Iowa State University Capstones, Theses and Retrospective Theses and Dissertations Dissertations 1983 The SU livestock industry: an evaluation of the adequacy and relevance of three models of consumer and producer behavior Stephen Stanley Steyn Iowa State University Follow this and additional works at: https://lib.dr.iastate.edu/rtd Part of the Agricultural and Resource Economics Commons, and the Agricultural Economics Commons Recommended Citation Steyn, Stephen Stanley, "The SU livestock industry: an evaluation of the adequacy and relevance of three models of consumer and producer behavior " (1983). Retrospective Theses and Dissertations. 7653. https://lib.dr.iastate.edu/rtd/7653 This Dissertation is brought to you for free and open access by the Iowa State University Capstones, Theses and Dissertations at Iowa State University Digital Repository. 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These prints are available upon request from the Dissertations Customer Services Department. 5. Some pages in any document may have indistinct print. In all cases the best available copy has been filmed. UniversiV Micrtïilms International 300 N. Zeeb Road Ann Arbor, Ml 48106 8316163 Steyn, Stephen Stanley THE U.S. LIVESTOCK INDUSTRY: AN EVALUATION OF THE ADEQUACY AND RELEVANCE OF THREE MODELS OF CONSUMER AND PRODUCER BEHAVIOR lom State University PH.D. 1983 University Microfilms InternSti O n si 300 N.Zeeb Road. Ann Arbor. MI 48106 PLEASE NOTE: In all cases this material has been filmed in the best possible way from the available copy. Problems encountered with this document have been identified here with a check mark V . 1. Glossy photographs or pages 2. Colored illustrations, paper or print 3. Photographs with dark background 4. Illustrations are poor copy 5. Pages with black marks, not original copy 6. Print shows through as there is text on both sides of page 7. 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For the Graduate College Iowa State University Ames, Iowa 1983 ii TABLE OF CONTENTS Page CHAPTER I. INTRODUCTION 1 CHAPTER II. BOUNDARIES OF THE STUDY 5 CHAPTER III. THE ROTTERDAM SYSTEM FOR FINAL DEMAND 14 Model Description 18 Data of the Demand Model 25 CHAPTER IV. THE SUPPLY OF MEAT AND THE DEMAND FOR FEED GRAINS - THE ROTTERDAM FORMULATION 30 Mathematical Development 30 CHAPTER V. MEAT PRODUCTION - INVENTORY FORMULATION 39 Beef Production 41 Pork Production 45 Chicken Production 46 Mutton and Turkey 46 Estimation Technique 47 CHAPTER VI. MODEL ESTIMATION AND VALIDATION 49 Evaluation of the Rotterdam Demand Model 54 Evaluation of the Rotterdam Supply Model 68 Inventory Model Validation and Estimation 73 CHAPTER VII. CONCLUSIONS AND RECOMMENDATIONS 93 BIBLIOGRAPHY 106 APPENDIX. VARIABLE DEFINITIONS DATA SOURCES AND VARIABLE TRANSFORMATIONS 112 ill LIST OF TABLES Number Page Table 3.1. Meat consumption per capita in the United States, 1950-1980 26 Table 3.2. Retail meat prices in the United States, 1950-1980 (carcass weight equivalent) 27 Table 5.1. Cash receipts from major livestock commodities, 1978-1980 41 Table 6.1. Parameter estimates for the demand system 56 Table 6.2. Parameter estimates for the symmetry constrained demand system 57 Table 6.3. Parameter estimates for the modified demand model 59 Table 6.4. Parameter estimates for the symmetry contrained, modified demand model 60 Table 6.5. Demand model performance 67 Table 6.6. Goodness of fit statistics for Rotterdam Supply 68 Table 6.7. Parameter estimates for the supply model 70 Table 6.8. Parameter estimates for the symmetry constrained supply model 72 Table 6.9. Inventory model equations 75 Table 6.10. R^ values of the inventory model 80 Table 6.11. Supply model performance 92 Table A.l. Variable definitions, units and data sources 113 Table A.2. Program steps to convert units to units used in Rotterdam demand models and program steps to calculate Rotterdam demand model variables 122 Table A.3. Program steps to convert units to units used in Rotterdam supply models and program steps to calculate Rotterdam supply model variables 124 iv LIST OF FIGURES Number Page Figure 2.1 Transforming data to knowledge 5 Figure 2.2 Hypothetical reaction curve 8 Figure 5.1 Flow diagram of the beef inventory system 43 Figure 6.1 Simulation of milk cow numbers 81 Figure 6.2 Simulation of changes in milk cow numbers 82 Figure 6, 3 Simulation of milk replacement heifers 83 Figure 6.4 Simulation of beef cow numbers 84 Figure 6.5 Simulation of Changes in beef cow numbers 85 Figure 6.6 Simulation of beef replacement heifers 86 Figure 6.7 Simulation of calf survival 87 Figure 6.8 Simulation of cattle on feed 88 Figure 6.9 Simulation of cattle on pasture and range 89 Figure 6.10 Simulation of feeder cattle slaughtered 90 Figure 7.1 Model comparisons for prime beef 96 Figure 7. 2 Model comparisons for other beef 97 Figure 7. 3 Model comparisons for pork 98 Figure 7.4 Model comparisons for mutton 99 Figure 7.5 Model comparisons for chicken 100 Figure 7.6 Model comparisons for turkey 101 Figure 7.,7 Model comparisons for veal 102 1 CHAPTER I. INTRODUCTION The stability of the agricultural sector in the United States is influenced by many factors. These include disequilibrating external factors such as the fluctuating fortunes of the oil exporting nations, the rapid rise in foreign debt of some food and oil importing coun­ tries, the increased production of food and feed grains in the Latin American countries, and the extreme fluctuations in the weather of the Soviet Union. Factors internal to the United States are no less com­ plex. The contrasting needs to earn foreign exchange through exporting grains, to use the grain trade as a political lever in the inter­ national arena, and the need to ensure an abundant and inexpensive source of food locally while maintaining farm incomes indicate the need for sophisticated policy planning techniques at the national level. These techniques include simulation modelling so that the underlying economic structure of a sector can be examined and in order that "what if" policy simulations can be evaluated. The adequacy and relevance of models in simulating the data- generating processes are tested by examining, with the general solution at hand, the unexplained variation of the process [Cox, 1958]. In ad­ dition, economic models have implications for the presumed behavior of the various economic subsectors or agents included in the system. The supportive data summarized within the equation system should accurately 2 encompass the economically meaningful behavior of all economic agents which together form the system. The capability of the system should be such that it can consistently achieve a market equilibrium broad enough to permit estimation of equilibrium prices and quantities yet be suf­ ficiently detailed to provide information on the behavior of the sub- sectors over time. Because of the complexity of the market system, the various models built to simulate it need to be built around microeco- nomic theory to allow the resulting parameter estimates to be analyzed within the context of neoclassical consumer and firm behavior.