DISSERTATION ESTIMATING the ECONOMIC IMPACTS of BIRD and RODENT DAMAGE to SELECTED CALIFORNIA CROPS Submitted by Karen Susan
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DISSERTATION ESTIMATING THE ECONOMIC IMPACTS OF BIRD AND RODENT DAMAGE TO SELECTED CALIFORNIA CROPS Submitted by Karen Susan Ilse Gebhardt Department of Economics In partial fulfillment of the requirements For the Degree of Doctor of Philosophy Colorado State University Fort Collins, Colorado Spring 2011 Doctoral Committee: Advisor: Chuen-mei Fan Alexandra Bernasek David Mushinski Dawn Thilmany ` ABSTRACT ESTIMATING THE ECONOMIC IMPACTS OF BIRD AND RODENT DAMAGE TO SELECTED CALIFORNIA CROPS This research estimates the direct financial costs and the changes in economic welfare associated with bird and rodent damage to 15 different crop markets in eight agricultural regions in California. Three different models are used to quantify this impact: a meta-analysis to aggregate and analysis a large database of 206 damage estimates from 43 studies related to 15 crops across 6 (of 8) regions of California, a direct financial cost model to identify changes in profits and costs from an individual producer’s perspective, and a combination of an equilibrium displacement model (EDM) and an economic surplus model to estimate changes to producer and consumer surpluses. Using a range of damage estimates calculated from the meta-analysis, results from the direct financial analysis indicate that birds and rodents have a direct financial impact in reducing income from lower production and increasing production costs and was calculated as a range from $1,153 m to $1,726 m. Results from the EDM and economic surplus model are the estimated gain in consumer surplus resulting from an absence of bird and rodent damage and a reduction is between $689.6 m and $$1,148.5 m and the estimated gain in producer surplus is between $396.0 m and $658.8 m. Understanding the aggregate impact of damage caused by birds and rodents to multiple economically important crops in California agriculture is crucial. The results of this study indicate that ii ` bird and rodent have caused negative impacts on California producers and consumers. Through the inclusion of a more complete damage data set, the impact of this damage on profits and consumer and producer surpluses was estimated with greater accuracy and yielded predictive and interpretive value to the profession. All candidates for advanced degrees who are required to submit theses must submit abstracts. ProQuest Information and Learning, Ann Arbor, Michigan, offers microfilming, publication of abstracts, and copyright registration services. Upon request, ProQuest will furnish reprints. iii ` TABLE OF CONTENTS ABSTRACT……………………………………………………………………….. ii TABLE OF CONTENTS………………………………………………...………... iv LIST OF FIGURES………..……………………………………………..………... vii LIST OF TABLES…………………………………………….…………………… ix CHAPTER 1: INTRODUCTION….………………………………………………. 1 1.1 Background…………………………………………………………………….. 1 1.2 Outline of research question ……………………………………….………….. 6 1.3 Outline of dissertation …………………………………………………..…….. 9 1.4 Results and implications………………………………………………….……. 9 CHAPTER 2: LITERATURE REVIEW……….………………………………….. 11 2.1 Conceptualization of Bird and Rodents in Crop Production Systems ………… 13 2.2 Direct financial cost studies …………………………………………………… 15 2.2.1 Jones et al. (2005)...……………………....……………..………… 16 2.2.2 Cummings et al. (2005) …………………………...………………… 21 2.2.3 Berge et al. (2007) ………………………………………..………… 22 2.2.4 Strengths and weaknesses of direct financial cost studies ………….. 24 2.3 Estimating Changes in Market Price and Quantity in the Presence of Damage using Equilibrium Displacement Models……………………………. 27 2.3.1Characteristics of Equilibrium Displacement Models………..……… 29 2.4 Estimating the Welfare Effects using an Economic Surplus Analysis ………... 38 2.4.1 Using results from an EDM to estimate changes in producer, consumer, and total surpluses ………..………………………….... 41 2.4.2 Assessing the Critical Variables and Assumptions of Equilibrium Displacement Models and Economic Surplus Analysis...….….…… 43 iv ` 2.4.3 Strengths and Weaknesses of Equilibrium Displacement Modeling ... 46 2.5 Applications of Equilibrium Displacement Modeling and Economic Surplus Modeling of the Impacts of Disease, Weed, or Insect Pests in Agriculture....... 48 2.5.1Choi et al., 2003 ……………………………………….……..……… 48 2.5.2 Alamo et al., 2007………….………………………….……..……… 54 2.5.3 Hoddle et al., 2003…………………………………….……..……… 60 2.5.4 Jones et al., 2005………………………………...…….……..……… 67 2.6 Conclusion ……………………,……………..………………….……..……… 69 CHAPTER 3: DIRECT FINANCIAL COST ESTIMATES OF BIRD AND RODENT DAMAGE AND ESTIMATING CHANGES IN ECONOMIC SURPLUSES DUE OT BIRD AND RODENT DAMAGE USING AN EQUILIBRIUM DISPLACEMENT MODEL AND AN ECONOMIC SURPLUS ANALYSIS …………………………………………………….… 72 3.1 The Assumption of Perfect Competition ……………….……………..……… 73 3.1.1 Supply Chain for Food ……………………………….……..……… 74 3.1.2 The Assumption of Perfect Competition at the Producer …………… 75 3.1.3 Potential Market Power ………………………………….…..……… 78 3.1.3.1 Federal and California State Marketing Programs...…...… 78 3.1.3.2 Cooperative Bargaining Associations ……….……….…… 83 3.1.4 Modeling Agriculture as Perfectly Competitive in Economic Literature……………………………………………....……..……… 85 3.2 Estimating Direct Economic Costs of Bird and Rodent Damage using a Direct Financial Cost Analysis …………………….…………..……….……..……… 86 3.3 Equilibrium Displacement Model and Economic Surplus Analysis …..……… 89 99 CHAPTER 4: DATA SOURCES AND ANALYSIS…………...………....……… 4.1 Meta-regression Analysis Used to Identify Damage Parameter ……...……… 100 4.1.1 Bird and rodent caused damage to California agriculture, a background………………………………………………....……… 102 4.1.2 Conditional Means…………………………………...……....……… 105 4.1.3 Meta-analysis…………………....…………………………………… 110 4.1.4 Meta-analysis to determine causes of variation between damage estimates………………….......................................................……… 114 4.1.5 Results and discussion…………………..................................……… 120 4.1.6 Final damage estimates for crop groups and regions..……....……… 123 4.2 Control cost and cost of production data ………………………...…....……… 124 v ` 4.3 Identification of Current Price and Quantity Data……………………...……… 129 4.4 Elasticity Data…………………………………………….………….....……… 130 134 CHAPTER 5: RESULTS AND CONCLUSION………..………….….....……… 5.1 Direct Financial Cost Analysis Results ………………………….….....……… 134 5.2 EDM and economic surplus model results ………………………….....……… 138 5.3 Sensitivity analysis…………………………………………….…….....……… 143 5.4 Implications on consumer and producer surpluses if assumption of perfect competition does not hold…………..……………………..………….....……… 146 5.5 Conclusion and future work……………….………..……………….....……… 148 152 LITERATURE CITED …………………..………………….………….....……… 172 Appendix A: Bird and Rodent Damage Data Sources………………….......……… Appendix B: Pest Control Expenditures Data Sources………………….....……… 193 Appendix C: Three Year Crop Production Acreage, Yield, and Price Data….…… 206 vi ` LIST OF FIGURES Figure 1.1: Flow chart representation of proposed research. …………………...... 8 Figure 2.1: Birds and rodents in the agricultural production system……………… 13 Figure 2.2: A decrease in supply is an upward shift to the left of the supply curve... 32 Figure 2.3: Measuring producer, consumer, and total surpluses. When there is a decrease in supply, total surplus falls. ………………….….....……… 39 Figure 2.4: Measuring deadweight loss with different demand elasticities. Curve D is relatively more elastic than curve D’. With the same decrease in supply, greater deadweight loss exists with curve D (area abc > area a’b’c’). …………………...........................................................……… 44 Figure 2.5: Measuring deadweight loss with different supply elasticities. Curves S0 and S1 are relatively more elastic than curves S0’ and S1’. With the same decrease in supply, greater deadweight loss exists with curves S0 and S1 (area abc > area a’b’c’). …………………………….....……… 45 Figure 3.1: The supply chain for food. ………………………….……….....……… 74 Figure 3.2: Supply effects of bird and rodent damage (shift a) and control (shift b)………………………………………………………………………………... 90 Figure 3.3: Map of California’s Agricultural Statistics Regions………………...… 91 Figure 3.4: Supply effects of bird and rodent damage and control costs where (a) represents the production cost increase due to control expenditures and the loss in yield due to uncontrolled bird and rodent damage. ...… 92 Figure 4.1: Eight California Agricultural Statistical Districts…………………...… 106 Figure 4.2: Conditional means for all data and study method. ………….....……… 107 Figure 4.3: Conditional means for all data and crop groups. ………….......……… 107 Figure 4.4: Conditional means for all data and crop groups with study method. .… 108 Figure 4.5: Conditional means for all data and regions. ………………………….. 108 vii ` Figure 4.6: Conditional means for all data and crop groups with regions. ……..… 109 Figure 5.1: A simple monopoly model. …………………….…………….....……… 147 viii ` LIST OF TABLES Table 3.1: Number and size of farms in California……………...……….....……… 76 Table 3.2: Modeled crops which have active Federal and/or State Marketing Programs. ………………………………………………….….....……… 80 Table 3.3: Participation in California Cooperatives, 1993 – 2007. ……..……....… 84 Table 4.1: Number of studies and observations by source type……………..……… 101 Table 4.2: Summary of damage values of California Crops (%)…………....……… 101 Table 4.3: Conditional Mean Results, Summary Data………………..….....……… 109 Table 4.4: Meta-analysis Results, Summary Data…………………….….....……… 121 Table 4.5: Final Damage Estimates (%)……………………………...….....……… 124 Table 4.6: Estimated