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    zbw Leibniz-Informationszentrum WirtschaftLeibniz Information Centre for Economics

    Roosen, Jutta; Hennessy, David A.

    Working Paper

    Seasonality, capital inflexibility, and theindustrialization of animal production

    FE working paper // University of Kiel, Department of Food Economics and ConsumptionStudies, No. 0401

    Provided in Cooperation with:Christian-Albrechts-University of Kiel, Department of Food Economicsand Consumption Studies

    Suggested Citation: Roosen, Jutta; Hennessy, David A. (2004) : Seasonality, capital inflexibility,and the industrialization of animal production, FE working paper // University of Kiel, Departmentof Food Economics and Consumption Studies, No. 0401

    This Version is available at:http://hdl.handle.net/10419/38623

  • Seasonality, Capital Inflexibility, and the Industrialization of Animal Production

  • 2

    Seasonality, Capital Inflexibility, and the Industrialization of

    Animal Production

    by

    Jutta Roosen and David A. Hennessy*

    January 2004

    Authors are professor at the Department of Food Economics and Consumption Studies, University of Kiel, Germany, and at the Department of Economics, Iowa State University, USA, respectively. They would like to thank Oya Erdogdu, John Miranowski, HongLi Feng, and Don Blayney for comments and useful guidance.

    Roosen is the corresponding author. She can be reached at Department of Food Economics and Consumption Studies, University of Kiel, Olshausenstr. 40, 24098 Kiel, Germany. Ph.: +49 431 880 4567, Fax: +49 431 880 7308, e-mail: jroosen@food-econ.uni-kiel.de.

  • Seasonality, Capital Inflexibility, and the Industrialization of Animal

    Production

    Abstract

    Among prominent recognized features of the industrialization of animal production over the past

    half century are growth in the stock of inflexible, or use-dedicated capital, as an input in

    production, and growth in productivity. Less recognized is a trend toward aseasonal production.

    We record the deseasonalization of animal production in the US and European countries over the

    past 70 years. We also suggest that A) lower seasonality can precede or Granger-cause increased

    productivity due to increased capital intensity, and B) productivity improvements can Granger-

    cause lower seasonality. Process A) should be more likely earlier in the industrialization

    process. For US dairy production, our empirical tests find some evidence that process A)

    operated early in the 20th Century while process B) operated in more recent times.

    Keywords: Capital Intensity, Causality, Dairy, Regional Production Systems

  • 1

    Seasonality, Capital Inflexibility, and the Industrialization of Animal Production

    Agriculture has become more capital intensive in most of the world during the latter part of the

    20th Century. This capital deepening has occurred largely in the machinery, irrigation, and

    buildings categories (Larson, Butzer, Mundlak, and Crego). The structural effects have been

    particularly notable in animal agriculture in the developed world, where the phrases factory

    farming and industrialized agriculture correctly depict an animal production process for hogs,

    chickens, turkeys, and laying eggs that is broadly similar to the prototypical manufacture of

    widgets. These large farms have increasingly automated production processes, and most workers

    are employees with routinized tasks.

    Field crop agriculture on the other hand, though greatly affected by mechanization and other

    technological innovations, does not yet resemble an industrialized process. Allen and Lueck

    argue convincingly that randomness due to weather is primarily responsible because it confounds

    monitoring in the principal-agent relation, and it requires managerial focus when organizing

    many mundane production activities. Strengthening control over animal agriculture has involved

    largely strengthening the control of nature in the production process. Animals have been

    confined, while seasonal aspects of biological behavior have been suppressed through breeding

    or physiological interventions. Consequences have been the homogenization of the production

    process and the growing affordability of cheap animal protein in much of the world.

    Notwithstanding attention from several academic fields, the process of industrialization at

    the sector level is not well-understood. This is so in agriculture and in other sectors. Most

    economic studies on industrialization assume agriculture to be the reference non-industrial

    sector, and their insights concerning the details of agriculture are limited. Technology in

    agriculture is seen to matter because it frees up resources for other uses (Jorgenson; Scitovsky).

    Kuznets does emphasize co-dependency, through spillover effects, between technical change in

    agriculture and other sectors. This view sees agriculture developing along with other sectors so

    that all sectors are comparably industrial. A facet of this viewpoint arises in the induced

  • 2

    innovation argument of Hayami and Ruttan. If the price of agricultural labor rises due to

    increased demand from other sectors, then labor-saving innovations should be induced in

    response over time.

    Studies in economic history have shown evidence that interactions between agricultural

    seasonality, non-agricultural industrialization, and productivity outside agriculture are likely

    adverse because industrial plants are most efficient when labor supply is constant (Sokoloff and

    Dollar; Sokoloff and Tchakerian; Anderson). Our interest is not in the role of agricultural

    seasonality on external industries, but in its role on agriculture itself.

    As to what industrialization is, it has many features involving firm behavior, industry

    structure, the creation of new subsectors and change in the nature of sector products. We refer

    the reader to Meeker, to Boehlje, or to Drabenstott on characterizations, and qualify the

    components that we are interested in as primarily firm-level and industry-level behavior

    regarding technologies used. The technologies should emphasize the control, systemization, and

    routinization of processes in order to be more assured of product volume and quality at low cost

    given the larger capital investment necessary for an industrial approach. Regarding the

    efficiency effects of capital deepening, Chandler (p. 24) has written

    These potential cost advantages could not be fully realized unless a constant flow of materials through the plant or factory was maintained to assure effective capital utilization. If the realized volume of flow fell below capacity, then actual costs per unit rose rapidly. They did so because fixed costs remained much higher and sunk costs (the original capital investment) were also much higher than in the more labor-intensive industries.

    How industrialization arises is largely a question of structural dynamics because the process

    is not instantaneous and there is no guarantee it will continue to the point where a sector or

    economy is recognized as being industrialized. Some inquiries into the path taken suggest the

    possibility of multiple equilibria (Murphy, Shleifer, and Vishny; Matsuyama; Gans, 1997; Chen

    and Shimomura; Ciccone) so that the economy needs a big push to industrialize. As Gans

    (1998) has pointed out, the existence of multiple equilibria relies on the assumption that firms

  • 3

    face two technology choices where one is increasing returns and the other is a constant returns

    reference technology. This big push literature leads naturally to policy proposals on

    engineering an equilibrium, typically a more industrial equilibrium given the increasing returns

    to scale that are present. Due to its macro-economy nature, this area of work has little to say

    about how the particulars of any given industry affect the industrialization process. Our interest

    is focused on animal agriculture, and we intend to show that sector detail can provide insights on

    the process.

    The formal literature on explaining the agricultural industrialization process is quite sparse.

    In one sense this is not surp