Demand, Supply, and Price Relationships for the Beef Sector, Post-World War II Period

Abstract

A simultaneous equation beef model which allows for simultaneity between supplies and demands is formulated and estimated. The supply of beef is partitioned into fed, domestic nonfed, and import components; the demand for beef is split into fed and nonfed components. The findings, which are comparable with those of several earlier studies as far as the price flexibilities of total demand and price elasticity of total supply are concerned, indicate that analysts have underestimated the income elasticity of demand for fed beef by focusing on all beef and overlooking the inferior income-demand relationship for nonfed beef. By use of these results, the depression in fed beef prices in the 1962-1964 period was found to have resulted largely from heavy supplies of fed beef and lack of commensurate growth in consumer purchasing power. The findings further indicate that Cochrane's aggregate analysis requires either more information than recognized or less aggregation than used before meaningful policy inferences can be made. N 13 out of 18 econometric analyses either focusing on or encompassing the beef sector, primary emphasis was given to the demand side of the models estimated.' Supplies were assumed to be predetermined in all but two of the studies [5 and 9]. Hildreth and Jarrett [9] analyzed all livestock sectors as an aggregate. Cromarty [5] estimated an econometric model for the total agricultural economy, fitting simultaneous supply and demand relationships for beef, hogs, poultry meat, dairy products, eggs, and feed grains. In this study, a simultaneous equation model is formulated and estimated for the beef sector. The model reflects the behavioral relationships of the postwar period and allows for simultaneity between supplies and demands. Twelve relationships are included in the model. No simultaneity is involved in five of these, four of which are identities. Simultaneity is involved in seven equations. Eight of the relationships contain disturbances: (1) number of fed beef slaughtered, (2) weight per head of fed beef