IDEAS home Printed from https://ideas.repec.org/a/bla/canjag/v72y2024i3p251-269.html
   My bibliography  Save this article

Are milk quota prices a rational investment? Modeling quotas as financial assets

Author

Listed:
  • Richard R. Barichello
  • James Vercammen
  • Benjamin Zammit‐Maempel

Abstract

Our objective in this paper is to examine the growth of the price of farm milk quotas in Canada, to shed light on their patterns of growth within the last 15 years. Our quota price model is based on the Gordon growth model, supplemented by some important characteristics of the milk quota market. Our explanatory variables include the quota rental price, interest rate, and expectations of both price and quantity growth, all for the province of Alberta over the 2009–2023 time period. Our economic model of quota prices performs well by giving results with the predicted signs for all variables in our model and high levels of statistical significance except for expectations of quantity allocations when entered separately. The model has two variants, one with the expectation of growth in quota rents and the other with the expectation of growth in the quota asset price. Econometric issues related to time series problems are dealt with. The model allows calculation of policy risk, which shows an interesting pattern over this time period. Notre objectif dans cet article est d'examiner la croissance du prix des quotas laitiers à la ferme au Canada, afin de faire la lumière sur leurs schémas de croissance au cours des quinze dernières années. Notre modèle de prix des quotas est basé sur le modèle de croissance de Gordon, complété par certaines caractéristiques importantes du marché des quotas laitiers. Nos variables explicatives comprennent le prix de location du quota, le taux d'intérêt et les attentes de croissance des prix et des quantités, le tout pour la province de l'Alberta au cours de la période 2009–2023. Notre modèle économique des prix des quotas fonctionne bien en donnant des résultats avec les signes prédits pour toutes les variables de notre modèle et des niveaux élevés de signification statistique, à l'exception des attentes d'allocations de quantité lorsqu'elles sont saisies séparément. Le modèle comporte deux variantes, l'une avec l'attente d'une croissance des rentes de quota et l'autre avec l'attente d'une croissance du prix des actifs de quota. Les questions économétriques liées aux problèmes de séries chronologiques sont traitées. Le modèle permet de calculer le risque politique, qui montre une tendance intéressante sur cette période.

Suggested Citation

  • Richard R. Barichello & James Vercammen & Benjamin Zammit‐Maempel, 2024. "Are milk quota prices a rational investment? Modeling quotas as financial assets," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 72(3), pages 251-269, September.
    • Handle: RePEc:bla:canjag:v:72:y:2024:i:3:p:251-269
    DOI: 10.1111/cjag.12369
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/cjag.12369
    Download Restriction: no
    File URL: https://libkey.io/10.1111/cjag.12369?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kevin Chen & Karl Meilke, 1998. "The Simple Analytics of Transferable Production Quota: Implications for the Marginal Cost of Ontario Milk Production," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 46(1), pages 37-52, March.
    2. G. Cornelis van Kooten, 2020. "Reforming Canada's Dairy Sector: USMCA and the Issue of Compensation," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(3), pages 542-558, September.
    3. B. James Deaton & Chad Lawley, 2022. "A survey of literature examining farmland prices: A Canadian focus," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 70(2), pages 95-121, June.
    4. Giancarlo Moschini & Karl D. Meilke, 1988. "Sustainable Rates of Return for Milk Quotas in Ontario," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 36(1), pages 119-126, March.
    5. Alex Cairns & Karl Meilke, 2012. "Price Ceilings on Milk Production Quota Values: Future or Folly?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 60(1), pages 93-112, March.
    6. Kenth Skogsvik & Stina Skogsvik & Henrik Andersson, 2023. "Bankruptcy Risk in Discounted Cash Flow Equity Valuation," JRFM, MDPI, vol. 16(11), pages 1-18, November.
    7. Richard R. Barichello & Graham Glenday, 1985. "The Tax Expenditure of Agricultural Marketing Quota Deducibility," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 33(3), pages 263-284, November.
    8. Daniel A. Sumner & Norbert L. W. Wilson, 2005. "Capitalization of Farm Policy Benefits and the Rate of Return to Policy-Created Assets: Evidence from California Dairy Quota," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(2), pages 245-258.
    9. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(2), pages 289-309.
    10. James A. Seagraves, 1969. "Capitalized Values of Tobacco Allotments and the Rate of Return to Allotment Owners," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 51(2), pages 320-334.
    11. Richard R. Barichello, 1999. "The Canadian Dairy Industry: Prospects for Future Trade," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 47(5), pages 45-55, December.
    12. Corbett A. Grainger & Christopher Costello, 2011. "The Value of Secure Property Rights: Evidence from Global Fisheries," NBER Working Papers 17019, National Bureau of Economic Research, Inc.
    13. Rucker, Randal R & Thurman, Walter N, 1990. "The Economic Effects of Supply Controls: The Simple Analytics of the U.S. Peanut Program," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 483-515, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Derek Brewin & Ryan Cardwell & Alan P. Ker, 2024. "Introduction to the special issue in honor of the late Dr. James Rude," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 72(3), pages 209-211, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elskamp, Rebecca & Hailu, Getu, 2013. "Do Efficient Dairy Producers Purchase Quota?," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149678, Agricultural and Applied Economics Association.
    2. Wilson, Norbert L.W. & Sumner, Daniel A., 2004. "Explaining Variations in the Price of Dairy Quota: Flow Returns, Liquidity, Quota Characteristics, and Policy Risk," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(01), pages 1-16, April.
    3. Daniel A. Sumner & Norbert L. W. Wilson, 2005. "Capitalization of Farm Policy Benefits and the Rate of Return to Policy-Created Assets: Evidence from California Dairy Quota," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(2), pages 245-258.
    4. Brennan A. McLachlan & G. Cornelis van Kooten, 2022. "Reforming Canada's dairy supply management scheme and the consequences for international trade," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 70(1), pages 21-39, March.
    5. Calum Turvey & Alfons Weersink & Craig Martin, 2003. "The Value of Dairy Quota under a Commercial Export Milk Program," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 51(1), pages 69-83, March.
    6. Alex W. Chernoff, 2015. "Between a cap and a higher price: Modelling the price of dairy quotas under price ceiling legislation," Canadian Journal of Economics, Canadian Economics Association, vol. 48(4), pages 1403-1429, November.
    7. Rucker, Randal R & Thurman, Walter N & Sumner, Daniel A, 1995. "Restricting the Market for Quota: An Analysis of Tobacco Production Rights with Corroboration from Congressional Testimony," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 142-175, February.
    8. Doyon, Maurice & Brodeur, Catherine & Gervais, Jean-Philippe, 2006. "Imputing Dairy Producers' Quota Discount Rate Using the Individual Export Milk Program in Quebec," CAFRI: Current Agriculture, Food and Resource Issues, Canadian Agricultural Economics Society, issue 7, pages 1-11, November.
    9. Meilke, Karl D. & Sarker, Rakhal & Le Roy, Danny G., 1996. "Analyzing The Potential For Increased Trade In Dairy Products: A Canadian Perspective," Proceedings of the 2nd Agricultural and Food Policy Systems Information Workshop, 1996: Understanding Canada\United States Dairy Disputes 16959, Farm Foundation, Agricultural and Food Policy Systems Information Workshops.
    10. Predrag Rajsic & Glenn Fox, 2017. "Quota prices as indicators of comparative advantage in supply-managed industries," Agricultural Economics, International Association of Agricultural Economists, vol. 48(2), pages 165-174, March.
    11. Colin A. Carter & Pierre Mérel, 2016. "Hidden costs of supply management in a small market," Canadian Journal of Economics, Canadian Economics Association, vol. 49(2), pages 555-588, May.
    12. Kyle Herkenhoff & Lee Ohanian, 2019. "The Impact of Foreclosure Delay on U.S. Employment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 63-83, January.
    13. Adler, Gustavo & Lizarazo, Sandra, 2015. "Intertwined sovereign and bank solvencies in a simple model of self-fulfilling crisis," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 428-448.
    14. Janvier D. Nkurunziza, 2005. "Reputation and Credit without Collateral in Africa`s Formal Banking," Economics Series Working Papers WPS/2005-02, University of Oxford, Department of Economics.
    15. Lopez-Martin, Bernabe & Leal, Julio & Martinez Fritscher, Andre, 2019. "Commodity price risk management and fiscal policy in a sovereign default model," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 304-323.
    16. Pierre Villa, 1998. "Croissance et contrainte financière dans les pays en développement," Revue Économique, Programme National Persée, vol. 49(1), pages 103-117.
    17. Mauricio Drelichman & Joachim Voth, 2007. "Lending to the borrower from hell: Debt and default in the age of Philip II, 1556-1598," Economics Working Papers 1164, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2009.
    18. Pablo Ottonello & Diego J. Perez, 2019. "The Currency Composition of Sovereign Debt," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 174-208, July.
    19. Richard J Vyn & James Rude, 2020. "The Influence of Supply Management on Farmland Values in Ontario," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 815-834, December.
    20. Mengus, E., 2014. "Honoring Sovereign Debt or Bailing Out Domestic Residents: A Theory of Internal Costs of Default," Working papers 480, Banque de France.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:canjag:v:72:y:2024:i:3:p:251-269. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/caefmea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.