YIELD UNCERTAINTY AND MILK SUPPLY RESPONSE IN TWO-TIER PRICE SYSTEMS. (30th January 2017)

• Record Type: Journal Article
• Authors: ATSBEHA, DANIEL MULUWORK
• Is Part Of: Journal of agricultural and applied economics. Volume 49:Number 1(2017)
• Page Start: 66
• Page End: 82
• Publication Date: 2017-01-30
• Subjects: Dairy quota, -- milk yield, -- production risk, -- supply response, -- two-tier price system, -- yield uncertainty; D22, -- Q12, -- Q13; Agriculture -- economics; Agriculture -- Economic aspects -- Periodicals; Agriculture -- Economic aspects -- Southern States -- Periodicals; Agriculture -- Economic aspects -- United States -- Periodicals; Agriculture -- Aspect économique -- Périodiques; Agriculture -- Aspect économique -- États-Unis -- Périodiques; Agrarökonomik; Agrarmarkt; USA; Welt; Agriculture -- Economic aspects; United States; Periodicals; 338.10975
• DOI: 10.1017/aae.2016.40
• Languages: English
• ISSNs: 1074-0708

Abstract

Abstract: In two-tier price systems, yield uncertainty creates incentives to overproduce quantity-restricted outputs even when prices for surplus output are very low. These incentives arise from precautionary motives against expected losses from quota shortfalls. Using an approach augmented for multiple input applications, the likelihood of excess production and the relative importance of price changes in different markets are estimated for Icelandic dairy farms. The results indicate that the average farm plans to exceed its quota, and price changes in the surplus milk market are approximately three times more effective in generating supply response than price changes in the quota milk market.