A time-series analysis of the effects of government policies on the U.S. beef cattle industry☆ uri icon

abstract

  • Although the import quota is the only policy specifically targeted at the beef industry, policies designed to influence economic conditions in other sectors may indirectly affect beef. In fact, it is possible that the effects of feed grain and dairy policies are as great or greater than the direct effects of the import quota (Arzac and Wilkinson, 1979, and Ospina and Shumway, 1980). For example, Ospina and Shumway (1980) found that beef supplies are more responsive to changes in com prices than to changes in their own price. Interest in the indirect effects of dairy policies on the beef industry was stimulated by the 1986 dairy termination program (DTP) (Marsh, 1988). This program had the potential to generate substantial increases in the supply of beef as a result of its provisions for the slaughter of large numbers of dairy cows. Marsh found that the DTP did lead to a fall in beef prices of about 5 percent.
  • An alternative approach for policy analysis is to work with a reduced form that loosely imposes prior theory on the model but that allows historical regularities greater influence on the policy projection. Such approaches, termed here as time-series approaches to distinguish them from structural approaches, have generally resulted in good out-of-sample forecast performance (Kling and Bessler, 1985). Sims (1982) argues that such approaches allow for loose dynamic structures, which may change through time and interact with the policies being studied.
  • Government intervention in agricultural markets is extensive in most industrialized countries. In the United States, complex policies have been elaborated in an effort to change or regulate producer and consumer prices, farm incomes, and a host of other aspects of the food and fiber system. Within this complex array of policies, the U.S. beef cattle industry appears to be relatively free of government influence. A single policy, an import quota, has been used to stabilize prices and protect producer incomes (Henry, 1988). The effects of this policy have been analyzed by Freebairn and Rausser (1975), Arzac and Wilkinson (1979), Rausser and Hochman (1979), Chambers et al. (1981), and Martin and Heady (1984). In general, these studies show that eliminating the quota (or setting it at a higher level) would lead to decreases in beef prices ranging from 2 to 6 percent.
  • Most of the studies cited above were based on structural models from which multipliers were derived. These models often include policy variables that are varied exogenously to evaluate the effects of alternative policies. This approach has been criticized by Sims (1980) on the grounds that the large number of restrictions required to build structural models is generally false and that the models are nominally overidentified. That is, the zero restrictions used to achieve econometric identification are generally not believable. Such models, although they provide satisfying ex post facto explanations for historical data, generally offer modest and sometimes quite poor real-time forecasts (see Cooper, 1972).
  • The purpose of this paper is to use time-series methods to analyze the effects of agricultural policies on the U.S. beef cattle industry, including both direct policies such as the beef import quota and feed grain and dairy policies that may indirectly affect the beef industry. The analytical approach adopted for this study is described in the second part of the paper. In the third part, a time-series model is used to analyze the effects on the U.S. beef cattle industry of variations in support prices for com, the DTP, and changes in the levels of imported beef. The final part of the paper includes conclusions and a discussion of the policy implications of the empirical results.

publication date

  • 1993
  • 1993