Supply Response in the Australian Sheep Industry: A Case for Disaggregation and Dynamics*

Abstract

A.Microeconomic capital goods theory was utilised to provide a theoretical framework on which a dynamic econometric model was based. Econometric procedures were then employed in an analysis of sheep producers' decision making regarding the annual supplies of wool, lamb and mutton, and annual changes in the inventory levels of sheep, lambs and ewes maintained for breeding purposes.Estimates show that wool prices provide the long-run stimulus for increases and decreases in the sheep flock while mutton and lamb prices are responsible for short-run changes in flock composition. Substitution between sheep and beef cattle is of considerable importance although no significant substitution between sheep and cropping could be found. Seasonal conditions proved to be an important short-run supply shifter, affecting both numbers and composition of the sheep flock.Introduction This study focuses on annual production and inventory decisions of Australian sheep producers by modelling producer behaviour in the context of capital theory. The central theme of the paper is simple. Sheep are considered to be capitai goods and producers are viewed as portfolio managers. In any period the producer of a good is faced with the problem of maximising some objective function (profit, utility) given some level of input costs, an anticipated output price and an initial stock of capital (fixed productive resources).In the livestock sector there are factors other than prices that impinge upon production; e.g. seasonal conditions and biological constraints on output. Thus, any model which purports to explain a production decision within the livestock sector must explicitly account for all three elements of that decision; i.e. the demographic constraint, the economic decision and the modification of the decision caused by exogenous influences. The model outlined in this paper is intended to account for each

Supply Response in the Australian Extensive Livestock and Cropping Industries: A Study of Intentions and Expectations*

“…The unimportance of the wheat price variable in the alternate product equations suggested that movements in wheat prices do not directly affect livestock production enterprises. A similar conclusion was reached by Reynolds and Gardiner (1980) in their supply study of the Australian sheep industry. They argue that, because of the practice of ley rotation on mixed farms, producers tend to make separate production choices within livestock enterprise combinations and also separate choices within cropping alternatives.…”

Alternative Breeding Inventory Specifications in a Livestock Market Model

“…Those options incorporating both disaggregated and adjusted data were able to adjust more quickly to a shock because breeding decisions were more responsive to price changes (particuiarly in the longer term) and were less predetermined by previous breeding decisions. This study has confirmed the prognosis of Reynolds and Gardiner (1980), who called for greater disaggregation in livestock inventory modelling, and has taken the disaggregation procedures further.…”

“…In option (ii), separate inventories are specified for the mating intentions to short wool, long wool and Corriedale-Polwarth rams to capture the composition and distribution of the Australian lamb breeding inventory, after the observation that the producers of these breeds respond differently to changes in pastoral conditions and the returns to competitive enterprises (Reynolds and Gardiner 1980). Here, the aggregate breeding inventory is decomposed into three equations to explain matings to the three major British breed categories to produce the aggregate inventory (INEWAU).…”

A Disequilibrium Econometric Model of the Australian Raw Wool Market*

“…Other variables unsuccessfully tried in the supply equation included: the clean yield and the real expected price of wheat as another substitution possibility. The relative importance of expected beef prices compared to expected wheat prices is consistent with results from other studies, seeReynolds and Gardiner (1980).…”