1 research projects: a summary of objectives, procedures, and findings by dr. shida henneberry...

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Research Projects:

A Summary of Objectives, Procedures, and Findings

By

Dr. Shida HenneberryProfessor of Agricultural Economics

Oklahoma State Universitysrh@okstate.edu

SH, Feb 2004 2

A Summary of Objectives, Procedures, and Findings

• International Development

• International Trade

• Food Marketing and Demand Analysis

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International Development:

• Economic and Social Impacts of NAFTA in Mexico

• Industrial – Agricultural Interactions in Pakistan

• Linkage between Ag. Exports and Economic Growth– Pakistan

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Economic & Social Impacts of NAFTA in Mexico

NAFTA Concerns:

U.S.: American unskilled labor are not able to compete against Mexican labor

Mexico: Small manufacturers and agriculturalists unable to compete against large American & Canadian firms

Canada: The impact on traditionally subsidized & protected

–Employment sector–Production sector

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Economic and Social Impacts of NAFTA in Mexico

Objective:

To evaluate the impact of NAFTA on peasant welfare in five rural villages in Traxcala, Mexico

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Economic and Social Impacts of NAFTA in Mexico

Procedures:

• Comparative Static Analysis

• Linear Programming Model of Household Production System

• Incorporating expected Post-NAFTA changes in Agricultural Prices and Industrial Demand for Labor

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Economic and Social Impacts of NAFTA in Mexico

Results:• Inequitable distribution of NAFTA

changes across:– Genders– Producers with varying resource bases

• Increased industrial demand for labor has injected additional income– Offsetting losses caused by Ag. Prices

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Industrial – Agricultural Interactions - Pakistan

Objective:

To analyze the relationship between Pakistan’s industrial and agricultural sectors. The relationship between cotton production & industrial growth.

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Industrial – Agricultural Interactions - Pakistan

Pakistan:

1. Semi-industrialized

2. Heavy dependence on Ag

3. Policy makers face major ag. policy reforms in quest for industrial development

4. Much of Pakistan’s industrial growth has been funded at the expense of the agricultural sector.

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Industrialization has been successful in GDP Growth

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Industrial – Agricultural Interactions

Procedure:

Econometric Analysis of the growth rate in:

Agricultural GDP

Industrial GDP

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Industrial – Agricultural Interactions

Results:

• Both sectors (Agricultural & Industrial) have benefited from their relationship

• The industrial sector has gained more

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Industrial – Agricultural Interactions

Conclusions:

• Agricultural growth and rural development should be given top priority

• Their growth helps the industrial sector grow even faster

• Ag. Development does not have to be abandoned in order to focus resources on industrial development

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Linkage Between Ag. Exports and Economic Growth

Objectives:

The relationship between Agricultural exports & economic growth in Pakistan

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Linkage Between Ag. Exports and Economic Growth

Procedures:

Econometric estimation of three simultaneous equations on:GDPAg. ExportsTotal Imports

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Linkage Between Ag. Exports and Economic Growth

• Independent variables:Income remittances form abroadInvestmentManufactured exports

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Linkages Between Ag. Exports & Econ. Growth

Findings:

A favorable relationship exists between agricultural exports & growth in GDP

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International Trade

• Wheat Export Market Development:– A case study of Oklahoma Direct Shipments to

Mexico

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Economic Analysis of

Unit-train Facility Investment

Shida R. Henneberry, Professor

Haerani N. Agustini, Graduate AssistantDepartment of Agricultural Economics

Oklahoma State University

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INTRODUCTION

NAFTA has increased grain trade between the U.S. and Mexico.

Oklahoma is among the largest producers of Hard Red Winter Wheat.

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Changes in consumption patterns in Mexico

Advances in milling & baking technologies

Quality Characteristics Demanded by Mexican Buyers are Changing:

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In recent years, there have been direct shipments of wheat from Oklahoma to Mexico.

Suppliers are Oklahoma farmer-owned cooperatives/elevators.

Buyers are Mexican Millers.

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Benefits of Direct Shipments:

To Buyer

Identity-Preservation

Availability of processed-based information (e.g. Non-biotech)

To Sellers

Price Premiums

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IP Marketing Arrangement is Attributed to: Diversification/specialization in

production

Technological advancements in processing/marketing

Sophistication in consumer demand

Low commodity grain prices

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Typical Grain Transportation Network

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Shipping via Direct Shipment Involves:No other stops at other elevators

No co-mingling of wheat from the specific source (that meets buyer specification) with wheat from other sources (that may not meet specification).

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Transportation Structure Involved in Direct Shipments:

Single-car trains (1-24 cars)Multi-car trains (25-49 cars)Unit-car trains (50-99 cars or more)

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Unit-Car Train Benefits:Rate Savings because of reduced:

Loading/unloading time

Switching time

Waiting time per car

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Larger investment in load-out facility (several mil. $’s):

[unit-trains are on a strict schedule]

Unit-Car Train Costs:

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ObjectiveThe objective of this study is to calculate the financial returns to investment in unit-train facilities in Oklahoma for direct shipment of wheat to Mexico.

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Sources of DataFixed investment cost

of unit-train (100+ car) structures from Oklahoma elevators.

Annual operating costs were adapted from Vachal, et. Al (1999)

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Methods of AnalysisThree methods were used to evaluate the profitability of investment in a unit-train facility:

1. Net Present Value (NPV)

2. Benefit-Cost Ratio (B/C)

3. Return-to-Investment (RTI) or Internal-Rate-of Return (IRR)

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Methods of AnalysisTotal Benefit:

B is the difference between total revenue from selling

wheat through direct shipments (IP wheat) and

selling through the traditional channels, at the

elevator’s posted price (terminal market price)

Q is quantity of wheat available for shipment

PIP is the price received from Mexican miller

PTR is the terminal market price

TS is the transportation savings per bushel from using

a unit-train

B = Q (PIP- PTR) + Q (TS)

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1 (1 )

Nt t

tt

B CNPV

i

Net Present Value (NPV) of Investment is Calculated as:

Bt is as defined before, in period t

Ct is the cost of investment in unit-train, in period t, first year is the cost of investment, the remaining periods is the annual operating cost.

i is the discount rate and N is the number of years the investment lasts.

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Internal Rate of Return (IRR) or Return-to-Investment is the discount rate i that sets NPV = 0.

Return-to-Investment

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Cost of unit-train Investment : $3,000,000 (Investment on unit-train load-out facilities) Annual operating costs: $1,090,000 Fixed Costs +Variable Costs Quantity of wheat transported per year: 10,000,000

bushels NPV, BC, and RTI are calculated at: 3%, 5%, 10%, 15%, 18% and 20% Transptn saving is assumed to be $.10 per bushel Price premium are assumed at $.05, $.08, and $.11

Base Cost:

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Results

NPV

The present value of the net return to investment in load-out facility are calculated for:

Various discount rates

Price premiums

Transportation savings

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The results show that assuming a price premium of 5 cents per bushel, a discount rate of 3 percent, and transportation cost savings of 10 cents per bushel, the net-present-value is a positive number and benefit-cost ratio is 1.01.

Moreover, at discount rates above 3 percent, calculations show that present value of costs exceed the present value of benefits.

Conclusions:

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The financial return-to-investment (RTI) assuming base level costs, is around 3.8 percent; which is slightly above the current U.S. market discount (long-term interest) rate.

Results were also calculated for a 10 percent increase in variable costs. Under this scenario, the net-present-value becomes negative at 3 percent discount rate; the benefit-cost ratio remains around 1.00, while the RTI decreases to 1.78 percent.

Conclusions: (continued)

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Thank you

SH, Feb 2004 41

Food Marketing and Demand Analysis

Food Safety

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AN ANALYSIS OF THE IMPACT OF FOOD SAFETY

CONCERNS ON FOOD CONSUMPTION

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Objective:

To Evaluate the Impact of:•Prices•Expenditure•Consumer food safety concerns

On food consumption of major food products in the U.S.

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Major Food Groups Studied:

•Poultry•Red meats•Dairy products•Fresh produce

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The Hypothesis to be Tested:

The net negative info. w.r.t.

•Chemical residues

•Salmonella

•BST•Growth hormones

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The Model:The Linear Approximate of an Almost Ideal Demand System:

lnP = j Wjt-1lnPjt

n

kikikii PYPCW

1

)/log(log

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Results:

Compared to food safety concerns, prices and expenditure exhibit a greater and statistically significant impact.

SH, Feb 2004 48

THE END