Masters Theses

Date of Award

5-1993

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

Gergory K. Pompelli

Committee Members

Burton C. English, John R. Brooker

Abstract

Peruvian per-capita milk consumption has fallen by almost fifty percent during the last twenty years. This decreasing pattern in Peru's milk consumption has been attributed to a combination of factors including domestic agricultural and dairy polices which attempted to lower consumer and processor milk prices, prolonged macroeconomic troubles which led to decline in consumer purchasing power; and depressed dairy world prices which results in lower prices for imported dairy products.

The overall objective of this study was to examine the implications of possible changes in the Peru's government dairy policies on dairy farmers of La Libertad coastal area. This objective was accomplished by a combination of national data and regional set data. First, the determination of Peru's milk demand structure estimates by using the Rotterdam model. Second, through the historical analysis of dairy policies in Peru since 1963. Third, the regional data collected by surveying directly dairy farmers.

The coefficient estimates obtained were not statistically significant. The Cuornot own-price elasticities calculated for different types of milk, with the exception of pasteurized milk, were negative and inelastic as expected. The cuornot price elasticities suggested a substitution relationship between evaporated and recombined milk and complementary relationship between fresh milk and evaporated milk. The conditional expenditure elasticities for evaporated and powdered milk were positive and elastic. The expenditures conditional elasticities for fresh and pasteurized milk were positive but inelastic. Recombined milk showed a negative expenditure elasticity indicating that this milk was considered an inferior good.

Peruvian governments had intervened following a substitution growth strategy. Food pricing and exchange rate policies served this general strategy biased manufacturing against agriculture. Dairy policies such as price control system, import inputs subsidies, and monopoly on imported dairy policies were set in place.

Correct characteristic of the structure of dairy farmers in La Libertad coastal region were documented. Three types of dairy production system were founded: extensive (17 percent), mixed (24 percent) and intensive (59 percent) dairy production system. Extensive production's farmers were primarily small farmers with herd size less than 11 cows. The use of AI, concentrate and dairy facilities were almost none. In contrast, the intensive system had a higher daily milk productivity (11 liters per cow) In the intensive system especially in Trujillo province were founded many "Landless" farmers depending on their feeding supply from off-farm sources. The two main channels of distribution were the retailer and consumer which accounted of 92 percent of the total sold milk through commercial channels.

Given the macroeconomic scenario in which stabilization and structural reforms will continued to drive Peruvian macro-policies for the next few years, as mush as the limited implementation of new polices can be expected significantly effects. For domestic producers might represented market opportunities because of the elimination of imported dairy subsidies and overvalued exchange rate. Unfortunately, the potential increase could be tempered by decreasing milk demand as unsubsidies prices rise, especially for evaporated, recombined and powdered milk, products with high content of imported raw material. However the inelastic nature of the estimates own-price elasticities assuming no further income losses would occur, no dramatic drop will be expected. It appears that evaporated and fresh milk would be affected by changes on price of each because of the complementary relationship. The expenditure conditional elasticities imply that price effects may be dwarfed by further losses in incomes. However if income increases, the expenditure on evaporated and powdered milk will increase at higher rate that income increases. It seem that the impacts on dairy farmers in La Libertad will differ due to the evidence of heterogeneity among La Libertad dairy farmers and farming system.

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