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Agricultural Economics

Paper Session

Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM

Pennsylvania Convention Center, 107-A
Hosted By: American Economic Association
  • Chair: Sarah Janzen, Montana State University

The Mexican PROCAMPO Farmland Subsidy and Its Effectiveness as a Rural Anti-Poverty Program

Ariadna Martinez Gonzalez
,
Ohio State University
Zoe Plakias
,
Ohio State University
Mark Partridge
,
Ohio State University

Abstract

This research examines the incidence (or capitalization) of the most important agricultural subsidy program in Mexico—Program of Direct Supports to the Farmland (PROCAMPO)— on farmland rental rates. Through the incidence, we explore the distribution of the PROCAMPO subsidy among tenants and their landlords, as well as whether this distribution differs across the tenant farmer income distribution. In our analysis, we use survey data collected by the Food and Agriculture Organization of the United Nations (FAO) in collaboration with Mexico's Ministry of Agriculture (SAGARPA) for the agricultural year 2008/2009, as well as data from INEGI (Instituto Nacional de Estadistica, Geografia e Informatica, Mexico's National Institute of Statistics). We employ a basic Ricardian theoretical model and use the standard hedonic approach to econometrically estimate the incidence of the PROCAMPO subsidy. To further assess the program's distributional effects, quantile regression analysis of the rental rate distribution is used to investigate the incidence across the income distribution of tenant farmers. Our results suggest that the PROCAMPO subsidy is not passed through to landlord farmers, indicating that the program is successfully supporting the income of tenant farmers. This study makes three main contributions. First, to our knowledge we are the only authors thus far to study the incidence of PROCAMPO on farmland rental rates, as well as to explore the incidence of an agricultural subsidy in a developing country. Second, the dataset we employ has not been used before outside of the FAO. And third, we are the fi rst to use quantile regression analysis to assess the distributional effects of farmland subsidies.

The Effects of Water Markets: Evidence From the Rio Grande

Tianshu Li
,
University of Virginia
Peter Debaere
,
University of Virginia

Abstract

Water markets are cap and trade systems that allow for short- and long-term leases as well as sales of the right to use water (without selling the land title). With increased water scarcity due to population growth, economic development, and climate change, water markets are increasingly popular in Australia, Chile, and also the United States. In a literature that is dominated by simulations of the gains from water markets, we present the first difference-in-difference analysis of the actual impacts of water markets on agricultural production. The Rio Grande water market in Texas was started in 1971, and is one of the oldest and most established water markets in the United States. Using agricultural census data from 1954 to 2012, we compare the change in crop composition in counties that lie in the Rio Grande water market with neighboring control counties before and after the water market came into being. We provide empirical evidence that supports one of the most prevalent hypotheses associated with water markets, namely that they facilitate a shift from low- to high-value crops. In terms of our empirical proxies, this shift amounts to a reallocation of production from less productive crops that generate on average less dollars per unit of water to ones that are more productive. Our estimates show that ability to adjust the crop allocation is economically important, amounting to on average 30% of gross revenue. Moreover, adjusting the crop composition is most prevalent in times of drought, which suggests water markets makes agriculture more resilient. In addition, we also observe a shift towards more drought resistant crops in the water market counties.

How Large is the Potential Economic Benefit of Agricultural Adaptation to Climate Change?

Kaixing Huang
,
Nankai University
Nicholas Sim
,
University of Adelaide

Abstract

Although climate change may severely impact agriculture, farmers can mitigate it by adapting to their new climates. Using US data, we estimate the amount of potential loss in agricultural profits, due to climate change, that can be reduced by agricultural adaptation. We propose two panel frameworks that differ only in their fixed effects specifications, where this difference allows us to estimate the climate change impact on agricultural profits with or without adaptation taken into account. Comparing these estimates, we find that adaptation can help to offset about two-thirds of the potential end-of-this-century loss in agricultural profits caused by climate change.

The Welfare Impacts of New Demand-Enhancing Agricultural Products: The Case of Honeycrisp Apples

Yanghao Wang
,
University of Minnesota
Metin Çakır
,
University of Minnesota

Abstract

Agricultural research and development programs on new demand-enhancing products have become increasingly important over the past decade. Large numbers of new agricultural products have been developed and introduced in the United States to serve consumers’ heterogeneous tastes and increasing expectations of food quality. However, little is known about their economic benefits. With a focus on the apple market, this paper examines the welfare impacts of the introduction of Honeycrisp apples. We estimate structural models of consumer demand and retailer competition using store scanner data covering 61 cities across the United States in the period from March 2009 to February 2015. On average, we find the introduction of Honeycrisp apples increases consumer welfare by 3.14 cents per pound, of which 2.98 cents is explained by the increased number of total apple varieties and 0.16 cents by the decline in prices of competing apple varieties. The extent of the decline is positively associated with the market share of Honeycrisp apples. We also find that the introduction of Honeycrisp apples has increased overall market size and total apple sales. Compared to the counterfactual results, the estimates show that Honeycrisp has increased the total sales quantity by 8.03 percent and the total sales revenue by 21.25 percent over the study period. To be able to extrapolate our results to the entire U.S. apple market, we perform a back-of-the-envelope analysis and find that the introduction of Honeycrisp apples has increased total consumer welfare by about 940 million dollars during the study period. This corresponds to approximately 20 percent of the annual average domestic expenditures on public food and agricultural R&D.
JEL Classifications
  • Q1 - Agriculture