0.05η (Qc, Pa) 0.1Processedη (Qp, Pc) 0.1η (Qp, Pp) 1.0η( Qp, Pa ) 0.005Alternative Shellη( Qa, Pc ) 0.5η (Qa, Pp) 0.001η (Qa, Pa) 0.8Trade (Import demand)e c 5.0e p 5.0e a 0.0Price Transformatione tc 0.95e tp 0.95e ta 0.0Product Transformationβ (Sc, Sp ) 2.0β (Ss, Sa ) 0.05β (Sp, Sa ) 0.05Input Substitution 120.1 130.1 230.1Factor Supply 1 (Feed) 1.0 2 (Labour) 1.0 3 (Other) 0.75A3.3.4.1. Domestic marketOwn price (η)Values of market elasticities used in the analysis are drawn from existing econometric research,economic theory and discussion with various industry participants. Typically, the own price demandelasticity for eggs applied to eggs purchased by consumers and in most studies no distinction is drawnbetween caged and alternative modes of production. We require own-price and cross-price demandelasticities for caged shell, processed and alternative shell eggs.A very useful source of information for elasticities is Baltzer (2003). He presents disaggregatedelasticity estimates of own price demand for eggs own and cross price (battery cage, barn eggs, freerangeeggs, organic eggs and pasteurised eggs). The own price (uncompensated) estimates rangebetween –1.69 to –2.71. These estimates are significantly higher (i.e., elastic) than previously410
APPENDIX 2: THIRD COUNTRIES<strong>report</strong>ed in the literature. For example, Trewin (2002) employs an own price demand elasticity foreggs of –0.1 to –0.3. These estimates are drawn from the literature, especially the work ofOczkowski and Murphy (1999). Given the range of these estimates we employ –0.5 for caged shelland –0.8 for alternative shell.In terms of the demand elasticity for processing there appear to be no elasticities currently availablein the literature. Given that the demand is from manufacturing/processing industries it can beexpected that they will have a relatively inelastic demand. However, processors do not need topurchase shell eggs and can buy egg products which will have the effect of making demand moreelastic. As a compromise we assume an own price demand elasticity of -1.Cross-price (η)In terms of cross-price elasticities Baltzer (2003) provides estimates for caged and alternative shelleggs. In relation to processed eggs there are no cross-price elasticities. As a result we haveemployed what we consider to be sensible estimates. Given that we assume that these goods aresubstitutes, Zhao et al., (2000a) details two important conditions for the cross-price elasticities tosatisfy. First,ηij = (λj/λi)*ηjiwhere λi and λj are the relative budget shares. Second, we need to ensure that ηii≤0 ηij≥0 andThe various cross-price elasticities presented in Table A3.1 have been chosen based on ‏.׀ηij׀
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