Research Projects: A Summary of Objectives, Procedures, and Findings

1. Research Projects: A Summary of Objectives, Procedures, and Findings By Dr. Shida Henneberry Professor of Agricultural Economics Oklahoma State University srh@okstate.edu

2. A Summary of Objectives, Procedures, and Findings • International Development • International Trade • Food Marketing and Demand Analysis SH, Feb 2004

3. International Development: • Economic and Social Impacts of NAFTA in Mexico • Industrial – Agricultural Interactions in Pakistan • Linkage between Ag. Exports and Economic Growth • Pakistan SH, Feb 2004

4. Economic & Social Impacts of NAFTA in Mexico NAFTA Concerns: U.S.: American unskilled labor are not able to compete against Mexican labor Mexico: Small manufacturers and agriculturalists unable to compete against large American & Canadian firms Canada: The impact on traditionally subsidized & protected Employment sector Production sector SH, Feb 2004

5. Economic and Social Impacts of NAFTA in Mexico Objective: To evaluate the impact of NAFTA on peasant welfare in five rural villages in Traxcala, Mexico SH, Feb 2004

6. Economic and Social Impacts of NAFTA in Mexico Procedures: • Comparative Static Analysis • Linear Programming Model of Household Production System • Incorporating expected Post-NAFTA changes in Agricultural Prices and Industrial Demand for Labor SH, Feb 2004

7. Economic and Social Impacts of NAFTA in Mexico Results: • Inequitable distribution of NAFTA changes across: • Genders • Producers with varying resource bases • Increased industrial demand for labor has injected additional income • Offsetting losses caused by Ag. Prices SH, Feb 2004

8. Industrial – Agricultural Interactions - Pakistan Objective: To analyze the relationship between Pakistan’s industrial and agricultural sectors. The relationship between cotton production & industrial growth. SH, Feb 2004

9. Industrial – Agricultural Interactions - Pakistan Pakistan: 1. Semi-industrialized 2. Heavy dependence on Ag Policy makers face major ag. policy reforms in quest for industrial development Much of Pakistan’s industrial growth has been funded at the expense of the agricultural sector. SH, Feb 2004

10. Industrialization has been successful in GDP Growth SH, Feb 2004

11. Industrial – Agricultural Interactions Procedure: Econometric Analysis of the growth rate in: Agricultural GDP Industrial GDP SH, Feb 2004

12. Industrial – Agricultural Interactions Results: Both sectors (Agricultural & Industrial) have benefited from their relationship The industrial sector has gained more SH, Feb 2004

13. Industrial – Agricultural Interactions Conclusions: • Agricultural growth and rural development should be given top priority • Their growth helps the industrial sector grow even faster • Ag. Development does not have to be abandoned in order to focus resources on industrial development SH, Feb 2004

14. Linkage Between Ag. Exports and Economic Growth Objectives: The relationship between Agricultural exports & economic growth in Pakistan SH, Feb 2004

15. Linkage Between Ag. Exports and Economic Growth Procedures: Econometric estimation of three simultaneous equations on: GDP Ag. Exports Total Imports SH, Feb 2004

16. Linkage Between Ag. Exports and Economic Growth • Independent variables: • Income remittances form abroad • Investment • Manufactured exports SH, Feb 2004

17. Linkages Between Ag. Exports & Econ. Growth Findings: A favorable relationship exists between agricultural exports & growth in GDP SH, Feb 2004

18. International Trade • Wheat Export Market Development: • A case study of Oklahoma Direct Shipments to Mexico SH, Feb 2004

19. Economic Analysis of Unit-train Facility Investment Shida R. Henneberry, Professor Haerani N. Agustini, Graduate Assistant Department of Agricultural Economics Oklahoma State University SH, Feb 2004

20. INTRODUCTION • NAFTA has increased grain trade between the U.S. and Mexico. • Oklahoma is among the largest producers of Hard Red Winter Wheat. SH, Feb 2004

21. Quality Characteristics Demanded by Mexican Buyers are Changing: • Changes in consumption patterns in Mexico • Advances in milling & baking technologies SH, Feb 2004

22. In recent years, there have been direct shipments of wheat from Oklahoma to Mexico. • Suppliers are Oklahoma farmer-owned cooperatives/elevators. • Buyers are Mexican Millers. SH, Feb 2004

23. Benefits of Direct Shipments: • To Buyer • Identity-Preservation • Availability of processed-based information (e.g. Non-biotech) • To Sellers • Price Premiums SH, Feb 2004

24. IP Marketing Arrangement is Attributed to: • Diversification/specialization in production • Technological advancements in processing/marketing • Sophistication in consumer demand • Low commodity grain prices SH, Feb 2004

25. Typical Grain Transportation Network SH, Feb 2004

26. Shipping via Direct Shipment Involves: • No other stops at other elevators • No co-mingling of wheat from the specific source (that meets buyer specification) with wheat from other sources (that may not meet specification). SH, Feb 2004

27. Transportation Structure Involved in Direct Shipments: • Single-car trains (1-24 cars) • Multi-car trains (25-49 cars) • Unit-car trains (50-99 cars or more) SH, Feb 2004

28. Unit-Car Train Benefits: • Rate Savings because of reduced: • Loading/unloading time • Switching time • Waiting time per car SH, Feb 2004

29. Unit-Car Train Costs: • Larger investment in load-out facility (several mil. $’s): [unit-trains are on a strict schedule] SH, Feb 2004

30. Objective The objective of this study is to calculate the financial returns to investment in unit-train facilities in Oklahoma for direct shipment of wheat to Mexico. SH, Feb 2004

31. Sources of Data • Fixed investment cost of unit-train (100+ car) structures from Oklahoma elevators. • Annual operating costs were adapted from Vachal, et. Al (1999) SH, Feb 2004

32. Methods of Analysis • Three methods were used to evaluate the profitability of investment in a unit-train facility: • Net Present Value (NPV) • Benefit-Cost Ratio (B/C) • Return-to-Investment (RTI) or Internal-Rate-of Return (IRR) SH, Feb 2004

33. Methods of Analysis Total Benefit: B = Q (PIP- PTR) + Q (TS) Bis the difference between total revenue from selling wheat through direct shipments (IP wheat) and selling through the traditional channels, at the elevator’s posted price (terminal market price) Q is quantity of wheat available for shipment PIPis the price received from Mexican miller PTRis the terminal market price TS is the transportation savings per bushel from using a unit-train SH, Feb 2004

34. Net Present Value (NPV) of Investment is Calculated as: Btis as defined before, in period t Ct isthe cost of investment in unit-train, in period t, first year is the cost of investment, the remaining periods is the annual operating cost. i is the discount rate and N is the number of years the investment lasts. SH, Feb 2004

35. Return-to-Investment Internal Rate of Return (IRR) or Return-to-Investment is the discount rate i that sets NPV = 0. SH, Feb 2004

36. Base Cost: • Cost of unit-train Investment : $3,000,000 (Investment on unit-train load-out facilities) • Annual operating costs: $1,090,000 • Fixed Costs +Variable Costs • Quantity of wheat transported per year: 10,000,000 bushels • NPV, BC, and RTI are calculated at: 3%, 5%, 10%, 15%, 18% and 20% Transptn saving is assumed to be $.10 per bushel Price premium are assumed at $.05, $.08, and $.11 SH, Feb 2004

37. Results • NPV • The present value of the net return to investment in load-out facility are calculated for: • Various discount rates • Price premiums • Transportation savings SH, Feb 2004

38. Conclusions: The results show that assuming a price premium of 5 cents per bushel, a discount rate of 3 percent, and transportation cost savings of 10 cents per bushel, the net-present-value is a positive number and benefit-cost ratio is 1.01. Moreover, at discount rates above 3 percent, calculations show that present value of costs exceed the present value of benefits. SH, Feb 2004

39. Conclusions: (continued) The financial return-to-investment (RTI) assuming base level costs, is around 3.8 percent; which is slightly above the current U.S. market discount (long-term interest) rate. Results were also calculated for a 10 percent increase in variable costs. Under this scenario, the net-present-value becomes negative at 3 percent discount rate; the benefit-cost ratio remains around 1.00, while the RTI decreases to 1.78 percent. SH, Feb 2004

40. Thank you SH, Feb 2004

41. Food Marketing and Demand Analysis Food Safety SH, Feb 2004

42. AN ANALYSIS OF THE IMPACT OF FOOD SAFETY CONCERNS ON FOOD CONSUMPTION SH, Feb 2004

43. Objective: To Evaluate the Impact of: • Prices • Expenditure • Consumer food safety concerns On food consumption of major food products in the U.S. SH, Feb 2004

44. Major Food Groups Studied: • Poultry • Red meats • Dairy products • Fresh produce SH, Feb 2004

45. The net negative info. w.r.t. • Chemical residues • Salmonella • BST • Growth hormones The Hypothesis to be Tested: SH, Feb 2004

46. The Model: The Linear Approximate of an Almost Ideal Demand System: lnP = j Wjt-1lnPjt SH, Feb 2004

47. Results: Compared to food safety concerns, prices and expenditure exhibit a greater and statistically significant impact. SH, Feb 2004

48. THE END SH, Feb 2004