Projects Funded for 2011-2012

Economic Impacts of California's Greenhouse Gas Cap-and-Trade Program on Dairy Industry


The objective of the research is to simulate how the greenhouse gas (GHG) cap-and-trade program will affect the dairy industry in California, including both dairy farms and dairy product manufacturers. The simulation analysis of the effects of the GHG cap-and-trade program indicates that carbon pricing leads to (a) higher prices of dairy products and lower energy use, and (b) lower prices of milk when the output-market equilibrium effect dominates the factor substitution effect, and vice versa. The magnitudes of the changes in the equilibrium prices and quantities depend primarily on the elasticity of milk supply, the own-price elasticity of demand for manufactured dairy products, and the elasticity of substitution between milk and energy in the production of manufactured dairy products. Results imply a generally small influence of dairy policies. The existence of dairy policies lowers the potential welfare gains for consumers of fluid dairy products from carbon pricing.

Family Tree of Agricultural Economics


Specific Objectives of the Project Construct a family tree of academic agricultural and resource economists, which highlights the influence of members of the Giannini Foundation in current day agricultural economics research. Project Report/Summary of Results Agricultural and Resource Economics is one of the oldest sub fields in economic research. Its history is told in several review articles, yet no one has traced its origins in a systematic way. We have improved an existing academic family tree piece of software, which much like a regular family tree traces the history of the field by linking students and advisors.

Adoption of Outdoor Water Conservation Technologies


The objectives of this research were to evaluate the impact of a water conservation program being promoted by many of the water districts in southern California—the high efficiency sprinkler nozzle program—on water use. In particular, we intended to investigate the impact of these sprinkler heads on water use at the household level and the subsequent potential impact at the district level. Furthermore, we attempted to estimate an adoption model that identified factors which influence a household's decision to adopt the technology.

In this program, households can receive vouchers for up to 25 free high efficiency sprinkler nozzle heads. The data consists of monthly water use and household characteristics over ten years on approximately 120,000 residential meters. Our analysis consists of two approaches to evaluating these potential effects. First, we compared different subpopulations average use before and after adoption; second, we estimate a discrete continuous choice (DCC) model. Preliminary results suggest that residential customers who redeemed vouchers for 25 high efficiency sprinkler nozzles typically experienced a subsequent reduction in overall water use of around 1.2%. As a fraction of total outdoor water use, the reduction is around 2.7%. This is markedly lower than the technically achievable reduction of 30% that has been estimated by the manufacturer.

In terms of what factors seem to influence adoption, we find that adoption rates were positively related to house value, income levels, average water prices, ET, household size, and landscape area (although nonlinearly); adoption rates were negatively related to distance to the nearest nozzle head distributor (which suggests travel and time costs are important factors influencing whether households redeem their vouchers). Adoption rates for those in the top, middle, and bottom terciles of water use were approximately 2.3%, 2.0%, and 0.78%. Ongoing research is currently focusing on gathering more complete information on those households that redeemed the vouchers in terms of the number of nozzles they actually installed and the degree to which they were installed correctly.

Energy Efficiency and the Landlord-Tenant Problem in California's Commercial Buildings


Specific Objectives of the Project
  1. Can we explain food borne illness by consumption patterns?
  2. What is the premium for rent or purchase price for energy efficient buildings?
Project Report/Summary of Results

This research exploits exogenous variation in mandatory energy code implementations as a result of the 1992 Energy Policy Act to estimate the energy efficiency premium in office buildings. A more stringent code leads to rent and price premiums of approximately 3% and 12%, respectively. Significant heterogeneity in the rent premium is observed based on who pays the utility bills, as would be expected absent asymmetric information about energy conservation characteristics among real estate market participants. The results cast doubt that asymmetric information between office building owners and prospectivebuyers or tenants mitigates the returns to energy efficiency.

The "Great Recession" and the Supply of Mexican Labor to US Agriculture: A Quasi-Experimental Panel Analysis


We investigated the impacts of the "great recession" in 2008-09 on migration from rural Mexico to U.S. farm work using nationally representative panel data from households in rural Mexico with observations in years 2002, 2007, and 2010. Taylor, Charlton, and Yúnez-Naude (2012) compare individuals' employment in 2007, before the "great recession," and in 2010, after the recession. The study found a greater percentage decline in the number of rural Mexicans migrating to farm than nonfarm jobs in the U.S., even though the demand for farm labor remained steady throughout the recession. Of the migrants who remained in the U.S. between 2007 and 2010, some switched from the nonfarm to the farm sector, as expected given the change in the relative demand for labor across sectors, but even more migrants switched from the farm to the nonfarm sector. Additionally, the number of workers in the Mexican nonfarm sector grew steadily from 2002 through 2010. This evidence suggests that the rural Mexican workforce is transitioning off the farm. Our panel econometric estimates confirm this. The transition of the labor force away from farm work is consistent with a trend observed in nearly every country around the world: as per capita GDP rises, the share of workers in agriculture rapidly declines. The transition of Mexican workers away from agriculture will have profound impacts for the U.S. farm sector, which historically has depended on an elastic supply of Mexican farm labor and will now have to compete with Mexican farms for a dwindling supply of labor. To adjust to a smaller supply of labor, in the future U.S. farming will need to become more mechanized, relying on fewer and more productive workers. This will impact both the U.S. farm industry and rural communities; increasing skills and wages of farm workers may help break a vicious circle of farm employment, immigration, and poverty.

Economic Viability and Environmental Consequences of Adopting Switchgrass as a Biofuel Feedstock in the Central Valley of California

The Impact of Food Borne Disease Outbreaks on Consumer Purchases and Preferences: The Case of the 2010 Salmonella Outbreak


Objectives of the Project 1. Determine whether egg consumption decreased due to the news of the Salmonella outbreak. 2. Determine whether consumers are substituting away from conventional eggs towards other types of eggs (organic, cage free, free range) or egg substitutes. 3. Determine how long this substitution effect (if any) lasts. 4. Examine whether there are any heterogeneous effects based on income and demographics.

Summary of Results We examine how consumers in California reacted to three consecutive egg recalls during the 2010 Salmonella outbreak. Eggs infected with Salmonella were recalled through codes clearly labeled in egg boxes, leaving no infected eggs in stores. Using a large product-level scanner data set from a national grocery chain, we test whether consumers reduced egg purchases. Using a difference-in-difference approach, we find a 9 percent reduction in egg sales in California following the three egg recalls. Given an overall price elasticity for eggs in U.S. households of -0.1, this sales reduction is comparable to an almost 100% increase in price. We find no evidence of substitution toward other “greener" type of eggs, such as organic or cage free eggs. We also find no correlation with demographics such as income, but we do find that areas that had a larger than average household size decreased egg purchases more. We also find differentiated effects among Northern and Southern Californian stores. Although the national grocery chain had infected eggs only in Northern California, we find that Southern Californian stores had lower egg sales as well. The sales reduction in Southern California was half as large as the reduction in Northern California, and is consistent with media and reputation effects being significant determinants of demand, even in the absence of an actual food infection occurring in a region.


The Economics of Groundwater Management for Agriculture: Inefficiencies, Policies, and Social Optimality


To determine if there are inefficiencies in groundwater extraction that arise from farmers not internalizing the spatial externality, we inv estigate the behavior of farmers who share an underground aquifer. In the case where seepage may occur the resource is nonexclusive, giving rise to a spatial externality whereby pumping by one user affects others nearby. Theoretically, these externalities are potentially important causes of welfare loss. Using a unique spatial data set of groundwater users in western Kansas, we are able to empirically measure the physical and behavioral effects of groundwater pumping by neighbors. To address the simultaneity of neighbors' pumping, we use the neighbors' permitted water allocation as an instrument for their pumping. We estimate that 2.5 percent of the total groundwater extracted each year in western Kansas is overextraction due to the effects of spatial externalities. Individuals who own multiple wells internalize their own externality by trading off pumping at one well for pumping at another.

In western Kansas, the prior appropriation doctrine gives producers rights to extract groundwater for crop production. This property rights system may distort the incentive for rights-holders to optimize dynamically, leading to a deviation from the economically efficient extraction path. To determine if there are inefficiencies in groundwater extraction that arise from farmers not optimizing dynamically, we use data from western Kansas are to empirically test hypotheses derived from a physical-economic model. We find evidence that producers behave consistent with hypotheses derived from dynamic theory despite the static definition of their property rights. We also find evidence that the original appropriations were allocated consistently with notions of allocative efficiency.

Encouraging the use of more efficient irrigation technology is often viewed as an effective, politically feasible method to reduce the consumptive use of water for agricultural production. Despite its widespread recommendation, it is not clear that increasing irrigation efficiency will lead to water conservation in practice. To analyze the efficiency of the subsidization of efficient irrigation technology, we evaluate the effect on groundwater extraction of a widespread conversion from traditional center pivot irrigation systems to higher efficiency dropped-nozzle center pivot system s that has occurred in western Kansas. State and national cost-share programs subsidized the conversion. On average, the intended reduction in water use did not occur; the shift to more efficient irrigation technology has increased groundwater extraction, in part due to shifting crop patterns.

Information & Strategic Disease Control in the California Grape Industry: The Economics and Environmental Impacts of Heterogeneous Responses to Powdery Mildew Forecasts


The prevention of powdery mildew outbreaks is among grape growers' most important management practices. The explosive episodes of powdery mildew growth that are possible when optimal weather conditions prevail pose substantial production risks to growers. The Gubler-Thomas Powdery Mildew Index (PMI) models powdery mildew growth as a function of length of exposure to different temperature ranges in order to help growers to better anticipate outbreaks. This project aims to understand how growers' use of the PMI shapes their powdery mildew control strategies according to their operational environmental and how these potentially heterogeneous forecast responses determine the environmental impact of the PMI. We find that the environmental impact of the PMI may actually be negative because growers' adjust their powdery mildew management strategies along several dimensions in response to the information–including shifting to higher potency synthetic fungicides, increasing dosage rates, and using multiple products when the risk is high according to the PMI.

Commodity Price Pass Through


California farmers have been incensed over the years, complaining that when commodity prices rise, supermarket prices rise disproportionately, and when commodity prices fall, supermarket prices remain relatively constant or fall slowly. A large literature purports to find that grocery store prices adjust asymmetrically, with prices rising rapidly when input prices rise, but falling more slowly when input prices fall. However, these studies suffer from a variety of problems including aggregation bias (due to combining many goods into a single measure), statistical problems (failing to account for unit roots), using weak proxies for commodity prices, failing to note that some supermarkets that have frequent sales while others use an everyday-low-price approach. Our more careful studies fail to find evidence of asymmetric price adjustment. Moreover, we find little evidence of a tight-link between commodity prices and retail prices in general.

California WIC: Analysis of Cost-Containment Strategies and Program Impacts on Food Costs


Specific Objectives of the Project

The WIC (women, infants, and children) program provides federal grants to states to support food, health care, and nutritional education for low-income pregnant and postpartum women, infants, and young children. Because WIC operates with a fixed budget, cost containment is the primary means through which program services can be expanded to serve greater numbers of eligible participants. Foods offered under the program are provided at no charge to program participants, who thus have little incentive to be price conscious in their purchase decisions, creating the potential for WIC vendors to charge non-competitive prices for WIC food instruments (FI). Thus, the USDA Food and Nutrition Service has issued rules and WIC state agencies have sought avenues to promote competitive pricing and program cost containment. Federal rules encourage state agencies to design a vendor peer group system as a primary mechanism for cost containment. This study has two key objectives:

  1. Analyze the effectiveness of the vendor peer group system in place for California WIC and the mechanism for setting maximum allowable reimbursements for FI within the peer-group system. We will recommend modifications to the existing program, as appropriate.
  2. Analyze the extent to which the WIC program raises food costs for non-WIC consumers. Foods eligible for purchase und er WIC are also purchased in the open market by non-WIC consumers. These consumers' food costs will be increased to the extent that the presence of inelastic-demand WIC consumers motivates stores to charge high prices for WIC-eligible foods. These concernsare significant because for key products such as formula and certain baby foods, WIC sales comprise over half of total sales. Yet the impact of WIC on food prices has received almost no attention.
Summary of Results

We used three data sets for our analysis. (1) The entirety of redemptions made under the California WIC Program for the 29-month period from October 2009–February 2012. (2) The results from three separate surveys: a small-store survey vendors with from 1–4 registers, a large-store survey for vendors with 5 or more registers, and a survey of vendors who earn more than 50% of their food revenues from the WIC Program. (3) Weekly wholesale costs and retail prices for three large supermarket chains in Northern California and four large supermarket chains in Southern California for the time period August 2011 through May 2012. Analysis of FI redemptions and in-store pricing for register peer groups revealed large differences in pricing and program costs base d upon number of cash registers operated by a vendor. Smaller vendors not only charged much higher prices on average than larger vendors, there was also much greater dispersion of prices and FI redemption values among small stores. Simulations showed that Program cost savings could be quite substantial if small vendors were induced to achieve a performance roughly comparable to the larger vendors, 34.5% or about $37.5 million for powder formula FI and about 28.4% or $15.3 million the leading combination FI over the 29-month study period. A second simulation focused on eliminating the vendors in each peer group who charged the highest redemption values -- either the highest 5% or 10% -- and "reselling" their FI at the mean redemption rate of those vendors who remained authorized by the program. Aggregating across peer groups, the Program savings from eliminating the least competitive 5% (10%) of vendors from all peer groups ranged from 1.0 – 1.7% (2.0 – 3.4%) depending upon food instrument. The least competitive vendors in the California WIC Program are concentrated in the peer groups with 1-2 and 3-4 registers, and on average these vendors don't sell many FIs, so their removal from the program, although it represents "low - hanging fruit," has a limited impact on overall Program costs. More significant gains in cost containment may be possible by eliminating some of the more expensive products, brands, or sizes covered by the WIC program.

Estimating the Demand for Pollination Services in Almond Production


The first round of analysis that we have carried supports the simulation results of our bioeconomic model of bee foraging. In the conditions of commercial almond orchards, bees fly quickly and reach most of the trees in an orchard under most weather conditions. The effect of hive distance to a tree on yield is accordingly small. This finding is helps understand a common practice among almond growers which is to place bee hives in groups of 20 to 24 every 10 acres or so. The rapid diffusion of bees through the landscape also has implications for the prevalence of externalities, which we document and model in a related research effort. We are in the process of extending the analysis to the temporal aspects of pollination by combining data on bloom development and bee activity in collaboration with Patrick Brown from the Department of Plant Sciences at UC Davis.

The Effect of the California Foreclosure Crisis on Consumer Grocery Purchases


Objective of the Project Objective 1: • We will match weekly data from 2006-2010 in California stores with foreclosure data (at the zip code level). We will exploit the geographic and temporal variation in the degree of severity of the foreclosure crisis in order to measure its impacts on food purchases. We will focus on key product categories in order to measure the effect of the foreclosure crisis on: 1) Consumption shifting between items in product categories 2) Willingness to pay for product attributes (i.e. health) 3) Private Label Consumption 4) Consumption of promotional items

Objective 2: • Use results from above to quantify and highlight implications of little known consequences of the foreclosure crisis, such as: 1) Modified dietary composition 2) Nutritional intake We use a unique, product- and store-level scanner data set containing five years of weekly information as well as panel data on each consumer shopping behavior. The data feature quantity and price of each product sold at all retail stores in California. We shall combine these scanner data with socio-demographic statistics provided by the United States Census Bureau (by zip code) and also with frequent loyalty card based demographic data collected by the retail chain, that we hope to obtain also. We also combine the purchase and census data with monthly foreclosure rates indicators at the zip code level. We also include other housing market indicators such as home prices, new constructions, and census level information on renting vs. ownership.

Summary of Results We collected and analyzed a detailed foreclosure data-set from the RAND corporation, that includes the number of foreclosed properties by house type for each month from 2002-2012 across all zip codes in California, in order to investigate the spatial and time series variation in foreclosures in California. We use both foreclosures of single-family and multi-family residences including condominiums, townhouses, and owned apartments. Importantly, a foreclosure is recorded in the data only when the proceedings are completed and the home is actually recaptured by the lender. Thus, the data do not include homes where foreclosure filings were initiated but the process was not completed because the borrower caught up with mortgage payments. We rescale the number of foreclosures by the number of housing units in the zip code, as measured by the 2010 census of population and housing. In all of our analysis we therefore measures foreclosures as the total number of foreclosures per 1,000 housing units in the zip code.

Figure 1 shows the evolution of foreclosures over time and relate those waves to the location of a large representative retail chain in California that will be used in future studies that combine the foreclosure to the retail scanner data. The foreclosure crisis picked up speed in 2007, but there is clear variation across locations in terms of the intensity of the crisis. Monthly foreclosures per 1,000 households peaked at around 4 in early 2008 in zip codes that were most severely impacted, or the orange line in the graph. In contrast, areas that were less affected by the crisis had similar levels of foreclosures up until 2007 but did not experience such large shocks during the height of the crisis. Most importantly, there is a notable amount of variation across space in the intensity of the foreclosure crisis.

We demonstrate the spatial and temporal variation in foreclosures across zip codes in a map in Figure 2.

The map shows the change in the number of foreclosures per 1,000 households in each zip code from 2005-2010. As is well known, the California foreclosure crisis clearly began in some areas in 2007, while in many areas the largest year-on-year increases in foreclosures took place in 2008. In many zip codes the change in foreclosures from 2007-2008 represents more than 1.5% of households (the darkest blue areas in the map). While there is substantial variation across zip codes, the California counties of Kern, Riverside, San Bernardino, and San Joaquin were heavily impacted. These constructed data exhibits promising variation to be used in future studies that combine foreclosure data to consumer level changes in expenditures for grocery items. In particular, future work uses this variation by comparing changes over time in areas that were heavily affected by the foreclosure crisis with changes in areas that were less affected. We will also combine these foreclosure data with tax records at the county level for a variety of taxable product categories, ranging from automobile, new and used, to clothes items to investigate the impact of the income shocks due to foreclosures on the allocation of consumer expenditures across categories.


Assessing the Climate Change Impacts of Agricultural Biotechnology Adoption