Projects Funded for 2017-2018

Home-Grown Capital and Productivity in California Agriculture

  • Julian Alston

Abstract

Project Report/Summary of Results
Significant initial progress has been made in developing concepts and compiling data. However, the strategy for the work in 2017–2018 has changed because we were able to use the seed money from the Giannini mini-grant to develop a proposal and secure funding for a more ambitious project.
We were awarded $500,000 from USDA-NIFA for a project on “Accounting for biological capital in indexes of agricultural inputs and productivity: Concepts, measures and application to agriculture in California and Minnesota.”

Our broad goal in this new project is (1) to derive new and improved measures of inputs, outputs, and productivity in U.S. agriculture, by explicitly treating the biological stock of trees and vines as part of the capital stock, and (2) to explore the implications of these new measures.
More specifically, first, we will devise and develop new measures of capital input that explicitly incorporate biological capital in the form of living trees and vines and the associated physical capital of trellises and irrigation equipment used in perennial crop production in two states: California and Minnesota. Second, we will incorporate these new measures of capital input into existing agricultural productivity data, compare the new measures with pre-existing measures, and draw inferences for understanding past and prospective patterns of input use, production, and productivity.
This project, which encompasses the original Giannini project but enables it to be conducted in greater depth and in a broader context, will be undertaken jointly with Dr. Wei Zhang (PhD, UC Davis ARE, 2013), now on the faculty at Connecticut College, and in collaboration with Dr. Philip Pardey and other colleagues at the University of Minnesota, over the period April 2018 to March 2022.

Californian Agriculture and Pesticide Environmental Externalities

  • Maximilian Auffhammmer

Abstract

Specific Objectives of the Project
Finished
• Statistically describe the spatial and temporal distribution of pesticide use in Californian agriculture.
• Estimate the effect of pesticide applications on local air quality (PM2.5)
• Estimate human population exposure to pesticides through air.
Future work: Estimate the effect of pesticide use in Californian agriculture on health outcomes.

Project Report/Summary of Results
Many policymakers, public-health advocates, and citizen groups question whether current pesticide regulations properly equate the marginal social costs of pesticide applications to their marginal social benefits—with particular concern for negative health effects stemming from pesticide exposure. Additionally, recent research and policies in public health, epidemiology, and economics emphasize how fine particulate matter (PM2.5) concentrations harm humans through increased mortality, morbidity, mental health issues, and a host of socioeconomic outcomes. This paper presents the first empirical evidence that aerially applied pesticides increase local PM2.5 concentrations. To causally estimate this effect, I combine the universe of aerial pesticide applications in the five southern counties of California's San Joaquin Valley (1.8MM reports) with the U.S. EPA's PM2.5 monitoring network—exploiting (1) spatiotemporal variation in aerial pesticide applications and (2) variation in local wind patterns. I find significant evidence that (upwind) aerial pesticide applications within 1.5km increase local PM2.5 concentrations. The magnitudes of the point estimates suggest that the top decile of aerial applications may sufficiently increase local PM2.5 to warrant concern for human health.

Heat-Related Illnesses Among California Agricultural Workers

  • Tim Beatty

The Effects of Climate Change on Crop Choice, Yield, and Coverage

  • Peter Berck

Economics of Precision Agriculture in California Specialty Crops

  • Leslie (Bees) Butler
  • Olena Sambucci

Abstract

Specific Objectives of the Project
Examine the benefits from precision agriculture technology and mechanisms of adoption in heterogeneous production environments. Studies of precision agriculture technology have traditionally been done in applications to field crops, and comparatively little research has been done on specialty crops, especially perennial crops. The objective of this study is to examine and document the emerging applications of precision agriculture technology to high-value specialty crops in California, and to demonstrate the potential benefits from adoption.

Project Report/Summary of Results
Over the winter quarter we employed a GSR to compile a literature review of the existing studies on the benefits of precision agriculture technology for agronomic and horticultural crops. We found that precision agriculture technologies available to agricultural producers are abundant, but studies on the economic benefits of these technologies and the rates of adoption are scarce. We decided that the best course of action for completing this project would be to supplement the review of the literature with a review of the current best practices related to the production of major horticultural crops, and, possibly, interviews with representatives of the industry to gauge the trends of adoption of major new technologies. We plan to complete this work over the summer, as it requires a more targeted approach and a slower pace.

International Trade in Commodities Matters

  • Thibault Fally

Abstract

Specific Objectives of the Project
-Compile data on the production, trade, input-output linkages, and supply and
demand elasticities for many commodities, including agricultural commodities; no one
has previously gathered these statistics about commodities within one dataset,
particularly one that features commodities listed at the Harmonized System level and
countries listed using a standardized code system (ISO)
- Review the vast, but highly scattered, existing literature examining the
sensitivity of supply and demand for these commodities in response to changes in prices
- Develop a general-equilibrium model of consumption, production and inputoutput
linkages to determine role of crucial primary commodities in international trade
-Quantify the welfare gains from trade and the winners and losers from the
distribution of natural resources across space
- Publish data on website so they can be used by researchers and practitioners
interested in studying the importance of price sensitivities of supply and demand for
agricultural commodities and their implications for foreign and domestic agricultural
producers and consumers, including those in California
- Publish the final article(s) in a top refereed journal, as well as a summary in the ARE update.

Project Report/Summary of Results
Primary commodities account for approximately 16 percent of world trade, yet they are
used extensively as intermediate inputs into many production processes. We show that
ignoring several key features of trade in commodities leads to a large understatement of
aggregate gains from trade despite their relatively small share of world trade. We
quantify the welfare gains from international trade when we account for specific
characteristics of most primary commodities: i) a low price elasticity of demand as a
result of difficulty in finding substitutes, ii) a low price elasticity of supply, and iii) a high
concentration of natural resources and production among a few countries. For instance,
copper is difficult to replace in the electronic equipment industry, the supply and demand
for copper vary only slightly with changes in prices, a large share of its supply comes
from Chile and copper accounts for half of Chilean total export revenues. We explicitly
account for these features in a general-equilibrium model of consumption, production,
and input-output linkages. In our simulations, we confirm that ignoring these specific
features of commodities leads to a wide understatement of the aggregate gains from trade.

Optimal Management of the UC Strawberry Germplasm Collection

  • Rachael Goodhue

Managing Agricultural Water Use for Sustainable Groundwater in California

  • Katrina Jessoe
  • Richard Sexton

Abstract

Specific Objectives of the Project
California’s Sustainable Groundwater Management Act (SGMA) requires local management of groundwater throughout the state. To inform water policy, this project sought to identify the impacts of groundwater restrictions on irrigated agriculture and evaluate the effectiveness of economic instruments for management. We used well-level panel data on groundwater extraction and prices from a basin in Southern California to estimate a price elasticity of demand for groundwater. Our objective was to compare welfare across policy instruments with a model that reflects the institutional realities of agriculture in California.

Project Report/Summary of Results
With the passing of SGMA, groundwater management is at the forefront of water policy debates in California. Since groundwater management will have impacts on agriculture, attention must be given to the choice of policy instrument. Our research quantifies the efficiency gains from using market-based instruments relative to command and control to manage groundwater.

A theoretical model of a groundwater market was developed to show how the magnitude and distribution of the gains from trade change as market structure varies. Market structure is a key consideration because future groundwater markets will likely be spatially isolated and the concentration of permits among a handful of buyers and sellers is likely. The exercise of market power may be a defining component of these markets due to the presence of large grower-shippers, the formation of coalitions among buyers or sellers, and/or competition among a few water agencies on a shared basin.

We find that the gains from markets are large, despite potential losses from market power. Economic surplus with trade can be over two times greater than that under command and control. The price elasticity parameter used to calibrate the model was generated with well-level panel data on groundwater extraction and prices from the Coachella Valley, CA. Simulations that vary market conditions show that results generalize to other groundwater basins.

Supply Chains, Labor, and California Agriculture

  • Philip Martin

Abstract

Specific Objectives of the Project
The average employment of hired workers in California agriculture has been rising, topping 420,000 in 2015, almost three times the 152,000 average employment in the state’s food manufacturing industry. Almost 850,000 unique workers fill these full-time equivalent jobs, a ratio of two workers per FTE job.

This project focused on three issues. First was immigration, and how the stepped-up enforcement of the Trump Administration affected the supply of labor to California agriculture. Second was the effect of fewer unauthorized newcomers and less follow-the-crop migrancy, prompting farm employers to respond with 4-S strategies, viz, satisfy, stretch, substitute, and supplement current workforces. Third was analysis of the likely effects of the state’s increasing minimum wage, which will reach to $15 an hour in 2022, and the effects of buyer-imposed labor-compliance programs on fruit and vegetable growers.

The project supported a major conference April 13, 2018 at the UCD Law School that attracted over 120 participants to discuss NAFTA, H-2A, immigration and ALRB issues. Dissemination included research articles, shorter papers in ARE Update, and Rural Migration News (http://migration.ucdavis.edu), which analyzes the most important farm labor and water issues facing California agriculture each quarter for over 1,000 subscribers. There were also numerous interactions with federal and state analysts, journalists, and others interested in farm labor issues.

Project Report/Summary of Results
Farm employment has been rising as more expensive land and water is used to produce labor-intensive fruits and vegetables. Employment Development Department show that average farm employment has been rising by 10,000 a year, and the number of unique workers employed in agriculture had increased by 20,000 a year, so that in 2015 almost 850,000 unique workers filled an average 420,000 farm jobs.

The hired workers on crop farms are aging (average 40 and approaching the average 42 of all US workers) and settling in one place with their families. Follow-the-crop migration has almost disappeared, making farm workers less flexible to move to where farm jobs are being created. Farm employers are responding with 4-S strategies. Employers try to satisfy current workers to retain them longer and stretch them with mechanical aids that increase productivity and make farm work easier. The third strategy is substitution, replacing workers with machines, or switching crops, and the fourth is to supplement with H-2A guest workers.
In the medium term, the two dominant strategies are likely to be substitution and supplement, a race between labor-saving technologies and guest worker admissions determined by labor cost trends. Responses will vary by commodity, and be influenced by policy decisions. For example, the raisin industry is likely to shrink faster as labor costs rise and some farmers mechanize while others switch to almonds. Strawberries are more likely to supplement with guest workers and use conveyor belts to stretch workers until there is a mechanization breakthrough. Imports are the wild card in responses, and may play an important role in supplying some commodities to US consumers.

The project monitored the impacts of farm labor developments on the competitiveness of California agriculture, conducted research that was published in a variety of outlets, and made presentations to a dozen groups ranging from the CA Association of Winegrape Growers to the National Milk Producers Federation, plus talks in classes at UCD and elsewhere.

Crop Failures from Temperature and Precipitation Shocks—Implications for U.S. Crop Insurance and Farmers

  • Jeffrey Perloff

Abstract

Specific Objectives of the Project
We will predict the probability of crop disasters and large crop insurance payouts in response to weather shocks and show how global climate change might amplify such conditions. Virtually the entire existing literature examines how weather affects mean yield. Mean yield is a key outcome measure for some questions such as the effect of weather on global food prices. However, farmers and policy makers concerned about crop insurance and disaster payment are more interested in predictions of the frequency with which yields fall below the critical levels that trigger crop insurance or disaster payments or cause financial disaster. That is, they are not concerned about how weather affects the mean (average) outcome; they care about how it alters the lower part of the distribution of yield outcomes. We will use a novel approach to estimate these tail events reliably. This approach has not previously been used to analyze agricultural outcomes.

Project Report/Summary of Results
Corn and soy crop yields vary nonlinearly with both temperature and precipitation. Using county-level data over many decades, we estimate the joint distribution of yield, temperature, and precipitation conditional on other factors that affect yield and then infer the conditional yield distribution given temperature and precipitation. This nonparametric approach allows us to avoid arbitrarily imposing rigid structural relationships as in traditional regression analyses and fits the data much better both within sample and out of sample. Moreover, this approach is much more likely to correctly identify the likelihood of catastrophic crop yields in response to adverse weather conditions.

Electronic Logging Device Regulations: Impacts for Western Cattle Ranchers

  • Tina Saitone

Estimating the Effect of Agricultural Pumping Efficiency Upgrades on Farmers’ Electricity Consumption, Water Consumption, Crop Production, and Profits

  • Catherine D. Wolfram

Abstract

Specific Objectives of the Project
This project has three related objectives: (1) to evaluate the gains from agricultural energy efficiency upgrades, by causally estimating the effect of irrigation pump replacements on farmers’ electricity and water usage; (2) to measure how farmers reoptimize both energy and water consumption, by causally estimating the effect of pump replacements on crop yields; and (3) to analyze the benefits and costs of irrigation pump replacements as energy efficiency investments, by monetizing the crop yields effects using crop prices and comparing to the upfront investment costs.

Project Report/Summary of Results
We find that California farmers have surprisingly elastic demand for electricity (for groundwater pumping) and groundwater. Using detailed customer-level electricity data from Pacific Gas and Electric, combined with individual pump efficiency audits, we are able to credibly estimate these demand elasticities for a sample of over 11,000 agricultural groundwater pumps. Our estimates are robust to multiple identification strategies, and farmers’ groundwater consumption responds similarly to two types of pumping cost shocks: changes in electricity price, and changes in groundwater depth. In ongoing work, we are investigating two candidate mechanisms explaining our finding of elastic groundwater demand in the short run: (i) substitution to surface water, and (ii) crop switching or fallowing. We are also continuing to evaluate agricultural energy efficiency upgrades, which will allow us to estimate longer-run elasticities of demand for groundwater. We plan to conduct a farm survey in late 2019, in order to more fully characterize how farmers reoptimize their production processes due to both short- and long-run changes in groundwater pumping costs.

Evolution of Supply Chains to Implement Innovation –The Case of Pre-Packaged Salads

  • David Zilberman

Abstract

Specific Objectives
1. To expand a conceptual framework for a design of supply chains to include dynamic considerations and diffusion over space and time.
2. To develop a conceptual framework to understand the alternative route that is employed by researchers to produce cultured meats.
3. To develop a conceptual framework to assess the implications of different strategies on design of supply chains for production and distribution of the meat products and for procurement of feedstock.
4. To assess the potential economic and environmental impact of alternative cultured meats on various sectors of agriculture, consumers, as well as the environment. This analysis will be conceptual.
5. To consider how alternative policies may affect the evolution of the industry.
6. To numerically provide orders of magnitude estimates of the impacts under alternative scenarios.

Proposal Narrative
Agrifood systems consist of multiple processes where feedstock (agricultural products) are transformed to final products. Modern agriculture is characterized by new technological innovations that lead to development of new supply chains, that may result in new or modified product or services and specialized trading arrangements – for example, modern livestock processing technologies resulted in transition towards contracting or vertical integration (Zilberman et al. 2017). Du et al. (2016) develop a static conceptual framework to determine the capacity of the supply chain in terms of total output as well as the reliance on vertical integration and contracting under uncertainty. Zilberman et al. (2017) present direction to expansion of the analysis to incorporate multi-processes supply chains and credit considerations. Better understanding of supply chains requires analysis of its dynamic, evolution of investment in processing versus feedstock production, and spread over space and time. The first element of the proposal will provide this expansion, using an optimal control framework that recognizes variation over space and time (see for example Xabadia et al. 2006). We are interested in assessing the conditions that will determine investment in establishment of the original technology versus investment in building the feedstock capacity, and expanding the marketing network over time.

The main effort in this project is to use this framework to understand and to compare the evolution of an alternative approach to produce animal-free meat. There are different approaches to production of these meat products. For example, Memphis Meats Inc. is developing technology to grow meat from self-reproducing animal cells. On the other hand, Impossible Foods is based on patents of formulating plant-derived protein into a meat substitute product based on capacity to convert plant-based materials into a meat-like protein texture. Other companies produce egg white proteins (Clara Foods) and dairy proteins made through fermentation (Perfect Day). Working with Lichun Huang, we identified more than 30 companies working in this space with research support in the hundreds of millions of dollars. Interviews with Pat Brown, from Impossible Foods and others suggest that the basic premise of the industry is that alternative strategies will produce products equivalent to traditional meat products (beefs, poultry, pork, etc.) in terms of taste, texture, and nutritional content in an environmentally sustainable manner. In principle, these products are likely to have higher input use efficiency in converting feedstock to a final product and reduce greenhouse gases (because they wouldn’t require the energy of all the life activities of the animals). However, the diffusion will be gradual and they will result in specific requirements for feedstocks that will be grains, beans, vegetables, spices, etc. Farming, food processing, and cooking will be more integrated. We will develop a report on all the potential avenues of the evolution of the industry and then a conceptual framework to assess some of the implications. Under different assumptions, we will look at the potential supply chains that will be involved, the potential markets, and demand for agricultural feedstock in different locations and different conditions.

In our analysis, we intend to also consider some of the policy issues. Regulations of biotechnology can affect the speed of the evolution of the industry, as well as regulation of climate change. Food safety regulation and animal welfare regulations may play a major role in the future of the industry, as well as a variety of protective measures by different countries with strong livestock sectors. We envision conceptual analysis on some of the major implications that would allow quantification based on the data available from the industry as well as from scientists at UC Davis as well as other locations. But this is a first effort that will attempt to identify alternative scenarios that will be shaped by policies.

Project Relevance
The movement towards cultured meats is in the nexus of modern biotechnology and logistics, and concerns about climate change, food security, and animal welfare. Much of the research and development in this area will be done in California. Once this sector evolves, it will have a significant impact on the California livestock sector. This sector may change the structure of agriculture and the agri-food sector, and it’s important to understand the possible evolutionary path of the structure of agri-business and their implications. Policymakers and the academic community have been challenged to understand and analyze the growing role of contracts and vertical integration in agriculture, and understanding this evolution, especially in the context of culture meat, is important. Identifying some of the positive and negative side effects of cultured meat and assessing policies to address them is another important challenge.