An essay by Tristan Brown, Dermot Hayes, and Robert Brown has been selected as a winner in the Farm Foundation's 30-Year Challenge Policy Competition. The essay, "The Embedded Carbon Valuation System: A Policy Concept to Address Climate Change," shared top honors in the climate change category. The competition "sought innovative and promising public policy options to address and hellip;agriculture and food system challenges." Tristan Brown is a research associate and Dermot Hayes is a professor, Department of Economics and CARD. Robert Brown is a professor in the Department of Biomechanical Engineering and director of the Bioeconomy Institute. The essay and additional information is available at the Farm Foundation Web site.

Dermot Hayes highlighted recent research on the economics of biofuels production at a September 3 visit to the Iowa State University BioCentury Research Farm by two top officials with the U.S. Environmental Protection Agency.

Iowa Senator Chuck Grassley organized and hosted visits to several Iowa agricultural sites for Gina McCarthy and Margo Oge, who are among those in the EPA working on rules to determine the next Renewable Fuels Standard. This policy is expected to have a big impact on ethanol and biodiesel producers in the state and nation.

Hayes, a professor in CARD and the departments of economics and finance, discussed research led by Jerome Dumortier, a graduate research assistant in CARD, analyzing how biotechnology breakthroughs and the resulting yield increases could mitigate any indirect land-use changes worldwide from ramped-up biofuels production. In its assessment of the greenhouse gas impacts of biofuels, the EPA is currently considering whether or not to include projected land-use changes outside of the United States that could be caused indirectly by higher crop prices that stem from increased use of corn and soybeans for biofuels.

The EPA has expressed interest in using the research in their final assessment. The CARD researchers are also in the process of submitting their analysis to scientific journals for review.

The Center for Agricultural and Rural Development (CARD) is anticipating research activity needs in agricultural trade and policy and is recruiting two post-doc researchers.

Specific duties of the International Grains Analyst position:

1. Research and analyze policies impacting world agricultural markets withan emphasis in food and feed grains, and publish research results inscholarly journals.
2. Develop and maintain rigorous econometric models of the world agricultural markets.
3. Organize and prepare the annual FAPRI baseline projections and associated policy analysis.
4. Communicate results of the agricultural projections and policy analysesto the U.S. House and Senate agricultural committees, USDA analysts,commodity groups, and the public through oral presentations and writtenpublications.

Specific duties of the U.S. Analyst position are the same in research, modeling, and communication, but with a particular focus on U.S. policy and markets.

Proposed starting date is May 2009 with some flexibility. Salary commensurate with qualifications. These are term appointments. The post-doc in the Grains Analyst position has the possibility of being considered for a professional and scientific (P and amp;S) position. Submit letter of application, resume of qualifications and work experience, and names and addresses of three references to Dr. Jacinto Fabiosa, Center for Agricultural and Rural Development, Iowa State University, 568E Heady Hall, Ames, Iowa 50011-1070, or e-mail to jfabiosa@iastate.edu by May 20, 2009. CARD will also conduct interviews at the AAEA meetings July 26-28, 2009, in Milwaukee, Wisconsin. Iowa State University is an Equal Opportunity/Affirmative Action employer.

Iowa State University's Center for Agricultural and Rural Development (CARD) has received three grants of $200,000 each from the U.S. Environmental Protection Agency to assess the feasibility of water quality trading programs in three watersheds located within the Upper Mississippi River Basin. Wed, 01 Apr 2009 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1099 We quantify the emergence of biofuel markets and its impact on U.S. and world agriculture for the coming decade using the multi-market, multi-commodity international FAPRI (Food and Agricultural Policy Research Institute) model. The model incorporates the trade-offs between biofuel, feed, and food production and consumption and international feedback effects of the emergence through world commodity prices and trade. We examine land allocation by type of crop, and pasture use for countries growing feedstock for ethanol (corn, sorghum, wheat, sugarcane, and other grains) and major crops competing with feedstock for land resources such as oilseeds. We shock the model with exogenous changes in ethanol demand, first in the United States, then in Brazil, China, the European Union-25, and India, and compute shock multipliers for land allocation decisions for crops and countries of interest. The multipliers show at the margin how sensitive land allocation is to the growing demand for ethanol. Land moves away from major crops and pasture competing for resources with feedstock crops. Because of the high U.S. tariff on ethanol, higher U.S. demand for ethanol translates into a U.S. ethanol production expansion. The latter has global effects on land allocation as higher coarse grain prices transmit worldwide. Changes in U.S. coarse grain prices also affect U.S. wheat and oilseed prices, which are all transmitted to world markets. In contrast, expansion in Brazil ethanol use and production chiefly affects land used for sugarcane production in Brazil and to a lesser extent in other sugar-producing countries, but with small impacts on other land uses in most countries.

Keywords: acreage, area, biofuel, corn, crops, ethanol, FAPRI model, feedstock, land, sugar, sugarcane.

JEL Code: Q42, Q17, Q18, Q15
Fri, 27 Mar 2009 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1098 We examine four scenarios for the evolution of the biofuel sector using a partial equilibrium model of the world agricultural sector. The model includes the new Renewable Fuels Standard in the 2007 energy act, the two-way relationship between fossil energy and biofuel markets, and a new trend toward corn oil extraction in ethanol plants. At one extreme, one scenario eliminates all support to the biofuel sector when the energy price is low, while the other extreme assumes no distribution bottleneck in ethanol demand growth when the energy price is high. Of the remaining two scenarios, one considers a pure market force driving ethanol demand growth because of the high energy price while the other is a policy-induced shock with removal of the biofuel tax credit when the energy price is high.
We find that the biofuel sector expands with a higher energy price, raising prices of most agricultural commodities through demand-side adjustments for primary feedstocks and supply-side adjustments for substitute crops and livestock. With the removal of all support, including the tax credit, the biofuel sector shrinks, lowering the prices of most agricultural commodities.
We also find that, given distribution bottlenecks, cellulosic ethanol crowds marketing channels, resulting in a discounted price of corn-based ethanol. The blenders' credit and consumption mandates provide a price floor for ethanol and for corn. Finally, the tight linkage between the energy and agricultural sectors resulting from the expanding biofuel sector may raise the possibility of spillover effects of OPEC's market power on the agricultural sector.

Keywords: biofuels, EISA, ethanol, tax credit, world agricultural sector model.
Thu, 26 Mar 2009 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=62

WASHINGTON--After dramatic increases in the prices of most commodities in the last three years, prices retreat in 2009/10, but growing demand for food, feed, and fuel is expected to return them to historically high levels over the rest of the decade, according to analysts with the Food and Agricultural Policy Research Institute (FAPRI), who briefed Congress this week on their 2009 agricultural economic baseline projections. Fri, 06 Mar 2009 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1097 Hypothetical bias is a persistent problem in stated preference studies. We propose and test a method for reducing hypothetical bias based on the cognitive dissonance literature in social psychology. A central element of this literature is that people prefer not to take inconsistent stands and will change their attitudes and behavior to make them consistent. We find that participants in a stated preference willingness-to-pay study, when told that a nonhypothetical study of similar goods would follow, state significantly lower willingness to pay than participants not so informed. In other words, participants adjust their stated willingness to pay to avoid cognitive dissonance from taking inconsistent stands on their willingness to pay for the good being offered.

Keywords: apples; cognitive consistency; hypothetical bias; instrument calibration; willingness to pay.

JEL classification: C91; Q13; Q51
Fri, 20 Feb 2009 12:00:00 CST http://www.card.iastate.edu/about/news/show_brief.aspx?id=32

Dermot J. Hayes has been invited to join the Biomass Research and Development Technical Advisory Committee, jointly administered by the U.S. Department of Agriculture and U.S. Department of Energy. The appointment is for three years.

The committee was established by the Biomass Research and Development Act of 2000 and assists the two departments in meeting the act's "important national goals of a healthier rural economy and improved national security."

As a member of the committee, Hayes will advise the Biomass Research and Development Board, which coordinates research and development activities relating to biofuels. The Technical Advisory Committee lends expertise on strategic planning and direction of requests for proposals issued under the Biomass Initiative and the procedures for reviewing and evaluating the proposals.

The committee also helps connect federal and state agencies, agricultural producers, industry, consumers, and the research community for program work relating to federal biomass research and development.

Hayes holds the Pioneer Hi-Bred International Chair in Agribusiness. He is a professor in both the economics and finance departments at Iowa State University.

The Midwest Agribusiness Trade Research and Information Center (MATRIC) at Iowa State University has published a book on using distillers grains, a co-product of biofuels production, as a feedstuff for livestock and poultry. The book is only available online at http://www.matric.iastate.edu/DGbook and is free for downloading. Mon, 24 Nov 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1093 Growing demand for cropland products has placed intense pressure on the ability of land resources to support nature, straining public budgets to purchase environmental goods. Fixing overall agricultural output, two policy options are whether to promote more extensive and nature friendly farming practices or to produce intensively on some land and leave the rest wild. Microeconomic models of the topic have not accommodated widely recognized complementary spatial externalities in providing ecological services. This article does so, identifying also a third policy possibility. This is that environmental services can follow a smoothly varying spatial path characterized by harmonic functions.

Keywords: biofuels, environmental policy, spatial externalities, Wirtinger's inequality.
JEL classification: H40, Q28, D62.
Tue, 18 Nov 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1092 This study finds that distillers dried grains with solubles (DDGS) is a dominant feed ingredient in hog finishing rations, despite variability in the product's nutritional content. The optimal inclusion rate has remained at the maximum allowable limit of 20%, suggesting that when a particular DDGS product has low nutrient content, feed compounders simply supplement with corn and soymeal, whatever deficits in nutrients are created as a result.
The study examines DDGS products from 40 different ethanol plants and finds that, relative to the DDGS product with the lowest feed ration cost, the optimal feed ration costs of DDGS products from the other 39 ethanol plants are $0.002 to $0.42 more per cwt of feed. The implied price discount from this cost differential ranges from a low of 0.10% to a high of 25.55%. For an ethanol plant with 50 million gallons in capacity, this price discount amounts to revenue losses of $0.03 million to $6.27 million per year.
The study also found that feed compounders generate $7.51 per ton more in DDGS feed cost savings when they eliminate inter-plant variability and face only intra-plant sources of variability. By including nutritional content variability information in the pricing of DDGS, proper price signals are communicated to ethanol plants so that they can make their own assessments on quality control initiatives to reduce variability in their DDGS products. When the market does not reward better DDGS quality or penalize low product quality, stakeholders do not have any incentive to improve product quality.

Keywords: biofuel, DDGS, DDGS quality, hog feeder-finisher, optimal feed ration, stochastic LP. Mon, 10 Nov 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1091 Xiaodong Du, Dermot J. Hayes, Mindy L. Baker Tue, 04 Nov 2008 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=60

In recent years, several health and food groups have made claims that farm subsidies that support agricultural commodity production are directly implicated in the growing obesity problem in the United States and the increased consumption of sweetened foods and drinks. A new analysis finds otherwise. Wed, 29 Oct 2008 12:00:00 CST In this issue: dropping corn prices; hitting the ethanol blend wall; splash and dash in biodiesel; costs/benefits of fixing Gulf hypoxia Fri, 24 Oct 2008 12:00:00 CST http://www.card.iastate.edu/hypoxia/presentations.aspx Archive of select presentations now available. Wed, 22 Oct 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1090 This report is divided into two sections. The first part reports the statewide results for each of five surveyed groups: Iowa grain marketers, Iowa grain handlers, Iowa corn processors, Iowa soybean processors, and Iowa biodiesel producers. The state-level results provide a general idea of the grain and biofuel flows that occurred and the transportation that was utilized in the biofuel-boom era. In order to gain further insights into the regional level data, we present the survey results of grain marketers and handlers in each crop reporting district (CRD) in the second part of the report. Wed, 15 Oct 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1089 Iowa's farmland consists of over 16% hay crops and pastureland, a signifcant portion of which is under cash rental contracts. This study investigates the comparative relationships between cash rental rates for cropped land and non-cropped land, where the latter includes hay and pastureland. We find that higher crop prices resulting from biofuel demand induces land use conversion from non-cropped land to crop production and thus bids up non-cropped land rents. Compared with changes in cropped land cash rents, non-cropped farmland rents could increase by a higher percentage. Non-cropped land cash rental rates are largely determined by crop and feeder cattle prices, population density, soil quality, and proportion of non-cropped land in a specific area. A primary effect of ethanol subsidies is the redistribution of income between corn growers and livestock producers, whereby higher livestock feed costs together with increasing hay and pastureland cash rents harm the dairy and feedlot beef sectors. Our study shows that, because of the positive effect on rents, the policies have an indeterminate effect on landowners operating in the cow-calf sector.

Keywords: biofuel, pastureland, cash rents, random effects model.

JEL classification: C5, G1, Q1. 1
Wed, 08 Oct 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1088 This study finds that the use of distillers dried grain with solubles (DDGS) as feed is greatly influenced by the development of DDGS products that are available in the market. We find that newer-generation DDGS products have a higher optimal inclusion rate, reaching the maximum allowable rate of 20% for swine, and they have a higher displacement rate of 0.23 for soymeal and 0.93 for corn. Although both traditional and newer-generation DDGS products are primarily used as a corn substitute for energy, it will take only a relatively small change in the price or matrix A (or both) for the newer-generation DDGS to primarily substitute for soymeal for the limiting amino acid, lysine. In contrast, traditional DDGS products have a lower optimal inclusion rate of 7%, and they have a lower displacement rate of 0.75 for corn and 0.08 for soy meal. This product is primarily used as a corn substitute for energy.

When traditional DDGS is introduced in a feed ration, total feed cost declines by 2.64%, or a reduction of $0.29 per cwt of feed. This translates into a $2.17 per head savings in feed cost in a feeder-to-finish operation. Using newer-generation DDGS reduces feed cost by 9.88%, or a reduction of $1.08 per cwt of feed, saving feeder-finisher operations $8.06 per head.

This study suggests that as a substitute product, the price of DDGS will track the price of both corn and soymeal. It will be more of the former until new-generation DDGS can be used as a primary substitute for soymeal and take a dominant share of the market.

Finally, this study clearly points to the critical importance of DDG product innovation to promote widespread and optimal use of DDGS as a feed ingredient, thereby alleviating the food-feed-fuel trade-off.

Keywords: biofuel, DDGS, DG, distillers dried grain with solubles, distillers grain, feeder-finisher, optimal feed ration.
Thu, 25 Sep 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1087 Biotechnology has had an important impact on the agricultural and food industries over the last twelve years by way of fast and extensive adoption of a few genetically modified (GM) crops. This has produced large efficiency gains, including higher yields and reduced costs of weed and pest control, as well as some environmental benefits. The expected development of crops with additional agronomic traits, and with output traits to improve the nutrition and health attributes of food products, holds the potential for even more pervasive impacts. Full realisation of such promises may require overcoming the constraining effects of restrictive GM product regulations.

Keywords: biotechnology, genetically modified products, innovation, regulation, research and development.

JEL classification: Q16, Q18, O33, L51.
Fri, 29 Aug 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1086 With rapid income growth, dairy production and consumption in China have increased significantly. This emergence of the dairy sector will provide opportunities for farmers to participate in a high-value, potentially more lucrative enterprise. The overall goal of this paper is to analyze the major determinants of farmers' participation in dairy production. Our main question is whether or not the pace of the emergence of the dairy processing industry has affected the ability of farmers to participate in dairy production and whether or not it has limited the expansion of their herd size. Based on household, village and processor surveys conducted in the Greater Beijing region, our analysis shows that the location of dairy processing firms is one of the key factors that determines the participation of farmers in dairy production. Although other factors affect participation and herd size—for example, access to roads and the ability to get a job off the farm (which affects the opportunity cost of household members)—access to dairy processors is shown to be the major factor that has encouraged the growth of dairy production over the past decade. The results also show that poor, less educated farmers with relatively less access to land are not excluded from the rapid expansion of the Greater Beijing dairy market.

Keywords: China, dairy processing, dairy production.
Tue, 26 Aug 2008 12:00:00 CST http://www.card.iastate.edu/about/news/show_brief.aspx?id=31

Expectations for greater biofuel plant capacity and the federal Renewable Fuels Standard have created a "can't lose" demand proposition for U.S. corn and soybean farmers. This is according to the testimony of Bruce A. Babcock at a field hearing of the Senate Agriculture Committee on food, feed and fuel production at the University of Nebraska, Omaha, on August 18.

Babcock, a professor of economics and director of the Center for Agricultural and Rural Development at Iowa State University, told the committee that ethanol mandates have created a demand of between 25 and 30 percent of the U.S. corn crop for fuel production.

Babcock said he expects a bright outlook for corn and soybean prices over the next five years, facilitated by tax credits and energy mandates, and as long as crude oil prices remain above $100 per barrel. There is little doubt, said Babcock, that biofuels from corn and vegetable oil will meet levels mandated by Congress.

A copy of Babcock's full statement at the August 18 hearing is available at http://www.card.iastate.edu/presentations/.

ACRE, short for Average Crop Revenue Election, is a new commodity program included in the Food, Conservation and Energy Act of 2008 and mdash;the 2008 farm bill. This new commodity program presents farmers with a choice for covering their eligible crops over the period of the new legislation, 2009 and ndash;2012. Mon, 07 Jul 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1084 This study characterizes the household food-away-from-home (FAFH) expenditure pattern in Egypt. Specifically, a standard Tobit model was estimated to quantify the responsiveness of Egyptian household FAFH expenditures to changes in their income and selected household demographic characteristics.

We found that the proportion of households with a positive FAFH expenditure is small, at 36% to 38% of the total number of households. These households spent 5% to 8% of their total expenditure on FAFH. Households that are located in urban areas, with more family members, and whose household head is young and male had generally higher levels of FAFH expenditure. The estimated conditional income elasticity is only 0.02, and the unconditional income elasticity is 0.52, suggesting that most of the growth in this sector will be driven by new households participating for the first time in FAFH expenditures. These elasticity estimates are relatively low when compared to those of other countries. However, preliminary estimates from more recent data seem to suggest a higher income elasticity, which is consistent with the expansion of the sector of hotels, restaurants, and other institutions in Egypt.

Keywords: conditional and unconditional elasticity, demand, Egypt, food away from home, HRI (hotels, restaurants, and other institutions).
Mon, 07 Jul 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1083 Production of biofuels from feedstocks that are diverted from food production or that are grown on land that could grow crops has two important drawbacks: higher food prices and decreased reduction in greenhouse gas emissions. If U.S. policy were to change and place greater emphasis on food prices and greenhouse gas reductions, then we would transition away from current feedstocks toward those that do not reduce our ability to produce food. Examples of such feedstocks include crop residues, algae, municipal waste, jatropha grown on degraded land, and by-products of edible oil production. Policy options that would encourage use of these alternative feedstocks include placing a hard cap on ethanol and biodiesel production that comes from corn and refined vegetable oil, thereby forcing growth in biofuel production to come from alternative feedstocks; differentiation of tax credits and subsidies so that the alternative feedstocks receive a higher incentive than do corn and refined vegetable oil; and greatly increased funding for research to hasten the feasibility of producing and refining alternative feedstocks.

Keywords: biofuels, feedstocks, food prices, policy.
Tue, 01 Jul 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1082 While the preponderance of empirical studies point to negative crop yield skewness in a wide variety of contexts, the literature provides few clear insights on why this is so. The purpose of this paper is to make three points on the matter. We show formally that statistical laws on aggregates do not suggest a normal yield distribution. We explain that whenever the weather-conditioned mean yield has diminishing marginal product, then there is a disposition toward negative skewness in aggregate yields. This is because a high marginal product in bad weather states stretches out the left tail of the yield distribution relative to that of the weather distribution. Turning to disaggregated yields, we decompose unconditional skewness into weather-conditioned skewness plus two other terms and study each in turn.

Keywords: conditional distribution, crop insurance, negative skewness, spatial heterogeneity, statistical laws.
Wed, 25 Jun 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1081 Land use impacts of biofuel expansion have attracted a tremendous amount of attention because of the implications for the climate, the environment, and the food supply. To examine these impacts, we set up an economic framework that links input use and land allocation decisions with ethanol and agricultural commodity markets. Crops can be substitutes or complements in supply depending on the relative magnitude of three effects of crop prices: total cropland effect, land share effect, and input use effect. We show that with unregulated free markets, total cropland area increases with corn prices whether crops are substitutes or complements in supply. Similarly, higher corn yields from exogenous technical changes lead to cropland expansion. The impacts of yield increases for other crops are ambiguous. With a quantity mandate for ethanol, higher mandates mean larger cropland area if corn and other crops are substitutes in demand. For a given mandate, yield improvement causes total cropland to expand if crop demand is elastic enough, or to contract under a very general condition if crop demand is sufficiently inelastic.

Keywords: biofuels, complements in supply, ethanol, (in)direct land use changes, substitutes in supply, yield increases.
Mon, 23 Jun 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1080 This study examines correlates with aggregate county income growth across the 48 contiguous states from 1990 to 2001. Since visual inspection of the variable to be explained shows a clear spatial relationship and to control for potentially endogenous variables, we estimate a two-stage spatial error model. Given the lack of theoretical and asymptotic results for such models, we propose and implement a number of spatial bootstrap algorithms, including one allowing for heteroskedasticity, to infer parameter significance. Among the results of a comparison of the marginal effects in rural versus non-rural counties, we find that outdoor recreation and natural amenities favor positive growth in rural counties, densely populated rural areas enjoy stronger growth, and property taxes correlate negatively with rural growth.

Keywords: county income growth, rural development, spatial bootstrapping.
Mon, 23 Jun 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1079 Concerns about the risk of food supply contamination and the resulting financial losses have limited the development and commercialization of certain pharmaceutical plants. This article develops an insurance pricing model that helps translate these concerns into a cost-benefit analysis. The model first estimates the physical dispersal of maize pollen subject to a number of weather parameters. This distribution is then validated with the limited amount of currently available field trial data. The physical distribution is then used to calculate the premium for a fair-valued insurance policy that would fund the destruction of possibly contaminated fields. The flexible framework can be readily adapted to other crops, management practices, and regions.

Keywords: contemporaneous fertility, costs and benefits, insurance, pharmaceutical maize, pollen dispersal, risks and benefits, stochastic model.
Fri, 20 Jun 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1078 Finisher hog production in North America has seen a shift toward larger production units and contract-organized production since around 1990. Given the efficiency gains and conversion costs associated with contract production, growers may have to choose between long-term commitment through investments and atrophy with intent to exit in the intermediate term. A model is developed to show that growers with any of three efficiency attributes (lower innate hazard of exit, variable costs, or fixed contract adoption costs) are not only more likely to contract but will also produce more and expend more on lowering business survival risks. Using the 2004 U.S. Agricultural Resource Management Survey for hogs, a recursive bivariate probit model is estimated in which exit is affected directly and also indirectly through the contract decision. It is confirmed that contracting producers are less likely to exit. Greater specialization and regional effects are important in increasing the probability of contracting. More education, having non-farm income, and older production facilities are significant factors in increasing the expected rate of exit. The findings suggest further exits by non-contract producers.

Keywords: agricultural industrialization, hog production, occupation choice, production contracts, recursive bivariate probit, relationship-specific investments, sector dynamics.

JEL classification: D23, Q12, J26, J43.
Fri, 20 Jun 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1077 High commodity prices have increased interest in the impacts of federal ethanol policies. We present a stochastic, short-run structural model of U.S. corn, ethanol, and gasoline markets to estimate the price and welfare impacts of alternative policies on producers and consumers of corn, ethanol, and gasoline. The three federal policies that we consider are the Renewable Fuels Standard, the blenders tax credit, and the tariff on imported ethanol. Our model examines the impact of these policies on prices during the 2008/09 marketing year. Our results show that in the short run, a change in U.S. ethanol policies would not have a large, immediate impact on corn prices. Eliminating any one of the policies would reduce average corn prices by less than 4%. Removal of all three programs would decrease average corn prices by 14.5%. The reason why the changes are relatively modest is that existing U.S. ethanol plants will only shut down if their variable cost of production is not covered. Changes in ethanol policies would have large distributional impacts. Corn growers, ethanol producers, and fuel consumers have a large incentive to maintain high ethanol consumption. Gasoline producers have a large incentive to reduce ethanol production and imports. Livestock producers have a large short-run incentive to reduce domestic ethanol production.

Keywords: ethanol policy, stochastic equilibrium model, welfare analysis.
Fri, 06 Jun 2008 12:00:00 CST http://www.card.iastate.edu/about/news/show_brief.aspx?id=30

In a May 7 hearing on fuel subsidies and their impact on food prices called by the U.S. Senate Committee on Homeland Security and Government Affairs, Bruce Babcock, professor of economics and director of the Center for Agricultural and Rural Development at Iowa State University, told senators that changes in federal biofuels policies now will not have a dramatic effect on food prices in the short term. And in the longer run, corn and food prices will be determined largely by the price of crude oil.

Read Dr. Babcock's full oral statement, available at http://www.card.iastate.edu/presentations/.

Bruce Babcock, professor of economics at Iowa State University and director of the Center for Agricultural and Rural Development, will appear before the U.S. Senate Committee on Homeland Security and Government Affairs May 7 in a hearing on fuel subsidies and their impacts on food prices.

Babcock's testimony will focus on federal ethanol policies and their short- and long-term impacts on the price and availability of ethanol, corn, and other agricultural products.

The hearing will begin at 10 a.m. (EST) in Room 342 of the Dirksen Senate Office Building. The committee is chaired by Senator Joe Lieberman.

Babcock's statement to the committee will be posted to the CARD Web site (www.card.iastate.edu) after the hearing.

WASHINGTON and mdash; Continuing high crude-oil prices and new bioenergy mandates, such as the U.S. Energy Independence and Security Act of 2007, are expected to sustain prices at historic highs across all agricultural commodities over the next decade. This is according to analysts with the Food and Agricultural Policy Research Institute, or FAPRI, who briefed Congress this week on their new 10-year projections for U.S. and international commodity markets. Wed, 05 Mar 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1071 The outlook for U.S. corn markets is inextricably linked to what happens to the U.S. ethanol industry, which depends, in turn, on the level of government subsidies and mandates. We develop a stochastic partial equilibrium model to simulate outcomes for the corn market for the 2008/09 marketing year to gain insight into these linkages. The model includes five stochastic variables that are major contributors to corn price volatility: planted acreage, corn yield, export demand, gasoline prices, and capacity of the ethanol industry. Our results indicate that integration of gasoline and corn markets has increased corn price volatility and that the passage of the expanded ethanol mandates in the Energy Independence and Security Act (EISA) has had modest effects on corn prices. Model results indicate an expected average marketing year price of $4.97 per bushel and a price volatility of 17.5% without the 10 billion gallon EISA mandate but with maintenance of the $0.51-per-gallon tax credit. Imposition of the mandate increases the expected price by 7.1% and price volatility by 12.1%. The effects of the mandate are modest, as ethanol production would average 9.5 billion gallons without the mandate because of high gasoline prices. The mandate is binding with a probability of 37.8%, which indicates that an additional tax or subsidy will be needed to ensure that the mandate is met. High corn prices caused by drought can cause the mandate to bind. Fixing 2008 corn yields at extreme drought levels increases expected corn prices to $6.59 per bushel without a mandate and to $7.99 per bushel with the EISA mandate. An average additional subsidy of $0.73 per gallon of ethanol would be needed to ensure that the mandate is met in this drought scenario. Elimination of the current blenders tax credit would result in the mandate not being met in all cases. On average, a subsidy of $0.41 per gallon would ensure that ethanol production is at least 10 billion gallons in the 2008/09 marketing year.

Keywords: EISA mandate, ethanol, price volatility of corn, stochastic equilibrium.
Tue, 04 Mar 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1070 After entering into farmland rental contracts in the fall, a tenant farmer has the planting flexibility to choose between corn and soybeans. Failure to account for this switching option will bias estimates of what farmers should pay to rent land. Applying contingent claims analysis methods, this study explicitly derives the real option value function. Comparative statics with respect to the volatilities of underlying state variables and their correlations are derived and discussed. Dynamic hedging deltas in this real option context are also developed. Monte Carlo simulation results show that the average cash rent valuation for the real option approach is 11% higher than that for the conventional net present value (NPV) method. The simulated dynamic hedging deltas are shown to differ from the ones implied by the NPV method.

Keywords: cash rent, delta hedging, Monte Carlo simulation, multivariate GARCH, real option, Ricardian rent.

JEL classification: C5, G1, Q1.

Fri, 29 Feb 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1069 Major changes in the use of US sweeteners have occurred since 1970, in both the amount and composition. Increased consumption of caloric sweeteners, especially in beverages, has been linked to excess energy intake and lower-quality diets. We examine how US farm policies (specifically agricultural research and development [R and D] expenditures and commodity programs) have affected the consumption and composition of sweeteners in the US diet. R and D expenditures have lowered the unit cost of most commodities and increased their use in food production, ceteris paribus, although corn has benefited more than sugar crops in the technical progress. Commodity programs have raised the price of sugar and decreased the price of corn; high fructose corn syrup (HFCS) became an inexpensive substitute for sugar in food beginning in 1970. However, the effect of this change in the price of ingredients has become less important over time. Today the farm value share in sweetened food is very small (below 5%), and HFCS has become a specialized input in many food items. Countries with different or no commodity programs experience similar increases in consumption of added sugar. We conclude that the current link between the US consumption of caloric sweeteners and farm policy is tenuous, although historically the link was stronger.

Keywords: added sugar, agricultural policy, caloric, corn, diet, farm policies, HFCS, subsidy, sugar, sweetener.

JEL codes: Q18, D12, I18
Thu, 28 Feb 2008 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=57

Recreationists, policymakers, and community leaders can find a resource for decisions about lakes water quality improvement at the Iowa Lakes Valuation Project Web site, redesigned and relaunched this month at www.card.iastate.edu/lakes/. Fri, 22 Feb 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1068 Life cycle analysis (LCA) is the standard approach used to evaluate the greenhouse gas (GHG) benefits of biofuels. However, it is increasingly recognized that LCA results do not account for some impacts—including land use changes—that have important implications on GHGs. Thus, an alternative accounting system that goes beyond LCA is needed. In this paper, we contribute to the literature by laying out the basics of a system-wide accounting (SWA) method that takes into account all potential changes in GHGs resulting from biofuel expansion. We applied both LCA and SWA to assess the GHG impacts of ethanol based on Iowa corn.

Growing corn in rotation with soybeans generated 35% less GHG emissions than growing corn after corn. Based on average corn production, ethanol's GHG benefits were lower in 2007 than in 2006 because of an increase in continuous corn in 2007. When only additional corn was considered, ethanol emitted about 22% less GHGs than gasoline. Results from SWA varied with the choice of baseline and the definition of geographical boundaries. Using 2006 as a baseline and 2007 as a scenario, corn ethanol's benefits were about 20% of the emissions of gasoline. If we expand geographical limits beyond Iowa, but assume the same emission rates for soybean production and land use changes as those in Iowa, then corn ethanol generated more GHG emissions than gasoline. These results highlight the importance of boundary definition for both LCA and SWA.

Keywords: biofuels, corn ethanol, greenhouse gas, life cycle analysis, system-wide accounting.
Thu, 21 Feb 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1067 A myriad of policy issues and questions revolve around understanding the bioeconomy. To gain insight, we develop a stochastic and dynamic general equilibrium model and capture the uncertain nature of key variables such as crude oil prices and commodity yields. We also incorporate acreage limitations on key feedstocks such as corn, soybeans, and switchgrass. We make standard assumptions that investors are rational and engage in biofuel production only if returns exceed what they can expect to earn from alternative investments. The Energy Independence and Security Act of 2007 mandates the use of 36 billion gallons of biofuels by 2022, with significant requirements for cellulosic biofuel and biodiesel production. We calculate the level of tax credits required to stimulate this level of production. Subsidies of nearly $2.50 per gallon to biodiesel and $1.86 per gallon to cellulosic biofuel were required, and long-run equilibrium commodity prices were high, with corn at $4.76 per bushel and soybeans at $13.01 per bushel. High commodity prices are due to intense competition for planted acres among the commodities.

Keywords: biodiesel, biofuels, cellulosic, dynamic, ethanol, general equilibrium
Monte Carlo, market.
Thu, 21 Feb 2008 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=56

Jacinto F. Fabiosa, co-director of the Food and Agricultural Policy Research Institute in the Center for Agricultural and Rural Development at Iowa State University, has been named a Fulbright Scholar to conduct research at Cairo University in Cairo, Egypt. Fri, 01 Feb 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1066 This study presents the results of comparing land use estimates between three different data sets for the Upper Mississippi River Basin (UMRB). The comparisons were performed between the U.S. Department of Agriculture (USDA) Natural Resource Conservation Service (NRCS) National Resource Inventory (NRI), the U.S. Geological Survey (USGS) National Land Cover Data (NLCD) database, and a combined USDA National Agricultural Statistics Service (NASS) Agricultural Census – NLCD dataset created to support applications of the Hydrologic Unit Model for the U.S. (HUMUS). The comparison was performed for 1992 versions of the datasets because that was the only consistent year available among all three data sources. The results show that differences in land use area estimates increased as comparisons shifted from the entire UMRB to smaller 4- and 8-digit watershed regions (as expected). However, the area estimates for the major land use categories remained generally consistent among all three data sets across each level of spatial comparison. Differences in specific crop and grass/forage land use categories were magnified with increasing refinement of the spatial unit of comparison, especially for close-grown crops, pasture, and alfalfa/hayland. The NLCD close-grown crop area estimates appear very weak relative to the NRI and HUMUS, and the lack of specific crop land use estimates limits its viability for UMRB agricultural-based modeling scenarios. However, the NLCD is a key source of non-agricultural land use data for HUMUS and supplemental wetland land use area estimates for the NRI. We conclude that comparisons between more recent versions of the data sets (i.e., 1997 NRI, 1997 or 2002 Agricultural Census, and 2001 NLCD) would not result in significant additional insights and that the 1997 NRI is a viable land use data source for current CARD UMRB water quality modeling studies. However, adoption of other land use data such as USDA-NASS remote sensing data should be investigated.

Keywords: agricultural land, cropland, HUMUS, land use area estimates, NLCD, non-agricultural land, NRI, UMRB, water quality modeling.
Fri, 01 Feb 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1065 Biofuel subsidies in the United States have been justified on the following grounds: energy independence, a reduction in greenhouse gas emissions, improvements in rural development related to biofuel plants, and farm income support. The 2007 energy act emphasizes the first two objectives. In this study, we quantify the costs and benefits that different biofuels provide. We consider the first two objectives separately and show that each can be achieved with a lower social cost than that of the current policy. Then, we show that there is no evidence to disprove that the primary objective of biofuel policy is to support farm income. Current policy favors corn production and the construction of corn-based ethanol plants. We find that favoring corn happens to be the best way to remove land from food and feed production, thus providing higher commodity prices and income to farmers and landowners. Next, we calculate two sets of alternative biofuel subsidies that are targeted to meeting income transfer objectives and either greenhouse gas emission reductions or fuel energy reductions. The first of these assumes that greenhouse gas emissions and high crop prices are joint objectives, and the second assumes that fuel independence and high crop prices are the joint objectives. Finally, we infer the social willingness to pay for biofuel services. This, in turn, allows us to propose a subsidy schedule that maintains (inferred) social preferences and provides a higher incentive for farmers to choose production of cellulosic materials. This is particularly relevant since the 2007 energy act sets a renewable fuels standard that relies heavily on cellulosic biofuel but does not specify a higher "per gallon" incentive to producers.

Keywords: biofuels, biofuel subsidies, energy security, feedstock, greenhouse gas emissions, social preferences, value-added agriculture.
Fri, 01 Feb 2008 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/winter_08/article1.aspx Current high commodity prices seem to be defying the principal laws of market economics. Biofuels mandates may be creating an unprecedented era. But what about after the ethanol mandate is met? A few supply and demand scenarios that take into account key variables in ethanol markets and policy as well as crude oil prices illustrate some possibilities for prices once the target 15 billion gallons of ethanol has been reached. Fri, 25 Jan 2008 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/winter_08/article2.aspx Ethanol production has shifted into high gear to meet a new mandate, and surpluses of dried distillers grains, a by-product, will accompany that production. Author Roxanne Clemens summarizes the latest information on nutrient content and optimal inclusion rates of distillers grains for use as a feedstock for beef cattle. Fri, 25 Jan 2008 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/winter_08/article3.aspx The U.S. Energy Independence and Security Act mandates enormous growth in the use of biodiesel -- from 500 million gallons in 2009 to one billion gallons in 2012. But will the biodiesel industry capture the spoils? Fri, 25 Jan 2008 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/winter_08/article4.aspx Since the passage of the 2007 energy act, which set a higher renewable fuels standard, the prospects for ethanol look bright, and corn prices remain on an upward trajectory. How might energy and agricultural sector developments affect these markets, including corn exports, over the next few years? Fri, 25 Jan 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1064 The economics of geographical indications (GIs) is assessed within a vertical product differentiation framework that is consistent with the competitive structure of the agricultural sector with free entry/exit. It is assumed that certification costs are needed for GIs to serve as (collective) credible quality certification devices, and production of high-quality product is endogenously determined. We find that GIs can support a competitive provision of quality that partly overcomes the market failure and leads to clear welfare gains, although they fall short of delivering the (constrained) first-best level of the high-quality good. The main beneficiaries of the welfare gains are consumers. Producers may also accrue some benefit if the production of high-quality products draws on scarce factors that they own.


Keywords: competitive industry; free entry/exit; geographical indications; Marshallian stability; quality certification; trademarks; welfare. Thu, 03 Jan 2008 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1062 Farmed animal production has traditionally been a dispersed sector. Biosecurity actions relevant to eradicating infectious diseases are generally non-contractible, and might involve inordinately high transactions costs if they were contractible. If an endemic disease is to be eradicated within a region, synchronized actions need to be taken to reduce incidence below a critical mass so that spread can be contained. Using a global game model of coordination under public and private information concerning the critical mass required, this paper characterizes the success probability in an eradication campaign. As is standard in global games, heterogeneity in private signals can support a unique equilibrium. Partly because of strategic interactions, concentrated production is found to facilitate eradication whenever unit participation costs are decreasing. Policies to manipulate the critical mass have both a direct effect and a strategic coordination effect. Policies to manipulate information can have subtle and non-intuitive consequences. A program to keep disease out can be modeled similarly. It is shown, too, that coordination problems may lead to multiple equilibria in animal disease insurance markets, so that these markets may complicate a disease eradication program by creating opportunities for multiple inefficient equilibria. The presence of private insurance markets may facilitate coordination and, for good or ill, can seal the fate of a program.

Keywords: biosecurity, coordination failure, disease insurance, endemic disease, global games, market access, public information, veterinary public health.

JEL classification: D8, H4, Q1
Fri, 30 Nov 2007 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=55

How have existing on-farm conservation efforts affected Iowa's water quality and what value do they have? Fri, 09 Nov 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1061 The recently signed Korea-U.S. Free Trade Agreement (KORUS FTA) grants the U.S. livestock industry with preferential access to South Korea's import market. This study evaluates the likely impacts of the KORUS FTA on the U.S. livestock sector.

Using the Food and Agricultural Policy Research Institute's modeling system, we find that livestock prices increase by 0.5% to 3.8% under the agreement. And together with an expansion by 381 to 883 million pounds in meat exports, the value of U.S. exports increase by close to U.S.$2 billion, or a 15.2% increase.

Because of differential baseline starting market shares and differential rates and staging specifications, the beef sector results are primarily driven by trade diversion impacts, while a combination of trade diversion and trade creation characterizes the results in pork and poultry sectors.

Keywords: dairy, free trade agreement, livestock, poultry, trade creation and diversion.
Thu, 08 Nov 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/fall_07/article1.aspx Whether corn ethanol can be considered a low-carbon fuel has been a question of much speculation and the object of quite a few studies. The studies present different answers, however, because they use different assumptions or frame the question in different ways. Here, we explain the process researchers follow to calculate greenhouse gas emissions and share the results of a new CARD life cycle analysis for Iowa corn that takes land use changes into consideration, both in the U.S. and abroad. Tue, 30 Oct 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/fall_07/article2.aspx As Congress searches for ways to fund changes in the farm bill, only two potential sources hold any promise for cost savings: direct payments and crop insurance. The House-passed farm bill kept direct payments in place but reduced crop insurance. The Senate seems poised to pass a similar measure. What exactly are U.S. taxpayers, farmers, and the crop insurance industry getting in return for their stakes in the program, and what will be the consequences if Congress makes some cuts? Tue, 30 Oct 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/fall_07/article3.aspx Though the recent trend of falling prices for ethanol has definitely tightened margins at ethanol plants, the price drop has created new opportunities for growth through blending in conventional fuels. Author Chad Hart explores the price incentives and the regions with plenty of potential left to tap. Tue, 30 Oct 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/fall_07/article4.aspx The falling value of the U.S. dollar is making headlines. Does a weak dollar help to explain rising commodity prices? An important measure of that influence is found by looking at the value of the U.S. dollar against the currencies of trade competitors and buyers of U.S. exports. Tue, 30 Oct 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1060 Biofuels production is expanding rapidly all over the world, driven by rising crude oil prices, the desire of countries to be energy independent, and concerns about climate change. As developed countries, especially the United States, are expanding biofuels production, developing countries are expanding their biofuels industries as well, to power their growing economies. However, developing countries must address the food security issue when they develop biofuels. As China is a developing country with rapid economic growth, population growth, significant demand for fuels, and food security concerns, it serves as a good example for studying the opportunities and challenges faced by developing countries under current conditions. This study analyzes the background, history, and current situation of biofuels development in China. Some implications for developing countries are also provided.

Keywords: biofuels, food security, China.
Mon, 15 Oct 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1059 Based on the Ricardian rent theory, this study employs the variable profit function to analyze the determinants of Iowa cropland cash rental rates using county-level panel data from 1987 to 2005. Accounting for spatial and temporal autocorrelations, responses of local cash rental rates to changes in output prices and other exogenous variables are estimated. We find that Iowa cash rental rates are largely determined by output/input prices, soil quality, relative location, and other county-specific factors. Cash rents go up by $79 for a $1 increase in corn price in the short run. The marginal value of cropland quality, as represented by row-crop corn suitability rating index, is about $1.05. Ethanol plants are not found to have a significant local effect on cash rental rates, impacting local rental markets mainly through the national futures price. Scale of the local livestock industry and adoption of genetically engineered crops have significant impacts on local cash rental rates. In addition, changes in crop output prices are found to have long-run effects on cash rental rates. The long-run change in cash rents is approximately $109-$114 for a $1 change in corn price and is reached in about four years. Our research may be viewed as a test of the Ricardian rent theory. We find limited support for the theory.

Key words: bargaining, basis, ethanol, land quality shadow price, rate of adjustment, spatial autocorrelation. JEL classification: C5, G1, Q1. 1
Tue, 02 Oct 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1058 A calibrated model is used to determine the welfare impacts of various regulatory instruments for improving health. The results of a lab experiment are integrated in a partial equilibrium model representing demands for two kinds of fish, one with higher nutritional benefits (canned sardines) and one with higher contamination risks (canned tuna) in France. In the laboratory, information about health effects leads to a statistically significant decrease (increase) in the willingness to pay for tuna (sardines). Simulations with the laboratory results show that, for most cases, a per-unit tax on tuna and a per-unit subsidy on sardines without any information revealed to consumers lead to the highest welfare, because both the tax and subsidy directly internalize health characteristics. The information policy combined with a per-unit tax on tuna and a per-unit subsidy on sardines is socially profitable only if a large proportion of consumers (greater than 95%) receives health information.

Keywords: health, information, regulation, taxation.
Thu, 30 Aug 2007 12:00:00 CST http://www.card.iastate.edu/about/news/show_brief.aspx?id=28

The American Society of Agricultural and Biological Engineers (ASABE) has published "The Soil and Water Assessment Tool: Developmental History, Applications, and Future Research Directions" in Transactions of the ASABE as an inaugural paper in a new invited paper series established by the ASABE Soil and Water Division. CARD researcher Philip Gassman was lead author of the paper; his co-authors were Manuel Reyes of the North Carolina A and amp;T University Biological Engineering Program, and Colleen Green and Jeffrey Arnold of the U.S. Department of Agriculture's Grassland, Soil and Water Research Laboratory in Temple, Texas, a unit of the Agricultural Research Service. The paper chronicles the historical development of the Soil and Water Assessment Tool (SWAT) model, including modified SWAT models and graphical user interfaces, and the wide range of SWAT applications that have been performed across the globe. Strengths and weakness of the model are also discussed, and future research needs are detailed. More information about the selection of the paper for this groundbreaking invited paper series will be included in the next issue of the ASABE's Resource Magazine.

Several Iowa State University economics faculty, researchers, and students received awards and honors at the 2007 Joint Annual Meeting of the American Agricultural Economics Association (AAEA), the Western Agricultural Economics Association (WAEA), and the Canadian Agricultural Economics Society (CAES) held in Portland, Oregon, July 29-August 1. Tue, 14 Aug 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/summer_07/article1.aspx This year, Congress is considering what to do about farm policy while trying to work within pay-as-you-go budget rules. They are also contemplating fuel mandates that would greatly increase ethanol production. But though the two policies are intertwined, there seems to be little thought to the effects of the biofuels mandates, or high commodity prices that traders say may be with us for awhile. Wed, 25 Jul 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/summer_07/article2.aspx Consumers may be feeling a pinch in their wallets at the supermarket checkout counter, as some food prices seem to be climbing. Ethanol is sometimes cast as the villain in this story, since high demand for biofuels has raised the price of corn and other grains. But U.S. shoppers might be surprised to learn how little the higher price of corn raises the cost of their groceries. Wed, 25 Jul 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/summer_07/article3.aspx CARD begins a year-long celebration of its 50 years of service as a university-based public policy research center focused on agriculture. Wed, 25 Jul 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/summer_07/article4.aspx The great demand for corn from an expanding ethanol industry has had tremendous effects on corn prices and planted acreage across the Midwest. In Iowa, it has also shifted the pattern of corn prices across the state. We examine how basis levels -- the difference between the prices listed on the Chicago Board of Trade futures for corn and prices being paid in Iowa -- have changed across the state and where these patterns might be headed. Wed, 25 Jul 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1056 Worldwide production of biodiesel is growing at a rapid pace. Arguably, the European Union (EU) is the global leader in biodiesel production, but the United States has recently expanded its production. The growth of the biodiesel industry in both regions has been fueled by a series of government-provided financial incentives. However, the timing of the growth and incentive provisions, the nature of the main incentives, and the market conditions differ across regions. This article provides a comparative analysis of the EU and U.S. biodiesel industries, highlighting market and policy aspects that are leading to a rapid but distinct growth.

Keywords: biodiesel, biodiesel industry, biodiesel quality, biofuels, energy security, rapeseed oil, rapeseed methyl ester, soybean oil, soydiesel, ultra low sulfur diesel.
Tue, 24 Jul 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1055 WIC, the Special Supplemental Nutrition Program for Women, Infants, and Children, is a widely studied public food assistance program that aims to provide foods, nutrition education and other services to at-risk, low-income children and pregnant, breastfeeding and postpartum women. From a policy perspective, it is of interest to assess the efficacy of the WIC program - how much, if at all, does the program improve the nutritional outcomes of WIC families? In this paper we address two important issues related to the WIC program that have not been extensively addressed in the past. First, although the WIC program is primarily devised with the intent of improving the nutrition of "target" children and mothers, it is possible that WIC may also change the consumption of foods by non-targeted individuals within the household. Second, although WIC eligibility status is predetermined, participation in the program is voluntary and therefore potentially endogenous. We make use of a triangular treatment-response model in which the dependent variable is the requirement-adjusted calcium intake from milk consumption and the endogenous variable is WIC participation, and estimate it using Bayesian methods. Using data from the CSFII 1994-1996, we find that the correlation between the errors of our two equations is strong and positive, suggesting that families participating in WIC have an unobserved propensity for high calcium consumption. The direct "structural" WIC parameters, however, do not support the idea that WIC participation leads to increased levels of calcium consumption from milk.

Keywords: nutrition, WIC, Bayesian econometrics, treatment-response.
Thu, 19 Jul 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1054 A large empirical literature exists seeking to identify crop yield distributions. Consensus has not yet formed. This is in part because of data aggregation problems but also in part because no satisfactory motivation has been forwarded in favor of any distribution, including the normal. This article explores the foundations of crop yield distributions for the Law of the Minimum, or weakest-link, resource constraint technology. It is shown that heterogeneity in resource availabilities can increase expected yield. The role of stochastic dependence is studied for the technology. With independent, identical, uniform resource availability distributions the yield skew is positive, whereas it is negative whenever the distributions are normal. Simulations show how asymmetries in resource availabilities determine skewness. Extreme value theory is used to suggest a negative yield skew whenever production is in a tightly controlled environment so that the left tails of resource availability distributions are thin.

Keywords: beta-normal distribution, crop insurance, extreme value theory, Liebig technology, limiting factors, order statistics, reliability, weakest link.
Tue, 03 Jul 2007 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=53

Jacinto F. Fabiosa and Dermot J. Hayes became the new co-directors of the Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University on July 1, 2007. They succeed John C. Beghin, director since 1999, who will spend the next year at the University of Sydney, Australia, before returning to the Iowa State Department of Economics. Mon, 02 Jul 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1053 We analyze the effects of a domestic standard that reduces an externality associated with the consumption of the good targeted by the standard, using a model in which foreign and domestic producers compete in the domestic good market. Producers can reduce expected damage associated with the externality by incurring a cost that varies by source of origin. Despite potential protectionism, the standard is useful in correcting the consumption externality in the domestic country. Protectionism occurs when the welfare-maximizing domestic standard is higher than the international standard maximizing welfare inclusive of foreign profits. The standard is actually anti-protectionist when foreign producers are much more efficient at addressing the externality than are domestic producers. Possible exclusion of domestic or foreign producers arises with large standards, which may alter the classification of a standard as protectionist or non-protectionist. The paper provides important implications for the estimation and use of tariff equivalents of nontariff barriers.

Keywords: externality, nontariff barriers, protectionism, safety, standard, tariff equivalent.
Thu, 14 Jun 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1052 This paper studies how the strength of intellectual property rights (IPRs) affects investments in biological innovations when the value of an innovation is stochastically reduced to zero because of the evolution of pest resistance. We frame the problem as a research and development (R and D) investment game in a duopoly model of sequential innovation. We characterize the incentives to invest in R and D under two competing IPR regimes, which differ in their treatment of the follow-on innovations that become necessary because of pest adaptation. Depending on the magnitude of the R and D cost, ex ante firms might prefer an intellectual property regime with or without a "research exemption" provision. The study of the welfare function that also accounts for benefit spillovers to consumers—which is possible analytically under some parametric conditions, and numerically otherwise—shows that the ranking of the two IPR regimes depends critically on the extent of the R and D cost.

Keywords: biological resistance, intellectual property rights, Markov perfect equilibrium, patents, research exemption, R and D, sequential innovation.

JEL Classification: L00, O31, O34, Q28
Wed, 13 Jun 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1051 The biodiesel industry in the United States has realized significant growth over the past decade through large increases in annual production and production capacity and a transition from smaller batch plants to larger-scale continuous producers. The larger, continuous-flow plants provide operating cost advantages over the smaller batch plants through their ability to capture co-products and reuse certain components in the production process. This paper uses a simple capital budgeting model developed by the authors along with production data supplied by industry sources to estimate production costs, return-on-investment levels, and break-even conditions for two common plant sizes (30 and 60 million gallon annual capacities) over a range of biodiesel and feedstock price levels. The analysis shows that the larger plant realizes returns to scale in both labor and capital costs, enabling the larger plant to pay up to $0.015 more per pound for the feedstock to achieve equivalent return levels as the smaller plant under the same conditions. The paper contributes to the growing literature on the biodiesel industry by using the most current conversion rates for the production technology and current price levels to estimate biodiesel production costs and potential plant performance, providing a useful follow-up to previous studies.

Keywords: biodiesel, biofuels, feedstock, production costs, return on investment.
Tue, 15 May 2007 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=52

U.S. crop insurance has failed to prevent costly ad hoc disaster assistance for farmers, even though its cost to taxpayers doubled with Congress's 2000 reform of the program. Fri, 04 May 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1047 Thu, 03 May 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1046 Growing demand for corn due to the expansion of ethanol has increased concerns that environmentally sensitive lands retired from agricultural production into the Conservation Reserve Program (CRP) will be cropped again. Iowa produces more ethanol than any other state in the United States, and it also produces the most corn. Thus, an examination of the impacts of higher crop prices on CRP land in Iowa can give insight into what we might expect nationally in the years ahead if crop prices remain high. We construct CRP land supply curves for various corn prices and then estimate the environmental impacts of cropping CRP land through the Environmental Policy Integrated Climate (EPIC) model. EPIC provides edge-of-field estimates of soil erosion, nutrient loss, and carbon sequestration. We find that incremental impacts increase dramatically as higher corn prices bring into production more and more environmentally fragile land. Maintaining current levels of environmental quality will require substantially higher spending levels. Even allowing for the cost savings that would accrue as CRP land leaves the program, a change in targeting strategies will likely be required to ensure that the most sensitive land does not leave the program.

Keywords: agricultural markets, Conservation Reserve Program, environmental quality.
Thu, 03 May 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_07/article1.aspx USDA's Prospective Plantings Report predicts that farmers will plant 15 percent more corn acreage this season to meet growing demand from ethanol. Booming production of corn may moderate prices, at least this season, but livestock producers may face tight margins, and continuing higher costs may lead to a smaller livestock industry. This and other ripple effects, including higher land rents, higher food costs, and environmental effects, from the fast-growing ethanol industry have led to questions about what U.S. biofuels policies are trying to accomplish and whether those aims are worth the trade-offs. Tue, 01 May 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_07/article2.aspx The Conservation Reserve Program was created to move some of the nation's most fragile lands out of crop production to improve the environmental quality of those lands. Iowa has a large number of acres enrolled in the CRP. It also produces the most corn in the nation--and the most ethanol. How will the expansion of the ethanol industry affect the enrollment of Iowa's CRP acres and Iowa's environmental quality? Tue, 01 May 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_07/article3.aspx The returns to crop production are increasing, and those returns will also make their way into the value of Iowa farmland. These potential changes, their main beneficiaries, and their ultimate impacts for Iowa are outlined. Tue, 01 May 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_07/article4.aspx The United States has increased its production of biodiesel from 2 million gallons in 2000 to 250 million gallons in 2006. Governmental incentives are fueling the increase, along with rapidly increasing demand. But margins for the industry are tight, given the price of feedstocks, which is mostly soybean oil in the United States. What is the viability of U.S. biodiesel in the near term? Tue, 01 May 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_07/article5.aspx When demand for corn is as high as it is today, weather takes center stage in discussions about meeting expectations for production. Many remember the large shortfall in corn production in 1988--a hot, dry growing season. And the drought of 1983 caused the second-largest shortfall since 1970. Looking at historical production patterns, we can calculate the probability of meeting, exceeding, or falling short of harvest expectations. Are the odds in our favor for 2007? Tue, 01 May 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1045 The welfare implications of intellectual property protection (IPP) for private sector agricultural research are analyzed, focusing on the realistic cases in which countries provide different IPP levels, technology spills over across countries, and the public sector is involved in research. A model is developed to determine who benefits from, and who should pay for, the associated research. The paper contains some interesting results on the implications of a harmonization of IPP policies through multilateral agreements or via technology that allows research firms to prevent the copying of plants and animals that express traits that have emerged from their research.

Keywords: biotechnology, GURTs, intellectual property, research spillover, welfare analysis.

JEL Classification: F13, L11, O31, O34, Q16, Q17.
Fri, 27 Apr 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1044 Landscape amenities can be scarce in places with large areas of open space. Intensely farmed areas with high levels of monocropping and livestock production are akin to developed open space areas and do not provide many services in terms of landscape amenities. Open space in the form of farmland is plentiful, but parks and their services are in short supply. This issue is of particular importance for public policy because it is closely linked to the impact of externalities caused by agricultural activities and to the indirect effects of land use dynamics. This study looks at the impact of landscape amenities on rural residential property values in five counties in North Central Iowa using a hedonic pricing model based on geographic information systems. The effect of cropland, pasture, forest, and developed land as land uses surrounding the property is considered, as well as the impact of proximity to recreational areas. The study also includes the effect of other disamenities, such as livestock facilities and quarries, which can be considered part of the developed open space and are a common feature of the Iowa landscape.

Keywords: environmental management, hedonic analysis, land use, spatial externalities.
Wed, 18 Apr 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1043 In the months following the reopening of the Japanese market to imports of U.S. beef on July 26, 2006, Japanese importers were unable to procure adequate supplies. This paper discusses reasons for early supply shortages and some of the policy and trade issues that will affect demand for U.S. beef in the short to medium term. The paper also discusses current marketing efforts for domestic and imported beef, new marketing technologies, and general consumer trends. The information presented in this paper includes on-site observations and data from meetings with Japanese importers and retailers and industry experts during market research in Tokyo and Osaka in November 2006.

Keywords: age verification, beef traceability, food safety, Japan, marketing.
Tue, 03 Apr 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1042 We provide estimates of the costs associated with inducing substantial conversion of land from production of traditional crops to switchgrass. Higher traditional crop prices due to increased demand for corn from the ethanol industry has increased the relative advantage that row crops have over switchgrass. Results indicate that farmers will convert to switchgrass production only with significant conversion subsidies. To examine potential environmental consequences of conversion, we investigate three stylized landscape usage scenarios, one with an entire conversion of a watershed to switchgrass production, a second with the entire watershed planted to continuous corn under a 50% removal rate of the biomass, and a third scenario that places switchgrass on the most erodible land in the watershed and places continuous corn on the least erodible. For each of these illustrative scenarios, the watershed-scale Soil and Water Assessment Tool (SWAT) hydrological model (Arnold et al., 1998; Arnold and Forher, 2005) is used to evaluate the effect of these landscape uses on sediment and nutrient loadings in the Maquoketa Watershed in eastern Iowa.

Keywords: adoption subsidy, cellulosic ethanol, energy crops, land use, SWAT, switchgrass, water quality.
Fri, 30 Mar 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1041 Concerns about biosecurity in the food system raise a variety of issues about how the system is presently organized, why it might be vulnerable, what one could reasonably do to better secure it, and the costs of doing so. After presenting some facts about US agriculture and food, this paper considers three economic aspects of the general problem. One is the global problem, or the way biosecurity measures can affect how countries relate to each other and the global consequences that result. Another is how to best manage the immediate aftermath of a realized threat in order to minimize damage. The third is how to seek to prevent realization of the threat. Some policy alternatives are also presented.

Keywords: agro-terrorism, animal disease, biosecurity, epidemic, food system policy.
Wed, 28 Mar 2007 12:00:00 CST http://www.extension.iastate.edu/bioeconomy/communityfutures/ Exploring the impact of the bioeconomy on Iowa's small communities. Video of Governor Chet Culver, Professor Bruce Babcock, and other presenters now available on the Web site. Mon, 19 Mar 2007 12:00:00 CST http://www.card.iastate.edu/about/news/show_brief.aspx?id=27

Bruce Babcock, director of Iowa State University's Center for Agricultural and Rural Development and professor of economics, spoke at events hosted by Oxfam America and by the German Marshall Fund of the United States in Washington, D.C., on March 7.

Babcock, along with colleague Bruce Gardner, an economist at the University of Maryland, participated in a Capitol Hill farm bill discussion sponsored by Oxfam, a development, advocacy, and relief agency. Specifically, the Oxfam briefing focused on empirical evidence that calls into question whether reforming the commodity title of the farm bill would hurt consumers through price hikes or threaten national food security through increased reliance on food imports. Oxfam is hosting a series of such briefings to generate discussion and debate around key issues of the 2007 farm bill.

Babcock then spoke at a luncheon of the German Marshall Fund, titled "Expanding Ethanol Production in the United States: Benefits and Challenges." The discussion was the first in a series on "Transatlantic Approaches to Biofuels" sponsored by the GMF, a public policy and grantmaking institution dedicated to promoting greater cooperation and understanding between the United States and Europe. Babcock spoke on the socio-economic impacts of an expanding corn-based ethanol production. Other speakers focused on challenges for a new U.S. transportation fuel, environmental impacts, and the role of biofuels in the European Union.

WASHINGTON--Despite high crude oil prices and various policy incentives, profit margins in bio-energy are expected to deteriorate, according to the Food and Agricultural Policy Research Institute's 2007 agricultural outlook. This decline is the result of high feedstock prices and progressive elimination of unmet demand following a large expansion in capacity in renewable fuels, FAPRI analysts told Congress today. The institute prepares a set of 10-year projections for U.S. and international commodity markets and presents the results at this time each year. Tue, 06 Mar 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1040 The Soil and Water Assessment Tool (SWAT) model is a continuation of nearly 30 years of modeling efforts conducted by the U.S. Department of Agriculture (USDA), Agricultural Research Service. SWAT has gained international acceptance as a robust interdisciplinary watershed modeling tool, as evidenced by international SWAT conferences, hundreds of SWAT-related papers presented at numerous scientific meetings, and dozens of articles published in peer-reviewed journals. The model has also been adopted as part of the U.S. Environmental Protection Agency's BASINS (Better Assessment Science Integrating Point and Nonpoint Sources) software package and is being used by many U.S. federal and state agencies, including the USDA within the Conservation Effects Assessment Project. At present, over 250 peer-reviewed, published articles have been identified that report SWAT applications, reviews of SWAT components, or other research that includes SWAT. Many of these peer-reviewed articles are summarized here according to relevant application categories such as streamflow calibration and related hydrologic analyses, climate change impacts on hydrology, pollutant load assessments, comparisons with other models, and sensitivity analyses and calibration techniques. Strengths and weaknesses of the model are presented, and recommended research needs for SWAT are provided.

Keywords: developmental history, flow analysis, modeling, SWAT, water quality.

ASABE journal article: http://www.card.iastate.edu/environment/items/asabe_swat.pdf Wed, 28 Feb 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1039 This background paper is devoted to US sugar policy. A first section describes the features and economics of the US sugar program; a second section is devoted to the welfare and trade effects of the US sugar program; and a final section reports on potential emerging reforms, their expected effects, and implications. Beyond well-established findings on the social cost and inefficiency of the US sugar program, the main findings of this paper are as follows. The current sugar program is becoming unsustainable because sugar imports are progressively creeping into the US market through regional trade agreements, eventually inducing large sugar inventories, or contracting domestic production to unpalatable low levels in order to maintain high internal prices. The sugar program in its current form is also a potential target for reform because of likely reductions in amber box limits under a potential Doha Agreement of the World Trade Organization (WTO). The current support accounting for sugar under the WTO favors abandoning the current program. A possible outcome would be to change the current sugar program into a standard program, removing the domestic supply controls (allotments), lowering the loan rate, implementing countercyclical, and direct payments, but keeping the current trade protection nearly intact thanks to the high bound-tariff on sugar. Slightly lower consumer prices would result. Payment limitations would penalize large growers. The paper also looks at the cost and implications of a buy-out. The recent resolution of the sweetener dispute (sugar, and corn syrup) between the US and Mexico removes much uncertainty from these markets. Long-term expansion of Mexican sugar exports into the US remains a possibility in 2008. A standard crop program with a lower loan rate would reduce incentives for Mexican producers to export sugar to the US market.

Keywords: dispute, HFCS, NAFTA, sugar, sugar program, sweetener, trade, TRQ, US farm bill.
Fri, 23 Feb 2007 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=50

Iowa State University and ISU Extension will offer a program that explores the economics of liquid fuels produced by plant sources other than corn, the overall market for biofuels, and what it will take for the United States to significantly reduce its consumption of fossil fuels. Thu, 15 Feb 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1037 This paper explores the effects of a standard influencing care choice. Firm(s) may increase the probability of offering safe products by incurring a cost. Under duopoly, they compete either in prices or in quantities. Under perfect information about safety for consumers, the selected standard that corrects a safety underinvestment is always compatible with competition. Safety overinvestment only emerges under competition in quantities and relatively low values of the cost. Under imperfect information about safety for consumers, the standard leads to a monopoly situation. However, for relatively large values of the cost, a standard cannot impede the market failure coming from the lack of information.

Keywords: information, market structure, safety, standard.

JEL Classification: C L1, L5 Mon, 12 Feb 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/winter_07/article1.aspx As Congress prepares for 2007 farm bill debate, the new chair of the House Committee on Agriculture has suggested that a standing disaster payment program should be a permanent part of the farm bill. But since such a disaster relief program would duplicate coverage offered through crop insurance, the proposal calls into question whether the goals of the crop insurance program remain unmet, and whether a more effective mix of commodity programs and disaster coverage could be found. Thu, 01 Feb 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/winter_07/article2.aspx Some dramatic shifts are underway in Chinese consumers' food preferences. In a market that used to be limited by consumers' low incomes and tastes for locally produced foods, structural changes in China have paved the way for other product attributes to become more prominent in consumers' consumption decisions, and this could be welcome news for U.S. food industries. Thu, 01 Feb 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/winter_07/article3.aspx As more and more ethanol plants come online, operators are looking for a competitive edge. A few ethanol plants have found a way to increase their revenues by locating near livestock operations, thus taking advantage of feeding by-product distillers grains to cattle and using the manure as an energy source. Just how much of an advantage might such a plant have compared to a plant located near corn but not near livestock? Thu, 01 Feb 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/winter_07/article4.aspx There is no doubt that ethanol expansion will change the flow of corn across the United States. Here, we estimate state-level domestic surplus corn--the amount remaining in a state after ethanol, livestock, and other processing is considered--to see how surplus corn might change in midwestern states by 2008. Thu, 01 Feb 2007 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/winter_07/article5.aspx Even though the United States currently produces vast quantities of the age and type of beef demanded by the Japanese market, Japanese importers have been unable to source enough eligible U.S. beef since the ban was lifted. With both trade partners willing and demand growing, why isn't the U.S. industry better able to meet beef demand in Japan? Thu, 01 Feb 2007 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1035 The successful expansion of the U.S. crop insurance program has not eliminated ad hoc disaster assistance. An alternative currently being explored by members of Congress and others in preparation of the 2007 farm bill is to simply remove the "ad hoc" part of disaster assistance programs by creating a standing program that would automatically funnel aid to hard-hit regions and crops. One form such a program could take can be found in the area yield and area revenue insurance programs currently offered by the U.S. crop insurance program. The Group Risk Plan (GRP) and Group Risk Income Protection (GRIP) programs automatically trigger payments when county yields or revenues, respectively, fall below a producer-elected coverage level. The per-acre taxpayer costs of offering GRIP in Indiana, Illinois, and Iowa for corn and soybeans through the crop insurance program are estimated. These results are used to determine the amount of area revenue coverage that could be offered to farmers as part of a standing farm bill disaster program. Approximately 55% of taxpayer support for GRIP flows to the crop insurance industry. A significant portion of this support comes in the form of net underwriting gains. The expected rate of return on money put at risk by private crop insurance companies under the current Standard Reinsurance Agreement is approximately 100%. Taking this industry support and adding in the taxpayer support for GRIP that flows to producers would fund a county target revenue program at the 93% coverage level.

Keywords: area revenue insurance, commodity programs, crop insurance, Group Risk Income Protection
Tue, 16 Jan 2007 12:00:00 CST http://www.card.iastate.edu/about/news/show_brief.aspx?id=26

Bruce Babcock, professor of economics and director of the Center for Agricultural and Rural Development (CARD), traveled to Washington December 22 for a briefing of Secretary of Agriculture Mike Johanns on issues surrounding biorenewable fuels. The meeting was attended by the deputy secretary, the under secretaries for Rural Development and Farm and Foreign Agricultural Services, and Chief Economist Keith Collins. Much of the discussion centered on increasing E-85 fuel supply and meeting ethanol, livestock, and export demands for corn. Discussion also focused on CARD's preliminary estimates of the long-term impacts of ethanol expansion on the grain, oilseed, and livestock sectors, one of the earliest attempts to project the effects of a major shift in U.S. energy policy.

Researchers at Iowa State University will evaluate the costs and benefits of ethanol expansion to rural communities in the Upper Mississippi River Basin as part of a $676,722 biofuels research grant. Wed, 01 Nov 2006 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1028 This study analyzes the impact of price shocks in three input and output markets critical to ethanol: gasoline, corn, and sugar. We investigate the impact of these shocks on ethanol and related agricultural markets in the United States and Brazil. We find that the composition of a country's vehicle fleet determines the direction of the response of ethanol consumption to changes in the gasoline price. We also find that a change in feedstock costs affects the profitability of ethanol producers and the domestic ethanol price. In Brazil, where two commodities compete for sugarcane, changes in the sugar market affect the competing ethanol market.

Keywords: agricultural markets, energy, ethanol, renewable fuels.

JEL codes: Q11, Q18, Q42
Wed, 01 Nov 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/fall_06/article1.aspx The 2002 farm program was designed to protect farmers from low commodity prices. Now, as Congress reviews the current set of programs in preparation for decisions in 2007, we are entering a period of high prices. How has Congress reacted in the past to periods of high prices, what have been the consequences of those choices, and how efficient are the options they will consider for the next farm bill? Mon, 30 Oct 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/fall_06/article2.aspx USDA has projected a scenario in which by the year 2010, U.S. ethanol, livestock, and exports could reach a combined demand of 90 million acres of corn. The United States has not planted that much corn acreage since 1944. Land use in the Southeast, where signficiant corn acreage came from in the 1930s and 1940s, has changed and moved out of production. And the amount of acreage scheduled to be released from the Conservation Reserve Program between 2007 and 2008 is less than originally projected, with most of that land more suitable to wheat rather than to corn production. Mon, 30 Oct 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/fall_06/article3.aspx As outlined in the Agricultural Situation Spotlight, demand for corn acreage is expected to intensify, and the Corn Belt will be the focus for much of this demand. Analysts have predicted that this corn acreage will come at the expense of soybean acreage. Changing rotation away from the usual corn-soybean pattern comes at a cost. Researchers have investigated the costs of changing rotations, how high corn prices would have to be for producers to make this switch, and how yields figure into the equation. Mon, 30 Oct 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/fall_06/article4.aspx For the past decade, exports of U.S. pork have grown substantially. And while three countries (Japan, Mexico, and Canada) are responsible for most of the growth in U.S. product being shipped, other smaller markets have made a big contribution to the success of U.S. pork abroad as a result of trade agreements and strong demand. Mon, 30 Oct 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/fall_06/article5.aspx The 2002 farm legislation contained much more funding for conservation programs than in years past. Now, with budgets under increasing scrutiny, policymakers want more evidence that the funded programs are producing results. Researchers at CARD and in other departments at Iowa State University are working on several studies to determine what impacts various conservation programs are having on Iowa's cropland and its watersheds. Mon, 30 Oct 2006 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=48

The U.S. Department of Agriculture has provided $275,000 in research funding to the Center for Agricultural and Rural Development at Iowa State University to provide estimates of the impact on farmers, consumers and international trade from increased energy production from agriculture. Thu, 26 Oct 2006 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=46

Researchers at Iowa State University will evaluate the costs and benefits of ethanol expansion to rural communities in the Upper Mississippi River Basin as part of a $676,722 biofuels research grant. Wed, 25 Oct 2006 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=45

Consumer prices of commodities that are traded in international markets are influenced by such factors as supply, demand and governmental policies to control trade or prices. Fuel ethanol is no exception. Intense debate has focused on the shifting costs of ethanol at the fuel pump and the impact of the United States' energy and trade policies. Tue, 26 Sep 2006 12:00:00 CST http://www.card.iastate.edu/about/news/show_brief.aspx?id=25

Congress should take the best of current commodity policy and add in the best ideas from the Risk Management Agency to build a more efficient farm bill, Bruce Babcock told a U.S. House of Representatives subcommittee on September 21. Babcock, director of the Center for Agricultural and Rural Development (CARD) and a professor of economics at Iowa State, was invited to testify about current and future farm policy before the House Committee on Agriculture, Subcommittee on General Farm Commodities and Risk Management, which is chaired by Jerry Moran of Kansas. Babcock's statement is available on the CARD Web site. The subcommittee invited Babcock to talk about the effects of the 2002 farm legislation and what should go into the 2007 farm bill. Babcock provided some preliminary estimates of the costs of a more efficient agriculture safety net relative to the current program. Babcock and other analysts at CARD conduct analysis on commodity and risk management policy, and he has written and presented extensively on these topics.

The Center for Agricultural and Rural Development (CARD) at Iowa State University is launching a new Biorenewables Policy Division effective July 1. Wed, 28 Jun 2006 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1012 We analyze the potential impact of continuing the existing U.S. sugar program, replacing it with a standard program, and implementing the standard program with multilateral trade liberalization. Under the North American Free Trade Agreement (NAFTA), duty-free sugar imports from Mexico will undermine the program's ability to operate on a "no-cost" basis to U.S. taxpayers. As the Mexican beverage industry is likely to expand considerably its high-fructose corn syrup use, the sugar thereby displaced will seek a market in the United States. Under these conditions, marketing allotments could not be utilized under current legislation and prices would likely fall to the loan rate. The government would accumulate significant sugar stocks. The replacement of the current sugar program by one similar to other major U.S. crop programs would solve the problem of stock accumulation and accommodate further trade liberalization under a new World Trade Organization (WTO) agreement or future bilateral trade agreements. Our analysis of recent WTO proposals suggests that a WTO agreement is unlikely to impose significant adjustment pressures on the U.S. sugar market beyond those created by NAFTA. The adoption of a standard program would make it easier for the United States to meet its commitments under a new WTO agreement in terms of reductions in trade-distorting amber-box support. Moving to a standard program would increase the costs of the program for taxpayers but would lower costs for sugar users. Given reasonable assumptions about program parameters, the principal program cost would likely be through direct payments rather than through countercyclical or loan-deficiency payments. These costs could be lower than the maximum estimated here, because of limitations on payments to individual producers.

KEYWORDS: DOHA, NAFTA, POLICY, SUGAR, U.S. SUGAR PROGRAM.
Tue, 13 Jun 2006 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1007 This paper examines the incentive of atomistic agricultural producers within a specific geographical region to differentiate and collectively market products. We develop a model that allows us to analyze the market and welfare effects of the main types of real-world producer organizations, using it to derive economic insights regarding the circumstances under which these organizations will evolve, and describing implications of the results obtained in the context of an ongoing debate between the European Union and United States. As the anticipated fixed costs of development and marketing increase and the anticipated size of the market falls, it becomes essential to increase the ability of the producer organization to control supply in order to ensure the coverage of fixed costs. Whenever a collective organization allows a market (with a new product) to exist that otherwise would not have existed there is an increase in societal welfare. Counterintuitively, stronger property right protection for producer organizations may be welfare enhancing even after a differentiated product has been developed. The reason for this somewhat paradoxical result is that legislation aimed at curtailing the market power of producer organizations may induce large technological distortions.

Keywords: agricultural products, collective promotion, geographic indications, supply control, quality.
Wed, 31 May 2006 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1003 Consideration of consumers' demand for food quality entails several aspects. Quality itself is a complex and dynamic concept, and constantly evolving technical progress may cause changes in consumers' judgment of quality. To improve our understanding of the factors influencing the demand for quality, food quality must be defined and measured from the consumer's perspective (Cardello, 1995). The present analysis addresses the issue of food quality, focusing on pork—the food that respondents were concerned about. To gain insight into consumers' demand, we analyzed their perception and evaluation and focused on their cognitive structures concerning pork quality. In order to more fully account for consumers' concerns about the origin of pork, in 2004 we conducted a consumer survey of private households. The qualitative approach of concept mapping was used to uncover the cognitive structures. Network analysis was applied to interpret the results. In order to make recommendations to enterprises, we needed to know what kind of demand emerges from the given food quality schema. By establishing the importance and relative positions of the attributes, we find that the country of origin and butcher may be the two factors that have the biggest influence on consumers' decisions about the purchase of pork.


Keywords: cognitive structures, concept mapping, food quality, network analysis, semantic networks, spreading activation network model.
Thu, 04 May 2006 12:00:00 CST http://www.fapri.iastate.edu/outlook2006/ Online version now available Fri, 21 Apr 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_06/article1.aspx Do U.S. farm programs lead to cheap food? Some U.S. producers think so. They say that farm program payments are justified because they keep food affordable for consumers. But Canadian corn farmers think so, too. They claimed that U.S. corn prices are kept artificially low through U.S. subsidies (though they recently lost a decision on that claim in a case before the Canadian International Trade Tribunal). How can we determine if there is a connection between farm program payments, commodity prices, and food prices? Thu, 20 Apr 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_06/article2.aspx The use of U.S. corn for fuel is definitely on the upswing. Projected increases in ethanol production suggest that fuel use of U.S. corn will soon surpass corn exports. And while this would seem to be a win-win situation for corn producers, with the savings in transportation costs and surefire market for the commodity, at least two complications arise from this reliance on ethanol for corn growers. One is the resulting distillers grains that must be marketed. The other is the unforeseen impact on the price. Thu, 20 Apr 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_06/article3.aspx As the United States ramps up to meet the demand for ethanol production, it might be instructive to look at the policies and marketings of the largest producer of ethanol, and the country that currently provides the most U.S. imports--Brazil. Thu, 20 Apr 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_06/article4.aspx A large amount of land enrolled in the Conservation Reserve Program will begin to be released from the program in 2007. In Iowa, over 500,000 acres are set to be released. Other CRP acres with contracts expiring are located in major production regions for wheat, corn, soybeans, and cotton. Strong crop prices for these commodities could bring significant acreage back into production and have a tremendous impact on production and prices. Thu, 20 Apr 2006 12:00:00 CST http://www.card.iastate.edu/iowa_ag_review/spring_06/article5.aspx Rising incomes and increased urbanization have created more demand in Mexico for higher-quality pork and stricter sanitary practices in its production and processing. In response, Mexico's pork industry has become more integrated and achieved greater production efficiencies. But even with these improvements, Mexico's pork industry has not kept up with the rising domestic demand, and Mexico has become an increasingly important market for the United States. A key to the development of increased trade is the growth in Mexico of federally inspected or "Tipo Inspección Federal" (TIF) plants and increased supermarket sales. Thu, 20 Apr 2006 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=1000 With sustained income growth and fast urbanization, Indonesia will see a major shift in the growth of grain consumption from rice to wheat products. New demand estimates from consumption survey data give a relatively high income elasticity of demand for wheat-based products, in the range of 0.44 to 0.84, with 26% to 34% of this response coming from the impact of income on the probability of consumption for non-consuming households and the remaining impact coming from the response on the level of consumption for households currently consuming wheat products. Urban location of households also contributes an increase of 0.11% to 0.13% to consumption. In contrast, elasticities in rice show a negative impact of income and urbanization on the probability of consumption and a positive but small impact on the unconditional mean. A partial liberalization scenario shows the domestic wheat flour price declining by 13.66%, inducing consumption to increase by 7.06%, which translates into 7.04% growth in imports. This exerts an upward pressure on the world price, increasing it by 0.23%. A faster income growth scenario shows higher consumption (2.60%), imports (2.59%), and prices (0.09%). Countries with a proximity advantage such as Australia, China, and India will benefit from the growth in this market. But, with dependable supply, product quality assurance, and credit availability, North American suppliers may still remain in this market.

Keywords: double-hurdle demand, trade, Westernization of diet.
Fri, 14 Apr 2006 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=998 This paper empirically explores the link between quality and concentration in a cross-section of manufactured goods. Using concentration data and product quality indicators, an ordered probit estimation explores the impact of concentration on quality that is defined as an index of quality characteristics. The results demonstrate that market concentration and quality are positively correlated across different industries. When industry concentration increases, the likelihood of the product being higher quality increases and the likelihood of observing a lower quality decreases.

Keywords: concentration, market structure, ordered probit, product differentiation, product quality. Tue, 28 Mar 2006 12:00:00 CST http://www.card.iastate.edu/publications/synopsis.aspx?id=937 The structure of the pork production, slaughter, and processing sectors in Mexico has changed significantly since implementation of the North American Free Trade Agreement (NAFTA) and with rising income and increased urbanization. Today, Mexico's pork industry has become more integrated and achieved greater production efficiencies in response to increasing demand for better product quality and stricter sanitary practices in production and processing pork for both the domestic market and for export. However, despite these improvements Mexico's pork industry has not kept up with the rising domestic demand, and Mexico has become an increasingly important market for the United States. A key to the development of increased trade in both live animals and pork is growth of federally inspected or "Tipo Inspección Federal" (TIF) plant production, as well as development of marketing channels and product promotion that support high-quality consumer meat products.

Keywords: live hogs and pork trade, Mexico, NAFTA, pork industry, pork slaughter, TIF plants. Fri, 10 Mar 2006 12:00:00 CST http://www.fapri.iastate.edu/brfbk06/ Thu, 02 Mar 2006 12:00:00 CST http://www.card.iastate.edu/about/news/show_release.aspx?id=43

Despite continued high energy prices, the Food and Agricultural Policy Research Institute expects world economic growth to remain strong in the coming decade, at around 3 percent per annum, boosting consumption of vegetable oil, dairy products, and meat in many parts of the world. This projection is part of FAPRI's 2006 agricultural outlook presented to Congress on March 2. The outlook runs from crop years 2005/06 to 2015/16. According to FAPRI, solid commodity prices and a persistently weak U.S. dollar in industrialized trading countries keep U.S. exports strong for the next 10 years. Thu, 02 Mar 2006 12:00:00 CST http://www.card.iastate.edu/about/news/show_brief.aspx?id=24

The USDA's Risk Management Agency has greatly expanded availability of Group Risk Income Protection (GRIP) for 2006. GRIP is a revenue-based crop insurance plan that makes indemnity payments only when the average country revenue for the insured crop falls below the revenue chosen by the farmer (between 90 and 150 percent of expected county revenue). Covered crops now include corn, soybeans, grain sorghum, wheat, and cotton in most major production regions. With this expanded coverage, many farmers and their insurance agents are considering whether GRIP would be a good choice for coverage in 2006 and beyond. Economists at ISU's Center for Agricultural and Rural Development calculated what GRIP would have cost and what it would have paid out had it been available from 1980 through 2004 for Iowa corn (in Poweshiek County), North Dakota wheat, and Texas cotton, and how it would have performed against other revenue insurance plans. According to the calculations, Poweshiek County corn producers would have received $17 more per acre in net indemnities for GRIP than for Revenue Assurance over the historical period. Losses on corn in Iowa tend to be driven primarily by systemic factors, such as widespread drought or excess rainfall, so farm yields and county yields are usually highly correlated. GRIP therefore may provide good risk management benefits for Iowa corn producers. For more information, see "When Is GRIP the Right Choice for Crop Insurance?" in the winter 2006 issue of the Iowa Ag Review. Contact Chad Hart, (515) 294-9911, or Sandy Clarke, CARD communications, (515) 294-6257.