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Abstract
The goal of this study is to estimate how different price or quantity fixing contracts affect
the value of pig space unit in pig fattening. The value of pig space unit is estimated with a
stochastic dynamic programming algorithm. The model maximises the value of pig space
unit by using four decision variables. The input-output ratios are endogenous and the
option to suspend production temporarily is taken into account in the model. The results
suggests that the smooth functioning of markets in Finland can be promoted by ensuring
that price changes are transmitted smoothly between input and output markets, and that
producers are compensated for giving up the option to suspend production temporarily in
the event if unfavourable market situation. Instead of fixing only the price of output, the
contract should aim at reducing the risk associated with gross margin.