FARM-LEVEL FEED DEMAND IN TURKEY

Transcription

1 FARM-LEVEL FEED DEMAND IN TURKEY Frank Fuller, A. Al Koç, Haydar ùengül, and Ahmet Bayaner Workng Paper 99-WP 226 October 1999 Center for Agrcultural and Rural Development Iowa State Unversty Ames, IA Frank Fuller s an assocate scentst, Center for Agrcultural and Rural Development, Iowa State Unversty. A. Al Koç s an assocate professor and Haydar ùengül s an assstant professor, Çukurova Unversty, Faculty of Agrculture, Adana, Turkey. Ahmet Bayaner s wth the Agrcultural Economcs Research Insttute, Ankara, Turkey. Submtted as a Selected Paper at the 1999 Amercan Agrcultural Economcs Assocaton (AAEA) Meetngs, Nashvlle, Tennessee. For questons or comments about the contents of ths paper, please contact, Frank Fuller, Iowa State Unversty, 571 Heady Hall, Ames, IA ; e-mal fhf@astate.edu; phone: ; fax: Iowa State Unversty does not dscrmnate on the bass of race, color, age, relgon, natonal orgn, sexual orentaton, sex, martal status, dsablty, or status as a U.S. Vetnam Era Veteran. Any persons havng nqures concernng ths may contact the Drector of Affrmatve Acton, 318 Beardshear Hall,

2

3 Abstract Usng farm-level survey data from Turkey, ths study provdes estmates of the prce responsveness of feed demand beef, dary, and sheep producers. In addton, the mpact of feed qualty on anmal yelds s assessed n the Turksh dary cattle sector. Key words: farm-level survey, Turkey, feed demand, feed qualty, dary, slaughter weghts, byproducts.

4 FARM-LEVEL FEED DEMAND IN TURKEY In recent years, Turksh lvestock supply has struggled to keep pace wth the current growth n domestc demand. Ths s partcularly true n the red meat sector. Both cattle and sheep nventores have declned sgnfcantly snce early 1980s; however, average slaughter weghts and mlk yelds have ncreased over the same perod. Accordng to the Turksh Mnstry of Agrculture and Rural Affars (MARA, 1994), the breed composton and feedng practces are two mportant factors affectng yeld growth n Turkey. The objectve of ths study s to ncrease our understandng of Turksh feed demand by provdng estmates of the prce responsveness of feed demand on beef, dary, and sheep farms n Turkey. In addton, we seek emprcal evdence that feed nput qualty ncreases feed effcency and anmal productvty. The supply of feed and nutrents for the lvestock ndustry n Turkey s a major lmtaton for contnued productvty and producton ncreases. The MARA estmates that Turkey s domestc supply of proten feeds n 1991 was 1,965 thousand metrc tons (tmt), but demand for proten feed n that same year was 2,597 tmt. Wthout sgnfcant ncreases n the producton of foodstuffs, the gap between the supply and demand for proten feeds and other nutrents wll wden rapdly as lvestock numbers and meat producton ncrease. Ultmately Turkey may have to rely more heavly on mported meats and feeds (MARA, 1994) or suffer a reducton n productvty growth as a consequence of hgh feed prces and shortages of qualty feeds. Turkey s future demand for feed grans wll be determned by producton ncreases and the composton of feed ratons. The nutrtonal value and relatve prce of each feed nfluence the feed mx. grans and olseed meals provde energy and proten n a compact form; consequently, ther unt prce s sgnfcantly hgher than less nutrtous fodders and forages. However, the greater nutrtonal densty of feed grans enables anmals to ncrease ther daly proten and energy ntake, rasng productvty and feed effcency.

5 6 / Fuller, KoùHQJ ODQG%D\DQHU Methodology We choose to represent the technology n each type of lvestock producton n Turkey by a separable cost functon. The advantage of assumng separablty s that t allows us to analyze nput demands n the Turksh lvestock sector as a two-stage process, reducng the data demands of the analyss. In the frst stage, the unt cost of each aggregate nput, composed of several nputs, s mnmzed. In the second stage, the aggregate nputs are combned n a cost mnmzng fashon to obtan the desred output level. Consequently, separablty allows us to focus on the frst-stage optmzaton process for an nput aggregate, such as feeds, ndependent of other nput aggregates. More formally, f y s the output of a partcular lvestock product, x the vector of feed nputs, w the vector of prces for these feed nputs, z the vector of all other nputs (labor, machnery, land, etc.), and r the vector of prces of these other nputs, we assume that the cost functon, c y, r, w, has the followng strongly separable form. 1 2 (1) c r, w, y c y, r c y, w The cost functon n equaton (1) possesses the standard propertes of a cost functon. It s realvalued, non-negatve, non-decreasng n nput prces and output, and lnearly homogeneous and concave n the nput prces (Dewert, 1982). In addton, the functon c s lnear homogeneous n the sub-cost functons c, and the sub-cost functons themselves possess the standard propertes of a cost functon outlned above (Chambers, 1988). Separablty mples that the rato of two nputs n the same group s ndependent of changes n the prces of nputs outsde the group. Consequently, the derved-demand elastctes must be equal for nputs wthn a group wth respect to changes n prces of nputs n other groups. Substtuton relatonshps among nputs wthn a group are not restrcted by the separablty assumpton. In the exstng emprcal lterature, studes of derved demands, ncludng feed demand, frequently use the transcendental logarthmc (translog), normalzed quadratc, or Generalzed Leontef (GL) functonal forms to represent the cost functon (Berndt and Wood, 1975; Bnswanger 1974; Kako, 1978; Lopez, 1980; Ray, 1982; Surry and Moschn 1984; Hggns, 1986; Mergos and Yotopoulos, 1988; Huang, 1991; and Laure et al., 1996). All three of these

6 Farm-Level Demand n Turkey / 7 specfcatons are flexble functons that can be nterpreted as a second order approxmaton to an arbtrary twce-dfferentable cost functon. For comparablty, we follow prevous authors and select the translog specfcaton shown n 2 equaton (2) to approxmate the sub-cost functon c y, w (2) ln 2 1 c y, w D D lnw J lnw lnw 0 E ln 0 y E lnylnw G R lnw 2 j The varables n equaton (2) are defned above except R k, whch are dummy varables for the eastern and western regons of Turkey. Applyng Shephard s lemma to equaton (2), we can obtan an expresson for the demand for feed nput. Ths expresson can be further manpulated to arrve at the share of total feed costs attrbuted to feed, s, shown n (3). (3) s D J j ln w j E lny j k G k R k j The symmetry, homogenety, and addng-up propertes of demand mply the followng parameter restrctons. (4) D 1 ; J J ; and J E G 0 j j j Prce responsveness of feed demand s summarzed by own-prce and cross-prce elastctes that can be calculated from equaton (3) usng the followng formulae. (5) H J s 1 s J j (6) H j s s j Input substtuton s measured by the Morshma elastcty of substtuton (MES). Chambers (1988) derves MES ( V M (7) V j H j H jj M j ) as follows. The MES measures the percentage change n the rato of a par of factors wth respect to a change n the rato of ther respectve prces. Consequently, the MES provdes comparatve-statc nformaton about relatve factor shares as factor prces change. If the MES s greater (less) than k k k. j k

7 8 / Fuller, KoùHQJ ODQG%D\DQHU zero, then the relatve share of th factor ncreases (decreases) as the prce of the j th factor rses. Two nputs are Morshma substtutes f M V j s greater than zero (Blackorby and Russell 1989). Data and Estmaton The authors obtaned permsson from the Turksh Agrcultural Economcs Research Insttute (AERI) to use n ths study ther producton and cost data collected from cattle and sheep farmers across Turkey n The data set ncludes data from 150 beef cattle farms, 150 sheep fattenng operatons, 300 dary cattle farms, and 295 sheep and goat dary farms. The survey collected nformaton about the quanttes consumed and prces of 17 feed tems, as well as other producton and cost data. We aggregated the feeds nto four major feed categores for cattle and dary sectors: formula feed, forages, byproduct and meals (BY-M), and grans. Producers rasng sheep and goats for slaughter n Turkey use less byproduct feeds than cattle and dary producers, so t was necessary to combne the byproducts and meal category wth the grans (BY-M-G). The data s not sutable for computng a Dvsa ndex, so the prce ndces for the feed aggregates were computed as a weghted average of reported feed prces usng the sample average expendture shares as weghts. A system of share equatons based on equaton (3) and subject to the restrctons n (4) was estmated usng an teratve verson of Zellner s seemngly unrelated regressons (SUR) technque. Homogenety was mantaned by normalzng all feed prce ndces by the gran prce ndex or the forage prce ndex. One of the cost share equatons was dropped from the system to avod sngularty of the error covarance matrx. Emprcal Results Table 1 provdes the estmates of equaton (5) for fed cattle and dary cattle producers. feed and forage equatons ft reasonably well n the fed cattle system, wth two of the three prce terms sgnfcant at the 1 percent level. Estmated coeffcents n the byproduct and olseed meal equaton are not sgnfcant at the 5 percent level. Smlar results are obtaned for the dary cattle system. Monotoncty and concavty tests revealed that volatons occurred n less than 5 percent of the observatons n both systems.

8 Farm-Level Demand n Turkey / 9 Table 1. Parameter Estmates of Cost Share Equatons for Fed Cattle and Dary Cow Independent Varable Constant (2.5) Ln(Quantty) (-2.1) Ln (Ffeed / Gran Prce) Ln ( / Gran Prce) Ln (By-Om / Gran Prce) (3.9) (-4.6) (-1.5) Fed Cattle (4.5) (0.3) (-4.6) (6.0) (-1.1) Byprod and Meals (1.0) (1.2) (-1.5) (-1.1) (-1.1) Dependent Cost Share Gran (-2.2) (3.7) (2.7) (-2.3) (-0.7) Dary Cow (4.5) (-1.8) (-2.3) (3.1) (-0.9) Byprod and Meals (0.5) (1.1) (-0.69) (-0.95) R Average Value Average Predcted Mnmum Predcted Gran (4.5) * Note: t-statstcs are n parentheses. Bold denotes sgnfcance at the 5 percent level and talcs denotes sgnfcance at the 10 percent level Table 2 dsplays the prce elastctes and Morshma nput substtuton elastctes evaluated at the sample mean. Despte the relatvely poor ft of the BY-M equaton, the demand elastcty matrces for both the beef and dary cattle sectors fall n the range of reasonable estmates. The own-prce elastcty of formula feed demand s the most nelastc for both beef and dary producers. Ths s not surprsng because formula feeds contan the hghest levels and greatest balance of proten and energy feed. Turksh cattle producers rely on formula feeds to provde a

9 10 / Fuller, KoùHQJ ODQG%D\DQHU substantal porton of the anmal s daly nutrtonal requrements, supplementng formula feeds wth less expensve gran, olseed meals, and byproduct feeds. s account for 27 percent of beef cattle ratons and 55 percent of dary cattle ratons. s are the most mportant source of crude fber n cattle dets, but they can also contan substantal amounts of proten and energy. In beef cattle ratons, forages substtute most frequently for by-products, olseed meals, and grans. Dary producers feed sgnfcantly more forages and less formula feed than beef producers, and the substtuton between forages and formula feeds s greater n the dary sector. Table 2. Prce and Substtuton Elastcty Tables Fed Cattle Byprod - Meal Prce Elastctes Gran Dary Cow Byprod- Meal Byprod-Meal Gran Gran Morshma Substtuton Elastctes Byprod - Meal Gran Byprod - Meal Gran Byprod-Meal Gran Table 3 dsplays the estmaton results for the fed sheep and dary sheep sectors. The formula feed and the BP-M-G share equatons were estmated. The equatons n the fed sheep system dd not perform as well as n the cattle sector; however, all but one prce term was sgnfcant at the 10 percent level. The estmated equatons ft much better n the dary sheep sector. Three out of four prce coeffcents were sgnfcant at the 5 percent level. The coeffcent

10 Farm-Level Demand n Turkey / 11 Table 3. Parameter Estmates of Cost Share Equatons for Fed Sheep and Dary Sheep Sectors Independent Varable Fed Sheep Dependent Cost Share Byprod., Meal, & Gran Dary Sheep Byprod., Meal, & Gran Constant (1.6) (3.0) (-0.1) (2.0) Ln (Quantty) (1.3) (0.2) (-0.2) (-0.2) Ln (Ffeed / Prce) (0.7) (-1.9) (3.4) (-2.0) Ln (By-Om-Grn / Prce) (-1.9) (2.7) (-2.0) (4.1) Dummy (West) (2.4) (-4.1) Dummy (East) (-1.5) (6.2) Sheep Mlk / Total Mlk (Sheep + Goat) (1.8) (0.9) R Average Value Average Predcted Mnmum Predcted Note: t-statstcs are n parentheses. Bold denotes sgnfcance at the 5 percent level and talcs denotes sgnfcance at the 10 percent level

11 12 / Fuller, KoùHQJ ODQG%D\DQHU on the quantty varable n the formula feed equaton s nsgnfcant and has the wrong sgn. The equatons n both sheep systems satsfy the monotoncty and concavty propertes for all observatons. Table 4 shows the prce and substtuton elastctes for the sheep sector. The own-prce demand elastctes n both the fed sheep and dary sheep sectors are nelastc, slghtly smaller than n the cattle sector. In the fed sheep sector, demand for forages s the most responsve to changes n feed prces. s account for 35 percent of total feed n the sector; however ths share s very responsve to changes n formula feed and BY-M-G prces. In the dary sheep sector forages play a much smaller role, accountng for roughly 17 percent of total feed. The BY- M-G aggregate accounts for more than 70 percent of total feed consumed by dary sheep. In terms of nutrton, formula feeds and the BY-M-G aggregate serve very smlar roles n the fed sheep and dary sheep ratons. Consequently, demand for formula feeds responds more to changes n the BY-M-G prce ndex than to changes n the forage prce ndex. Table 4. Prce and Substtuton Elastcty Tables Fed Sheep Prce Elastctes Byprod., Meal, & Gran Dary Sheep Byprod., Meal, & Gran Byprod., Meal, & Gran Morshma Substtuton Elastctes Byprod., Meal, & Gran Byprod., Meal, & Gran Byprod., Meal, & Gran

12 Farm-Level Demand n Turkey / 13 Impacts of Qualty Two addtonal equatons were estmated for the dary cattle sector to obtan evdence of the mpact of ncreased use of qualty feeds on feed effcency and productvty. Startng from equaton (1), we assume the cost functon s lnear homogeneous n output, and we derve the quantty of feed per unt of total output from the second-stage mnmzaton of total cost. The optmal quantty of feed per unt of output (UFI) wll depend on both the prce ndex for feeds (p 2 ) and the prce ndex for other nputs (p 1 ). We approxmate the feed prce ndex wth the Stone prce ndex for feeds usng the sample average feed expendture shares and reported prces to construct the ndex. As a proxy for the prce of other nputs, we use the unt varable cost less unt feed costs. We add a regonal dummy varable (DW), whch has a value of one for producers n western Turkey, and the number of days spent on pasture (MDW) as addtonal explanatory varables. In order to capture the effect of feed qualty on feed effcency, we also nclude the share of formula feed n the total feed raton (QQF). The fnal regresson equaton s shown n equaton (8). (8) D D p D p D QQF D MDW DW UFI D 5 Equaton (8) was estmated for over two data samples, producers mlkng cultured cattle and producers mlkng crossbred and domestc cattle. The results are dsplayed n Table 5. As expected, a greater share of qualty feed n the total feed raton reduces the total quantty of feed per unt of output, hence, ncreasng feed effcency. A 10 percent ncrease n the share of qualty feed decreases unt feed use by 2 percent. The results from dary producer mlkng cultured cattle were compared to those mlkng crossbred and domestc cattle. A Wald test was used to check for evdence that the parameters of the estmated equaton for cultured cattle are sgnfcantly dfferent from those estmated for other cattle. The test statstc reported n Table 5 does not exceed the crtcal value of 16.81; therefore, we accept the null hypothess that the two types of cattle are equally mpacted by ncreased feed qualty. The mpact of feed qualty on anmal productvty s assessed by regressng output per cow on net revenues (NREV), a regonal dummy varable (DW), the number of days spent on pasture (MDW), and the share of formula feed n the total feed raton (QQF). Ths yeld equaton was also estmated separately for cultured cattle and other cattle. The results n Table 5 ndcate that

13 14 / Fuller, KoùHQJ ODQG%D\DQHU ncreasng the share of qualty feed has a substantal postve mpact on mlk output per cow. Unlke feed effcency, the Wald test reveals that there s a sgnfcant dfference n the mpact of qualty feed on output per cow. The test statstc of soundly rejects the null hypothess that the estmated coeffcents are the same n both equatons. Although ths test does not allow us to separate out the effects of the feed qualty varable, the coeffcent estmates ndcate that a 10 percent ncrease n the share of qualty feed wll ncrease output per cow by 2.3 percent for other cattle and only 0.7 percent for cultured cattle. Even though cultured cattle yelds average nearly 50 percent hgher than yelds for domestc and crossbred cattle, the ncrease for cultured cattle s roughly half as large n absolute quanttes as for other cattle. Table 5. Effcency and Productvty Estmaton Results Cultured Cattle Other Cattle Dependent Varable Unt Input Yeld Per Cow Unt Input Yeld Per Cow Constant 11.5 (2.4) (16.6) Net Returns 3.7 (2.6) Prce Index -0.8 (-1.8) Other Cost Index 35.1 (1.7) 38.0 (2.0) -3.2 (-1.8) 67.4 (2.2) (8.4) 4.0 (4.4) Qualty -5.0 (-2.1) (2.4) -7.4 (-1.9) (5.5) Pasture (-1.2) (-0.6) (-1.6) -3.6 (-2.4) Western Dummy (-0.1) (2.1) -2.3 (-1.7) (3.1) R Wald Statstc Note: t-statstcs are n parentheses. Bold denotes sgnfcance at the 5 percent level and talcs denotes sgnfcance at the 10 percent level

14 Farm-Level Demand n Turkey / 15 Conclusons The demand and nput substtuton elastcty estmates n ths study ndcated that Turksh producers consder qualty formula feeds to be an ntegral part of ther feed regme. As feed prces change, producers substtute grans, olseed meals, and byproduct feeds for formula feeds; however, the demand for lower qualty feeds tends to be more elastc than for formula feed. Estmaton of unt feed nputs and yelds n the dary cattle sector revealed that ncreasng qualty feeds sgnfcantly mproves feed effcency and ncreases productvty. Although there does not appear to be a dfference n the mpacts of qualty feed on feed effcency for dfferent breeds of cattle, yelds of domestc and crossbred cattle ncrease nearly twce as much as cultured cattle. In lght of these results, Turkey could mprove ts ablty to meet future demand for lvestock products by mplementng government polces that ncrease the avalablty of formula feeds and qualty feed ngredents. Currently, the Turksh government supports domestc gran and lvestock producers through support prces, nput subsdes, and substantal mport tarffs. Openng domestc markets to lower-cost mported feed grans s one polcy opton that would lower the cost and ncrease the avalablty of qualty feedstuffs. In addton, polces that encourage producers mlkng crossbred and domestc cattle to ncrease ther use of qualty feeds wll yeld a short-run ncrease n mlk output, whle the long-run productvty of the herd can be rased by ncreasng the share of cultured cattle n the dary herd.

15

16 References Berndt, E. R., and D. O. Wood. (1975) Technology, Prces and the Derved Demand for Energy. Rev. Econ. & Stat. 57: Bnswanger, H. P. (1974) A Cost Functon Approach to the Measurement of Factor Demand and Elastctes of Substtuton. Amer. J. Agr. Econ. 56: Blackorby, C., and R. R. Russell. (1989) Wll the Real Elastcty of Substtuton Please Stand Up? (A Comparson of the Allen/Uzawa and Morshma Elastctes). Amer. Econ. Rev. 79: Chambers, R.G. (1988) Appled Producton Analyss: A Dual Approach. Cambrdge, MA: Cambrdge Unversty Press. Dewert, W. E. (1982) Dualty Approaches to Mcroeconomc Theory. In K.J. Arrow and M.D. Intrlgator (eds.) Handbook of Mathematcal Economcs, Vol. II, Amsterdam: North-Holland. Hggns, J. (1986) Input Demand and Output Supply on Irsh Farms-A Mcro Economc Approach. Eur. Rev. Agr. Econ. 13: Huang, K. S. (1991) Factor Demands n the U.S. Food-Manufacturng Industry. Amer. J. Agr. Econ. 73: Kako, T. (1978) Decomposton Analyss of Derved Demand for Factor Inputs: The Case of Rce Producton n Japan. Amer. J. Agr. Econ. 60: Lopez, R. E. (1980) The Structure of Producton and the Derved Demand for Inputs n Canadan Agrculture. Amer. J. Agr. Econ. 62: Laure, B., Y. Dssou, and G. E. West. (1996) Model Specfcaton and Economes of Sze n the Canadan Brewng Industry. Rev. Agr. Econ. 18: Mergos, G. J., and P. A. Yotopoulos. (1988) Demand for Inputs n the Greek Lvestock Sector. Eur. Rev. Agr. Econ. 15:1-17.

17 18 / Fuller, Ko, Sengul, and Bayaner Mnstry of Agrculture and Rural Affars (MARA). (1994) The Development of the Lvestock Sector n Turkey: Turksh Lvestock Strategy Study: Man Report. Ankara. Ray, S. C. (1982) A Translog Cost Functon Analyss of U.S. Agrculture, Amer. J. Agr. Econ, 64: Surry, Y., and G. Moschn. (1984) Input Substtutablty n the EC Compound Industry. Eur. Rev. Agr. Econ. 11: