Supply Response, Price Transmission, and Risk in the U.S. Catfish Industry

Abstract

The dissertation is organized into three topics in economic analysis of the U.S. farm raised catfish industry. The first topic studies the U.S. farm raised catfish supply using a static normalized profit function and dynamic adaptive expectation approaches. Empirical estimations of short-run supply elasticities are 0.23 and 0.28, and long-run supply elasticities are 0.80 and 2.1 when using static and dynamic approaches. Catfish producers adjust yield in the short-run and acreage in the long-run to respond to market incentives. The second topic studies the transmission between catfish farm and processed prices. The theoretical model predicts that price transmission is asymmetric, and market power at the processing level has a positive effect on price transmission, and an ambiguous effect on the asymmetric level of price transmission. The empirical test finds a short-run price transmission elasticity of 0.40, and a long-run of 0.60. Co-integration test results in a short-run elasticity of 0.45 and a long-run of 0.73. Sixty-two percent of positive price transmissions and 40% of negative price transmissions are realized spontaneously. The industry conjectural variation elasticity is 0.06. Processors have oligopoly and oligopsony power that force farm price down, and raise wholesale price at the same time. The third topic investigates the effects of price risk originated at processing on farm raised catfish supply. The theoretical model predicts that price risks at the processing level affect factor demand for farm raised catfish. Fluctuations in factor demand also influence the catfish farm supply response. Input/output price expectations at processing and marketing levels have negative/positive effects on factor demand at the farm level. Price risks reduce processor factor demand for farm raised catfish. Empirical results show evidence that price risks at processors level reduce catfish farm raised supply. In terms of product forms, fillet products have positive effects on farm supply, while whole fish products have a negative relationship with farm supply.