A model analysis of onion [Allium cepa] supply and acreage response [in Japan]: An application of the composite expectation model.
1990
Ohe Y.
This paper attempts to determine the supply behavior of onion producers. Onions are typical for land using vegetables in Hokkaido, which in recent decades has become major domestic onion producing area. The composite expectation hypothesis includes both the rational and lagged expectation hypothesis, and it was applied to an onion supply response model for Hokkaido as a model of a domestic onion market including demand factors and supply behavior in other regions. The main points of the paper are: 1. Onion production in Hokkaido has a larger yield fluctuations than other areas due to unfavorable weather conditions, especially yield decreases caused by rainfall. A high ratio of the onions are marketed through agricultural cooperatives which have intensive fixed equipment. 2. For the estimates, we used two substitutional producers behaviors. First, a market price orientated behaviour, which is responsive to the expected price conditions and based on market price information. The expected price is assumed to be formed by the composite expectation. Second, a spontaneous behavior, which is more responsive to non-price information, particularly past market shares, than to price conditions. 3. The estimates showed that neither composite nor rational expectation formation are supported for the onion supply model. But share responsive action was significantly supported. The producers' acreage response was consequently considered to stress market share, and price expectations where based on only lags in prices. The producers may be considered to make decision based constantly on past conditions rather than expected prices, using information of the supply and demand structure.
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