The Size of Calf-Raising Farms in Japan under Price Uncertainty An Empirical Analysis by the Dynamic Dual Model

Sakamoto Ryo and Kusakari Hitoshi

Journal of Rural Economics, 2010, vol. 81, issue 4, 14

Abstract: The objective of this paper is to investigate the fact that an increase in risk exposure gives negative effects on the expansion of the calf-raising farm size by using a dynamic econometric model. It is empirically known that the calf-raising farms facing the risk of calf price fluctuation tend to reduce the number of beef cows to escape a shrink in their future profitability; however, most previous studies on beef production have not discussed how uncertainty concerning prices affects the investment behavior of risk-averse producers because of their intending to analyze the mechanism of beef cycle. The main findings from the empirical results of this study imply that a ratio of risk premium to the expected calf price is 17.2% during the period calf price goes down drastically. The ratio of 17.2% is greater than the ones which are estimated in the previous studies as the case of the rice and dairy farms. In addition, a result of the decomposition analysis of the investment behavior indicates that uncertainty concerning prices induces risk averse farmers to reduce the farm size in the observation period; therefore，the variance of calf prices has significant effects on the farm size expansion as well as the expected value of calf prices.

Keywords: Demand and Price Analysis; Livestock Production/Industries; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aesjre:164922

DOI: 10.22004/ag.econ.164922

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