The Boundary of the Farm: Homegrown versus Purchased Feed on Ontario Swine Farms

Transactions can be facilitated by mechanisms such as markets, contracts, and hierarchies. We treat the mechanisms as black boxes and depict the efficiency of each mechanism by the mean and variance of the output costs. The boundaries of livestock farms are measured by the percentage of homegrown feed in total feed requirement. A theoretical model is proposed which explains how farm boundaries are shaped by the efficiency of two alternative transaction-facilitating mechanisms: markets and hierarchies. Using tax file data from Ontario swine farms, this article analyzes the impact that mechanism efficiency has on farm boundaries. To identify the causal relationship, monthly CAD/USD exchange rates are used as the instrumental variable for corn prices in Ontario. The findings suggest that the boundaries of Ontario swine farms are not arbitrary, rather they are shaped by the relative efficiency of the mechanisms. It is estimated that if the average corn price were doubled, ceteris paribus, the average Ontario swine farmer would grow all required corn by themselves (i.e., the farm boundary is 100%). If the variance of corn prices were doubled, the average farm boundary would increase from 44% to 49.8%. The costs for doubling farm boundary are estimated to be C$9,841.


Issue Date:
Jun 19 2017
Publication Type:
Conference Paper/ Presentation
Language:
English
Total Pages:
57
JEL Codes:
Q12; D22; L25




 Record created 2017-10-12, last modified 2017-10-12

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