Agricultural production in the 21st century: Technology adoption, adaptation, and market power

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2023-08
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Smith, Timothy Jacob Philip
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Moschini, GianCarlo
Clancy, Matt
Crespi, John
DePaula, Guilherme
Kim, Donghyuk
Winters, John V.
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Economics
Abstract
This dissertation comprises studies on three of the most significant developments in U.S. agricultural markets during the 21st century: the adoption of genetically engineered (GE) corn seed, the implementation of the 2007 Renewable Fuel Standard, and rising concerns over market power in the beef packing industry. In each case, I examine how the economics of agricultural production are shaped by the changing landscape of technologies, policies, and market forces. In “Technology Adoption, Learning by Doing, and Reallocation,” I study how the adoption of GE corn seed impacted the consolidation of U.S. farmland into larger farms owned by fewer farmers. I develop a conceptual model to show that the existence of learning by doing in the adoption of the new seed technology allows for profitable reallocation of land from non-adopters to adopters of GE seed. Using a difference-in-difference approach, I estimate that the introduction of GE seeds led to an exit of about 18,300 corn-growing operations, or 4% of the corn-growing operations existing in 1997. This amount of exit represents 13% of the net exit of nearly 150,000 corn-growing operations between 1997 and 2017. In “Corn Ethanol Expansion and the Evolution of U.S. Crop Patterns,” we study the expansion of biofuel production driven by the 2007 version of the U.S. Renewable Fuel Standard (the so-called RFS2). We combine rich spatial data on observed crop choices with a novel index of corn demand by the ethanol industry to estimate the impact of the RFS2 on crop patterns. We find that the RFS2, for the thirteen Midwest states encompassed by the analysis, increased total corn area by 4.5%, and increased the area of corn following corn by 9.8%. Interestingly, we find that total soybean area was not impacted by the RFS2. Instead, it is the geography of soybean cultivation that was affected, shifting from the center to the periphery of the Corn Belt. In “Spatial Competition and Market Power in the U.S. Beef Packing Industry,” we develop a spatially-explicit model of the beef packing industry to analyze key questions related to competition and efficiency in an oligopsony setting. We calibrate the model to 2022 data and compute the Bertrand-Nash equilibrium of the (spatially) differentiated product market. Using this model, we compute county-level markdowns in the price packers pay cattle producers for fed cattle. Markdowns are then decomposed into three components: one due to plants’ binding capacity constraints, one due to the inherent spatial configuration of the industry, and the last one due to an aspect of concentration (i.e., some firms own multiple plants). We find that markdowns in the industry are relatively small, about 1.7% of the fed cattle price on average. About 74% of the markdown is due to plants’ capacity constraints, while 24% is due to the spatial location of plants in the market and only 2% of the markdown can be attributed to firm multi-plant ownership. These three studies contribute to a more thorough understanding of the consequences of the significant changes in technology, policy, and market concentration that have occurred over the past few decades in agricultural markets.
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