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Cost-Based Model of Seasonal Production, with Application to Milk Policy, A

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  • David A. Hennessy
  • Jutta Roosen

Abstract

Milk production is seasonal in many European countries. While quantity seasonality poses capacity management problems for dairy processors, a European Union policy goal is to reduce price seasonality. After developing a model of endogenous seasonality, we study the effects of three E.U. policies on production decisions. These are private storage subsidies, production removals, and production quotas. When cost functions are seasonal in a specified way, then arbitrage opportunities interact with storage subsidies to reduce both price and consumption seasonality. But production seasonality likely increases because storage subsidies promote temporal market integration. Conditions are identified under which product market interventions increase quantity seasonality.

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  • David A. Hennessy & Jutta Roosen, 2003. "Cost-Based Model of Seasonal Production, with Application to Milk Policy, A," Food and Agricultural Policy Research Institute (FAPRI) Publications (archive only) 03-wp323, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:fpaper:03-wp323
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    Cited by:

    1. Smyth, Paul & Harte, Laurence & Hennessy, Thia C., 2009. "Seasonality and Costs of Production on Irish dairy farms from 2000-2007," 83rd Annual Conference, March 30 - April 1, 2009, Dublin, Ireland 51076, Agricultural Economics Society.
    2. David Hennessy, 2007. "Region marginalization in agriculture, seasonality, dedicated capital, and product development with reference to North Europe dairy sector," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(2), pages 467-486, June.
    3. Paul Smyth & Laurence Harte & Thia Hennessy, 2010. "Seasonality and Costs of Production on Irish dairy farms from 1994-2008," Working Papers 1001, Rural Economy and Development Programme,Teagasc.
    4. Hennessy, David A. & Lapan, Harvey E., 2004. "Market cycles for a non-storable product under adjustment costs," ISU General Staff Papers 200402010800001203, Iowa State University, Department of Economics.
    5. Heinschink, Karin E. & Shalloo, Laurence & Wallace, Michael T., 2011. "Seasonality in the Irish dairy processing industry," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108939, Agricultural Economics Society.
    6. HEINSCHINK, Karin & SHALLOO, Laurence & WALLACE, Michael, 2012. "Application of an optimisation model for analysing production seasonality in the Irish milk processing sector," International Journal of Agricultural Management, Institute of Agricultural Management, vol. 1(4), pages 1-13, July.

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