A dairy supply model incorporating the concept of livestock as investment inputs : a thesis presented in partial fulfilment of the requirements for the degree of Master of Agricultural Science in Agricultural Economics and Marketing at Massey University

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P.G. Sp~ckman

May 19T(

I am in debt to my sttpcrvisor, ^{-;-,.,... ,.,}

.... .

A. C. Lerris for his advice, constructive com::;ient ax:cl encourao;eme21t throuchout this study.

This study vras undert2,kea wi1ile employed ^t~.r the })eparbnent of Agricul turn.l Economics :::rnd. Fann I):macement ancl I am gra,t0ful fo:c the tjJlle m<J.de ava..ilable to complete the study.

Dep«ortrncmt for their aclvice and const.l'l.1ctive con;r,:cmt during the moclel build.int?,' stages 2.nd to other Un.~.Yersity

staff for their heJ.p in the c.omputfo~ st:::,::;es. I would

e.nc1. unclersta.nd:i.J.1g by othc:r peopl-2 co:;:;_ncc.tecl '\".'i ti1 the study.

I fully ap1.,reci.atG the coops:cu.tfon and ass is tcmce of the i·Tew Zealand L2.i:ry :Soard ;:md es;::ccially the Fa.rill.

Production Ilivision, in iclentifyinc c~<!.ta sources ;md :iJ.1 providing data.

The Market Resea:!..'ch Centre, Hassey Univers:i. ty f mauced the computer work and for this I am sincerely thankful.

i

T?-ble of Contents

Chapter 1. Introduction

2.1 The Generalised Derivation of a Simple hlultiperiod Supply Function

2. 2 Difficulties in Supply Analysis

2.2~1 Farmers' Q"t;jectives

2~ 2 .. 2 Complexit.:i.i;;s of Production 2.2.3 Aggregation

2. 2.

4

¹rechn0Jogi cal Change

2. 2.

5

Uncertaint;/ of Prices a.."'ld Prod.uction Responses

Investment in Fixed o.na. Q.uasi--fixed Facto:rs of Production

2.3 HeleY.'.'!..l'J.t Previous Studi.es

2.3.1

Ne·,, Zeal and Dairy Su.p_r-,ly Studies

Page 1

5

New Zeal2na. Dairy Fa.rmcrf."' Price Expectations

3 ^c 1 Price Setting a.nd the Tielcase of Price Information to SupplieI.'S in the Taranaki Region

3.

1c1 Milkfat Prices 3.1.2 Surplus

Calf Pric

es

3.

1. 3 Cull Cow Prices

3.1o4

Sources of Price Series and Movements ⁱⁿ Prices

3.2

The Farm Production DiYision¹s SurV:ey of Factory Supply Dairy Fauns

3.3

The Taranaki/\'lestern Uplands Region

40

The Changes in the .Average of the Taranaki/Western Uplands Factory Milk Supply Dairy Farms

3e4 A Simple Analysis of the Important Production Factors

3.5

Summary and Conclusions

Chapter 4. '.rhe Da.i:r:;y Production and Decision llodel

4.1

The l.lodel

4.

2 The Pro due ti on '1.'lodel Milk Production Surplus Calves 1.iilking Costs Heifer Costs

Stock Reconciliations

4.2.6

FeJ'!ll Arca

4. 3

The Hod.el of the J)ecision Process Decision Variables

'l'he Objectives of the Dairy Fo..r;ner Price L:xpec.tations

J1,.

4

^The Overall J\:odel

4.5

'l'he ?rejection Llethods

4. 6

Surmn<.;ry

5.

1 Estimation of tbe Paramete1:·s

5.

2 :Discussion of the Results and Evaluation of the Model

5.2.1

5.2.2

5.2~3

'1¹he ParQffioter Values Evaluation of the Model

The Hesponses to Price Changes

5.3

Projections

5.4

^Swnmary of Results

Chapter 6. Conclusions

6.1

The Results and Policy Implications

6. 2 The Approach ·to Supply Analysis and Its • Limitations

iii

Page

68

110

Bibliography

Appendix A. Appendix: B.

Appendix C.

The Data

Tho r.:ilkfat Procluction Rcle:.tionshirs

The Results

Page

115

122

131

137