Functional form in the supply of broilers and its irreversibility

Abstract

This study is an attempt to contribute to the knowledge of the influence of price and technological change on the supply of agricultural production in the United States. The commodity analyzed in this study is broilers, which have increased at a remarkable growth rate in production during the last five decades. The broiler industry is considered one of the most dynamic agricultural sectors, and a typical model to characterize the future farming. Thus, this study is related to the supply analysis of the broiler industry to find a cause of the rapid expansion of the industry;The method employed in this study is a statistical time-series regression analysis, which is most frequently employed for agricultural supply studies of farm products. Statistical estimations are performed using four different functional forms: (1) linear functional form, (2) linear-in-logarithmic functional form, (3) a functional form with an application of the Box-Cox transformation to each variable with the same transformation parameter (BC model) and (4) a functional form with an application of the Box-Cox transformation to each variable with different transformation parameters (GBC model). Two different price variables, the broiler price and broiler-feed price ratio, are used, while the feed conversion ratio is used as a variable representing a technological change in the broiler industry. The study period is from 1960-1980, employing quarterly data at the national level;In general, it is found that (1) the GBC model is best to explain the structure of the broiler supply, (2) the broiler producers have been very responsive to the feed conversion ratio, (3) the price elasticity of broiler supply has declined over the feed conversion ratio, and (4) the broiler producers are more responsive to the broiler price rather than the broiler feed price ratio. Statistical evaluations are made in order to test a structural difference between periods and among quarters. There is no statistically significant change in the structure of the broiler supply between periods, but there is a significant difference among quarters. Another focus is placed to test the irreversible nature of the broiler supply by splitting a price variable. The broiler producers have a different responsiveness to increasing and declining phases of broiler price variables, supporting the irreversible phenomena, but their responsiveness is not statistically significantly different from each other.