Academic journal article Journal of Agricultural and Applied Economics

Optimal Land Allocation and Production Timing for Fresh Vegetable Growers under Price and Production Uncertainty

Academic journal article Journal of Agricultural and Applied Economics

Optimal Land Allocation and Production Timing for Fresh Vegetable Growers under Price and Production Uncertainty

Article excerpt

Production timing is an essential element in fresh vegetable growers' efforts to maximize profitability and reduce income risks. The present study uses biophysical simulation modeling coupled with a dual crop (tomatoes, sweet corn) whole-farm economic formulation to analyze the effects of growers' risk aversion levels and price consideration (seasonal or annual price consideration) in expected net returns and production practices. The findings indicate that consideration of seasonal price trends results in higher expected net returns and greater opportunities to mitigate risk. Furthermore, risk aversion levels substantially influence production timing when seasonal price trends are considered.

Key Words: biophysical simulation, farm management, mean variance, price seasonality, vegetable production

JEL Classifications: C61, C63, D81

(ProQuest: ... denotes formulae omitted.)

Growers' decisions (i.e., choice of inputs, land allocation, production mix, etc.) in the uncertain environment created by production and price variability are a subject that has attracted scholars for more than five decades. Babcock, Chalfant, and Collender (1987) and Mapp et al. (1979) provide a discussion and review of the early research endeavors in this topic. Following the work of Chavas and Holt (1990), growers' risk behavior became an important element in the study of their allocation choices (i.e., Liang et al., 2011; Nivens, Kastens, and Dhuyvetter, 2002; Wang et al., 2001).

In addition to the production and price variability, fresh vegetable growers face increased uncertainty as a result of the special characteristics of their product. For instance, the high perishability of most fresh production results in limited storage opportunities; thus, the vegetable supply in the short run is highly inelastic (Cook, 2011; Sexton and Zhang, 1996). As a result, growers are compelled to accept the price during or close to the harvesting period. Consequently, planting and harvest timing plays an important role in the income received from vegetable production. Furthermore, the impact of quality on the prices of fresh vegetables should not be understated. Specifically, if the vegetable produced does not reach the quality standards expected by the buyer (i.e., consumers, retailers, intermediaries, etc.), then the growers have to accept a lower price (Hueth and Ligon, 1999).1

Despite an abundance of research regarding growers' decisions under uncertainty and the increased risk faced by vegetable growers, the literature regarding how 1) growers' risk aversion levels; and 2) consideration of price seasonality2 impact the production decisions, particularly timing of planting and harvest, is limited. A notable exception is Simmons and Pomareda (1975). The research presented is an effort to fill this gap.

The objectives of this study are threefold. First, the study seeks to develop a dual-crop vegetable farm model with a land allocation and production timing decision interface focusing on economic optimization. Second, it examines the effect of price/production variability and of growers' risk preferences on their decisions regarding the optimal production practices (land allocation, transplant timing). Third, the study investigates potential alterations in optimal production practices and in the economic results with and without considering seasonal price trends, a factor that may influence growers' production timing decisions. Mathematical programming modeling in conjunction with biophysical simulation techniques are used to achieve these goals.

The focus area for the present article is Fayette County, Kentucky. The following two reasons dictated the selection of Fayette County as the study region: 1) it is among the top vegetable-producing counties in Kentucky (U.S. Department of Agriculture, National Agricultural Statistics Service, 2010); and 2) the abundance and availability of weather and soil data. These data are essential requirements for the biophysical simulation. …

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