Cattle as Capital Goods and Ranchers as Portfolio Managers: An Application to the Argentine Cattle Sector.

In this paper a number of microeconomic models are developed to provide a theoretical framework on which an econometric model of the Argentine cattle sector could be based. The central theme is simple. Cattle are considered to be capital goods which are held by producers as long as their capital value in production exceeds their slaughter value. In essence, producers become portfolio managers seeking the optimal combination of different categories of animals to complement their non-cattle assets, given existing conditions and future expectations. The models developed show clearly the differential impact of parameter changes upon the capital values of animals of different age and sex and indicate that the equations explaining slaughter and average slaughter weight in an econometric model should be disaggregated by animal categories to obtain a meaningful explanation of producers' responses. Such an econometric model was developed and estimated for the Argentine cattle sector for the years 1937-67. The econometric model does a very good job, judging by conventional statistical tests, of explaining the operation and past behavior of the Argentine cattle sector; and the results comply closely with the previously developed microtheory. There is considerable historical interest in the functioning of the Argentine cattle sector, long a prototype of large-scale traditional ranching in Latin America and the source of a significant proportion of world beef exports (nearly 20 percent during the 1960s). This interest has become more sharply focused in recent years because of the stagnation of Argentine agricultural production and the consequent desire in Argentina to formulate an improved governmental policy toward agriculture.[1] Among the factors alleged to be a cause of stagnation is a lack of response by agricultural producers to economic incentives, particularly to price changes. Several efforts were made during the 1960s to test empirically the price responsi... [ABSTRACT FROM AUTHOR]