Abstract

<p class="sar-body"><span lang="EN-CA">The Farm Income Stabilization Insurance Program (ASRA) is an agricultural program implemented in several agricultural sectors in Quebec, including the pork sector. This article aims to empirically assess the effects of this program on production decisions in the pork industry in Quebec using a Vector Error Correction Model (VEC). As variables we used the pig supply, the price of pork, and stabilized income. The dataset contains information about the pork sector which cover the period 1981-2014. The annual average growth rate of the quantity offered in this period is 5.24%. The results suggest that the supply of pork is strongly correlated with lagged values of stabilized income. The results also show that there is only one long-term relationship between the three variables above-mentioned. By contrast, in the short term, an increase of one percentage point of the stabilized income leads to an increase of 0.80 percentage point of pork supply in the next period while an increase of one percentage point of pork price will result to a decrease of 0.47 percentage point of the production. Pork production decisions are dominated in short-term by the presence of ASRA program. This shows evidence that without the ASRA program, pork production would be less. These results confirm some of the criticisms of this program. Thus, through this article we suggest a compensation indicator which internalizes market signals in order to improve pork industry efficiency. Simulations of the compensation indicator were also performed. The adoption of this indicator as a measure of compensation for the ASRA program will generate an efficient production system, reduce the deficit of the program, and improve the competitiveness of pork industry. This indicator can be applied to other agricultural sectors covered by the ASRA program.</span></p>

Highlights

  • Farmer’s annual income is marked by chronic instability due to several factors that influence agricultural outputs: climate change and biological crises such as animal diseases and the invasion of insects

  • The Farm Income Stabilization Insurance Program (ASRA) is an agricultural program implemented in several agricultural sectors in Quebec, including the pork sector

  • In order to lead farmers to reduce the effect of the Agricultural Income Stabilization Insurance (ASRA) in production decisions and allow the market price to partially fulfill its role, we propose an index taking into account market signals in the ASRA program

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Summary

Introduction

Farmer’s annual income is marked by chronic instability due to several factors that influence agricultural outputs: climate change and biological crises such as animal diseases and the invasion of insects. This causes large fluctuations in the supply of agricultural products, and induces food prices instability. According to Roux (2013), supply of agricultural products is price inelastic and is determined by the bioclimatic conditions and partly by the seasonality of production. All these conditions cause the imbalance between supply and demand in agricultural markets and create distortions in these markets.

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