Negotiable Feed Grain Output Quotas: An Estimate of Marginal Value and Exchange

The simple analytics of agricultural production quotas

“…First, they are a way out of the impasse of over-production and low farm incomes; second, there are short-run gains for producers; third, there is protection against price declines that destroy asset values; and, fourth, there is increased certainty in resource allocation. Butcher & Heady (1963) add two more if quotas are tradable: first, in the short run, production will gravitate to low-cost farms and, second, in the long run, resource holdings of farms will adjust.…”

“…13 The price of quota per unit of output, that is the rental price of quota in the given production period, is OP F -OP C . 14 Following Butcher & Heady (1963) and more recently Hubbard (1984), let us briefly examine the supply of and demand for quotas at the farm level. 15 In Figure l(b), the difference between the 'fair' price and the farm's marginal cost at output Oq, that is OP F -OC, is the marginal value of quota or the additional profit gained if output could be increased by one unit.…”

“…Adoption of new technology is therefore not hindered. The equilibrium distribution of quotas, as Butcher & Heady (1963) and Parish (1963) note and as Moschini (1984) demonstrates formally, is where marginal costs are the same for all farms. Moreover, this distribution minimizes the cost of producing the aggregate quota level of output.…”

“…Butcher & Heady (1963) remarked that "Output controls are a major element in US agricultural policy", where tobacco and milk production were subject to quota restrictions. Examples since then include quotas on milk, poultry meat, eggs and tobacco in Canada dating from the late 1960s; sugar beet in the European Community (EC) since 1968; eggs in Australia since 1972; and milk in the EC since 1984.…”

Modelling a Siphon on quota transfers: An application to milk in France

“…See, e.g. Butcher & Heady (1963), Moschini (1984), Cox (1987), Hubbard (1992), Babcock & Foster (1992) and Hollander (1993). 3.…”