UW-Madison UW-Madison

Research in Economics of Agriculture

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Risk and Investment Behavior:

The effects of risk on investment behavior are of increasing concern in agriculture as markets are liberalized and prices are allowed to fluctuate at levels greater than recently experienced. Conventional economic and accounting theory have treated investments as fully reversible or returns as fully certain. In fact, many investments in agriculture (and other sectors of the economy) involve considerable irreversibility and uncertainty, and hence the potential for serious down-side risk to investors. Also, most farmers and market participants exhibit risk aversion. These features can affect the production and investment decisions of market participants, including their entry and exit decisions, in a way that may not be socially optimal. Theoretical and empirical work within the department has explored these and related issues to better understand agricultural supply and investment decisions under risk, the cost of private risk bearing, and the adjustment process in agricultural markets.

Evaluation of Technical Change:

An array of new informational and biological technologies has been introduced into agriculture. Award-winning research within the department has analyzed the process of technical change in agriculture, as influenced by both private and public research and development policy. Examining the adoption and impact of new technologies and management practices on agricultural performance has been a staple of agricultural and applied economics.

Performance of Farming Systems:

The push for sustainable agricultural methods, rapid changes in the price-cost environment in many commodities, and the emergence of new technologies create a strong demand for microeconomic studies of the performance of farming systems, including the evaluation of farmers' technical and allocative efficiency. Individuals in the department are collaborating with others on campus to analyze both conventional and alternative farming systems.

Biotechnology and Intellectual Property Protection:

Many of the huge advances in the development of biotechnology innovations are aimed specifically at the agricultural sector. This raises questions regarding the relative benefits and costs that accrue to universities, local communities, the nation, and the world as discoveries are commercialized. Commercialization has also called into question the scope of coverage from various types of intellectual property protection, including patents. Department researchers are currently evaluating the economic impacts associated with university-held patents, the distribution of benefits resulting from a biotechnology innovation, and ways to measure risks associated with commercialization. Another project compares the rewards to general, versus agriculture-specific, biotechnology research.

Dairy Markets:

The Department has a strong research/outreach program devoted to a variety of dairy marketing and U.S. dairy policy issues. Visit our Understanding Dairy Markets web site for more information.

Agricultural Policy, Supply Response, and Welfare Outcomes:

U.S. agricultural policy is entering an era of major change, as price support programs and linked environmental compliance measures undergo major change. How will changes in federal agricultural policy affect the supply of various agricultural commodities? Are climatic changes occuring, and, if so, what effect might they have on aggregate supplies? Given the central role of the U.S. in international grain markets, and the increasing liberalization of agricultural trade, the answers to these questions have international implications. Individuals in the department are cooperating with colleagues from around the campus and the world to build integrated models of how agricultural policy reforms in the U.S. and elsewhere may shape supply responses and welfare outcomes for producers and consumers.

Credit, Labor, and Management Challenges in Wisconsin Agriculture:

The many changes mentioned above create a range of challenges for farmers and other participants in Wisconsin agriculture. Many are developing new market arrangements and models of organization; others are looking at new low-capital entry options, some with a heavy emphasis on marketing value-added products. Department researchers are actively engaged in applied research and extension aimed at helping to create the types of institutional arrangements and management strategies that will enable participants in Wisconsin agriculture to respond to challenges and exploit opportunities created by new technologies, policy reforms, trade liberalization, and changing demand patterns.

Demand Analysis:

The tastes and preferences of the U. S. consumer are ever changing, as evidenced by increased demand for convenience foods, the desire to consume foods with positive health characteristics and increased consumption of food away from home. Faculty members within the department are actively involved in both theoretical and empirical analyses of the changing profile of the U. S. food consumer.

Organization and Competitive Performance of Agricultural Markets and Industries:

As the organization of agricultural production, processing and distribution changes because of new technology, mergers, international competition, and other factors, questions arise concerning the effect on performance. The Food System Research Group within the department has been the nation's leader in this area of research since the mid 1970s. Recent research has examined price fixity, asymmetric pricing, and price dispersion all at the food retail level; competition in beef and pork packing, grain milling, cheese processing, carbonated soda markets, cranberry processing and milk retailing. Additional research has been to evaluate the role of state trading enterprises in distorting international markets, biotechnology advancements on the food system, strategic multinational firm mergers on the efficient functioning of markets.
The organization and competitive behavior of the U. S. food system is influenced by government policies. Price floors change the way firms view risk management and pricing strategies. Liberalized trade can be a substitute for antitrust actions; however, trade and industrial policies are sometimes in conflict with antitrust policies. Finally, government policies often act as a facilitating practice for firms to capture economic rents. An ongoing research initiative is progressing to evaluate the multidimensional role of government policies on competitive performance in the U.S. and international food systems.

Competitive Strategies for Agricultural Cooperatives:

Traditional agricultural cooperatives are challenged by the changing structure of agriculture and increasing consolidation within the food processing and distribution markets. The cooperative's unique business model demands unique competitive strategies. A cooperative's relationship with its farmer-members, who use and own the co-op, may give it a competitive advantage over investor-owned firms (IOFs). This relationship can, however, also constrain a cooperative's performance. Today, cooperatives are being asked to serve more diversified memberships, with both small and large producers, and major business decisions are often caught up in this division. New ventures essential for growth, such as strategic alliances and mergers, may be stalled due to inadequate capital, which must come in part from the membership. In response to these pressures, the cooperative model continues to change. Two new cooperative business structures have emerged over the last decade; however, a few highly visible bankruptcies and co-op conversions to IOFs suggest that traditional cooperatives are still struggling. The causes and implications of these trends for the agricultural sector are still being evaluated. In collaboration with scholars at other institutions in the U.S. and Canada, faculty in the UW Center for Cooperatives and the department are pursuing research related to these and other issues.

Agribusiness Research:

The Renk Agribusiness Institute encourages collaborative research with School of Business faculty. Examples of research in this area includes identification of competitive strategies of agribusiness firms that are successful in U. S. and international markets, analysis of the interaction between agribusiness firm strategies and public policies, and development of agribusiness case studies for use in management workshops.
Department graduates have played major roles in the research projects carried out in these areas, helping with the project design, data collection (including surveys), data analysis, research reports and publications. Examples of the research projects in which graduate students have recently participated include:
  • Farm level impacts of non-point pollution rules
  • Estimation of farmer's risk preferences
  • Analysis of the impact of risk on production and investment decisions
  • Dynamic supply response analysis
  • Risk management and hedging
  • Measuring and evaluating technical change
  • Technical and allocative efficiency of farmers
  • Agricultural policy analysis
  • Economic impacts of dairy export incentive program
  • Measuring asymmetric retail prices
  • International competitiveness of U.S. food manufacturing industries
  • The viability of the federated cooperative structure
  • The impact of dairy cooperative mergers on farm-level viability
  • Use of household based scanner data for applied demand analysis
  • Competitive consequences of strategic groups in food manufacturing and retailing industries
  • The impacts of trade liberalization on the U.S. dairy industry
  • Cropping patterns and soil erosion outcomes in Wisconsin agriculture
  • Economic analysis of alternative crops
Last updated on Thu, Jun 30, 2016 10:43am