A MATHEMATICAL PROGRAMMING MODEL FOR AGRICULTURE SECTOR POLICY ANALYSIS
HOUSE, ROBERT MICHAEL
Doctor of Philosophy
A price endogenous, spatial equilibrium mathematical programming model (USMP) is formulated and applied to address contemporary issues in U.S. agriculture sector policy. The historical and theoretical development of this type of model is reviewed with particular emphasis upon the incorporation of agricultural producer risk in a mean, variance framework. USMP is solved for equilibrium price, production and utilization levels of all major U.S. crop and livestock commodities. Production is specified at the region and state level with detailed production activities; utilization is specified in domestic consumption, commercial stock and export demand markets. USMP is used for comparative static analysis by adjusting its policy or market variables, and observing the resulting impacts on equilibrium values of performance indicators such as commodity and factor prices, production, and detailed regional income and expenditure accounts. USMP is formulated and solved nonlinearly. In contrast to the linear approximation and optimization procedures used in most previous models of this type, this formulation facilitates proper representation of inherently nonlinear relationships and keeps the model compact and computationally efficient. Its powerful formulation and general efficiency make USMP useful for short-turnaround work in a real policy analysis environment. The effects of changing levels and interannual variability in agricultural commodity export demand are analyzed and found to affect key target variables differently. Agricultural production falls when export variability rises. Consumers face generally higher food prices when either variability or demand increase. Suppliers of agricultural production inputs can expect to benefit from increased export demand and lose when export uncertainty rises. Crop producer income increases under both scenarios; livestock producer income changes little with more variability and declines when exports increase. Although both increasing export demand levels and variability lead to increased net farm income, increased demand is preferred. Two topical policy issues are investigated: an export promotion program and a general reduction in agricultural price and income stabilization programs. The impacts of a fifty cent per bushel wheat export subsidy are found to be minimal. Stabilization program changes which double the variability of net returns in crop production lead to reduced crop output, higher crop prices and higher farm income.