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Marc F. Bellemare Posts

Published January 3, 2011

Messing with Markets: Eggs in Québec

Danielle Landreville, an egg producer in Sainte-Mélanie, Québec was given a reminder by the Québec Ministry of Agriculture and the Québec Federation of Egg Producers that she would be fined C$2,250 ($2266) if she kept giving away some of her farm’s eggs to food banks during the holidays (article in French here).

The Ministry of Agriculture enforces a policy of supply management which aims at artificially raising the price of eggs on the market. The eggs produced by most of Mrs. Landreville’s 36,000 hens eventually hatch chickens. She gives away the eggs which she knows cannot hatch as consumption eggs.

According to GO5, a Québec “coalition for an equitable agricultural model: supply management,” there were 44 farms such as Mrs. Landreville’s in Québec in 2006, representing a total of about 200 million eggs — about 27 percent of the Canadian market — per year.

Consumers Pay Twice

Unless the demand for that commodity is perfectly elastic (which is unlikely for whole eggs, a commodity that has few substitutes), this means that the price of the commodity whose supply is managed increases. This price increase is borne by egg consumers. Because Mrs. Landreville’s “consumers” are the farms raising broiler chickens, part of the price increase is passed on to the consumer of broiler chickens.

There is another, more subtle way in which consumers end up paying more under supply management. Supply management of agricultural commodities is equivalent to giving agricultural producers a subsidy. Eventually, this subsidy leads to too many producers being on the market with respect to the number of producers who would be able to operate at a profit without such subsidies. Such subsidies are partly paid for by consumers via their tax bills, so that consumers end up paying twice for supply management policies.

In 2006, there were 44 farms in Québec producing broiler eggs, and there were 103 farms producing consumption eggs, all under a supply management scheme.

If I were a gambling man, I would bet a substantial fraction of my annual salary that there were more than 44 consumers of broiler chickens and more than 103 consumers of eggs in Québec in 2006.

(HT: @Liberte_Quebec)

Published January 2, 2011

Smallholder Participation in Agricultural Value Chains

I have a new working paper with Chris Barrett, Maren Bachke, Hope Michelson, Sudha Narayanan, and Tom Walker on agricultural value chains in developing countries. Here is the abstract:

“Supermarkets, specialized wholesalers, and processors and agro-exporters’ agricultural value chains have begun to transform the marketing channels into which smallholder farmers sell produce in low-income economies. We develop a conceptual framework through which to study contracting between smallholders and a commodity-processing firm. We then conduct an empirical meta-analysis of agricultural value chains in five countries across three continents (Ghana, India, Madagascar, Mozambique, and Nicaragua). We document patterns of participation, the welfare gains associated with participation, reasons for non-participation, the significant extent of contract non-compliance, and the considerable dynamism of these value chains, as farmers and firms enter and exit frequently.”

Comments and suggestions would be most welcome.

Published January 2, 2011

Grade Inflation

Fabio Rojas over at orgtheory.net has a post about grade inflation in which he lists five possible options to curb grade inflation:

  1. A curve. The top 10% get As, the next 20% get Bs, etc.
  2. A fixed bar. There is a pre-determined level of skill that get’s you the high grade.
  3. Pass/no pass. We abolish the idea of grades and just work with a “you get it or you don’t” system.
  4. Contingent. The instructor decides the grades based on the merits and skills of each batch of students.
  5. A budget. Instructors don’t have to give A’s, but all A’s are capped at 10% of the course.

At the Sanford School, we have adopted a mixture of several of the options above: each course category — determined by the course number and by whether a course is a core course — has a target mean grade.

For example, both my 200-level seminars have a target mean grade of 3.4, i.e., slightly above a B+, but my core 100-level course has a target of 3.2. How to arrive at these mean course grades is entirely up to the instructor’s discretion.

How is this enforceable? Each year we receive a memo from the Director of Undergraduate Studies informing us of these targets. The memo also reminds us that whether we stick to these targets will be taken into account by tenure and promotion committees for tenure-track faculty and at contract renewal time for non-tenure-track faculty.

The system seems to work well. In my syllabi, I inform my students of the target mean and explain that there has to be a distribution, if only to set up incentives for them to learn the material.

As someone who has done a good amount of work, both theoretical and empirical, on contracts, I am always impressed by the effectiveness of the rank-order tournaments we run in our classes.