United States
Environmental Protection
Agency
Air And
Radiation
(ANR-459)
EPA 520/1-90-006
juiy 1990
The Cost Of Implementing
Protective Action Guides
For Food
-------
Cost of Implementing
Protective Action Guides for Food
Dr. Byron Hunger
Office of Radiation Programs
U.S. Environmental Protection Agency
Washington, DC
July 1990
Printed on Recycled Paper
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CONTENTS
TABLES
FIGURES
CONTENTS
1.
Introduction
1.1 General Descrip~ion of Methodology
1.2
Selection of Foods
for Study
Measurement of the Economic Effects of PAGs
2.
2.2
2.1 Methodology
2.3 Results
Data
2.3.1 Wheat
2.3.2 Tomatoes
2.3.3 Soybeans
2.3.4 Snapbeans
2.3.5 Milk
2.3.6 Lettuce
2.3.7 Eggs
2.3.8 Chicken
2.3.9 Beef
2.3.10 Sweet Corn
2.3.11 Oranges
ii!
Paae
.
iii
v
vii
1
2
6
7
. 10
10
11
11
16
20
20
20
31
31
31
31
44
44
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COHTERTS (CoD~iDUed)
Paae
3. Analogous Events
. . . . . . . .
. . . .
. . . .
. . . .
51
3.1 The Experience with Soybeans . . . . . . . . . . . . 51
3.2 The Experience with Wheat . . . . . . . . . . . . . . 51
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . 53
iv
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LIST OF TABLES
No.
1
Prices and Quantities of Farm Commodities,
2
Average for 1983-5, by u.s. and Leading State
Farm Level Own Price Elasticities of Demand
. . . .
. . . . . .
. . .
3
Summary of Total, National Welfare Losses by Crop
Welfare Losses Due to Removal of Wheat from Market
. . .
. . . .
4
5
6
Worksheet on Wheat
. . . . . .
. . .
. . . .
. . . . . .
Welfare Losses due to Removal of Tomatoes from Market
7
8
Worksheet on Tomatoes
. . . . .
.............
Welfare Losses Due to Removal of Soybeans from Market
Worksheet on Soybeans
9
. . . . .
. . . . .
........
10 Welfare Losses Due to Removal of Snapbeans from Market
11 Worksheet on Snapbeans
. . . .
. . . . .
. . . . .
. . .
12 Welfare Losses Due to Removal of Milk from Market
. . . .
13 Worksheet on Milk
.......
. . . .
. . . . .
. . . .
14 Welfare Losses Due to Removal of Lettuce from Market
15 Worksheet on Lettuce
. . . . .
. . . .
.........
16 Welfare Losses Due to Removal of Eggs from Market
17 Worksheet on Eggs
. . . .
.......
. . . .
.........
18 Welfare Losses Due to Removal of Chicken from Market
19 Worksheet on Chicken
. . . . .
. . . .
.........
20 Welfare Losses Due to Removal of Beef from Market
21 Worksheet on Beef
. . . .
.......
.............
v
~
3
3
8
12
14
17
19
21
23
25
27
37
30
32
34
35
37
38
40
41
43
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LIS~ or ~ABLBS (Continued)
No.
22 Welfare Losses Due to Removal of Sweet Corn from Market
23 Worksheet on Sweet Corn
. . . .
. . .
. . . . . . . . . .
24 Welfare Losses Due to Removal of Oranges from Market
25 Worksheet on Oranges
. . . .
. . . . . . . . .
. . . . .
vi
~
45
47
. .
48
50
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LIST OF FIGURES
80.
1
2
Linear Demand Curve
.......
. . . . . .
. . . . .
Commodities Ranked by Welfare Loss
. . . . . . .
. . . .
3
4
Welfare Losses Due to Removal of Wheat
. . . .
. . . . .
Timing and Expenditures for Wheat
Losses Due to Removal of Tomatoes
. . . .
. . . .
. . . .
5
6
. . . . .
. . . .
. . .
Losses Due to Removal of Soybeans
. . .
. . . . . . . . .
7
8
Timing of Expenditures for Soybeans
. . . .
. . . . . . .
Losses Due to Removal of Snapbeans
Losses Due to Removal of Milk
. . .
. . .
. . . . .
9
. . . . . . . . . .
. . . .
10 Losses Due to Removal of Lettuce
. . . . . . . . . . . .
11 Losses Due to Removal of Eggs
. . . . . . . .
. . .
. . .
12 Losses Due to Removal of Chicken
. . . .
. . .
. . . . .
13 Losses Due to Removal of Beef
. . . . . . . .
. . . . . .
14 Losses Due to Removal of Sweet Corn
. . . . . . . . . . .
15 Losses Due to Removal of Oranges
. . . .
. . . . . . . .
vii
Page
. . 4
8
13
15
18
22
24
26
29
33
36
39
42
46
49
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1.
IH~RODUC~IOH
Protective Action Guides (PAGs) provide direction to public and
private sector officials to aid them in making decisions to
protect the public in case of accidents that release radiation or
radioactive materials to the environment. Expressed in terms of
projected radiation dose, PAGs may address a variety of protec-
tive actions to be taken after such an event. The protective
action being considered in this analysis is the withdrawal of
food from public consumption.
There are three stages in establishing the dose level for inges-
tion PAGs. The first stage is to determine the dose level that
would satisfy basic health criteria. Foods that would cause a
dose equal to or higher than this level would be unacceptable for
use. The second stage is to examine the economic costs and
benefits of the removal of foods that would cause a lower dose
than meet health criteria to determine if there is net benefit
for a more stringent standard of removal. Additional food that
would cause an exposure whose value is judged to be equal to or
greater than the level at which the incremental costs equal the
incremental benefits would be withdrawn from consumption if the
associated exposures were smaller than those established on
purely health grounds. A third stage would consider the level at
which withdrawal of contaminated food would incur health prob-
lems. This report addresses the second of these stages.
To aid in establishing the radiation dose at which cost may serve
as a basis for removal of food from markets, this study develops
estimates of the cost society would bear if food that had reached
various stages in the farming to retail sale chain were removed
from production or sales. No attempt is made in this report to
establish PAG values. The study approaches cost issues in two
ways. First, it measures the sum of consumer and producer
surpluses associated with withdrawals of some key foods in
significant quantities, based on the own-price elasticity of
demand -- defined as the percent change in the quantity of a good
demanded due to a one percent increase in its own price -- for
the farm product and the variable costs sunk into production at
various stages. Second, it examines the effects of major analo-
gous events such as the drought which claimed fourteen percent
and 20 percent respectively of the u.S. wheat and soybean har-
vests in 1988.
By integrating these two approaches, an understanding of the
nature and magnitudes of the economic effects associated with
implementing protective action for food is reached. These
approaches are applied to 11 agricultural products representing
the major categories of food types -- wheat, tomatoes soybeans
snapbeans, milk, lettuce, eggs, chicken, beef, sweet c~rn, and'
1
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oranges. The analyses measure the overall costs to society and
how the costs are distributed among affected farmers, other
farmers growing the same crop but out of the area ~pacted, and
consumers in the United States.
1.1
GENERAL DESCRIPTION OF METHODOLOGY
The method for measuring changes in economic welfare -- i.e.,
changes in social costs or social benefits -- used in this study
is to measure changes in consumer and producer surpluses based on
specific assumptions and data. This approach is both conceptual-
ly sound and practical to implement.' The study assumes a lin-
ear demand curve for each farm product established by using
recent prices and quantities as reported by the U.S. Department
of Agriculture and "own-price elasticities of demand" for the
product. The maximum size of product removals were based on the
amount of the product grown in the state that produces the most
of that product. These data are shown in Tables 1 and 2.
The demand curve for the individual farm products is critical to
measurement of both consumer and producer surplus. A reduction
in the quantity of a product placed on the market leads to a
higher price, other things constant. The size of the price hike
depends on the nature of the demand curve. For producers, the
change of total revenue depends on the quantity demanded and on
the slope of the demand curve at the initial price-output combi-
nation. Figure 1 depicts the linear demand curve HK for wheat
based on data in Tables 1 and 2. Supply 1 is the initial supply
curve and Supply 2 is the supply curve when all the wheat pro-
duced in Kansas is removed from market. Assumptions regarding
the supply curves are discussed below. Point C is the initial
price-quantity combination. The price of wheat increases by FE
as supply decreases by BA.
Consumer surplus is the area below the demand curve and above the
equilibrium price. Producer surplus is the area above the supply
curve and below the equilibrium price. On Figure 1, the initial
consumer surplus is the area HCE and the initial producer surplus
is the area ECBO. A decrease in supply from Supply 1 to Supply 2
increases the price from OE to OF, reduces consumer surplus to
HGF -- which is clearly smaller -- and changes producer surplus
to FGAO -- which may be smaller or larger than before, but in
this case is larger. The sign of changes in producer surplus
will be discussed in more detail below. The loss of consumer
surplus is depicted by the trapezoid FECG which is composed of
the rectangle FEDG and the triangle GDC. The gain in producer
surplus in this example is FOAG - EOBC. Because EOAD is common
'William Baumol, Economic Theorv and Ooerations Analvsis
4th ed. (Englewood Cliffs, New Jersey: Prentice-Hall, 1977), pp.
497-500.
2
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Table 1:
Prices and quantities of far. c088Odities, avera~es for 1983-5,
by u.s. and leading state
United States State With Highest Output
--------------------------- ---------------------------------------------------
Unit of Percent of
COIIIIIOdity Measure Price Quantity Name of State Price Quantity US Output
------------------------------------------------------------------------------------------------------
WHEAT BUSHELS S3.36 2,479,788,667 KANSAS S3.28 437,533,333 17.6
TOMATOES CWT S24.63 28,399,667 FLORIDA S27. 73 13,893,333 48.9
SOYBEANS BUSHELS S6.25 1,865,055,333 ILLINOIS S6.38 311,201,667 16.7
SNAPBEANS TONS S166.67 652,003 WISCONSIN S148.00 231,543 35.5
"ILK * POUNDS SO.13 139,937,000,000 WISCONSIN SO.12 24,620,000,000 17.6
LETTUCE CWT S11.4O 61,343,667 CALIFORNIA S11 .30 43,961,667 71.7
EGGS * DOZEN SO.65 5,693,208,333 CALIFORNIA SO. 50 682,375,000 12.0
CHICKEN * POUNDS SO.32 18,356,867,000 ARKANSAS SO.34 3,007,852,000 16.4
BEEF * POUNDS SO.73 39,946,992,000 TEXAS SO.78 5,320,460,000 13.3
SWEET CORN CWT S12.77 15,407,667 FLORIDA S13.57 4,703,000 30.5
ORANGES BOXES S7.77 184,346,667 FLORIDA S8.07 120,066,667 65.1
* data not available for all three years
Source: USDA, AGRICULTURAL STATISTICS 1986
Table 2: Farm level own price elasticities of demand
Source and Value
Commodity
George & King
--------------------------------------------------------------
ID of Other
Other
---------------------------------------------------------------------------
WHEAT
TOHATOES
SOYBEANS
SNAPBEANS
HILK
LETTUCE
EGGS
CHICKEN
BEEF
SWEET CORN
-0.244
-0.355
-0.234
-0.32
-0.095
-0.225
-0.602
-0.416
ORANGES
-0.455
---------------------------------------------------------------------------
3
-0.2 DOA ERS
-0.79 Hertel & Tsigas "Oilseeds"
-0.513 Hertel & Tsigas "Dai ry"
-0.407
-0.320
Hertel & Tsigas "Red Heats"
George & King, RETAIL
"Other Fresh Vegitables"
-------
Figure 1. Linear Demand Curve
Price per Bushel
$20
$15
$10
~
Supply 2
Suppl 1
F
$5
E
D
o
A.
$0
o
500
1000 1500 2000 2500
Bushels of Wheat (Millions)
3000
K
3500
-------
to both areas, the difference is FEDG - DABC. The combined
reduction in consumer and producer surplus is therefore equal to
FEDG - GDC + FEDG - DABC, or - GDC - DABC because FEDG is in both
measures with opposite sign.
Each of these areas has significance to the analysis of the cost
of withdrawing food from use. GDC is the "deadweight loss" of
consumer surplus; DABC is the loss of revenues to the Kansas
farmers whose wheat is kept from market; and FEDG is the increase
in revenues enjoyed by all other wheat farmers and at the same
time the additional expenditures made by consumers for the
remaining wheat. Before the decrease in supply FEDG was part of
consumer surplus, afterwards it is part of producer surplus.
This transfer of wealth is a major distributional aspect of any
reduction in supply.
Demand for nearly all agricultural products has been measured to
be "inelastic" in most studies performed to date. This means
that consumers make relatively small adjustments in purchases in
response to changes in price. Therefore, and of interest in this
study, consumers respond to a reduction in the quantity available
by bidding up the price by a relatively large amount compared to
the size of the reduction. This leads to a seemingly perverse
result: when the quantity of farm products allowed to go to
market is reduced, the total revenue collected by all farmers
increases. However this gain is collected by farmers other than
the ones whose crops were removed from market. The affected
farmers' revenues fall to zero. FEDG measures the gain experi-
enced by other wheat farmers and DABC the loss borne by affected
wheat farmers. FEDG will exceed DABC when demand is inelastic,
so the change in producer surplus is positive when demand is
inelastic and negative when demand is elastic.
Market behavior is analyzed by investigating the interaction of
the demand and supply curves. Therefore it is also necessary to
make explicit the assumptions regarding the supply curve on which
the study is based. The major assumption regarding the supply
curve is that supply of the harvest of an agricultural crop is
fixed once planting decisions are made, except for random factors
such as weather. This is characterized as a vertical supply
curve. When the harvest is reduced due to a PAG, the vertical
supply curve is shifted to the left by a corresponding amount.
Given these assumptions the area under the demand curve and
between the two vertical supply curves -- Supply 1 and Supply
2 -- is the total welfare loss due to the withdrawal of food from
use. These quantities are measured for each of the 11 farm
products studied in the following chapter. The major distribu-
tional effects of withdrawing crops from market include the two
components of welfare loss -- the deadweight loss of consumer
surplus and the loss of revenues by affected farmers -- as well
as the large transfer of money from consumers to farmers. The
5
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latter quantity is not part of the overall welfare loss attribut-
able to the protective action; rather it is a transfer from
consumers surplus to producer surplus, shown in Figure 1 as FEDG.
Thus the distributional effects -- large losses by consumers
including both the deadweight loss and increased expenditure on
the remaining crop, large gains by farmers other than those
directly affected by the protective action, and complete losses
by farmers directly affected by the protective action -- must be
considered as well as the net overall welfare effect.
1.2
SELECTION OF FOODS FOR STUDY
Food products were selected from major categories of foods as
delineated by the u.s. Department of Agriculture. These catego-
ries are: 1) grains, from which wheat was selected; 2) cotton,
tobacco, sugar crops, and honey; 3) oilseeds, fats, and oils,
which is represented in the study by soybeans; 4) vegetables and
melons, represented by lettuce, tomatoes, snapbeans and sweet
corn; 5) fruits, tree nuts, and horticultural specialties,
represented by oranges; 6) hay, seeds and minor field crops; 7)
cattle, hogs and sheep, represented by beef; and 8) dairy and
poultry products, represented by milk, eggs, and chicken. The
selection is intended to identify farm products that are widely
used and for which good data are available.
6
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2.
MEASUREMENT OF ~BE ECONOMIC EFFEC~S OF PRO~EC~IVE AC~ION
The method used in this study, discussed in more detail below,
measures the losses to consumers and producers in dollars.
Figure 2 and Table 3 show the results for 100 percent losses of
the output of the states that produce the most of the commodity
in question. The welfare losses to society for the commodities
studied range from $4.4 billion for beef to $1 hundred million
for snapbeans and sweet corn. Smaller increments of loss were
also calculated and are given in Section 2.3 below. Before
discussing these results, more detail is provided regarding
methodology and data.
2.1
ME~BODOLOGY
Measuring changes in consumer and producer surpluses is a widely
accepted operational method of evaluating welfare losses due to
changes in the price or availability of a product. There are
both theoretical and practical considerations in the application
of this technique. One theoretical issue in the measurement of
consumer surplus concerns the implicit change of the consumer's
income as the price of the commodity is changed. Although very
interesting conceptually, this issue leads to only very small
differences in the measurement of consumer surplus. Implicit
changes in consumer income are ignored here. A second theoreti-
cal issue that is less easily ignored is the question of whether
to approach the measurement of consumer and producer surplus in a
partial or a general equilibrium framework. The partial equilib-
rium framework assumes that the prices of other goods and servic-
es remain constant even though there is a second order shift in
the demand for them. General equilibrium analysis is more
complex because the effects of the initial shift must be traced
through the entire economy.
Several recent articles have used the general equilibrium ap-
proach in measuring the own-price elasticities of demand --
defined above -- and the cross-price elasticities of demand --
defined as the percent change in the demand for a good due to a
one percent change in the price of another good -- for groupings
7
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Figure 2. Commodities Ranked by
Welfare Loss
WILrAIU LOSS 1$1 IBlIl1o..1
7
2
6
5
6
3
,
5
,
3
1 11 8
COMMODITY ROMBBK
2
7
10
,
Table 3: Summary of total, national welfare losses by crop
Conunodity
Conunodity
Number
Total Welfare
Loss Nationwide
----------------------------------------------------------
BEEF
MILK
LETTUCE
SOYBEANS
WHEAT
ORANGES
CHICKEN
TOMATOES
EGGS
SWEET CORN
SNAP BEANS
9
5
6
3
1
11
8
2
7
10
4
$6,250,279,173
$4,001,976,386
$2,391,459,007
$2,150,417,321
$1,999,655,380
$1,601,316,769
$1,093,502,554
$578,050,352
$561,762,037
$88,677,520
$67,873,695
8
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of agricultural products.2 These studies simultaneously measure
a set of own-price and cross-price elasticities in a theoretical-
ly correct way, but have been applied to product groups rather
than individual products.
A third theoretical issue is the shape of the demand curve.
Closely related to this issue is the question, for how large a
perturbation can the elasticity be expected to hold? Two speci-
fications of the demand curves that can be derived using the
available data are constant elasticity demand curves and linear
demand curves. As their name suggests, constant elasticity
demand curves have the same elasticity at all points on the
demand curve. As the quantity demanded gets smaller, the down-
ward slope of these curves gets steeper. On the other hand,
linear demand curves have constant slope, but the own-price
elasticity of demand is different at each point on the curve.
Regardless of the nature of the curve, it must be assumed that
the elasticity of the curve holds only in the neighborhood of the
mean of the data used in estimating the curve. Whether the size
of changes in supplies of agricultural products used in this
study is too large to be considered to be in this neighborhood is
an open question. However, the information presented in Section
3 of this study suggests that the perturbations used in this
study are within the range of common experience. The smaller
perturbations calculated, such as 10 or 20 percent of the whole
product of the leading state, rather than 100 percent, are likely
to result in more accurate measures of welfare loss. Linear
demand curves are used in this study.
As indicated in graphs and tables in Section 2.3, there is one
component of the welfare measure that is quite reliably measured
and does not depend on the technical theoretical issues raised
above. DABC in Figure 1 is an important component of welfare
loss and is easily and accurately measured. It is the amount of
product taken off the market times the market price that would
have been in effect if the product had not been removed from
market. In some cases it constitutes a very large part of the
welfare loss. In all cases it is the lower limit to an estima-
2Thomas W. Hertel and Marinos E. Tsigas, "General Equilibri-
um Analysis of Supply Control in u.S. Agriculture," Purdue
University, April 1989.
Thomas W. Hertel et. al., "Competing Farm Level General
Equilibrium Demand Elasticities for Agricultural Commodities,"
Research Bulletin No. 988 of the Agricultural Experiment Station,
Purdue University, W. Lafayette, Indiana.
Michael K. Wohlgenant, "Demand for Farm Output in a Complete
System of Demand Functions," American Journal of Aaricultural
Economics, May 1989, pp. 241-252.
9
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tion of the loss. In Section 2.3, the size of the loss attribut-
able to DABC in Figure 1 is compared to the loss attributable to
GDC, the deadweight loss of consumer surplus.
Costs of production are also a factor in estimating the welfare
losses due to the withdrawal of food from use. The timing of the
protective action, that is, during what part of the year the
nuclear event occurs that necessitates its application, deter-
mines the amount of variable costs that would have been saved by
withholding variable resources after the protective action has
been implemented. At one extreme, if the protective actions were
applied after harvest is completed and the product stored safely,
but before expenditures on seeds and other variable inputs for
the next planting were made, the welfare losses borne by farmers
would be reduced by the savings on these items. At the other
extreme, if the protective action were applied to products just
harvested, all the variable cost of production for that agricul-
tural product would have been spent, and no savings would be
possible.
Because the normal state of affairs is for farmers to plant and
harvest, and spend the associated amounts on variable inputs, and
because the welfare losses being measured in this study are
changes from the status quo, the welfare losses discussed above
assume the second extreme case. Therefore any differences
between the maximum expenditure on variable costs and the amount
actually spent should be subtracted from the amounts estimated.
Another way of putting it is that the welfare losses measured
under the demand curve in Figure 1 are worst case losses. The
information needed to estimate variable cost by time are avail-
able for wheat and soybeans. The matter is discussed in more
detail in Sections 2.3.1 and 2.3.3.
2.2
DATA
Two types of data are required for this studya 1) Relatively
unprocessed data regarding price, quantity, dates of planting,
and production costs for various agricultural products and 2)
highly processed data in the form of price elasticities of
demand. With regard to the first tyPe of data, the u.S. Depart-
ment of Agriculture's book Agricultural statistics, 1986, their
handbook Usual Planting and Harvesting Dates for U.s. Pield
Crops, (USDA SRS Agricultural Handbook 628, April 1984), and
their report Economic Indicators of the Parm Sector Costs of
Production, 1987, (USDA ERS) provided the needed information.
Elasticities of demand are not so easily found.
In 1971 P. S. George and G. A. King published a matrix of farm
level own-price elasticities and cross-price elasticities for 49
agricultural products. This is the most complete set of farm
level elasticities ever published. However, current researchers
have two critiques of this data. The first is that the George
10
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and King elasticities are dated because they are based on consum-
er tastes, income and prices and the population size of the
1950's and 1960's. The second is that the techniques George and
King used in deriving farm level elasticities of demand from
retail level elasticities of demand are based on fixed linear
production functions that do not allow for substitutions due to
changing prices. These researchers, for example Wohlgenant and
Hertel who were referenced above, have developed a more flexible
theoretical approach in the form of computable general equilibri-
um models and various econometric techniques that allow theoreti-
cally correct measurements of elasticities to be made. But
unfortunately, these techniques are expensive to use in that they
require large amounts of data. Therefore the results that have
been presented to date are for small numbers of highly aggregated
groups of agricultural products. In this study, the George and
King farm price elasticities are used except as otherwise noted
in Table 2.
The following sections apply the data to the 11 individual
agricultural products that are the subject of this study.
2.3
RESULTS
2.3.1 Wheat
Table 4 and Figure 3 show the loss of farm revenue by farmers
affected by withdrawal of food from use for 1 year, dead weight
welfare loss, and total welfare loss nationwide if all the wheat
in Kansas had to be removed from market immediately after har-
vest. The prices and quantities used in these calculations are
shown in Table 5, as u.s. price and production for 1983 through
1985. Wheat averaged $3.36 per bushel nationwide. During these
years, Kansas grew 18 percent of the wheat produced in the United
States of 0.4 billion of the 2.5 billion bushels produced.
The loss of farm revenues to affected farmers in the event of
withdrawal of 100 percent of Kansas wheat would be $1.5 billion,
the dead weight welfare loss of $0.5 billion is 27 percent of the
nearly $2 billion total welfare loss nationwide. As shown in
Table 5, almost $5 billion would be transferred from consumers to
the rest of u.s. farmers outside the affected region. Figure 3
and Table 4 show that smaller reductions in wheat coming to
market result in dead weight losses that are smaller relative to
total welfare losses than the dead weight losses due to larger
removals. For example a 100 percent removal results in a dead
weight loss equal to 26.6 percent of total welfare loss while a
removal of 20 percent results in a dead weight loss equal to only
6.7 percent of total welfare loss.
Two issues concerning the timing and magnitude of variable costs
affect the cost of withdrawal of food from use. Figure 4a shows
the timing of cumulative, total, variable, cash expenses (re
11
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Table 4: Welfare lossas due to removal of wheat from market
Farm Level OWn Price Elasticity 01 Demand: -0.244
Amount of Commodity Removed
-------..---.-.-----------------
Percent of Loss of Farm Dead weight Total Deed Weight
Largest Revenue in Welfare Welfare i.oss asa
State Affected Area Loss Nationwide Percent of
Production in Units Uni ts (in $) (in $) (in $) Tota l Loss
---------------------------------------------------.-.-------------------------------_._._--_._._-------------
100" 437,533,333 bushels 1,468,653,556 531,001,825 1,999,655,380 26.6"
90>: 393,780,000 bushels 1,321,788,200 430,111,478 1,751,899,678 24.6%
80" 350,026,667 bushels 1,174,922,844 339,841,168 1,514,764,012 22.4%
70" 306,273,333 bushels 1,0~8,057,489 260,190,894 1,288,248,383 20.2%
60" 262,520,000 bushels 881,192,133 191,160,657 1,072,352,790 17.8%
50% 218,766,667 bushels 734,326,778 132,750,456 867,077,234 15.3%
40X 175,013,333 bushels 587,461,422 84,960,292 672,421,714 12.6%
.... 30r. 131,260,000 bushels 440,596,067 47,790,164 488,386,231 9.8%
IV 20% 87,506,667 bushels 293,730,711 21,240,073 314,970,784 6.7X
1 Or. 43,753,333 bushels 146,865,356 5,310,018 152,175,374 3.5%
-------
Figure 3. Welfare Losses Due to Removal
of Wheat
$ (Millions)
2500
2000
1500
1000
.....
w
500
o
o
100 200 300 400
BUSHELS OF WHEAT REMOVED (Millions)
-- TOTAL WELFARE LOSS
-*- DEADWEIGHT LOSS
-+- LOSS OF REVENUES
500
-------
T.ble 5: Uorksheet on whe.t
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FARft LEVEL PRICE ELASTICITY OF
DE"AND:
$3.36
2,419,788,667 BUSHELS
18,323,823,958
-0.244
CHANGE IN QUANTITY:
-18%
(437, 533,333)BUSHELS
CHANGE IN PRICE:
HE" PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL FARftERS:
$2.43
$5.78
72%
$3,488,414,744
LOSS OF REVENUES TO FLORIDA:
GAIN TO REST OF NATION'S TOftATO FAR"ERS:
($1,468,653,556)
$4,957,068,300
--- ---------
----
--------------------
- --------------------
PRODUCTION
(in bushels)
YEAR
1983
1984
1985
"EAN
------------------------------------------------------------------
KANSAS 448,200,000 431,200,000 433,200,000 437,533,333
U.S. 2,419,824,000 2,594,777,000 2,424,765,000 2,419,788,667
= - - -
PRICE
($ per bushel>
YEAR
1983 1984 1985 "EAN
------------------------------------------------------------------
KANSAS
U.S.
$3.46
$3.53
$3.32
$3.38
$3.05
$3.16
$3.28
$3.36
=
-
-==--==------------=================
14
-------
Figure 4. Timing and Bxpenditure for Wheat
A. Tlmlnt of Cumulative Expenditure. for
Spring and. Wintel wheaL
. 1111111...,
1500
1000
3000
:as 0 0
2000
1500
500
o
K A K J ~ A . 0 R D J r K ~ K J J A 8 Q B D ~ J
11081'8
~ WIBTJlK
- SPIUIlG
B. Tlmlnt of Cumulative Expenditures of
XaDlas WinLer WheaL
. 1IIIIIIoui
800
700
300
tOO
500
400
:200
100
o
K A K J J A 8 Q R D J , K ~ K J ~ A 8 Q 11 D J J
M08T.
~ HORTH
15
-------
ferred to here as variable costs) sunk in production of spring
and winter wheat. The values shown on Figure 4a are for the
nation as a whole. Using Figure 4a, it can be seen how U.S.
farmers would adjust their planting schedules in response to a
decision to withdraw food from use. For example, should a
decision affecting Kansas winter wheat -- Kansas only grows
winter wheat -- occur in September 1990, after all winter wheat
had been planted, the first adjustment in planting would be for
the spring wheat crop in March 1991 and the first harvest re-
flecting these adjustments would occur in August or September
1991.
Referring to Figure 4b, which shows the timing of variable costs
of Kansas winter wheat, it can be seen that only 17 percent of
variable costs would have been spent by the beginning of Septem-
ber, but 56 percent would have been spent by the beginning of
October.Referring to the savings that Kansas farmers could
realize if the decision for protective action occur early enough
in the season, Figure 4b shows that variable costs Kansas wheat
farmers could avoid would total $681 million. This entire amount
would be saved if the decision were made in early July, after the
previous harvest was safely in and before fertilizer and seeds
have been applied for the next crop. This saving is about 46
percent of the total revenue Kansas farmers realize from their
wheat. If the protective action is applied to harvested wheat
none of the variable cost can be recovered. Fixed costs could
not be recovered, unless the fields could be used for another
activity that was not as sensitive to radioactivity as wheat.
The savings in variable costs are subtracted from total welfare
loss. For example, if 100 percent of Kansas wheat producers were
advised to not plant a crop, $681 million would be subtracted
from the nearly $2 billion welfare loss that was listed in Table
4.
2.3.2 Tomatoes
Table 6, Figure 5, and Table 7 depict the results obtained for
tomatoes. Forty-nine percent of the U.S. tomato crop is grown in
Florida -- an average of 14 million cwt. of the just over 28
million cwt. grown nationwide. Deadweight loss would be 41
percent of total welfare loss nationwide -- $0.24 billion of
$0.58 billion.
With respect to distributional effects, the gain to non-affected
farmers at the expense of consumers -- $0.49 billion -- is over
1.4 times the $0.34 billion loss borne by affected farmers. At
low levels -- 10 percent of the Florida crop -- a smaller 6.4
percent of the total welfare loss is dead weight loss. Dead
weight loss is lost to all of society. It is also more subject
to error in calculations than loss of farm revenues -- so at
these lower level, the total welfare loss is less subject to
16
-------
Table 6: Welfare losses due to removal of tomatoes from market
Farm Level Own Price Elasticity of Demand: -0.355
Amount of Commodity Removed
--------------------------------
Percent of Loss of Farm Dead Weight Tota l Dead Weight
Largest Revenue in Welfare Welfare Loss 85a
State Affected Area Loss Nationwide Percent of
Production in Units Units (in $) (in $) (in $) Total Loss
-----------------------------------------------------------------------------------------------.......-.-------.-
1001. 13,893,333 cwt 342,239,111 235,811,241 578,050,352 4O.8X
901. 12,504,000 cwt 308,015,200 191,007,105 499,022,305 38.3:<
801. 11,114,667 cwt 273,791,289 150,919,194 424,710,483 35.5X
701. 9,725,333 cwt 239,567,378 115,547,508 355,114,886 32.5"
601. 8,336,000 cwt 205,343,467 84,892,047 290,235,513 29.2"
501. 6,946,667 cwt 171,119,556 58,952,810 230,072,366 25.6"
40Y. 5,557,333 cwt 136,895,644 37,729,799 174,625,443 21.6:<
301. 4,168,000 cwt 102,671,733 21,223,012 123,894,745 17.1"
.... 201. 2,778,667 cwt 68,447,822 9,432,450 77,880,272 12.1"
....:J
101. 1,389,333 cwt 34,223,911 2,358,112 36,582,024 6.4"
-------
$ (Millions)
600
500
400
300
200
....
Q)
100
0
0 2
Figure 5: Losses Due to Removal
of Tomatoes
4 6 8 10 12
CWT. OF TOMATOES REMOVED (Millions)
14
16
--+- LOSS OF REVENU ES
- TOTAL WELFARE LOSS
-+- DEADWEIGHT LOSS
-------
Table 7: I.Iorksheet on tocaatoes
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FAR" LEVEL PRICE ELASTICITY OF DE"AND:
CHANGE IN QUANTITY:
CHANGE IN PRICE:
NEW PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL FARMERS:
LOSS OF REVENUES TO FLORIDA:
GAIN TO REST OF NATION'S TOMATO FARMERS:
PRODUCTION
(in cwt>
YEAR
1983
$24.63 /CWT
28,399,667 CWT
$699,578,456
-0.355 (G&K,
-49%
(13,893,333)CWT
$33.95 /CWT
$58.58 /CWT
138%
$150,192,241
($342,239,111)
$492,431,353
pp. 64-5.)
-------------------------------------
----- --------
1984
1985
------------------------------------------------------------------
MEAN
FLORIDA
U.S.
13,664,000
27,237,000
------------------------
---------------------------
13,886,000
28,189,000
14,130,000
29,773,000
13,893,333
28,399,667
-----------------------------------------
PRICE
($ per cwt)
YEAR
1983
1984
1985
------------------------------------------------------------------
MEAN
FLORIDA
U.S.
$27.60
$24.10
$26.60
$25.60
$29.00
$24.20
$27.73
$24.63
===--================-----------------------------==--=====--=======================
19
-------
errors based on violations of assumptions regarding elasticities
and shapes of demand curves.
2.3.3 Sovbean8
Table 8, Figure 6, and Table 9 provide the results for soybeans.
Soybeans have a small deadweight loss -- less than 10 percent of
total welfare loss -- even if 100 percent of the soybeans in
Illinois were withdrawn from use. This is due to a relatively
"high" elasticity of -0.79. Soybeans are not very inelastic.
The total welfare loss due to loss of 100 percent of Illinois
soybeans is $2.2 billion.
Cumulative cost data, depicted in Figure 7 is available for
soybeans grown in Illinois. One crop per year is planted around
April and harvested by October. The $668 million expenditure in
Illinois is 17 percent of the total national cash expenditure on
variable costs of growing soybeans. As shown in Table 8, a total
welfare loss of $2.2 billion would occur if a protective action
decision affected 100 percent of an Illinois harvest of soybeans.
If the decisions were made between November and March, the total
welfare loss would be reduced by $668 million to $1.5 billion.
Figure 7 can also show how much the savings would be if the
action occurred during the growing season. For example, if it
were initiated at the end of July $379 million of variable costs,
or about 57 percent, could be avoided.
2.3.4 SnaDbean8
Table 10, Figure 8, and Table 11 provide the results for snap-
beans. Thirty-six percent of u.S. snapbeans are grown in Wiscon-
sin -- 232,000 tons compared to 652,000 tons. Demand for them is
relatively inelastic at -0.234. Table 10 and Figure 8 show that
total welfare loss due to a withdrawal of 100 percent of Wiscon-
sin's snapbeans would be $68 million.
Distributionally, other farmers would gain $106 million at
consumer expense, dead weight losses would total $29 million, and
loss of revenue by farmers directly affected by the withdrawal
would be $39 million.
2.3.5 Milk
Table 12, Figure 9, and Table 13 depict milk. If all the milk
produced in a year in Wisconsin were removed from market, the
total welfare loss would be $4 billion. Affected farmers would
loose $3.1 billion of this and consumers would loose an addition-
al deadweight loss of $0.9 billion -- 22 percent of the total.
Approximately $8 billion would be lost to non-affected farmers by
consumers due to a 55 percent increase in the price of milk.
20
-------
Table 8: Welfare losses due to removal of soybeans from market
Farm Level Own Price Elasticity of Demand: -0.79
Amount 01 Commodity Removed
----------.---------------------
Percent of Loss of Farm Dead Weight Tota l Dead Weight
Largest Revenue in Welfare Welfare Loss asa
State Affected Area Loss Nationwide Percent of
Production in Units Uni ts (in $) (in $) (1n $) Tota l Loss
---------------------------------------------------...--------------------------------.-.-----.....---------...-.
1 OOY. 311,201,667 cwt 1,945,010,417 205,406,904 2,150,417,321 9.6"
90Y. 280,081,500 cwt 1,750,509,375 166,379,593 1,916,888,968 8.n
80Y. 248,961,333 cwt 1,556,008,333 131,460,419 1,681,468,152 1.8:<
70Y. 217,841,167 cwt 1,361,501,292 100,649,383 1,462,156,675 6.9:<
60Y. 186,721,000 cwt 1,167,006,250 13,946,486 1,240,952,136 6.OX
SOY. 155,600,833 cwt 912,505,208 51,351,726 1,023,856,934 5.OX
40Y. 124,480,667 cwt 778,004,167 32,865,105 810,869,271 4.1%
I\,) 30Y. 93,360,500 cwt 583,503,125 '8,486,621 601,989,746 3.1:<
....
20Y. 62,240,333 cwt 389,002,083 8,216,276 397,218,360 2.1%
10Y. 31,120,167 cwt 194,501,042 2,054,069 196,555,111 1.0:<
-------
$ (Mlilione)
2500
2000
1500
1000
l\)
l\) 500
0
-500
0 50
Figure 6. Losses Due to Removal
of Soybeans
100 150 200 250
BUSHELS OF SOYBEANS REMOVED (Mlliione)
300
- TOTAL WELFARE LOSS
-*- DEADWEIGHT LOSS
4- LOSS OF REVENUES
350
-------
Table 9: Worksheet on soybeans
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FA~ LEVEL PRICE ELASTICITY OF DEKAND:
CHANGE IN QUANTITY:
CHANGE IN PRICE:
NEW PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL FARMERS:
LOSS OF REVENUES TO ILLINOIS:
GAIN TO REST OF NATION'S SOYBEAN FARMERS:
$6.25 $/BUSHEL
1,865,055,333 BUSHELS
S11,656,595,833
-0.79
-17%
(311,201,667)BUSHELS
S1.32 S/BUSHEL
S7.57 S/BUSHEL
21X
S106,214,271
(S1,945,010,417)
S2,051,224,693
---------------------------------------------------------------------------------
---------- --------------------------------
PRODUCTION
(;n bushels)
YEAR
1983
1984
1985
------------------------------------------------------------------
MEAN
ILLINOIS
U.S.
266,975,000 284,130,000
1,635,772,000 1,860,863,000
382,500,000
2,098,531,000
311,201,667
1,865,055,333
----------------===----==================--========================--================
PRICE
($ per busheD
YEAR
1983
1984
1985
------------------------------------------------------------------
I1EAN
ILLINOIS
U.S.
$7.94
S7.81
$5.85
$5.78
S5.35
S5.16
S6.38
S6.25
======:=======---------------------------------------------------=---------======
23
-------
Figure 7. Timing of Expenditures
for Soybeans
$ (Millions)
700
600
500
400
I\.J
~
300
200
100
o
M A M J J A SON D J F M A M J J A SON D J F
MONTH
-- VARIABLE COSTS
-+- CUMULATIVE V. C.
-------
Table 10: Welfare losses due to removal of snapbeans from market
Farm Level Own Price Elasticity of Demand:
-0.234
Amount of Commodity Removed
-----.----------------.---------
Percent of Loss of Farm Dead Weight Tota l Dead Weight
Largest Revenue in Welfare Welfare Loss al a
State Affected Area Loss Nationwide Percent of
Production in Units Uni ts (in $) (in $) (in $) Tota l Loss
----------------------------------------------------------------------------------------------------------.....--
1 OOY. 231,543 tons 38,590,556 29,283,140 61,813,695 '3.1X
90Y. 208,389 tons 34,131,500 23,119,343 58,450,843 1oO.6X
80Y. 185,235 tons 30,812,444 18,141,210 49,613,654 31.8X
70Y. 162,080 tons 21,013,389 14,348,139 41,362,121 3'.1X
60Y. 138,926 tons 23,154,333 10,541,930 33,696,264 31.3X
SOY. 115,772 tons 19,295,278 7,320,785 26,616,063 21.5X
40r. 92,611 tons 15,436,222 4,685,302 20,121,525 23.3X
!\.)
lJ1 30r. 69,463 tons 11,577,167 2,635,483 1',212,649 18.5X
20r. 46,309 tons 1,718,111 1,171,326 8,889,431 13.2X
1 or. 23,151, tons 3,859,056 292,831 4,151,887 1.1X
-------
Figure 8. Losses Due to Removal
of Snap beans
$ (Millions)
70
60
50
40
30
I\J
Q'\ 20
10
0
0 50
TONS OF
100 150 200
SNAP BEANS REMOVED (Thousands)
~ TOTAL WELFARE LOSS
-*- DEADWEIGHT LOSS
-+- LOSS OF REVENUES
250
-------
Table 11: Worksheet on snapbeans
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FAR" LEVEL PRICE ELASTICITY OF DE~ND:
CHANGE IN QUANTITY:
CHANGE IN PRICE:
NEW PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL FAR"ERS:
LOSS OF REVENUES TO :
GAIN TO REST OF NATION'S FAR"ERS:
S166.67 S/TON
652,003 TONS
S1 08, 667, 222
-0.234
-36%
(231,543)TONS
S252.94 S/TON
S419.61 S/TON
152%
S67,76O,069
($38,590,556)
S1 06,350, 6210
---------------------------------------------------------------------------------
------------------------- - -- -------------------------
YEAR
1983
PRODUCTION
(in tons)
1984
1985
-------------------.----------------------------------------------
"EAN
WISCONSIN
U.S.
210,680
587,1010
235,130
666,110
248,820
702,1090
231,5103
652,003
====:::================--=--===-----------------=====--=======--=
YEAR
1983
PRICE
(S per ton)
1984
1985
------------------------------------------------------------------
"EAN
WISCONSIN
U.S.
S1 100. 00
S16O.00
S152.OO
S171.oo
S152.00
S169.00
S148.00
S166.67
==================--==========------==================--=======--====================
27
-------
Table 12: Welfare losses due to removal of milk from market
Farm Level Own Price Elasticity of Demand:
Amount of Commodity Removed
.....---------------------------
-0.32
Percent of Loss of Farm Dead IJeight Total Dead IJeight
Largest Revenue in IJel fare IJel fare Loss asa
State Affected Area Loss Nationwide Percent of
Production in Units Uni ts (in $) (in $) (in $) Total LOll
.-------.--.....--...----------.-..-.-------.-.-.------------------------.-.---------.-....-.-.......--...--...-.
N
co
100X 24,620,000,000
90X 22,158,0C>0,0C>0
80X 19,696,0C>0,0C>0
70X 17,234,00C>,0C>0
60" 14,772,000,000
50" 12,310,000,0C>0
40" 9,848,000,000
30" 7,386,000,000
20X 4,924,000,000
1 or. 2,462,00c>,00C>
pounds
pounds
pounds
pounds
pounds
pounds
pounds
pounds
pounds
pounds
3,139,050,0C>0
2,825,145,0C>0
2,~11,240,00c>
2t197,335,00C>
1,883,430,000
1,569,525,00C>
1,255,620,00C>
941,715,00C>
627,810,000
313,905,000
862,926,386
698,970,373
552,272,887
422,833,929
310,653,499
215,731,597
138,068,222
77,663,375
34,517,055
8,'29,264
4,001,976,386
3,524,115,373
3,063,512,887
2,620,168,929
2,1910,083,499
1,785,256,597
1,393,688,222
1,019,378,375
662,327,055
322,5310,264
21.6%
19.8%
18.OX
16.1%
14.2%
12.1%
9.9%
7.6%
5.2%
2.7%
-------
Figure 9. Losses Due to Removal
of Milk
$ (Billions)
5
1
4
3
rv
\0
2
o
o
5
10 15
POUNDS OF MILK REMOVED (Billions)
20
25
~ TOTAL WELFARE LOSS
-*- DEADWEIGHT LOSS
-+- LOSS OF REVENUES
-------
Table 13: Worksheet on .ilk
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FAR" LEVEL PRICE ELASTICITY OF DEftAND:
CHANGE IN QUANTITY:
CHANGE IN PRICE:
NEW PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL FAR"ERS:
LOSS OF REVENUES TO WISCONSIN:
GAIN TO REST OF NATION'S DAIRY FARHERS:
$0.13 IPOUND
139,937,000,000 POUNDS
$17,841,967,500
-0.32 (G&K, p. 64.)
-18%
(24,620, 000, 000) POUND
$0.07 IPOUND
$0.20 IPOUND
55%
$4,944,628,478
($3,139,050,000)
$8,083,678,478
-----------------------------------
-----------
PRODUCTION
(;n pounds)
YEAR
1983
1984
1985
HEAN
----------------------~-------------------------------------------
WISCONSIN
U.S.
n.a
n.a
n.a 24,620,000,000 24,620,000,000
n.a 139,937,000,000 139,937,000,000
--------
--------
-============================
PRICE
($ per pound)
YEAR
1983
1984
1985
HEAN
------------------------------------------------------------------
WISCONSIN
U.S.
n.a
n.a
n.a
n.a
$0.12
$0.13
$0.12
$0.13
-
---------
------------------
30
-------
2.3.6 Lettuce
Table 14, Figure 10, and Table 15 present the results for let-
tuce. Seventy-two percent of all lettuce grown in the United
States in 1983 through 1985 was grown in California. Coupled
with an own price elasticity of -0.095 -- i.e., very inelastic
demand -- a withdrawal of all of the California crop would
increase prices by 754 percent -- from $ll.40/cwt. to $97.40/cwt.
Total welfare loss would be $2.4 billion. Seventy-nine percent
of this would be deadweight loss. Consumers would pay $1.5
billion in higher prices.
2.3.7 ~
Table 16, Figure 11 and Table 17 provide details of egg produc-
tion. Although one state, California, produces more eggs than
any other, the percentage of United States egg production that
occurs there is only a modest 12 percent. Removal of this amount
of eggs from the United States market would increase prices by 54
percent, from $0.65 per dozen to $1 per dozen. Farmers would
lose about $441 million and there would be a dead weight loss of
$120 million if 100 percent of California eggs were withheld from
market.
The dead weight loss would constitute a moderate 21 percent of
total welfare loss nationwide. Dispersion of the egg crop keeps
the relative magnitude of the dead weight loss low despite the
very inelastic demand for eggs.
2.3.8 Chicken
Table 18, Figure 12, and Table 19 provide the information regard-
ing chicken. Price elasticity for chicken is a moderate -0.602,
and only 16 percent of chickens are grown in the leading chicken
state, Arkansas. A 100 percent removal of these chickens from
market would increase prices by only 27 percent. Dead weight
losses are 12 percent and less as the size of the removal is
decreased. Increased prices would transfer $1.3 billion from
consumers to farmers unaffected by the protective action. Total
welfare loss would be $1.1 billion.
2.3.9 Beef
Table 20, Figure 13, and Table 21 provide the results for beef.
Although Texas produces the largest amount of beef, the percent-
age of U.S. beef produced there is a relatively small 18 percent.
The total welfare loss if all of this beef were removed from
market would be over $6 billion, of which $5 billion would be
lost revenue for impacted ranchers. The dead weight loss is
under 18 percent. Consumers would pay an extra $10 billion in
higher prices. This amount would be received by non-affected
31
-------
Table 14: Welfare losses due to removal of lettuce from market
Farm Level Own Price Elasticity of Demand: -0.095
Amount 01 Commodity Removed
.----.-.-.----------------------
Percent 01 Loss 01 Farm Dead lIeight Total Dead \/eight
Largest Revenue in lIelfare lie l fa re Loss 85a
State Affected Area Loss Nationwide Percent of
production in Units Uni ts I (in $) (1n $) (in $) Total Lou
----------------------------------------------------.-----------------------.-.------.-.-------.........-.----.--
100X 43,961,667 cwt. 501,163,000 1,890,296,007 2,391,459,007 79.0%
90X 39,565,500 cwt. 451,046,700 1,531,139,766 1,982,186,466 77.2%
80X 35,169,333 cwt. 400,930,400 1,209,789,445 1,610,719,845 75.1%
70X 30,m,167 cwt. ~50,814,1oo 926,245,044 1,277,059,144 72.5%
60X 26,377,000 cwt. 300,697,800 680,506,563 981,204,363 69.4%
50X 21,980,833 cwt. 250,581,500 472,574,002 723,155,502 65.3%
40r. 17,584,667 cwt. 200,465,200 302,447,361 502,912,561 60.1%
t.J 30r. 13,188,500 cwt. 150,348,900 170,126,641 320,475,541 53.1%
N
20X 8,792,333 cwt. 100,232,600 75,611,840 175,8104,440 43.0%
1 Or. 4,396,167 cwt. 50,116,300 18,902,960 69,019,260 27.4%
-------
Figure 10. Losses Due to Removal
of Lettuce
$ (Millions)
2500
2000
1500
w
w
1000
500
o
o
10
20 30 40
CWT. OF LETTUCE REMOVED (Millions)
- TOTAL WELFARE LOSS
--*- DEADWEIGHT LOSS
-+- LOSS OF REVENUES
50
-------
Table 15: Worksheet on lettuce
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FARft LEVEL PRICE ELASTICITY OF OEKANO:
$11.40 IC"T
61,343,667 C"T
1699,317,800
-0.095
CHANGE IN QUANTITY:
-72%
(43,961,667)C"T
CHANGE IN PRICE:
NE" PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL FARKERS:
$86.00 ICWT
$97.40 ICUT
754%
$993,644,986
LOSS OF REVENUES TO CALIFORNIA:
GAIN TO REST OF NATION'S LETTUCE FARftERS:
($501,163,000)
$1,494,807,986
PRODUCTION
(;n c:wt.)
YEAR
1983
1984
1985
flEAN
------------------------------------------------------------------
CALIFORNIA 41,689,000 47,273,000 42,923,000 43,961,667
U.S. 57,969,000 64,309,000 61,753,000 61,343,667
- -- - --------------
--------
PRICE
($ per cvt.)
YEAR
1983 1984 1985 flEAH
------------------------------------------------------------------
CALIFORNIA
U.S.
$12.20
$12.30
$10.70
$11.00
$11.00
$10.90
$11.30
$11.40
--
---------=================
34
-------
Table 16: Welfare losses due to removal of eggs from market
Farm Level Own Price Elasticity of Demand:
-0.22
Amount of Commodity Removed
---..--.----.--.-.--.-.---------
Percent of Loss of Farm Dead Weight Toul Dead Weight
Largest Revenue in Welfere Welfare Loss asa
State Affected Area Loss Nationwide Percent of
Production in Units Units (in $) (in $) (in $) Tota l Lou
-.-----------------.-.--------------------------------.---------------------------.-.-----------.....--------.-..
1 oor. 682,375,000 dozens 441,496,625 120,265,412 561,762,037 21.4%
90r. 614,137,500 dozens 397,346,963 97,414,984 494,761,946 19.1X
80r. 545,900,000 dozens 353,197,300 76,969,864 430,167,164 17.9%
70r. 477,662,500 dozens 309,047,638 58,930,052 367,977,689 16.OX
60r. 409,425,000 dozens 264,897,975 43,295,548 308,193,523 14.OX
SOX 341,187,500 dozens 220,748,313 30,066,353 250,814,665 12.OX
w 40X 272,950,000 dozens 176,598,650 19,242,466 195,841,116 9.8%
U1 30r. 204,712,500 dozens 132,448,988 10,823,887 143,272,875 7.6%
20r. 136,475,000 dozens 88,299,325 4,810,616 93,109,941 5.2%
1 Or. 68,237,500 dozens 44,149,662 1,202,654 45,352,317 2.1X
-------
Figure 11. Losses Due to Removal
of Eggs
$ (Millions)
600
500
400
300
w 200
0\
100
0
0 100
200 300 400 500
DOZENS OF EGGS REMOVED (Millions)
- TOTAL WELFARE LOSS
--*- DEADWEIGHT LOSS
-+- LOSS OF REVENU ES
600
700
-------
Table 17: Worksheet on eggs
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FARM LEVEL PRICE ELASTICITY OF
DEMAND:
CHANGE IN QUANTITY:
CHANGE IN PRICE:
NE'" PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO All FARMERS:
lOSS OF REVENUES TO CALIFORNIA:
GAIN TO REST OF NATION'S EGG RANCHERS:
PRODUCTION
(number of eggs)
YEAR
1983
1984
------------------------------------------------------------------
I1EAN
CALIFORNIA
U.S.
n.8. 8,325,000,000
n.8. 68,230,000,000
-----------------------
-------------------------------------
SO.65 IDOZEN
5,693,208,333 DOZEN
S3,683,505,792
-0.22
-12%
(682,375,000)DOZEN
SO.35 IDOZEN
S1.oo IDOZEN
54%
S1,324,775,392
($441,496,625)
S1,766,272,017
1985
8,052,000,000
68,407,000,000
8,188,500,000
68,318,500,000
PRICE
($ per dozen)
YEAR
1983
1984
------------------------------------------------------------------
I1EAN
CALIFORNIA
U.S.
n.8.
n.8.
n.8.
$0.72
1985
SO. 50
SO. 57
-------
SO.50
SO.65
==============--==========================================================--=======
37
-------
Tabl. 18: W.Lf.~. lo.... due to removal of chicken fro. market
Farm Level OWn Price Elasticity of Demand: -0.602
Amount of Commodity Removed
---..............-....-.-....-.-
Percent of LoIS 01 Farm Dead lIeight Total Dead lIe1gM
Largest Revenue in lIelfare \lelflre Lou a. a
State Affected Area Lou Nationwide Percent of
Production in Uniu Uniu (in $) (in $) (in $) Total Lou
-----......-.-.-.-.-.--------.........-........-.-.-.----.-.-....-.-..-.-.......-.-...-.-.......---..-......---..
100X 3,007,852,000 pounds 962,512,640 130,989,914 1,093,502,554 12.OX
90X 2,707,066,800 pounds 866,261,376 106,101,830 972,363,206 10.9X
80" 2,406,281,600 pounds 770,010,112 83,833,545 853,843,657 9.8X
70" 2,105,496,400 pounds 613,758,848 64,185,058 137,943,906 8.n
60" 1,804,711,200 pound. 577,507,584 47,156,369 624,663,953 7.5"
50X 1,503,926,000 pound. 481,256,320 32,747,478 514,003,798 6.4"
t.J 40" 1,203,140,800 pound. 385,005,056 20,958,386 405,963,442 5.21
00
30X 902,355,600 pound. 288,753,792 11,789,092 300,542,884 3.9X
20" 601,570,400 pound. 192,502,528 5,239,597 197,742,125 2.6"
10" 300,785,200 pounds 96,251,264 1,309,899 97,561,163 1.3X
-------
Figure 12. Losses Due to Removal
of Chicken
$ (Thousands)
1200
1000
800
600
w
\0
400
200
0
0 500
1000 1500 2000 2500 3000
POUNDS OF CHICKEN REMOV'ED (Thousands)
- TOTAL WELFARE LOSS
---r DEADWEIGHT LOSS
-+- LOSS OF REVENUES
3500
-------
Table 19: Worksheet on cMcken
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FARM LEVEL PRICE ELASTICITY OF DEKAND:
$0.32 /POUND
18,356,867,000 POUNDS
S5,874,197,~
-0.602 (G&K, p. 64.)
CHANGE IN QUANTITY:
-16%
(3,OO7,852,000)POUND
CHANGE IN PRICE:
NEil PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL CHICKEN PRODUCER
SO.09 /POUND
$0.41 /POUND
27%
S374,365,738
LOSS OF REVENUES TO ARKANSAS:
GAIN TO REST OF NATION'S CHICKEN PRODUCERS:
(S962,512,640)
S1,336,878,378
PRODUCTION
(;n pounds)
YEAR
1983
1984
1985
I1EAN
------------------------------------------------------------------
ARKANSAS n.a. 2,899,856,000 3,115,848,000 3,007,852,000
U.s. n.a. 17,862,944,000 18,850,790,000 18,356,867,000
-- ----------
PRICE
($ per pound)
YEAR
1983 1984 1985 I1EAN
------------------------------------------------------------------
ARKANSAS
U.S.
n.a.
n.a.
SO.35
$0.34
$0.32
$0.30
$0.34
$0.32
=
40
-------
Table 20: Welfare losses due to removal of beef from market
Farm Level Own Price Elasticity of Demand: -0.416
Amount 01 Commodity Removed
----...-.-----------------------
Percent of Loss of Farm Dead Weight Total Dead Weight
Largest Revenue in Welfare Welfare Loss as a
State Affected Area Loss Nationwide Percent of
Production in Units Uni ts (i n $) (in $) (in $) Total Loss
-------------------------------------------------..----------------------------------------....-------------.....
100r. 7,048,237,941 pounds 5,156,710,837 1,093,568,337 6,250,279,173 17.5X
90r. 6,343,414,147 pounds 4,641,039,753 885,790,353 5,526,830,106 16.OX
80r. 5,638,590,353 pounds 4,125,368,669 699,883,735 4,825,252,405 14.5X
70r. 4,933,766,559 pounds 3,609,697,586 535,848,485 4,145,546,071 12.9X
60r. 4,228,942,765 pounds 3,094,026,502 393,684,601 3,487,711,103 11.3X
50r. 3,524,118,971 pounds 2,578,355,418 273,392,084 2,851,747,503 9.6X
~ 40r. 2,819,295,176 pounds 2,062,684,335 174,970,934 2,237,655,269 7.8X
~ 30r. 2,114,471,382 pounds 1,547,013,251 98,421,150 1,645,434,401 6.OX
20r. 1,409,647,588 pounds 1,031,342,167 43,742,733 1,075,084,901 4.1r.
1 Or. 704,823,794 pounds 515,671,084 10,935,683 526,606,767 2.1X
-------
$ (Bllllon8)
7
6
5
4
~ 3
(>.J
2
1
0
0
Figure 13. Losses Due to Removal
of Beef
246
POUNDS OF BEEF REMOVED (Bllllon8)
8
- TOTAL WELFARE LOSS
-*- DEADWEIGHT LOSS
-f- LOSS OF REVENUES
-------
Table 21: Worksheet on beef
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FAR" LEVEL PRICE ELASTICITY OF DE~D:
$0.73 S/POUND
39,946,992,000 POUNDS
S29, 226, 466, 000
-0.416
CHANGE IN QUANTITY:
-18%
(7,048,237,941)POUNDS
CHANGE IN PRICE:
NEW PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL FAR"ERS:
SO.31 S/POUND
S1.04 S/POUND
QX
S5,052,092,002
LOSS OF REVENUES TO KANSAS:
GAIN TO REST OF NATION'S WHEAT FAR"ERS:
(S5,156,710,837)
S10,208,802,839
PRODUCTION
(in pounds)
YEAR
1983
1984
1985
MEAN
------------------------------------------------------------------
TEXAS n.a. n.a. 5,320,460,000 5,320,460,000
u.S. n.a. n.a. 39,946,992,000 39,946,992,000
---- -------------------------
PRICE
(S per pound)
YEAR
1983 1984 1985 "EAN
------------------------------------------------------------------
TEXAS
U.S.
n.a.
n.a.
n.a.
n.a.
$0.78
SO.73
SO. 78
$0.73
-------------------
43
-------
ranchers. Ranch level beef prices would increase from $0.73 per
pound to $1.04 per pound.
2.3.10 Sweet Corn
Table 22, Figure 14, and Table 23 provide the results for sweet
corn. Thirty-one percent of this crop is grown in Florida. A
total welfare loss of $89 million would occur if an amount of
sweet corn of this magnitude were withdrawn from market. Of this
amount, 32 percent, or $29 million would be dead weight loss. In
addition to the dead weight loss consumers would loose nearly
$130 million to farmers in higher prices.
2.3.11 Oranges
Table 24, Figure 15 and Table 25 depict the results for oranges.
Sixty-five percent of all oranges grown in the United States are
now grown in Florida. Removal of this amount from market would
increase farm level prices by 143 percent from $7.77 per box to
$18.90 per box. Florida farmers would loose nearly $1 billion.
Consumers would loose $0.7 billion in higher prices and another
$0.7 billion in dead weight losses. The dead weight loss would
be 42 percent of the total welfare loss nationwide of $1.6
billion.
Just as the most severe impact on lettuce could only happen in
California, the most severe impact on oranges could only happen
in Florida. Other crops that are not as concentrated geographi-
cally would have correspondingly smaller maximum repercussions
from a single event.
44
-------
Table 22: Welfare losses due to removal of sweet corn from market
Farm Level Own Price Elasticity of Demand:
.0.32
Amount of Commodity Removed
----------....------------------
Percent of Loss of Farm Dead Weight Total Dead Weight
Largest Revenue in Welfare Welfare Loss ua
State Affected Area Loss Nationwide Percent 01
Production in Units Units (in $) (in $) (in $) Total Loss
-----------------------------------------------------.-----------------------------------....-.----.---------.-.-
1 00r. 4,703,000 cwt. 60,041,633 28,635,886 88,677,520 32.3X
90r. 4,232,700 cwt. 54,037,470 23,195,068 77,232,538 30.OX
80r. 3,762,400 cwt. 48,033,307 18,326,967 66,360,274 27.6X
70r. 3,292,100 cwt. 42,029,143 14,031,584 56,060,728 25.OX
60r. 2,821,800 cwt. 36,024,980 10,308,919 46,333,899 22.2X
,c:,. 507. 2,351,500 cwt. 30,020,817 7,158,972 37,179,788 19.3X
CJ1
407. 1,881,200 cwt. 24,016,653 4,581,742 28,598,395 16.OX
30Y. 1,410,900 cwt. 18,012,490 2,577,230 20,589,720 12.5X
20r. 940,600 cwt. 12,008,327 1,145,435 13,153,762 8.n
1 Or. 470,300 cwt. 6,004,163 286,359 6,290,522 4.6X
-------
Figure 14. Losses Due to Removal
of Sweet Corn
$ (Millions)
100
~
0'\
80
60
40
20
o
o
123 4
OWT. OF SWEET CORN REMOVED (Millions)
-- TOTAL WELFARE LOSS
4- DEADWEIGHT LOSS
-+- LOSS OF REVENU ES
5
-------
Table 23: Worksheet on sweet com
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FARft LEVEL PRICE ELASTICITY OF DEKAND:
CHANGE IN QUANTITY:
CHANGE IN PRICE:
NEW PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL FARftERS:
LOSS OF REVENUES TO FLORIDA:
GAIN TO REST OF NATION'S SWEET CORN FARMERS:
-
PRODUCTION
(in cwt)
YEAR
1983
1984
------------------------------------------------------------------
FLORIDA
U.S.
4,898,000
14,868,000
4,621,000
15,589,000
S12.77 !CWT
15,~7,667 CWT
$196,704,544
-0.320 (G&K, RETAIL "oth
vegitables., pp.
-31%
(4,703,OOO)CWT
$12.18 !CWT
$24.94 !CWT
95%
$70,316,698
($60,041,633)
$130,358,332
1985
MEAN
4,590,000
15,766,000
4,703,000
15,~7,667
-----------------------------------------
PRICE
(S per cwt)
YEAR
1983
1984
------------------------------------------------------------------
FLORIDA
U.S.
$12.80
$12.50
$13.~
$13.10
1985
MEAN
$14.50
$12.70
S13.57
$12.77
--------------==-----------------------------;--------------------------------===
47
-------
Table 24: Welfare losses d~e to removal of oranges from market
Farm Level Own Price Elasticity 01 Demand: -0.455
Amount of Commodi ty Removed
--------------------------------
Percent of Loss of Farm Dead lIeight Total Dead lIe;ght
Largest Revenue in lIelfare Welfare Loss asa
State Affected Area Loss Nationwide Percent of
Production in Units Uni ts (in $) (in $) (in $) Total Loss
----------------------------------------------------------------------------------------------------------.------
100:( 120,066,667 boxes 933,318,222 667,998,546 1,601,316,769 41.7X
90:( 108,060,000 boxes 839,986,400 541,078,823 1,381,065,223 39.2%
80:1. 96,053,333 boxes 746,654,578 427,519,070 1,174,173,647 36.4%
70:( 84,046,667 boxes 653,322,756 327,319,288 980,642,043 33.4%
60:( 72,040,000 boxes 559,990,933 240,479,477 800,470,410 30.0%
50X 60,033,333 boxes 466,659,111 166,999,637 633,658,748 26.4%
40X 48,026,667 boxes 373,327,289 106,879,767 480,207,056 22.3X
~ 30:( 36,020,000 boxes 279,995,467 60,119,869 340,115,336 n.7X
(X)
20X 24,013,333 boxes 186,663,644 26,719,942 213,383,586 12.5X
10:( 12,006,667 boxes 93,331,822 6,679,985 100,011,808 6.7X
-------
Figure 15. Losses Due to Removal
of Oranges
$ (Millions)
2000
1500
1000
01:0
\D
500
o
o
20
40 60 80 100
BOXES OF ORANGES REMOVED (Millions)
140
120
-- TOTAL WELFARE LOSS
--*- DEADWEIGHT LOSS
-+- LOSS OF REVENUES
-------
Table 25: Uorlcsheet on oranges
INITIAL PRICE:
INITIAL QUANTITY:
INITIAL REVENUE:
FARM LEVEL PRICE ELASTICITY OF DEKAND:
S1.77 S/BOX
1M,3106,661 BOXES
S1,'32,988,069
-0.'55
CHANGE IN QUANTITY:
-65%
(120, 066, 661) BOXES
CHANGE IN PRICE:
NEV PRICE:
PERCENT CHANGE IN PRICE:
CHANGE IN TOTAL REVENUE TO ALL FARMERS:
S11.13 S/BOX
S18.9O S/BOX
1103%
(S218,066,'15)
LOSS OF REVENUES TO FLORIDA:
GAIN TO REST OF NATION'S ORANGE GROUERS:
(S933,318,222)
S115,251,1101
PRODUCTION
(in boxes)
YEAR
1983
19M
1985
MEAN
------------------------------------------------------------------
FLORIDA 139,600,000 116,100,000 103,900,000 120,066,661
U.S. 225,180,000 169,510,000 158,350,000 1M,3106,661
PRICE
(S per box)
YEAR
1983 1984 1985 MEAN
------------------------------------------------------------------
FLORIDA
U.S.
S6.85
S5.85
S1.11
S7.69
S9.65
S9.78
S8.01
S7.77
-----------------------------------------
-
-
50
-------
3.
ANALOGOUS EVEHS
Random events often cause supply ~eductions of the magnitudes
described in section 2.3. In this section, these events are used
to serve as a check on the calculated results of section 2.3 and
to identify other issues of concern. For example, two of the
crops studied, wheat and soybeans, were affected by the drought
of 1988.
3.1
THE EXPERIENCE WITH SOYBEANS
The drought of 1988 reduced that year's soybean production by
about twenty percent, from 1,923 million bushels in 1987 to 1,539
million bushels in 1988,3 a 384 million bushel decrease. This
compares to the 311 million bushel production by Illinois, the
leading state in the production of soybeans, which accounts for
17 percent of the nation's soybean output. The predicted in-
crease in price in section 2.3.3, based on a 17 percent reduc-
tion, is 21 percent, to a high price of $7.57 per bushel. The
change in price observed in 1988 was 25 percent, to an estimated
$7.40 per bushel.
Perhaps more notable than the fact that the predicted change in
price is close to the actual change in price when the relative
magnitudes of the reductions are taken into account, is the fact
that year to year fluctuations in output of soybeans are some-
times larger than the ones considered in this study. In the 8
years, 1981 through 1988, there were two such occurrences. In
addition to the 20 percent drop in output due to the 1988
drought, a 25 percent drop in soybean output nationwide occurred
in 1983. This drop in output was accompanied by a 40 percent
increase in the price to nearly $8 per bushel. This means that
the potential economic dislocations due to protective actions
estimated in this study for soybeans are within the realm of
common experience and that of existing data.
3.2
THE EXPERIENCE WITH WHEAT
The drought of 1988 reduced the u.s. wheat harvest by 14 percent
from the 1987-88 level of 2,107 million bushels to 1,811 million
bushels in the 1988-89 season. This is slightly less than
Kansas' production of 18 percent of the u.s. wheat crop. Wheat
prices rose by about 45 percent between the 1987-88 season and
the 1988-89 season. This is substantially less that the 72
percent increase predicted if Kansas wheat were removed from the
market. However, if the calculation of section 2.3.1 were
applied to a 14 percent reduction a 57 percent increase in price
3u. S. Department of Agriculture, Economic Research Service,
"Table 7," Oil Cro~s. Situation and Outlook ReDort, OCS-21, April
1989, p. 33.
51
-------
would be predicted, which is closer to the 45 percent that
happened. A 14 percent reduction in the u.s. wheat crop also
occurred in the 1986-87 season.
52
-------
REFERENCES
Baumol, William, Economic Theorv and ODerations Analvsis, 4th ed.
(Englewood Cliffs, New Jersey: Prentice-Hall, 1977), pp.
497-500.
Hertel, Thomas W. and Marinos E. Tsigas, "General Equilibrium
Analysis of Supply Control in U.S. Agriculture," Purdue
University, April 1989.
Hertel, Thomas W. et. al., "Competing Farm Level General Equilib
rium Demand Elasticities for Agricultural Commodities,"
Research Bulletin No. 988 of the Agricultural Experiment
Station, Purdue University, W. Lafayette, Indiana.
Wohlgenant, Michael K., "Demand for Farm Output in a Complete
System of Demand Functions," American Journal of Aaricultur-
al Economics, May 1989, pp. 241-252.
U. S. Department of Agriculture, Economic Research Service,
"Table 7," Oil CrODS. Situation and Outlook ReDort, OCS-21,
April 1989, p. 33.
53
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