The The Measurement of Measurement of Direct Value of Direct Value of

Forage Forage ProductionProduction

Ken BelcherKen BelcherDepartment of Bioresource Policy, Department of Bioresource Policy,

Business and EconomicsBusiness and EconomicsNovember 20, 2008November 20, 2008

Direct ValueDirect Value

Represents the value of production Represents the value of production captured by output quantity and captured by output quantity and output prices.output prices.

Secondary effects are the values Secondary effects are the values from the economic activity, spending from the economic activity, spending and re-spending stimulated by the and re-spending stimulated by the direct effect (multiplier effects). direct effect (multiplier effects).

ProductionProduction To Quantify the economic value of an To Quantify the economic value of an

industry first need to calculate total industry first need to calculate total production:production:

Data needs:Data needs: Total quantity of production - depending on the Total quantity of production - depending on the

sector/product (tonnes).sector/product (tonnes). Average productivity converted to total Average productivity converted to total

production by area of production.production by area of production. Time series of data to capture variation in Time series of data to capture variation in

production, average production and time trends.production, average production and time trends.

ValueValue

To convert total production to direct value of To convert total production to direct value of production need to determine output prices.production need to determine output prices.

For each category and quality of output will For each category and quality of output will have a specific output price. The more have a specific output price. The more detailed the price data the more accurate detailed the price data the more accurate the value estimate.the value estimate.

There will also be regional variation in prices There will also be regional variation in prices with distribution of transportation costs.with distribution of transportation costs.

ValueValue

In the absence of appropriate data may need In the absence of appropriate data may need to use average prices.to use average prices.

Important to apply the appropriate price data Important to apply the appropriate price data for the year of production to capture the for the year of production to capture the interdependence of production quantity and interdependence of production quantity and price.price.

Therefore, will require a time series of output Therefore, will require a time series of output prices corresponding to the time series of prices corresponding to the time series of production levels.production levels.

Source (SAF, 2007)Source (SAF, 2007)

Hay Price

40.00

60.00

80.00

100.00

120.00

1978 1983 1988 1993 1998 2003

Year

Farm

Pri

ce ($/tonne))

Source (SAF, 2007)Source (SAF, 2007)

y = -29.365x + 108.09

R2 = 0.4102

40.00

50.00

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

0.50 0.70 0.90 1.10 1.30 1.50 1.70 1.90

Yield (tonnes/acre)

Farm

Pri

ce ($

/tonn

e)

Direct Value of Forage Direct Value of Forage IndustryIndustry For the various sectors of the forage industry For the various sectors of the forage industry

there will be a wide range of data quality for there will be a wide range of data quality for production and prices – area of production, production and prices – area of production, quantity of sales, farm and industry prices, quantity of sales, farm and industry prices, quality, time series.quality, time series.

Calculation of the value of the forage industry Calculation of the value of the forage industry throughthrough Existing data setsExisting data sets Transferable data sets from other regions – adjustment Transferable data sets from other regions – adjustment

based on biophysical and socio-economic differences based on biophysical and socio-economic differences between data source and region to be applied.between data source and region to be applied.

Collection of primary data.Collection of primary data.

Secondary Effects Secondary Effects Secondary or multiplier effects of most industry is Secondary or multiplier effects of most industry is

somewhat difficult as it represents the spending somewhat difficult as it represents the spending and re-spending stimulated by the forage and re-spending stimulated by the forage industry.industry.

Can include forage marketing services, Can include forage marketing services, equipment sales and service, input sales (e.g. equipment sales and service, input sales (e.g. Fertilizer, pesticides), processing facilities etc.Fertilizer, pesticides), processing facilities etc.

Can be based on primary data but may be Can be based on primary data but may be estimated based on secondary effects of similar estimated based on secondary effects of similar industries in different regions ($5 direct: $7.5 industries in different regions ($5 direct: $7.5 secondary; 2.5 multiplier).secondary; 2.5 multiplier).

Other ConsiderationsOther Considerations

Changing transportation costs – Changing transportation costs – influence viable markets, influence viable markets, particularly for bulk products.particularly for bulk products.

Alternative markets – biofuel Alternative markets – biofuel production, fuel pellets.production, fuel pellets.

Carbon sequestration values - Carbon sequestration values - Trading at $1.10/tonne COTrading at $1.10/tonne CO22

Carbon value trendCarbon value trend

Thank YouThank You