CHANGES; {N THE GRAEN AND LIVESTOCK ECONQMIES OF ITALY WETH FROEECTEGNS TO 19"“) AND 1975 Thesis ‘50P Hm Dogma of pk. D. MECHEGAN STATE UNIVERSE” Fred Allen Marmara, Jr. 1967 Will! IIIIHIINWI LIBRARY Michigan Stan: University 01591 4603 This is to certify that the thesis entitled CHANGES IN THE GRAIN AND LIVESTOCK ECONOMIES OP ITALY WITH PROJECTIONS TO 1970 AND 1975 presented by Fred A. Mangum, Jr. has been accepted towards fulfillment of the requirements for Ph.D. d . Agricultural Economics egree 1n_____ Major professor Date June 1, 1967 0-169 ABSTRACT CHANGES IN THE GRAIN AND LIVESTOCK ECONOMIES OF ITALY WITH PROJECTIONS TO 1970 AND 1975 by Fred Allen Mangum, Jr. The six nations of the EurOpean Economic Community purchase almost one-third of U.S. agricultural exports for dollars. The effects of the Common Agricultural Policy on European Agriculture and the Communities' success in meeting its needs for increased meat and feed grains is of primary importance to U.S. agriculture. This study focused on changes in Italian agriculture as part of an overall study of agriculture in the EEC. The Specific objectives of the study were to describe the present state of Italian agriculture, make supply pro- jections of wheat, feed grains and livestock products for 1970 and 1975 and given demand projections estimate the supply-demand balance of each commodity. Special attention was devoted to the effect of price changes expected under the CAP and to social-legal-political factors that condition adjustment to price change. Where possible the supply estimates were quantified by fitting linear regression equa— tions to production data. But under Italian conditions the nonprice effects were often found to be more important than price change in determining production. Fred Allen Mangum, Jr. The major conclusions were concerned with probable com- modity supply and import needs. Surface in wheat will con- tinue to decline but production will remain little changed as yields increase. Wheat was found to be the only grain responsive to price change and supply elasticity estimates of 0.56, 0.39 and 0.45 were obtained for the north, central and southern regions of the country. If the higher of two price projections is realized, 1975 output will exceed Italian consumption by 689 thousand tons but at the 1975 lower price and in 1970 only slight surpluses are expected. A large deficit is projected for feed grains even though higher prices are expected under the CAP. Feed grain pro— duction however, showed almost no response to price change. Corn represents 92 percent of domestic feed grain production and output has been increasing even though surface has de- clined. At expected prices and yields of this grain, hybrid corn will replace wheat where irrigation is possible in the north. The exPected feed grain deficit in 1970 is projected to be near seven million tons and by 1975 will be between 8.5 and 9.5 million tons of grain. Generating this strong increase in feed grain require— ments is an expanding livestock and poultry industry. Re- gression results indicate a 0.30 percent change in cattle numbers is associated with a one percent change in cattle prices in regions outside the north and slightly less in the dairy region of northern Italy. At the considerable Fred Allen Mangum, Jr. price increase expected for beef in 1975 this should call for a substantial increase in beef production but farm struc— ture on cattle producing farms does not permit rapid or large shifts. A deficit of approximately one million tons of beef and veal is expected by 1975 when the country's self-sufficiency rate will be less than 40 percent. The increase that is expected in cattle numbers and increased milk production per cow will mean rising supplies of milk even though Italian milk prices will be lower under EEC policy. Increased consumption will likely absorb the greater output at all levels except the high price assumption for beef in 1975. But the milk industry is expected to be under increased pressure because of French exports of fresh milk and milk products. Production of pork and poultry will more nearly equal consumption needs. Poultry in particular has experienced rapid expansion and will continue even though prices are expected to move lower. Poultry meat production is expected to increase from 340 thousand tons in 1964-65 to 429 in 1970 and 565 in 1975. In 1970 the country would still be expected to import 91 thousand tons of poultry meat and in 1975 between 70 and 95 thousand tons. By contrast, almost all pork con- sumption is projected to come from domestic production. The conclusion is reached that Italy will be a grow- ing market in world trade of feed grains and beef. Part Fred Allen Mangum, Jr. of its grain needs will be supplied by its EEC partners and some imports of meat and grains will be tied to export sales of manufactured products. But U.S. farmers will be able to sell increasing quantities of feed grains on the Italian market. CHANGES IN THE GRAIN AND LIVESTOCK ECONOMIES OF ITALY WITH PROJECTIONS TO 1970 AND 1975 BY Fred Allen Mangum, Jr. A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 1967 ACKNOWLEDGMENTS A debt of gratitude is acknowledged to many who have contributed to the author's graduate program. The thesis research was completed while employed by Michigan State University and previous study was made possible by a National Defense Education Act Fellowship in International Agricul- ture. For this financial assistance as well as the pleasur- able and stimulating associations, thanks are due to members of the Department of Agricultural Economics. Special appreciation is expressed to the members who contributed directly to the thesis and the guidance committee. Dr. Dale E. Hathaway served as chairman of the thesis com- mittee and Dr. Vernon E. Sorenson as co-director of the research project. Their leadership and direction blended with encouragement contributed greatly. Dr. Lawrence W. Witt served as chairman of the guidance committee and greatly influenced both my graduate program and my interest in inter- national agriculture. Drs. Harold M. Riley and Raleigh Barlowe served as members of this committee and also con- tributed helpful comments to an earlier draft of the thesis. Drs. George E. Rossmiller, Donald J. Epp and Michel J. Petit were employed on other phases of the research and the inter- change and suggestions they offered were most valuable. The assistance of those individuals who gave of their time and resources during a one year residence in Perugia, ii Italy is gratefully acknowledged. Foremost among these were Drs. Alberto Giannoni and Francesco Manchia who worked with me on the study. Professors Mario Bandini and G. Guerrieri, whose institutes were contracting partners with Michigan State University, contributed by their suggestions, critiques and by supplying physical resources. Finally, I express deepest appreciation to my wife, Joyce, and to Lisa and Teresa for their patient devotion and encouragement. iii TABLE OF CONTENTS ACKNOWLEDGMENTS. . . . . . . . . . . . . . LIST OF TABLES . . . . . . . . . . . . . . LIST OF FIGURES. . . . . . . . . . . . . . LIST OF APPENDICES . . . . . . . . . . . . WEIGHTS, MEASURES AND CONVERSION TABLE . . Chapter I INTRODUCTION . . . . . . . . . . . The Problem and Its Importance. Objectives. . . . . . . . . . . The Data and Its Limitations. . Assumptions and Methodology . . II THE ITALIAN ECONOMY AND AGRICULTURAL DEVELOPMENT. . . . . . . . . . . . The General Economy . . . . . . Geography and Climate. . . . National Income. . . . . . . Population and Labor Force . Agricultural Employment. . . The Agricultural Sector . . . . Land Use Patterns. . . . . . Farm Size and Tenure . . . . Fragmentation. . . . . . . . Land Values. . . . . . . . . Government Programs. . . . . III HISTORICAL TRENDS, GENERAL CHARACTERISTICS PROJECTIONS OF CROP PRODUCTION . . Crop Inputs . . . . . . . . . . Mechanization. . . . . . . . Fertilizer Use . . . . . . . Irrigation . . . . . . . . . Soft Wheat. . . . . . . . . . . Soft Wheat Surface . . . . . Yields . . . . . . . . . . . Production . . . . . . . . . iv . . ii . . vii . . x . . xi . .xiii Page . . '1 O O l . . 2 . . 3 . . 5 . . 11 . . ll . . ll . . 13 . . 18 . . 21 . . 25 . . 26 . . 32 . . 41 . . 44 O O 45 AND C O 65 . . 65 . . 69 . . 72 . . 75 O O 79 . . 81 O O 96 . . 100 TABLE OF CONTENTS (continued) Chapter IV Durum Wheat . . . . . . . . Durum Wheat Surface. . . Yields . . . . . . . . . Production . . . . . . Feed Grains . . . . . . . . Corn. . . . . . . . . . . Corn Surface . . . . . Yields . . . . . . . . . Production . . . . . . . Grain Sorghum . . . . . . . Barley. . . . . . . . . . . Barley Surface . . . . . Yields . . . . . . Production . . . . . . . Oats. . . . . . . . . Oat Surface. . . . Yields . . . . . . . . . Production . . . . . . . Summary . . . . . . . . . . HISTORICAL TRENDS, GENERAL CHARACTERISTICS AND PROJECTIONS OF LIVESTOCK PRODUCTION. cattle. O O O O O I O C O 0 Demand and Consumption . Production Characteristics Obstacles to Cattle Production Cattle Numbers . . . . . Slaughter Weight . . . . Beef and Veal Production Milk . . . . . . . . . . Swine Production. . . . . . Demand and Consumption . Historic Production Patterns Obstacles for Future Pork Production Swine Numbers. . . . . . Sheep and Goat Production . Poultry Meat Production . . Demand and Consumption . Historic Production Patterns Other Poultry Meats. . . Obstacles for Future Production. Quantity of Poultry Meat Egg Production. . . . . . Historical Production and Marketing Patterns. . . . . . . . Quantity of Eggs . . . . O Page 101 102 109 110 111 116 121 131 134 135 136 137 145 147 148 148 153 156 156 158 158 159 161 170 179 193 199 200 207 208 210 220 222 230 232 233 236 240 242 246 250 250 253 TABLE OF CONTENTS (continued) Chapter Page V SUMMARY AND CONCLUSIONS. . . . . . . . . . . . 257 Summary . . . . . . . . . . . . . . . . . . 258 Conclusions . . . . . . . . . . . . . . . . 271 BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . 275 APPENDICES O O O O O O O O O O O O O O O O O O O O O O 286 vi LIST OF TABLES Table Page II - 1 Gross National Income at Current Prices and 1963 Prices, 1951—1965. . . . . . . . . 15 2 Surface Abandoned by Height Zones and Time Interval . . . . . . . . . . . . . . . 39 3 Agricultural ApprOpriations by.Major Use, Green Plans I and II. . . . . . . . . . . . 50 4 Percentage Composition of Farm Production for Sale in 1964, Projection to 1973 and Expected Annual Rates of Increase . . . . . 53 5 Supermarket Growth by Regions, 1961-1964. . 63 III - l Fertilizer Use by Type of Crop, Type of Management and Major Geographic Region, 1961. . . . . . . . . . . . . . . . . . . . 73 2 Factors Conditioning Italian Wheat Pro- duction . . . . . . . . . . . . . . . . . . 84 3 Regressions for Explaining Italian Soft Wheat Surface, 1955-1965 and Derived Elasticities. . . . . . . . . . . . . . . . 91 4 Soft Wheat Surface, Average Yield and Pro- duction by Major Geographic Regions for Selected Years and Projections to 1970 and 1975. . . . . . . . . . . . . . . . . . 94 5 Regressions for Explaining Italian Durum Wheat Surface, 1952-1965 and Derived Elasticities. . . . . . . . . . . . . . . . 106 6 Durum Wheat Surface, Average Yield and Production by Major Geographic Regions for Selected Years and Projections to 1970 and 1975 . . . . . . . . . . . . . . . 108 7 Domestic Production, Imports and Total Supplies of Feed Grains, 1955-1965. . . . . 112 ' 8 Italian Trade in Feed Grains, Import Source and Export Purchaser, 1955-1965. . . 114 vii LIST OF TABLES (continued) Table III - 9 10 11 12 13 14 IV - 1 Regressions for Explaining Italian Corn Surface, 1955-1965, and Derived Elastici- ties. . . . . . . . . . . . . . . . . . . . Corn Surface, Average Yield and Production by Major Geographic Areas for Selected Years and Projections to 1970 and 1975. . . Regressions for Explaining Italian Barley Surface, 1952-1965 and Derived Elastici- ties. O O O O O O O I O O O O O O O O O O O Barley Surface, Average Yield and Pro- duction by Major Geographic Regions for Selected Years and Projections to 1970 and 1975. . . . . . . . . . . . . . . . . . Regressions for Explaining Italian Oat Surface, 1952-1965 and Derived Elastici- ties. . . . . . . . . . . . . . . . . . . . Oat Surface, Average Yield and Production by Major Geographic Regions for Selected Years and Projections to 1970 and 1975. . . Regressions for Explaining Italian Cattle Numbers, 1952-1964 and Derived Elasticities Cattle Numbers, Average Slaughter Weights and Beef Production by Major Geographic Regions for Selected Years and Projections to 1970 and 1975. . . . . . . . . . . . . . Regressions for Explaining Cattle Slaughter Weights, 1952-1964. . . . . . . . . . . . . Cow Numbers, Milk per Cow and Milk Produc- tion by Major Geographic Regions for Selected Years and Projections to 1970 and 1975. . . . . . . . . . . . . . . . . . . Regressions for Explaining Number of Swine on Farms, 1952-1964 and Derived Elastici- tieSO O O O O O O O O O O O O O O O O O O 0 viii Page 126 129 142 144 151 154 182 187 196 204 223 LIST OF TABLES (Continued) Table IV — 6 6A Swine Numbers, Average Slaughter Weights and Pork Production by Major Geographic Regions for Selected Years and Projections to 1970 and 1975. . . . . . . . . . . . . Sheep and Goat Numbers and Meat Production by Major Geographic Regions for Selected Years and Projections to 1970 and 1975. . Regressions for Explaining Italian Poultry Meat Production and Egg Production, 1953- 1965 and Derived Elasticities . . . . . . Meat and Livestock Products: Production, Consumption and Supply-Demand Balance, 1964-1965 and Projections to 1970 and 1975. . . . . . . . . . . . . . . . . . . Grains: Production, Utilization and Supply—Demand Balance, 1964-1965, and Projections to 1970 and 1975. . . . . . . ix 228 232 248 260 267 Figure II - 1 III - 1 LIST OF FIGURES Italy with Tepographical Features and Location of Principal POpulation Centers. . Type of Farming Regions in Italy. Index of Agricultural Inputs and Input Prices by Major Geographic Region . . . . . Soft Wheat Surface by Major Geographic Regions, 1952-1965. . . . . . . . Hard Wheat Surface, 1952-1965 . . Corn Surface by Major Geographic Regions, 1952-1965 . . . . . . . . . . . . Barley Surface by Major Geographic Regions, 1952-1965. . . . . . . . Oat Surface, 1952-1965. . . . . . Cattle Numbers on Farms by Major Geo- graphic Regions, 1952-1964. . . . Beef Slaughter Weights by Major Geographic Regions, 1952-1965. . . . . . . . Milk Sold from Farms by Major Geographic Regions, 1955-1965. . . . . . . . Swine Numbers on Farms, 1952-1965 Flow Diagram of the Italian Pork Sector . Italian Poultry Meat Production, 1953-1965. Page 12 27 67 82 104 122 138 149 180 194 202 211 214 234 Appendix 1 10 11 12 13 LIST OF APPENDICES Farm Numbers by Class of Surface, Type of Management and Geographic Area, 1961. . . . . Land in Farms by Type of Management and Altitude Zone, 1947-48, 1961 and Change . . . Selected Crop Inputs by Major Agricultural Region, 1955-1965 . . . . . . . . . . . . . . Estimated Costs and Returns from Soft Wheat, Dry Plains of P0 Valley, Low Level of Mech- anization, 1963-1964. . . . . . . . . . . . . Estimated Costs and Returns from Soft Wheat, Po Valley Plain, High Level of Mechaniza- tion, 1963-1964 . . . . . . . . . . . . . . . Estimated Costs and Returns from Durum Wheat, Average Level of Mechanization, South Italy, 1963-64. 0 o o o o o o o o o o o o o 0 Estimated Costs and Returns from Hybrid Corn, Dry Plains of P0 Valley, Average Level of Mechanization, 1963-1964 . . . . . . Estimated Costs and Returns from Hybrid Corn, Irrigated Plains of P0 Valley, High Level of Mechanization, 1963-1964 . . . . . . Number of Cows on Farms by Geographic Area, Type of Management and Size of Farm, 1961 . . Estimated Costs and Returns from a 30-Cow Dairy Herd Selling Fresh Milk, Irrigated Plain of Western Po Valley, 1963—1964 . . . . Estimated Costs and Returns from 20 Veal Calves in the Northern Italian Dairy Region, 1963-1964 a o o o o o a o o o o o o o o o o 0 Estimated Costs and Returns from 50 Vitelli, Dairy Type in Northern Italy, 1963-1964 . . . Imports of Live Cattle Primarily for Feeding, By Importing Source, 1959-1965. . . . . . . . xi Page 287 288 291 292 294 295 296 297 299 300 302 303 304 LIST OF APPENDICES (continued) Appendix 14 15 16 Page Estimated Costs and Returns from a 1000 Swine Unit in a Dairy COOperative, Northern Italy, 1963-19640 0 o o o o o o o o o o o o o 305 Estimated Costs and Returns from Broilers, Produced in Batteries, 10,000 per Cycle, Five Cycles per Year, 1963-1964 (Purchasing Mixed Feed) . . . . . . . . . . . . . . . . . 307 Estimated Costs and Returns from a 2000 Unit Industrial Egg Operation, Buying Mixed Feed, 1963-1964 a o o o o o o o o o o o o o o 308 xii WEIGHTS, MEASURES AND CONVERSION TABLE Acre Dollar Gallon Hectare Hectoliter Hundredweight Kilogram har- H han- h-r- H Kilogram 100 Kilograms 1000 Kilograms Kilometer Kilometer Kilometer, Square Liter Lb. Lb. Meter Metric Ton Mile Quintal Quintal 10 Quintals r- har- har- bal- hdn- han- xiii .4047 Hectares 624 Lire 3.785 Liters 2.471 Acres 100 Liters .508 Quintals 1,000 Grams 2.2046 Lbs. 1 Quintal 1 Metric Ton 1,000 Meters .6214 Mile 100 Hectares 1.057 Quarts (liquid) .4536 Kilogram 453.6 Grams 1.094 Yards = 3.281 Feet 2,204 Lbs. 1.609 Kilometers 100 Kilograms 1.97 CWT 1 Metric Ton CHAPTER I INTRODUCTION The Problem and Its Importance The six nations of the EurOpean Economic Community annually purchase almost one-third of U.S. agricultural exports for dollars. In 1965 the value of farm products sold to the Community amounted to 1.6 billion dollars, al- most half in grain and animal products. Exports to the EEC of feed grains alone increased 134 percent from 1960- 1965 with Italy ranking second in importance among the six. Its total U.S. farm imports of $290 million ranked it third in the EEC. .Obviously, any changes affecting a market of this size has major import to American farmers and exporters and indirectly affects the urban population through changes in specialization and productive efficiency. The Common Agricultural Policy with provisions for harmonized prices in the six countries at levels generally above world prices, combined with restrictive import pro- visions and subsidies aimed at improving technology and farm and market structure represent such a change. The expansionist effects of these provisions are easily visu- alized in the U.S. farm setting. Questions are immediately raised as to their impact on EurOpean agriculture, the patterns of trade within the member countries and the im- plications for exports of U.S. farm commodities. This research was undertaken to answer these questions for the cereal-livestock sector. The complete research plan included four subprojects: two related to changes in supply of these products, one on prices and marketing and a fourth on regional adjustments in the EEC including demand projections and expected trade patterns. This project focuses specifically on the present and projected supply of grain- 1ivestock commodities in Italy in response to changing prices, shifts in structure and improved technology. By providing answers to the questions raised above, information is offered which may prove useful to decision making at farm, business and governmental levels in both Italy and the Uhited States. Objectives The uncertainty created by the Common Agricultural Policy regarding future Italian farm output and import needs leads directly to the objectives of the research. Speci- fically, these are: (1) to describe the present state of Italian agriculture, isolating the key variables that condi- tion the rates of change in output, (2) given expected equilibrium prices from Subproject III make projections of 1970 and 1975 hectarage, yield and production of wheat and feed grains and number of animals and poultry and yield of meat, milk and eggs and (3) given demand projections for the same years estimate supply-demand balances for each group of commodities and the net deficit or surplus position of Italian agriculture. In meeting these objectives supply response coefficients and information on the future cereal- livestock economy will be presented in sufficiently flexible form that adjustments to projections can be made as dictated by new conditions. The Data and Its Limitations The basic data source was government statistics pub- lished by the Istituto Centrale di Statistica. These sta- tistics, published as annual averages for each of 19 geo- graphic regions (except for poultry), were aggregated into four major areas: north, central, south and islands to describe historical changes and make projections. The Istituto obtains price data from local chambers of commerce which report a weekly commodity price unweighted by quantity or quality sold, payment terms or local market conditions. Production data is obtained from a stratified sample Of farms in 92 provinces.1 Each province is divided into regions and each of these into fractions, a total of 552 sampling fractions. Stratification is both geographic 1The sampling procedure is detailed in: Istituto Cen- trale di Statistica. "Rilevazioni Campionarie delle Produzioni Agrarie," Metodi e Nonme della Istituto Centrale di Statis- tica (Roma: December, 1960), pp. 11-26. and by classes of productivity for each crop determined from a preliminary analysis. Size of sample is determined by the number of agricultural fractions, the prOportion of land occupied by the crOp considered, production per unit and the variability of production. Generally, 10 per- cent of the agricultural fractions in each region are sampled but the preportion for livestock is probably less. Offi- cial statistics were supplemented with translations of pub- lished scientific papers, data from chambers of commerce in various cities and interviews with university and government officials and farmers and industry personnel. Estimates of variance or errors in the data are not available. Many Italians do have a tendency to discredit the reliability of statistics and without doubt there are many inaccuracies in reporting and compiling farm data. Very likely these errors are biased so that production is underestimated given Italian farmers' hesitancy to report production data. underestimation is particularly evident in poultry and livestock although some checks are available from slaughter plants. With expected improvements in methods of gathering and compiling statistics, future production data will become more reliable and will probably show.increases at rates greater than in the past as the underestimation prob- lem is overcome. Data in its present form makes it difficult to draw exact conclusions regarding farmers response to price changes. Assumptions and Methodology Agricultural adjustments in Italy are highly interde- pendent with development in the general economy and with public policy emphasis. The level of economic activity strongly influences demand for farm products on the one hand and preconditions the rate of structural and technolo- gical change governing supply on the other. Thus, projec- tions in this study proceed within a framework of assumptions regarding the Italian, the Common Market and the world economies. These assumptions are: (l) The EEC will remain a viable organization capable and willing to administer the Common Agricultural Policy according to agreed on conditions that become effective July 1, 1967 or shortly thereafter. (2) Italian and EEC population and gross national pro- duct will continue to grow at approximately the same rates as in the past decade. (3) The present trends in popular consumption habits including rising effective demand for meats will be continued. (4) No major political realignments or decisions will occur that change Italian appropriations for agriculture from the amount presently budgeted up to 1972 or prevent its continuation to 1975 at rates substantially different from the present Green Plan. (5) The general price level is expected to rise approx- imately three percent per year. Within this setting the present agricultural situation is described in Chapter II, keynoting the dimensions of producing units, the changes that have been occurring and their implications for production and the institutional and nonprice variables for which quantification is diffi- cult if not impossible. With this as background, two major sets of projections are made, one for grains and one for livestock. These appear in Chapters III and IV respectively and emphasize the role of price in producer decisions. Crop and livestock projections are then integrated in Chapter V to estimate meat and feed grain balances and external re- quirements to meet expected 1970 and 1975 consumption. Finally, after considering the likely effects of EEC prices on Italian production, the implications of the country's grain-livestock needs are discussed in terms of U.S. trade. To develop these projections a research procedure was needed that would indicate farmer's response to price changes as well as the social, political and institutional rigidities preventing Optimal adjustments to price. Perhaps the most desirable approach would be to construct individual farm supply functions allowing for alternative techniques of production, variable quantities of resources and different levels of product prices. Assuming aggregation is possible macro-level supply functions would be the horizontal summa- tion of each firm's supply. But this approach is not feas- ible for this study because of the difficulty of delineating homogeneous production regions in Italy and the time and expense of obtaining adequate input-output coefficients. An alternative approach is the estimation of economic relationships by fitting a linear equation to time series data. This procedure permits the estimation of supply response to own price changes while at the same time the effects of changes in factor prices and prices of competing commodities that shift the supply function can be estimated. To make the model dynamic a time variable can serve as an estimate of the effect of structural change on output. This proce- dure would answer the questions raised earlier, namely, the effect of changed commodity prices under EEC policy, increased feed grain prices on livestock production and substitutions between grains at different price ratios. Unfortunately, the use of regression has several disadvantages in estimating supply functions. Three are eSpecially noteworthy: (l) Technological change, develOpments in institutions and struc- ture and changes in government program emphasis limit the usefulness of coefficients based on historical time series, (2) multicollinearity among price series often limits the number of price variables that may be considered and (3) data, e8pecially in Italy, is often unavailable or question- able. The procedure followed was to rely on regression results to explain past changes in grain surface and livestock num— bers. Regressions were run for each of four geographic :regions for each commodity of interest. The response to price was emphasized and estimates of supply elasticities 'were derived in each case. The equations were also of value in quantifying the effect of other variables such as wheat price on planted surface of feed grains and feed grain prices in the production of poultry and livestock products. Recognizing that past statistical relationships may not correctly interpret future changes, the analysis relies heavily on judgments of specialists in many phases of Italian agriculture. Over 100 interviews in the course of a one year residence in Italy provided a consensus of Opinion from researchers, extension and industry personnel and farmers as to the likely course of development of the grain-livestock economy in each of the four geographic areas. This back- ground of information was relied upon in adjusting the re- gression coefficients before making projections. Macro-level supply estimates at this level of aggrega- tion have a propensity for error if projections are made with no consideration given to changes in net income at the firm level. To overcome this shortcoming input-output data were obtained to budget expected income at present price and yield relationships and under conditions expected in 1970 and 1975. If producer level income estimates were consistent with projections of grain surface or livestock numbers it was considered supporting evidence and conversely, if net income declined when quantitative estimates indicated EH1 output expansion, the projection was either adjusted downward or the failure to agree was justified. The remaining steps in making crop projections were to estimate yields per hectare and combine these with the regional estimates of hectares planted. Yields were assumed to change smoothly through time as average utilization of improved seed, chemical fertilizers and irrigation increased. Therefore, annual average yields in each region were regressed against time and extrapolated to 1970 and 1975. Again, if crOp production specialists had indicated that rates of change in the sample period were not expected to be compar- able to future changes, adjustments in the trend coefficients were made. Multiplication of projected surface and yield provided the desired production estimates for each region and these in‘turn were summed for the national total. Livestock production estimates followed the same gen- eral procedure. While qualified regression equations provided estimates of livestock numbers the expected yield per animal or bird was primarily on the basis of past trends and judg- ment of future prospects. Published research of feeding trials and carcass yields weighed heavily in making yield estimates. In the case of pork and beef, annual estimates of number slaughtered from the total number of animals on farms was necessary. These figures were based on past slaughter rates at apprOpriate points on the production cycle. The procedure employed has the limitations common to -10- most projection studies. In particular the effect of chang- ing farm and market structure and the imprecise data on Italian agriculture are cause for concern. By rejecting numerical estimates when personal judgment and advice of Italian assistants indicated doing so, it is hoped that these problems are largely overcome. Unfortunately, results from such analysis are not always quantitative or subject to statements regarding standard errors or confidence limits. Yet, even approximations as to direction and magnitude of change should provide useful information for long-range planning of U.S. farm production and export potential. CHAPTER II THE ITALIAN ECONOMY AND AGRICULTURAL DEVELOPMENT The possibility for improvement of any nation's agri- culture is closely related to the economic develoPment of the country. The interrelated growth of both the farm and nonfarm sectors is of greater importance in Italy than in many countries because of the prominent role of agriculture. The present chapter describes the national economy and the structure of agriculture to provide a better understanding of the economic environment within which agricultural growth must occur. The General Economy Geography and Climate The national territorial surface is equal to 301.2, thousand square kilometers. Of this surface, 39 percent is classed as mountainous, 40 percent as hills and 21 per- cent in plains. This distribution and the location of the distinguishing topographical features are shown in Figure II-l. The principal mountain chains are the Alps across the northern border and the Apennines which run the length of the country. -11- -12- FIGURE II-l. ITALY WITH TOPOGRAPHICAL FEATURES AND LOCATION OF PRINCIPAL POPULATION CENTERS -13- The figure also illustrates the political subdivision of the country into 19 regions and its major urban centers. At the end of 1963, of the 8,046 Italian communes, four had more than one million resident inhabitants (Rome 2,378,978: Milan 1,657,640; Naples 1,204,04l'and Turin 1,114,300). . The protective Alps along the northern border and the proximity to the Mediterranean Sea provide the typically mild, semi-arid climate of the Mediterranean region.. In the Po Valley Plain, the principal agricultural region, the average annual temperature is about 55°F. with annual tem- perature fluctuations of about 64°. In Sicily, the average is about 64°. The combination of length, location and topo- graphy contribute to a sharp diversity within the country in respect to growing conditions and type of agriculture. Wide regional differences occur in quantity and dis- tribution of rainfall. The general average in the north is about 50 inches although rainfall in parts of the Alps exceeds 80 inches. Parts of Sicily and Sardinia receive less than 20 inches annually. Most of the precipitation in the south occurs in winter with very dry summers. In the Alps rainfall is concentrated in summer with considerable snow in winter. National Income Italian national income, while low relative to other -14- western countries, grew at a compound rate of 6.6 percent from 1949 to 1963 and only in the latter year did evidence appear of a slowing trend. The progress of GNP in current prices and in real terms is shown in Table II-l. From 1957 to 1965 national income at current prices has risen an aver- age (geometrical average) 8.92 percent per year. The accom- panying degree of inflation may be noted by observing that national income in real terms (1963 prices) has risen by 5.02 percent per year (geometrical average). Even so, the increase in real terms exceeds the average for most market economies. Four basic factors are of paramount importance in ex- plaining the growth of the post-war Italian economy.1 (1) Its previously low level of technology experienced a jump in productivity when barriers to assimilation were removed (the advantage of being a late-comer). (2) Plentiful sup- plies of unutilized or underutilized manpower became better employed through the addition of technology, investment and shifts of labor from less to more productive uses. (3) An outburst of entrepreneurship that was associated to a large degree with the use of American aid and business experience and the establishment of the European Common Market. (4) The integration of Italy into the world market and the 1G. Fua, Research on Italian Economic DevelOpment, 1861-1964, S.S.R.C. team, Faculty of Economics (Ancona: June, 1965), unpub. manuscript, p. l. -15- .xoema ~ONHMZ ”meomv m .02 .mugumsumum so maflmcwz Odduumaasm Hm OucmEmHmmsm .m0malamma Headlmwumm m>osz amwamuH.HHmQ HHmGOANmz Husoo H: .moaumaumum Ho mamuucmo eunuflumH "condom e.m emo.mm 0.5 o0¢w0m m0ma 5.N 0H0.Hm 0.m NHH.mm ¢0ma 0.0 mma.om 0.¢H mma.om m0ma «.0 0H0.0m 0.~H omm.0m m0ma 0.5 mwm.0m 0.0H m0m.mm H0ma m.0 mom.¢m ¢.m H5o.H~ 000H «.0 mam.m~ m.0 5mv.ma mmma m.¢ omo.mm m.5 oem.ma mmma m.0 mvo.H~ m.5 Hmo.5H 5mma m.¢ m0m.mH 0.0 mom.ma 00mH ¢.0 voH.mH m.m He0.va mmma m.m oem.5a 5.0 «mm.ma emma 0.5 00m.5a 0.0a 00v.NH mmmH m.v 0vo.0H 0.5 mmm.HH Nmma I 05m.0H I mme.oa HmmH Amcoflaawfiv .1 AmGOAHHHEV A ummw mswpmu mumoo u0uomm Ham» mswpou mumoo nouomm Imam map Eoum 0cm mmuwum Imum may Scum paw mmowum snow omcmnv unmoumm m0ma um mzw mmsmno unmonmm usmuusu um mzw .momHIHmmH ~mmonm momH 92¢ mmUHmm BZMMMDU Ed WZOUZH AdZOHEdZ mmomw .HIHH mqmdfi -15- exceptional expansion of world trade after the war. In assessing the potential for future growth the expected be- havior of these factors and others must be considered. One that is of critical importance to its competitive posi- tion in the world and to internal price stability is the labor situation. The plentiful supply of labor no longer exists. Skilled labor has always been in short supply but in the late fifties increased employment combined with emi- gration has made unskilled labor scarce in some industrial centers. Labor presents an especially difficult problem for the economy because of the pppip_mobile clause. This sliding scale for automatic wage increases is tied to the cost of living index, and a very minor rise in the index during a three-month period means an increase in labor costs out of proportion to the living index boost. Unless the cost of living index remains absolutely stable or decreases, salaries increase a one point minimum every three months. Each time the scale goes up a point, $54.4 million is pumped into the economy through higher wages and salaries, and total cost to employers rises $64 million with additional fringe bene- fits. The record shows that since February, 1962, the sliding scale has moved up a total of 35 points.2 The result is 2Rome Daily American, May 15, 1966. -17- a rise of $2.24 billion in increased labor costs during the past four years. The effect of wage growth exceeding the growth of productivity leading to inflation and a deficit in the balance of payments is attributed by one study as the cause of the 1963-64 recession.3 The important point for Italy's future growth is not the fact of wages rising faster than productivity (although this surely determines in large measure the rate of inflation and affects the income distribution among various groups) but the relative rate of price increase compared to its trading partners, especially in the EEC. The index of wholesale prices (1958 = 100) stands in 1964 at 110 exceeded only by France in the EEC at 119 and the consumer price index 4 (Since 1964, there has of 124 is the highest in the EEC. been a greater relative price rise in the Netherlands so that the December, 1965 wholesale index of 113 equaled that of the Netherlands but still remained second in the EEC to France at 123.) In looking to the future, official policy expectations are for an increase in national income from 29,050 million lire in 1964 to 37,100 in 1969, a rate of increase of five 3Augusto Graziani, "Konjunktur - und EntwicklungSpoli- tik in Italian," Zeitschrift Fur Die Gesonte Staatswissen- sehaft, Vol. 121, No. 4 (October, 1965). 4Istituto Centrale di Statistica, Annuario Statistico Italiano (Roma: 1965), p. 457. -l8- percent per year.5 Industrial development, expected to increase at the rate of seven percent per year, is projected to provide over half of the increased national income. Population and Labor Force Italian pOpulation has increased steadily during this century except for dips connected with the two world wars. Total pOpulation for the two most recent census years has increased an annual average of 0.576 percent per year. In more recent years (1961-1964) the rate of increase has been higher because of two recent developments. First, both birth rates and death rates have been declining as the coun- try develOps. But the death rate has been declining at a faster pace (the 1950-51 average excess of births over deaths was 403,853 compared with a 1964-65 average of 502,436).6 The result is a net addition each year to population. The second stimulus to population growth is the reduction in out-migration as new job opportunities are provided within the country by economic growth. 5Ministro del Bilancio, Progetto di Programma di Suil- uppo Economico per il Quinguennio 1965-69. (Roma: Presented to Consiglio dei Ministri January 21, 1965). Because its passage was delayed in parliament, the plan will actually cover the period 1966-1971. The first development plan was extended to cover the 1965 period. 6The rate per 1000 inhabitants in 1964 was: birth, 19.5 and death, 9.4. European Community Statistical Office, General Statistical Bulletin, No. 2 (1966). -19- The trend in pOpulation.increase has not been constant among the four geographic regions. The industrialized north grew at a faster rate than the national average between census years and even faster in the 1961-64 period. The south lags considerably and continues to experience out- migration. In the last three years some improvement is noted as deve10pment efforts begin to be fruitful (the higher growth rates may also reflect inconsistencies in data). Looking to the future, one may expect a continued increase in p0pulation. This growth will continue to favor the north in absolute numbers but in percentage terms the south will likely continue its pace of the last three years. A con- tinued declining growth rate may be expected in the center associated with the depopulation of hills and mountains. Its relatively large population has in the past pro- vided an abundant labor supply and in fact, unemployment and underemployment remain a major preoccupation with policy makers. As late as 1964, 67.7 percent of the pOpulation was in the working age brackets of 14-65. However, only 20,130 thousand or 39 percent are classed as regularly occu- pied. Employment by sector in 1964 was: agriculture 24.4 percent, industry 39.4 percent, services 31.5 percent, and unemployed 2.7 percent. Some special features of the labor market include the periodical oscillations between agricul- tural and nonagricultural activities, the high proportion of young, school-age children in the labor force and the -20- large fringe of marginally employed workers who are taken on and dismissed in re3ponse to short-run cyclical fluctua- tions and the improvements in quality noted in recent years. The labor force has not grown at the same rate as popu- lation. The growth rate was little more than half the rate Of population growth between the two census years and essen- tially static in the more recent period. The labor force in the south and islands grew at a faster rate in the 1951-61 period than did the national average. In the recession period Of 1961-64, these two regions experienced actual decreases in the numbers of people employed. In coming years several factors are expected to influ- ence the size of the labor force.7 These include: (1) a longer period Of formal education before entering the labor force, (2) the increase in number of women working, (3) the earlier retirement age that usually accompanies econ- omic progress and (4) emigration. One may on balance expect a future labor force enlarged in both absolute numbers and as a percent of total population. (Perhaps more important will be qualitative improvements expected from more years Of schooling and experience in technologically-related jobs.) This assumption reflects the anticipated growth in the econ- omy that will provide job Opportunities and the expected 7Istituto Nazionale di Economia Agraria, Annuario dell' Agricoltura Italiano, Vol. XV (Roma: 1961), p. 37. -21- positive net effect of demographic factors. Agricultural Employment Of special interest to this study is the past and future trend Of employment in agriculture and the accompanying changes in agricultural structure. In the intercensal years Of 1951-1961 there was an absolute decrease of 2,521 thou- sand persons in agriculture or an average decrease of 3.08 percent per year. From 1961-64 the rate of out-migration increased to just over four percent per year. Still the agricultural labor force remains at 24.7 percent of the total work force. The out-migration has occurred at differing rates in the four geographic regions of Italy. In the earlier period the faster rate occurred in the north and center while in more recent years the exodus in the south was greater. This may reflect the recent emphasis on nonfarm job opportunities 8It should be emphasized that the prOportion Of women in the nonfarm labor force is lower than in other developed countries. With rising wages and changes in customs that may be expected with economic growth, a higher proportion Of women may be expected to work leading to a growth in the labor force. A negative factor associated with rising income levels will be the tendency for children to obtain more schooling and enter the labor force later. From 1951- 1961 there was an absolute decrease of the active population employed less than 14 years of 244,000 persons. A similar tendency was noted between the two census years for persons over 65, the actual decrease being 293,000 persons. -22- in the southern region as well as the earlier reduction of salaried workers and share tenants, the two principal depart- ing groups in the north. In this connection it is worthy of note that the number of family farmers actually increased by 4.3 percent from 1959-1963.9 This is in response to go- vernment policy to promote family farming through its land reform program and favorable credit arrangements. Even with these rates of decrease there remains a large surplus farm population. In projecting 1970 and 1975 farm employment several studies have relevant results. A SVIMEZ study predicts an out-migration of 100,000 persons from 1959-1975 (an average decrease of 1.8 percent per year).10 This results in an expected 1975 estimate of 4,650,000. Since the 1966 figure has already decreased to 4,622,000 from a 1961 total of 5,657,446, we may conclude that the SVIMEZ estimate is too conservative. A more recent study attempts to predict for 1970, 1975 and 1985 the number of surviving farmer families on the sole 11 basis Of demographic factors. The study is based on 1,634,365 9INEA, Annuario dell'Agricoltura Italiana, (Roma, issues Of 1960 and 1964). This data is for individuals covered by social insurance. 10SVIMEZ (Associazione per la Sviluppo del'Industria nel Mezzogiorno) Trained Manpower Requirements for the Eco- nomic Develppment of Italy, Targets for 1975 (Roma: 1961), p. 13. llFederazione Nazionale delle Casse Mutue Malattia per I Coltivatori Diretti, Famiglie senza Giovaniy Ipotepi Demo- grafiche in Ordine alla Diminuzione delle Imprese Coltivatrici ppll970—75, 1985, NO. 4, (Aprile, 1966). -23- families covered by the Unified Agricultural Contributary Service. Its results show that 58.5 percent of the farms are owned by families with no member less than 49 years of age. Farms Operated bijezzadria families have only 28.1 percent with no members less than 49. This lower figure is explained by a major exodus in previous years Of entire sharecrOpper families. The results show an expected decrease of farm families due to aging alone of 9.74 percent (1.62 percent per year) to 1970 and 12.04 percent (1.09 percent per year) to 1975. Further evidence of surplus Italian agricultural workers is found in an OECD report.12 This estimates agricultural underemployment to be 34 percent of the 1960 available sup- ply Of farm labor. Given the 1960 level and pattern of output, this puts the surplus agricultural labor force at just over one million people with slightly less than half being farm families and the remainder hired laborers. The 1965-69 economic development plan anticipates an absolute reduction of 730,000 farm workers in the five-year period, an average annual exodus of 3.05 percent. Over half Of this number is expected to come from the south. These estimates are based on a growth of national income of five percent per year and of nonfarm employment Of 2.05 percent per year. 12OECD, Low Incomes in Agriculture, Problems and Poli- cies, Agricultural Policy Report (Paris, 1964). p. 270. -24- For purposes of this study farm employment projection must give consideration to several critical variables: (1) the expected growth rate of the economy and the rate at which nonfarm jobs will be available, (2) the past trend of out-migration associated with different levels of economic ‘growth, (3) the present age structure of the farm popula- tion, (4) government policy designed to maintain the family farm, (5) the law of 1964 that prohibits new Mezzadria con- tracts, (6) the rate Of farm mechanization which is both a cause and effect of the exodus, and (7) farm versus non- farm income differentials and social attitudes. All Of these factors with the exception of the policy to increase the number of family farms point to an even higher rate Of out-migration. Over the period 1959-1965, when GNP grew at a rate Of 6.6 percent per year at constant prices, a one percent growth in national income was associated with a 0.54 percent reduction in the farm labor force. Given the development plan projections of five percent per year in GNP this would indicate a decrease of 2.7 percent per year in the farm labor force. In actuality, the develop- ment plan predicts a decrease of 3.05 percent per year. This figure may not be over-ambitious in View of accompany- ing changes in the other variables listed. Therefore, for this study the development estimate of a 3.05 percent de- crease per year is accepted. Accepting these rates means a reduction of the farm -25- work force from a 1964 level of 4,967 thousand (24.7 percent Of the total work force) to a 1970 level of 4,058 thousand (19.1 percent) and a 1975 level of 3,300.6 thousand (14.9 percent). These are probably conservative estimates since the 1961-64 rate Of exodus has been 4.06 percent per year. If, as we expect, the rate of exodus in the center equals the 1961-64 rate, the 1970 farm labor force would be slightly above four million persons and the 1975 estimate would be about 3 and 1/4 million. The Agricultural Sector Within the setting of the overall economy some special facets of the agricultural sector are of importance in con- ditioning its further development. Some of these stem from the physical environment, many are related to the customs Of the country and others to government policies. Those which have been most important in determining the present state of agriculture or which may be expected to have con- siderable weight in determining its future course are dis- cussed. -25- Land Use Patterns13 The diversity of growing conditions in Italy has al- ready been stated. Differences in cropping patterns are derived principally from the climatic variation associated with the length of the country, the differences in altitude and the type Of farm ownership and management. Several attempts at classification have been made with perhaps the system used by Medici being most useful (see Figure II-2). By combining geographic, topographic, type Of farm ownership and size of farm characteristics, he is able to delineate nine regions of agricultural homogeneity. 1. Alpine mountains: The extreme northern part Of the country is formed by the Italian Alps. The area includes 4.5 million hectares that is of little agricultural impor- tance. Land use is approximately 36 percent woodland, 28 percent native pasture and 11 percent fields and improved pasture. Only 3.9 percent is actually seeded land. Sub- sistence family farms account for most of the productive farm surface. Almost half Of the Alpine territory belongs 13The primary sources for material in this section are: Giuseppe Medici, Carta dei Tipi d'Impresa nel 'Agri- coltura Italiana, Istituto Nazionale di Economia Agraria (Roma: 1958). p. 50. and Alessandro Antonietti and Carlo Vanzetti, Carta della Utiliz- zazione del Suolo d'Italia, Istituto Nazionale di Economia Agraria (Milano: ,1961), p. 41. -27- FIGURE II-2. TYPE OF FARMING REGIONS IN ITALY WNH tom-noun b Alpine Mountains Family Farm Region 601-3 Capital Intensive Farming Region A. .- Lowlands with Recent Soil Imp. k Primarily Small Farms Mixed Family Farming Capital Extensive Farming Intensive Farming Region Large Estate Region Source: Giuseppe Medici, Carta dpi Tipi d'Impresa nel 'Agricoltura Italiana, Istituto Nazionale di Economia Agraria (Roma: 1958). -28- to public organizations or large private groups who control forest and pasture lands little used for cultivation. 2. Family farm region Of the hills: The 4.3 million hec- tares comprising the pre-Alps, the Apennines and highlands form an arc across the north of Italy. The difficulty Of hillside agriculture makes for small, fragmented, subsist— ence family enterprises Spread over 90 percent of the pro- ductive farm surface. Land use is extremely varied with wide differences mani- fested within small communities. Temporary forage crOps cover 29 percent Of the workable surface, followed by wheat with 23 percent and corn with 14 percent. The region, es- pecially in and around the Piedmont, is famous for its wine and vineyards occupy a large prOportion of land surface. On family farms, wheat and forage in a two-year rotation are typically interspersed with vines. Cattle in the hills are produced for meat and also provide the major power source. The small amount of milk produced is used as food for young animals or to produce cheese. 3. Capital intensive farming region Of the plains: The most productive agriculture in Italy is found on about 1.5 million hectares of the PO River Basin. Deep, alluvial soils, well irrigated and relatively large mechanized farms make this one Of EurOpe's best agricultural regions. Rotations are important in establishing the pattern of -29- land use. Forage covers over 50 percent of cropland surface and is cultivated throughout the region as part of the rota- tion or in permanent meadow. In Lombardia a unique water meadow is important that is flooded in winter for protection from the cold and drained in the growing season. In most areas, however, alfalfa is the dominant forage crop. Wheat, _27 percent of cropland; corn, 14 percent; and sugar beets, 2.5 percent are other generally grown crops. In Lombardia, two provinces, Vercelli and Novara, specialize in rice pro- duction, and tomatoes are important in the provinces of Parma and Piacenza. While such differences do occur the region is primarily a cereal-livestock area. Cattle production is widesPread. In the plains of the Piedmont meat production is of greatest importance. In Lom- bardia and Veneto milk production for the fresh market pre- dominates, while in Emilia dairy cattle are kept to produce the Parmesan cheese for which the region is famous. This region also represents Italy's largest concentration of swine. 4. Low lands with recent soil improvements: The one mil- lion hectares of the Po Delta and its surrounding areas have in recent years experienced major soil reclamation and im- provement efforts. With this program the traditional cereal culture has become more diversified. Wheat still occupies almost one-third Of the cropland surface and corn more than 10 percent. But today sugar beets are planted on almost -30- 18 percent of the surface, the highest concentration in the country. Forage has grown in importance and now temporary forage is produced on 33 percent Of the crop surface. The Ferrara-Bologna area is the country's largest producer area of deciduous fruits and continues to expand this production. 5. Central Italy: This region in Figure II-2 is described as primarily small farm and mixed family farming. It is an area unfavored by topography and soil fertility. In Cen- tral Italy 37 percent of the area is mountainous, 54 percent is hills and only 9 percent plains. Farms are small, un- mechanized and operated by sharecroppers and family farmers. Large-scale out-migration is rapidly forcing changes in the region's agriculture. Wheat is the dominant crOp. Even with low yields it provides a higher and more certain income than do alterna- tive land uses. In recent years sugar beets have become more important as has land devoted to forage production. In the valleys tobacco and corn attain some importance. As in the hills of the north, cereals are Often interspersed with grape vines and in this area Olive trees also. This traditional cultural system is being reduced as larger units Operated by full-time salaried workers increase at the ex- pense of sharecrOpper systems. 6-8. Southern Italy: Three regions dominate the varied agriculture Of the south. First, is a mixed farming area -31- occupying 3.3 thousand hectares, mostly mountainous, with family farms Operating almost two-thirds of the cropland. Wheat is cultivated on one-third of the surface and like other crops is usually mingled with grapes and olives. Vegetable plots and other subsistence crOps are common. A second classification is the region formerly composed Of primarily large estates in the southwest part of the country. Forty percent of the workable land is planted to wheat, mostly of hard varieties. Much of the surface is the dry, arid land of the Mezzogiorno. The third region is the 2.4 million hectares of an in- tensive farming area occupying the heel of the Italian boot and parts of the western coastline. The economy is based on trees and vines. Vineyards occupy more than a third of the surface and olives over two-fifths. Only in Puglia does wheat cover a large proportion of the surface. This is a region of large rolling fields almost completely mech- anized and reminiscent of the wheat lands of the U.S. west. 9. The Islands: Sicily has about 2.6 million hectares of land divided almost equally into: (1) an intensive type of agriculture along the coasts largely devoted to tree fruits, nuts, citrus and grapes, and (2) the interior of the island which is a zone of large estates Operated by renters and day laborers. In this zone hard wheat occupies over 40 percent of the planted surface. Sardinia extends over 2.4 million hectares of unpro- -32- ductive, hilly land. It is chiefly a pastoral and cereal economy that has exhibited little change in cropping pat- terns. germ Size and Tenure Italian supply response to EEC policies may well be more dependent on the rapidity with which structural and institutional changes can be made than on the relative changes in prices. Of the impediments to change, farm size, tenure and fragmentation are three of the most serious. Data on the first two of these are presented in appen- dix tables one and two for the four major geographic regions of Italy. Type of tenure is shown in four categories: family farms, salary farms, colonia parziaria and other. Family farms can be owned or rented but the family supplies all labor except small amounts needed.in peak labor periods. Salary farms may be owned or rented and are operated by hired labor on a fixed wage. Colonia parziaria are share- crOppers who may or may not have permanent rights in the land. It is evident from appendix table 1 that Italy is a nation of family farms. For the country 81.2 percent of all farms are in this classification. In terms of surface cultivated almost 50 percent fall into this grouping (appen- dix table 2). The proportion of family farms in the total is fairly constant throughout Italy except in the center -33- where the sharecrOpping arrangement is most prevalent. The size distribution shows that all farms, especially family farms, are quite small. In 1961, 82 percent of the family farms were less than five hectares in size and only 17 thousand family farms of a total number of almost three and one-half million exceeded 50 hectares in size. The average size family farm was 3.8 hectares contrasted to a national average of 6.21 hectares. Ranking second in number of farms and farm surface are the units Operated by workers on fixed salaries. Almost eight percent of all Italian farms are operated in this manner and they account for over 34 percent of cultivated surface. The average size of salaried farms is 28 hectares and is quite large relative to other management types. In fact, 70 percent Of Italian farms over 100 hectares in size are of this type and in total account for 6.7 million hectares Oflmm. The third type of tenure system is of most importance in Central Italy. Here 24.4 percent of the farms and 31 percent of the farm surface is cultivated by colonia p35; ziaria or mezzadria as the system is known by in this area. Nationally, 7.4 percent of the farms and 11.8 percent of farm surface is in this tenure system. Average farm size is almost ten hectares or three times the average size of family farms. . The mezzadria is a centuries-Old sharecrOpper system. The mezzadro provides his family's labor for cultivating the -34- pOdere or stabilized farm unit. It is somewhat unique in that the family has more-or-less lifetime rights to culti— vate the land unless it voluntarily leaves the farm or in some cases when the land owner can show that through death or family members departing, sufficient labor to care for the soil is not available. Originally, landowner and mezza- ‘Qpip_shared equally in farm income. This was later changed 'tO a 53 percent share for the owner and 47 percent for the mezzadro. In 1964 the law was again changed to provide the tenant 58 percent of the income and the landowner 42 per- cent. In parts of Italy outside the center this share system may be called by different names and can exist without the rights to the land such as described for the mezzadria. It is usually of minor importance in these areas. The last tenure type is listed in the official statis- tics as other. This mixed category is important only in the south and islands and includes several forms Of renting cultivators as well as some colonia parziaria without hold- ings. The number Of these contracts have been decreasing because Of their instability. The farmer renting the land has no guarantee from one year to the next of his holdings. Consequently, this type of cultivator has been one of the first tO seek other Opportunities or to be forced out by mechanization. Substantial changes have been occurring in type of -35- tenure, in location of farming activities and to some degree in farm size. It seems certain that these have effects on commodities produced and on productivity. An attempt has been made to quantify these changes in Appendix Table 2 by geographic area and by mountains, hills and plains.l4 This latter classification was included even though its pre- ciseness is Open to question because Of the remarkable changes that appear to be associated with different height zones. Appendix Table 2 shows a decrease in farm surface of slightly over one million hectares or 3.8 percent from 1948 to 1961. While part. of this decrease is due to the normal attrition that may be expected with growing population de- mands, a large part is probably due to the noncomparability of the data from one period to the other. Of greater interest is the location of change and the 'type Of tenure involved. All of the surface decrease occurred in the mountain zones as large scale abandonment took place in these areas. Government land reform and reclamation were 14Italy has had only one agricultural census and data from it is not directly comparable with the surface reported by Medici. The discrepancy is more than one million hectares since the Census does not include forests, uncultivated land, farmsteads and garden plots while the earlier study does. Tassininari has attempted an adjustment by adding the difference to the surface reported by the Census. He concludes that a fairly good comparison can be obtained by type Of tenure but not for mountains, hills and plains be- cause commune boundaries were changedin 1958. Therefore, the Comparison in Appendix Table 2 should be viewed in the context Of a direction Of movement rather than absolute num- bers. -36- primarily responsible for a 1.8 percent increase in surface jJi the plains and a very slight increase in the hills. Ennis is further substantiated by noting that most of this .increase occurred on family farms in the south and center «Of the country where the land reform program placed major emphasis. In the north farm surface decreased in all height zones Iby about the same percentage. In the center the decrease <3f 30.5 percent in the mountains as family farms and Egg: zadria.abandoned their land was the dominant change. By type Of tenure, the sharecrOpper system decreased Inost in both absolute and percentage terms. Further, this «decrease occurred in all four geographic regions and in (all height zones ranging from 70.1 percent in the mountains to 37.6 percent in the plains. The greatest gain by type Of tenure was land cultivated jby salaried workers. The incidence of the increase occurred :Ln descending order from 68.9 percent in the mountains to g47.5 percent in the hills to 13.0 percent in the plains. :Ln percentage terms the gain in this system is approximately equal to the loss by the mezzadria everywhere but in the jplains. Here the gain by family farmers equaled the increase by the commercial fanms. This shift is also noted by Campus who states, "In ]migh1y productive lands where it is possible to use machines, snith good management and adaptability to markets, the family -37- farm possibly with some salaried help is most suitable. On the contrary, where land is not very productive and mostly on the hill areas, salaried management is the only possi- bility Of utilizing the land abandoned by farmers."l5 These are precisely the changes that have been occur- ring. Land surface cultivated by sharecroppers and family farmers (this despite policy objectives to promote family farms) has been decreasing and that cultivated by salaried workers has been increasing. But ownership of family farms is important. Rented family farms decreased 36.6 percent while farms owned by the family actually increased 6.7 per- cent in the 13 year period. Like mezzadria farms, family farms tended to decrease in mountains and hills and to in- crease in the plains. The trend indicated by Campus is quite evident. The more productive farmland in the plains that is amenable to mechanization is becoming a region of family farms. In the mountains and to a lesser degree, the hills, extensive farm- ing patterns are being developed that rely on salaried work- ers. This change in type Of tenure and size in the higher elevations has important implications for cropping patterns and for the deve10pment of the cattle sector. The general 15F. Campus, "Dynamics of Land Structure and Utiliza- tion in Economically Depressed-Areas," Rivista di Economia Agraria, (Roma: 1965), pp. 249-332. -33- Inovement is to decrease surface planted to wheat and by con— solidating smaller units provide grazing and forage produc- tion for a cow-calf system. This consolidation is dependent (on the out-migration of family farmers and mezzadria in those areas. One study has been made on the process of farm abandon- lnent and its effect on farm size, type of tenure and crop- .land use.16 The research was based on a 1962 survey of 5,328 abandoned farms in central Italy. A main conclusion .is that farm abandonment in the past has primarily concerned 'the mezzadria system. Of 85,068 abandoned hectares in the survey; 73,270 had been Operated under this type Of tenure awnd almost 62,000 hectares were located in the hills and Inountains. Family farms were also largely abandoned in the znountains. The results for different time periods are re- *vealing (Table II-2). There is a successive increase in :farm.abandonment over the period covered. Although not pointed out in the study, this is likely tied closely to the availability of job opportunities as the economy grew in this period. The concentration of out-migration by height zones .also exhibits an interesting pattern. In the earlier period 16Enzo Di Cocco, La Dinamica della Utilizzazione dei frerreni dei Ti i d'Im resa e delle Dimensioni Aziendali nei Poderi "Disabitate " Inda inisull-esodo Rurale in Emilia- Roma na, Accademic Nazionale di Agricultura, Vol. I (Bologna: 1964) I p. 159- .mm- .a .Ae0ma "msmoaomv H .HO> .MHSDHSOeHmé Hp mamsoeumz owewpmuod .mcmmeomlmeawam CH cannon 000mmlaasmeaemmosH :.mumuwflmmwaa whooom Hos HampsoHNGAHGOHmOmEHQ maamp w mmonEH.p emea Hop .fismuuma Hop OCOHNMNNHHHDD MHHOU moefimoen on .00000 HO ONGH "monsom ooe see.5v oo- N00.Nm oo- mem.m oee.m gases _ w as mvo.m me mmm.m me ewe eeo.m magmas . as mo~.em mm mm0.m em emm.e mmo.m meeem em 00¢.5H me oeo.ee 00 ooe.m moe.m meemusaos unmouma Neummm- unmonme mmummm- unmouom emu-mos omme coemmm muommm Q¢>MWBZH WZHB QZ¢ mmZON Ememm Mm QNZOQZ¢M¢ MU¢MMDm .NIHH mam¢8 -40- 60 percent of all farm abandonment occurred in the mountains. The relative percentage but not the number declined in sub— sequent periods. In the most recent period the maximum rate of out-movement has shifted to the hills. . In the future as these two areas become depOpulated, we may expect the rate and number to be greater in the plains. The same ten- dency over time may be expected by type of management. Earlier, abandonment was largely on mezzadria farms; now it is occurring on family farms in the hills and mountains and rented farms in the plains. One may foresee the time when factors creating pressures for enlargement and rising labor difficulties will shift the rate of abandonment more to the farms Operated by salaried workers.17 DiCOcco found too that as the process of abandonment c>ccurs, farm size was increased as aggregation takes place. of the total land abandoned, 70 percent in the mountains, 66 percent. in the hills, and 82 percent in the plains was col'asolidated. Most of this process is between abandoned 3.116 non-abandoned farms but two or more abandoned units are soIt'tetimes combined into one larger farm. His survey showed 700 abandoned farms had been re-combined- into 190 new farms. In the hills and mountains the new farms averaged 100 hec- tares in size, about five times the average for all of the 17Strikes and rapidly rising wages have already caused some salaried farms in the north to curtail their livestock production. -41- region. In the plains the average size was 38 hectares or three times the average before abandonment. More out-migration is necessary for continued increases in farm size and consequent changes in the structure of agriculture. This movement is encouraged by the considerable income differential between farm and nonfarm sectors. An additional impetus is given by the absence of public facili- ties in hills and mountains that contribute to a lower level of living. An important policy measure that prohibits new mezza- dria contracts was passed by the parliament in 1964 to in- crease farm tenure changes and consolidation.18 This means the present sharecrOpper system with its rigidities will gradually cease as the present tenants disappear through death or migration. The complete disappearance of the sys- tem will release 3-1/4 million hectares to other types Of management. Qégmentation Together with size and tenure problems, fragmentation represents a critical problem in Italian agriculture. In the literature fragmentation and pulverization Often appear as either simultaneously or separately occurring phenomenon 18Gazzetta Ufficiale, NO. 233, Anno 105th, Act NO. 756 0f the Civil Code (September, 1964). -42- <:ausing poor performance. Fragmentation is defined as the (operation Of a single farm unit on separate bodies of land. 'The degree of fragmentation is measured by the number Of units into which the property is divided or is indicated by distance from the farm center. Pulverization is defined as small farm units which are unable to usefully employ all the working force Of the farm family. Some Of the inefficiencies resulting from these two factors are: (1) increased labor needs for separated fields, (2) impossibility of using machinery, (3) boundary and entry diaputes, (4) difficulty of improving and developing land by irrigation, construction of windbreaks, roads and etc., and (5) difficulty of adopting more profitable land use plans and livestock enterprises. Pulverization and fragmentation occur to a great extent in the Alpine and pre-Alpine valleys, in central Italy and is most serious in the south. In the northern mountains it is Often intentional due to the practice Of having summer pastures on the mountains and more protected areas at lower elevations for the winter. In the south the cause is a large population on a small supply of available land. In extent pulverization and fragmentation cover an area of four million hectares that produce 16 percent of the national gross sale- 19 able production. Approximately 43 percent Of this surface 19Atti della Conferenza Nazionale del Monda Rurale e dell Agricultura, "La Polverizzazione e la Fragmmentazione della Proprieta Fondiaria," VII Studie Monografie, Vol. III, pp. 21-44. -43- is in the mountains. Of the four million hectares, about one million is in critical need of recombination. The re- maining area is in a period of transition that must await further migration before efforts can be successful. Dating from Law Number 183 of 12th February, 1942, land reorganization and improvement work has been encouraged but to date little has been achieved. However, present and anticipated technical, demographic and economic conditions point to improvement. One source expects land reorganiza- tion on the needed one million hectares to take place in the next ten years.20 Such reorganization of land units in the past has always resulted in a substantial increase of gross saleable product, net product and net income.21 Where the same cultivation system.is maintained the increase in net income ranges from 10 tO 30 percent. But the more important gains are asso- ciated with changes in farm organization and production techniques. Where this has occurred simultaneously with re- organization net incomes have increased from 50 to 300 percent. As consolidation and enlargement take place, Italian agriculture is tending toward two types of management. First, 20Giuseppe Medici, Ugo Sorbi and Antonia Castratano, .Polverizzazione e Frammentazione della Proprieta Fondiaria in Italia, fIstituto Nazionale di Economia Agraria (Roma: 1962). p. 200. ZlIbid. -44- is the farm belonging to the cultivator: the family farm promoted by official policy that calls for a unit of suffi- cient size to absorb the family's labor and adopt rational production techniques. The second type is the commercial farm Operated by wage earners and with a relatively high degree of mechanization. pend Values The land market forms a major obstacle to farm modern- ization through improvements in farm size and recombination Of fragmented units. The problems are twofold, high land prices relative to income earned on the one hand and the desirerto retain ownership of land even when migrating out Of agriculture as a hedge against inflation and for security reasons. .Average price for farm land in the country in 1965 was 487,000 lire per hectare up three percent from 1964.22 In the northwest the highest average of 723,000 lire was recorded with an average of 602,000 in the northeast, 340,000 in the center and 414,000 lire per hectare in the south. Rental values average 30,782 lire per hectare in the northwest, 27,204 in the northeast, 15,524 in the center and 19,034 in the south. In the north there is a general tendency for 22INEA, Annuario Dell'Agricultura Italiana, (Roma: 1965) 0 p0 2100 r -45- farmers to expand the area under cultivation both by pur- chase and renting causing land prices to increase more rapidly than other parts of the country. In the center land values tend to remain about the same and to decrease at higher ele- vations. Sharecroppers are demanding more land in this area as government financing is more available. In the south there is considerable demand for land by family farmers but Offerings are few with consequent price increases. Land prices that reflect nonmonetary factors more than potential income characterize the Italian land market. Except in the mountains where supply exceeds demand the land market is limited. At present asking prices and prices expected for farm products it is difficult to see how pro- fitable farm enlargement can occur. But until it does effi- ciency gains will be small. Government Programs Obviously, much of the country's success in moderniz- ing its agriculture is dependent upon both its policies for economic growth and for agriculture. The first is important because the rate of economic growth largely determines struc- tural changes within agriculture. Agricultural policies are important in aiding the generally small, undercapitalized farms to adopt modern technology (income and price stability functions have been largely shifted to the EEC). Since 1961 Italian policy has been implemented through -45- successive five-year plans. The objectives of the current plan, 1966-1971, are: (l) to increase national income five percent per year, (2) to increase total agricultural produc— tion 2.85 percent per year to meet national demand and pro- vide for additional exports, (3) to increase nonfarm employ- ment by 1.5 to 1.6 million units, (4) to place 40 to 45 percent Of the newly created nonfarm jobs in the south to help equalize regional income differences and (5) to increase social investments to a level of 27 to 27.5 percent of avail- able domestic resources.23 In view Of the wage problems discussed above and the technological Obsoleteness of much of its productive capa- city it seems likely that some difficulty will be experienced in reaching the goal Of a five percent growth rate to 1971 and even more in maintaining this rate to 1975. Achieving the other four Objectives depends on the success in attaining the income goal. .If national income fails to grow at the expected rate it will not be possible to increase employment as planned and will also make improvements in agriculture more difficult. TO help in reaching these Objectives, the present five year plan calls for public investment of 75,200 billion lire. Of this amount, 16,050 will go to industry and services and 3,950 to agriculture. Increasing emphasis is placed on the 23Ministro del Bilancio, op. cit. -47- development Of the south. A measure of this emphasis is Obtained by comparing the 1959-63 expenditure for fixed investment in the south of 6,952 million lire to the 1965-69 sum Of 14,700 million. It is planned that the number of new, nonfarm jobs created in the region will increase by 670 thousand over the five-year period and 380,000 are to be in industrial activities. Of more immediate interest is investment in agricul- ture. This sector in the past has received.its funds from, many sources and made disbursements to a variety of agencies. It is difficult, therefore, to specify the amount Of public :money available and even more so to determine its final use. Some shifts in direction of farm policy in the last two decades can be pointed to, however, that have implica- tions for future agricultural output. Total agricultural investments in the decade 1951-1960 amounted to 2,587.6 billion lire of which 1,822.4 were public funds. Geographically, 40.9 percent of the public money ‘was expended in the north-center of Italy and 59.1 percent in the south and.islands. .Striking differences are found in the use Of public funds by geographic area. In the ten- year period 422.8 billions were used for land and building improvements on existing farms and land reform with associated improvements. Seventy-three percent of this investment was directed to the south and.islands. The south also received 76.8 percent of the total funds used for agricultural reform -48— (jarrigation, terracing and similar land improvements) and 68-1 percent of the funds allocated to structural improvements. The north, on the other hand, received the larger share ('741.4 percent) of money used for short term credit and agri- cultural production improvements (62.5 percent). This lat- 'teazr classification included improved seed, technical assist- :aricze and instruction and marketing and processing funds. CPIlee'supply of money for short term credit was 171 billion ()1? ‘which 154 billion was used for mechanization and 17 bil- ]_j.<>n for livestock improvement. It is evident from the foregoing that policy in the £3c>11th largely took the form of fixed investments in land reform, land improvements and building construction. This VVEiss consistent with social policy which called for the break- ‘11? of large estates and social improvements for the south. 531163 results show that policy in the south did little to Jillczrease agricultural output because of the concentration (Dr; fixed investments, particularly rural housing, and the CliSpersion dictated by social and political considerations. In the north these facilities were more likely to be atVailable and policy concentrated more directly on increas- ing output and efficiency. Even so, in this period little EAttention was directed to livestock improvement and to mod- Gunizing an antiquated marketing and distribution system. The year 1961 marks a year of transition from the pre- vious policy to the.beginning of the five-year development -49- plans. Total agricultural investment in 1961 was 372.7 billion lire with the government supplying 241.9 billion. As in the previous decade land reform with 34.5 percent and land improvement with 29.8 percent of the public funds re- ceived major emphasis. The only change of significance was a strong impetus given to irrigation- in the Mezzogiorno with the construction of basins, pipelines and distribution networks. Beginning in 1962 agricultural policy was implemented through financing provided by successive five-year plans. The first of the Piano Verde or "Green Plans" covering the period 1962-1966 had as its objectives: (1) to promote the formation and consolidation of efficient and organized farms, particularly, family farms; (2) to improve living Conditions in agriculture; (3) to increase agricultural pro- ductivity: (4) to adapt agricultural productivity to cur- rent needs of the national and foreign markets by means of cJI‘Op conversions; and (5) to assure a greater stability of agricultural prices and incomes. The financial resources appropriated by the government to carry out these aims is in Table II-3. Total public flmds for major expenditures for the five-year period were 550 billion lire which were to be added to appropriations of laws already approved. The allocation of these funds by use category indicates a major shiftin policy emphasis. For example, substantially larger quantities were made .-00ee .semaunmeo .N .02 .>Hxx oee< .eeooeema enouos m meanness - .omm .a .-oeme "maomv >Hx .Ho> .msmeamuH manuaooeumd Hamn Owumscnd .meumnmm mafiocoom an OHMGOHNMZ OusuwumH AH "mmousom .usmoumm ooa Ou 65m no: moon mnommnmflu paw mocmuuomfiw nmmmma mo mauve muHEo magmas. ooo.oom ooo.omm qaeoe 0H ooo.mma Ha ooo.m0 ucwemoam>mn ummuom one soaumamaomm cwmucsoz me ooo.0ee e ooo.oe coeummeunH one eoeumemeomm me o05.mme we ooo.am museumemme Heoecsume one sowumusmEHnmmxm noummmmm w e ooo.m N oom.- ,souemmom umxums _ m ooo.mm m ooo.om peeouo w 000.55 0 005.0m ucmEm>oumEH xuoumm>wq H oom.mH m ooo.~H Houucoo omnmmHQ.p:m uommcH mm ooo.mem mm oom.0me newsm>oumeH new Euommm neon wee ooo.0o- me om~.vm soeumueemsomz -mueq mo mace-Hes- Hmuoe mo H5u00mH Hence no 00IH0mH was unmoumm swam psoomm unmoumm swam umuem E 92 H mzfim zmmmo £8 52: E mzoESm-Sm-Ee age-58mg «-2 mum-«e -5’1- zaxrailable for research and technical assistance, Operating Llcaans, mechanization and livestock improvement. The first :ftxnds were made available for marketing information and research including the formation of farmer cooperatives. The first plan has been attacked on several sides. IPjgrst, the plan has been called a list of additive invest- ments rather than a true development program. The plan has been criticized because help was not given to the prob- ILearn of the large estates (the problem is that of rapidly rising wage costs or actual labor shortages that force mech- exriization or the break—up of the large estates. This is in ag reementwith government policy but the large landowners have a potent political voice in protecting their own in- terests.) The second Piano Verde, initiated in 1966, is contin- uing the same policy emphasis. This plan provides 900,000 IDjallion lire to the agricultural sector, a 63 percent increase <3‘Ier the previous five year period. This substantial increase jLEBlargely directed to increasing technical efficiency. The funds available for mechanization have increased 13ymore than four times the previous plan, livestock improve- tRent funds have doubled and irrigation and research and technical assistance have almost tripled.24 Of the appro- 24Additional funds are available for agricultural im- provement. In the Second Green Plan itself considerable money is budgeted for forestry development that directly affects agricultural productivity, for example, 24 billion u -‘I‘ .n-- .4"!‘ 1r -52- Ipzriations for livestock 62,000 million lire are for general ianrovement including better breeding stock and 15,000 is :Etar new buildings and stalls. In the much larger budget :E<>r mechanization, 13,000 million lire (article 12) is re- :seerved only for family farmers.’ This group also has priority :11: the 29,000 million lire available for operating credit. It considerable increase is available in the second plan for Ireeforestation and structural changes in the mountains. Ixéiditional funds for these purposes are available in emer- gaeency'appropriations for the 1966 flood. Items receiving t:I1e same or reduced relative emphasis are the land reform aarmd.improvement program, credit and pest control efforts. IPIInds for land reform and improvement remain the largest €3)Cpenditure category but the proportion is reduced in the Second plan. Accompanying the changes expected in technology and 12<> a lesser degree in structure, product composition shifts are. anticipated in response to EEC consumer demand. Table III-4 shows the 1964 composition with projection to 1973. “Che planners expect substantial increases in fruit, vege- ‘Zable and meat production. In the south large, new planta- ‘tions of fruits, mainly citrus and irrigated land for vegetables ii lire for reforestation and two billion for pasture land. In addition 125 billion for aid to agriculture is established in the flood relief program and considerable money is avail- able from the Cassa per il Mezzogiorno. -53- TABLE II-4. PERCENTAGE COMPOSITION OF FARM PRODUCTION FOR SALE IN 1964, PROJECTION TO 1973 AND EXPECTED ANNUAL RATES OF INCREASE Percent Expected Avg. Percent Product in Annual in Group 1964 Increment 1973 Cereals and Other 15.7 0.4 12.1 Vegetables 17.1 4.7 19.3 Industrial CrOps 4.0 3.2 4.0 Fruits 14.6 4.7 16.5 Grapes and Olives 13.6 2.0 12.1 Meats 18.5 4.8 21.1 Milk-Cheese 10.1 2.5 9.4 Other Livestock 3.8 1.8 3.4 IFcarests 2.6 1.2 2.1 TOTAL 100.0 3.3 100.0 Source: Ministro del Balancio, Progetto di Pro- ggamma di Sviluppo Economico per il Quinqpennio, 1965-69, Presentato a1 Consiglio dei Ministro (Gennaio 21, 1965). 118 designed to make this area the “vegetable garden of 1northern Europe." Livestock production is being encouraged 'but several factors tend to discourage greater output. Increased production of these three commodities means a smaller proportion of total production will come from tradi- tional products. Any future growth in output of these will :" .‘i's 4 1'. P..‘m -54- stem from yield increases more than offsetting decreases 111 surface planted. It appears from the foregoing that Italian farm policy, eat: least through 1971, will focus on different Objectives :iri the four geographic regions. In the north, agriculture j.£3 already relatively far-advanced and emphasis will be on greater efficiency and technological improvements. Live- stock production will be Of major importance. In the center the " crisis Of the mezzadria" and the mountain zones are c315 greatest importance. In the south and islands vegetables, fruit and Olives will receive most attention. The success C>1E these enterprises will rest largely on irrigation and market improvement programs. Besides understanding the direction of government pro- Elzrams indicated by budgetary means, four specific programs are eSpecially enlightening. 1. Land Reform Program: The land reform program has had most impact on type of management. Prior to 1950 agri- <1ultural land in the Mezzogiorno was concentrated in the lLatifondos. These large estates were operated with much labor, little capital investment and absentee owners with little knowledge or interest in agriculture. (Only four percent Of the land owners whose property was expropriated farmed as their major activity.) The land reform program was instituted both to improve the rate of development of agriculture and as a solution to the problem of many under- -55- employed farm workers. Results show definite changes in the pattern of agri- <2111ture and in productivity when the program is instituted. ZIr1 the extreme southern regions in the irrigated plains a ZLearge amount Of surface is being planted to citrus. In nnc>untain areas and in some of the irrigated plains where xreegetable by-products are available, dairy cattle are be- coming more numerous. In poorer zones hard wheat remains 1:c>gether with high-yielding varieties of Olives. One study (Dr: 46,590 farms reports the most consistent change was a reduction of pasture and permanent forage surface from 150 t:c> 90 thousand hectares, a decrease in cereals from 406 to 353 thousand hectares and an increase from 55 to 90 thousand }1eectares of vineyards, Olives, fruit and citrus fruit.25 Although farm size varies among the different land JT€3fOrm areas, the Objective has been a size Of 4.5 to 5.5 hectares in irrigated areas and six to ten hectares in arid areas. This has proven satisfactory where water is provided 1but low incomes in dry areas are reflected in out-migration. UFhere has also been criticism because funds for improvements 1lave been dispersed over all areas rather than concentrating 15 laws but many of the criticisms remain. The circuitous In(Ivement from law to farmer-user shows funds allocated from the Green Plan to the Ministry of Agriculture and Forestry. IJoana Of over 30 million lire can be made directly from t:his agency. At the next lowest level are 16 regional agri- <2u1tural inspection departments authorized to make loans of 10-30 million lire.26 Still lower are 792 provincial inspec- 26Cesare Selleri, "Il Credito Agrario in Italia, Con- siderazioni e Proposte," Rivista di Politica Agraria, Anno XII della nuova serie, NO. 3 (Bologna: September, 1965), pp. 25-34. -57- tion offices.that make loans Of less than 10 million. Money allocated to the province level is even further divided among the various credit institutions in a province. The frequent result of this rigid compartmentalization is to have funds available in one province or region while money is unavailable in another. In the past the situation has usually been for loan funds to remain unused in the south while in the north all available money is quickly distributed. The same situation exists for different size loans within the distribution system. In a given geographic area loans of up to 10 million may be depleted while amounts of 10-30 million are still available. From the point of view of optimal use of limited funds the credit program is hampered by stringent security require— ments. It would be most desirable from the agricultural standpoint for loans to be made depending on the user's ability to repay through use of the funds. In practice loans are made depending on the amount and value of land owned that can be used for security. For short-term loans the money is secured by a chattel mortgage on the crop or livestock. Some specific credit laws affecting the future develop- ment Of agriculture include the law permitting the mezzadria to purchase farm land. This law extends credit for up to a 40 year period at one percent.interest. This is essen- tially a subsidy to encourage the sharecrOpper to become a -53- family farmer. He may also obtain credit for complementary factors at two to three percent interest. On these loans the state pays the difference between the cost to the farmer and the eight to nine percent interest commonly charged by banks. Another form of extending capital to the farmer was contributo. If a farmer wished to purchase livestock he could Obtain 25 percent of the cost from the state provided he bought from an approved source. Such funds were also available for irrigation, fertilizer and similar practices to improve technical efficiency. This form of credit has now been reduced but is still available for some family farmers in the hills and mountains. 3. Marketing and Distribution:27 To the extent that the marketing and distribution system obstructs the effi- cient organization of agriculture or reduces the response to changing conditions, it becomes an important variable in predicting future farm output. The antiquated structure of wholesale and retail markets in Italy plays this role. Orlando classifies food markets into three types: a primitive model, which is a direct confrontation of producer and consumer; the traditional model which separates market functions into producer, processor, wholesaler and retailer 7Giuseppe Orlando, La Politica dei Marcati Agricoli (Torino: 1965), p. 231. -59- stages; and a modern model which is an integrated network. In Italy he estimates the market flows in each as 10 percent, 87 percent and 8 percent respectively. The structure of wholesale markets has changed little in recent years. Four characteristics describe it and the problems that must be overcome in increasing efficiency in the system. First is the small size of individual firms. At the end of 1961 there were a total of 46,734 wholesalers Of food products or an average of one for each 14 retailers. Only 15 percent of these employ more than five pe0ple and in 75 percent of the firms all work is performed by the owner with one family member. The second characteristic is the fragmentary nature of the services performed. The stages in the process are broken down into an unnecessarily large number with many firms entering the wholesaling function and often performing the same service. The result is an unnecessarily high cost for services rendered. A third feature of the wholesale market is the high degree of imperfect competition. Even though the number of individual firms is relatively large, the volume of goods in a particular geographic area is concentrated in the hands Of a few firms which effectively set prices and policies. Some examples are illustrative. In the Turin market there are 44 wholesale meat firms that handle 150,000 kilo- grams Of dead weight per week. But seven firms import almost -50- 50 percent Of the total leaving the other 50 percent to be shared among the remaining 37 firms. Similarly in Florence, of 230 dealers in meat, 20 handle about 60 percent of the entire volume. In Rome, of 150 meat dealers, only eight regularly bring in a weekly supply equal to 42 percent of the city's sales. Another example is the fruit market of Rome where only seven of 108 wholesalers are important and where one is so organized as to be able to control the cold storage and rail loading facilities. He also has a telephone communication system with the major Italian and German markets and every morning is able to decide the designation of fruit shipments. Thus, fruit prices are established.in the Rome market for all Italy. The situation in the grain market is similar except that the importer becomes the price maker. Some four to six 28 One firm, Ferruzzi, Operators cover the entire market. does 40 percent of the grain importing. Further, in some towns you either purchase from a particular importer or supplies are unavailable. The low efficiency of the wholesale sector is aided and abetted by Italian legislation, the fourth characteris- tic reducing the rate of change. Laws regulating sanitation 28Conversation with Mr. Hakim, Continental Grain Company, Milan, May 8, 1966. -61- and licensing are vested.in the commune.29 The usual policy is to regulate the import of meats and milk into the com- mune so that production within it is given preference. The effect is to eliminate any possible scale economics of centralized plants and prohibit some of the gains that might be Obtained from specialized producing regions. The mag- nitude of the problem can be seen from the fact that there are 634 public and 11,402 private slaughter houses in the 3,946 communes of northern Italy. The meat industry in particular suffers from the small amount of refrigeration available. This absence results in a deterioration in food quality, places limits on consumer choices available in warm seasons (fresh pork is considered unsuitable for summer consumption) and contributes to market domination by the few firms that have refrigeration. Food processing has been slow to develop. Consumers have traditionally placed a premium on fresh goods of all types. More than three-fourths of Italian homes prepare their meals from products in the raw state. Two factors are at work to increase the amount of pro- cessing. First, government policy strongly supports farm cooperatives for processing and storage and has made 47 billion lire (article 9) available for this purpose in the second Green Plan. Now modern plants are being constructed 29Roughly equivalent to a county. -62- at a fairly rapid rate financed by both public and private investors. Second, consumers are becoming more used to pro- cessed foods. Part Of this change in attitude is related to rapidly rising costs for maid service. Like wholesalers, retail firms are quite numerous, small and poorly equipped. In 1961 there were 637,349 licensed establishments for the retail trade of foodstuffs. This is an average of one license for each eleven consumer families. Most Of these are shops that specialize in a particular good, i.e., meat, poultry, wine or general staples. The retail segment also shows an absence of competi- tion and rigid prices. Factors giving rise to imperfect market conditions are: (l) the lack of communication between markets and within a given market and the neighborhood char- acter Of shOpping, (2) the credit arrangements extended to regular clientele, and (3) the possibility Of product dif- ferentiation due to consumer ignorance and the absence of a public service responsible for defining types, varieties and quality of products. Still, improvements in retailing are being made at a faster pace than in wholesaling. The impact of the super- market is being felt. Table II-5 shows the grthh by years Of this form of retailing.in three geographic areas. TO date, supermarket distribution is mainly confined to north- ern Italy and, in fact, one-fourth Of the 1964 number is found in the region of Lombardia and the city of Rome. -63- TABLE II-S. SUPERMARKET GROWTH BY REGIONS, 1961-1964 * - Absolute Region Aug. 31, March 31, June 30, June 30, Increase 1961 1962 .1963 1964 1961-1964 North Italy 91 120 196 246 155 Central " Italy 39 48 60 84 45 South and Islands 19 38 53 74 55 TOTAL 149 206 309 404 255 Source: Carlo Fabrizi, "La Diffusione dei Super- marcati in Italia," Economica, NO. 1469-1489. 1965), Revista di Politica 10 (October, pp. Increasing the number of modern retailing establishments faces several obstacles. is unfavorable. The law governing retail commerce Authorization of a new retail firm comes from the local Chamber of Commerce which represents the interests of existing merchants. Decisions on applications are often negative or come only after long delays. Many of the present supermarkets are subsidiaries of large companies such as the Standa or Upim Department stores which Open as '“branch stores" Some other obstacles to modernization include: rather than new firms. (2) existing merchants are very much against these new forms of commerce, (3) the food suppliers cannot provide a con- -54- tinuous supply of the quantity and quality of products needed (larger chains meet this problem by importing), (4) trained personnel, especially for meats, milk products, vegetables and fruits are not available, and (5) price policy is estab- lished for a chain for all the country and local units cannot cut prices to meet competition.3O Even in the face of these obstacles this form of retail- ing is increasing. As it does, changes will be made not only as other retail firms are forced to modernize but through- out the marketing structure as consumer demands are more clearly transmitted. In addition to reducing monopolistic elements in the marketing system, improvements may be ex- pected in food storage and processing. Most of these effects will likely be in favor of the consumer. Still, producers may expect to benefit from increased demand for products such as meat now priced out of many consumer budgets (note effects of integrated arrangements on broilers) and extend- ing the period of consumption of some perishable products. Improvements in distribution can also be expected to increase the rate of structural transformation and affect the pro- duct composition of agriculture. 3oCarlo Fabrizi, "La Diffusione dei Supermarcati in Italia," Revista di Politica Economica, No. 10, (October, 1965). pp. 1469-1489. CHAPTER III HISTORICAL TRENDS, GENERAL CHARACTERISTICS AND PROJECTIONS OF CROP PRODUCTION Italian crop production may be viewed in terms of four groups of commodities: wheat, feed grains, forage and other including fruits, vegetables, olives and the industrial crops of sugar beets, tobacco and cotton. A major objective of this research was to project the domestic production of wheat and feed grains. An initial hypothesis was that wheat production would decrease in response to lower prices and feed grains would increase as their prices moved in the opposite direction. In this chapter commodity projections are obtained by examining adjustments to price over a base period, input-output relationships and adjustment limitations imposed by farm structure. -Crop Inputs Italian agriculture is characterized by limited land resources, especially land with fertility and topography conducive to modern agriculture and until recently there has been abundant and relatively inexpensive labor and limited amounts of capital. These ratios influenced the rate of development, the choice of enterprise and the tech- —65— -66.. niques of production. The relative change in use of land, labor and capital (measured by quantity of fertilizer and mechanized horse power) are shown in Figure III—l for the three major regions of the country. In all three regions the land input changed little, reclamation programs actually increasing the pro- ductive agricultural surface until 1959 relative to the 1952-53 base period. Since that time slight declines in surface have taken place with the central part of the coun- try the most substantial loser. The agricultural work force declined from a 1952-53 base of 100 to 59.8 in the north, 56.6 in the center and 74.7 in the south. As with land, the center was the largest loser because of the hilly and mountainous terrain comprising the majority of its surface. The indexes of labor force could be misleading in that the north shows a comparable rate of decline to the center, but labor is a much smaller proportion of the input mix in the north than in other regions. The indexes of fertilizer elements used and total.horse- power of all agricultural machines is both an indication of the total influx of capital into agriculture and the substi? tution among types of inputs. As a measure of capital it is evident that increases since 1952-53 have been consider— able in all regions. As an indication of input substitu- tion, capital replaced declining quantities of labor and slight decreases in land. Beginning from a lower base, -57- FIGURE III-1. INDEX OF AGRICULTURAL INPUTS AND INPUT PRICES BY MAJOR GEOGRAPHIC REGION 700 "" 600 *- Central 500 ‘— 400 —’ 300 .- 200 ‘— 700 - 600 ‘ 500 *- 400 - 300 -- 200 — ’w I. a—. l— 0"“..- .—.'b.—‘—'—O—‘.’.d - — — - 0— | | I I I l ' 1952-53 1955 1957 1959 1961 1963 1965 -—— Land ._ .. .. Labor -...Fertilizer _+F_Total Mechanical H.P. ...continued -68- FIGURE III-1 (continued) 700*- 600—- 500- 400:- 300 4— 200 __ 100... 700 - / 600.. Prices—~all Italy / 500 _. Labor 1938 = l / 400 _. 300 " / 200 ~ r... 100 -- ,’ / 9‘ . ° - /’ “~-~ H ~%fi’ ’ .‘ ‘~0—o—o—O - 0". ’ I I / I I v I I I 1952-53 1955 1957 1959 1961 1963 1965 Land ._ _ ...Labor ..h_.Fertilizer __++_Total Mechanical H.P. -69- mechanization and fertilization increased at a faster rate in the south than in the other two regions and both have been retarded in the center by topography. The economic incentive for input substitution is found in the price quadrant of Figure III-l. Both machinery and fertilizer price indexes have remained below 100, although the price index for all agricultural inputs purchased rose to 110.5 in 1965. The labor price index has increased rapidly, especially in recent years and land prices, although an index is not available, have been high in relation to farm income and have trended steadily upward. With these price changes farmers have found it profitable to mechanize farm Operations and use more land intensive practices while reducing labor. Three of the input categories that are used .in greater quantity are important in determining future production and will be discussed.in more detail. Mechanization Agricultural mechanization is a major objective of Ital- ian policy as a means of increasing labor efficiency but to date agriculture remains highly labor intensive. For example, the Ministry of Agriculture reports the total labor require- ments per hectare in the plains with average wheat yields as 95-105 hours with little mechanization, 66-73 with an average level and 37-44 with a high level of mechanization. At the lowest level of use labor requirements are more than -70- double U.S. rates. Another study in central Italy emphasizes the differ- ent labor requirements by type of management as well as elevation. These results show a requirement for wheat of 69.3 hours per hectare in the plains (a range of 55.7 for salary farms to 95.8 for mezzadria farms), 117.6 hours in the hills (103.8 for salary farms and 159.2 for family farms), and 152.5 hours in the mountains (112.7 for salary.farms to 185.0 for family farms).1 From these results it appears that farm mechanization is much further advanced in the plains and on farms operated by hired labor. Hill and moun- tain farms have been difficult to mechanize and family farmers and sharecroppers with abundant family labor have had less incentive to purchase labor-saving equipment. Appendix Table 3 shows the degree of mechanization measured by tractors and power units purchased in the dif- ferent regions. For all Italy the number of machines has more than tripled over the ten-year period with the largest increases in the north and center. An index of mechanization (computed by dividing total horsepower by productive agricul- tural surface) shows an increase in the north from 0.45 in 1955 to 1.99 in 1965, from 0.21 to 0.87 in the center, from 0.10 to 0.49 in the south and 0.24 to 1.04 for the nation. 1A. Benvenuti and A. Panattoni, "Research on Grain Pro- duction in Toscana," L'Agricoltura Italiana (Pisa: January- February, 1964). -71- In many ways an index of total horsepower overstates the actual progress. Farmers commonly purchase a tractor and continue to use former animal-drawn implements requiring one man on the tractor and one to operate the implement. Mechanization of harvesting activities has proceeded even slower. In 1965 872,978 combines were reported in the country with 68.6 percent located in the north.2 Total machines for harvest including many garden-tractor variety forage cutters was 3,227,271 with 74.6 percent in the north. Data is not available on livestock mechanization. Milking machines are found frequently, but feeding and clean-up are almost universally performed by hand. Inefficient barn arrangement and absence of mechanization form a major obstacle in competing with other livestock producing countries. . Mechanization in the future will no doubt proceed at a faster pace due to farmers' efforts in meeting rising labor costs and government aid to reduce labor use in agriculture. The second Green Plan has budgeted 106,000 million lire for mechanization for 1966-71 compared to 24,500 million in 1961-66 (13 million in the second plan is reserved for machinery purchase only by family farmers).3 Assuming that investment funds available from the government reflect the 2Utenti Motori Agricoli, La Meccanizzazione Agricola in Italia, TrattriciLfMotori, Carboranti (Roma: 1965). 3Gazzetta Ufficiale (Roma: February, 1967). -72- pace of mechanization, this would mean an increase of 333 percent over the past five-year period, reduced by any in- flationary effect on machinery costs. Mechanization to date has largely been directed to grain with some forage operations mechanized in the north. One would expect new inputs to be directed to livestock and forage production, since these are the less efficient enter- prises and the remaining unmechanized grain farms are in more difficult terrain. If so, the labor income from live- stock would increase relative to grain. Fertilizer Use (with farm output prices rising and fertilizer prices averaging below 1952-53 levels, farmers have responded by applying larger quantities of nutrients. Total consumption of the three principal elements has in fact almost doubled from 1952—53 to 1964. (Appendix Table 3). The rates of fertilizer use are good indicators of the different levels of deve10pment in the four geographic regions. It is also of interest to know the rate of fertiliza- tion for different crops. An INEA study based on data from 1,754 farms shows wheat to be fertilized more than other grains (Table III-1).4 Minor cereals receive little fer- tilizer especially in the south and islands where most 4Istituto Nazionale di Economia Agraria, unpublished data (Roma: 1961). TABLE III-1. FERTILIZER USE BY TYPE OF CROP, TYPE OF MANAGEMENT AND MAJOR GEOGRAPHIC REGION, 1961 Crop I North I Center I South I Islands A11 Cereals Soft wheat Hard wheat Minor cereals Corn Sugar Beets All Forage Temporary Forage Alfalfa Farmer-Owner Mezzadria Salary—Operated (Kilograms of N, P. 136.7 143.3 100.3 104.2 |' 165.3 77.3 78.0 31.6 98.9 101.0 130.0 91.2 98.1 52.5 48.1 135.3 34.1 37.1 36.5 66.7 65.1 64.0 and K Per Hectare) 67.2 70.1 63.4 61.2 50.1 147.8 61.6 66.9 45.7 60.9 67.3 93.3 49.4 54.6 9.1 81.0 35.0 57.3 57.4 67.0 66.0 '49.4 123.3 Source: Instituto Nazionale di Economia Agraria, unpublished data (Roma: 1961). -74- production is found. The study also reports the rate of fertilizer use by type of management and by elevation. Lower rates of fer- tilizer use are generally noted as one moves from north to south. Within each geographic area the salaried Operated farms have higher rates of use than family and mezzadria farms except in the center. This is assumed to be associated both with a higher level of management ability including knowledge of fertilizer results and with less capital limita- tions for obtaining fertilizer. Fertilizer use also decreases , with movement toward higher elevation. Fertilizer use on all cereals declines from 90.5 kilograms per hectare in the plains to 79.5 in the hills and 61.5 in the mountains. Simi- larly, use on forage is 77.3 kilograms in the plains, 44.7 in the hills and 47.6 in the mountains. Without question greater fertilizer use in Italy will be profitable to farmers and will increase national farm output. Many family farmers and sharecrOppers still rely on organic fertilizer and use little chemical material. Experiment station results show large yield increases for wheat associated with additional fertilizer and recommend doubling fertilizer use on corn. Conversely, forage does not respond well to higher rates of fertilizer use and little progress in yields is anticipated. A summary of such find— ings leads to the expectation of continued yield increases for grains associated with fertilizer use with a tendency to substitute grain for forage as yield relationships change. -75- ,Irrigation Irrigation has more effect on the organization and output of Italian agriculture than any other single input. For example, hybrid corn is almost universally produced with supplementary water; where water is not available local varieties, lower yielding but more adapted to growing con- ditions, are planted. In the same manner forage, sugar beets, fruits, vegetables, rice and tobacco either require irriga- tion or else yield much better when it is provided. The effects of irrigation are most striking in the south where land use typically shifts from cereal production to higher value crops upon irrigation. Policy efforts in this region are directed toward increased irrigation and complementary inputs in land reform areas. Appendix Table 3 illustrates the progress by regions. From 1955-1965 irrigated surface increased almost one mil- lion hectares, a 39 percent gain. The rate of change has been fastest in the center but in 1965 the north still con- tained 70 percent of the 1965 irrigated acreage. As late as 1962 the four Po Valley regions--Piemonte, Lombardia, Emilia-Romagna and Veneto--accounted for 70 percent of the nation's irrigated land.5 In order to make commodity projections that follow, an 5A. Antonietti, A. D'Alanno and C. Vanzetti, Carta delle Irrigazioni d' Italia, INEA (Roma: 1965), p. 11. -75- estimate of 1970 and 1975 irrigated surface was needed. A first approximation is provided by an INEA study that sets the total additional irrigable surface in the long run (no mention of length of time) at 1,109,403 hectares dis- tributed as follows: north 379,640: center 262,700; south 261,881; and islands 205,182 hectares.6 For our purposes these may be viewed as maximum estimates for 1975. Since this study is interested in the surface to be irrigated by 1975 and the above figures will not likely be attained by then, this estimate must be refined. Therefore, for each of the four regions a linear regression was com- puted with time (1952-1964) as the single independent var- iable and surface irrigated as the dependent variable. Extrapolation of this trend provides a 1970 estimate of 2,576,000 and for 1975, 2,763,000 irrigated hectares in the north (R2 = .993). In the center the 1970 estimate is 426,900 hectares and 513,300 in 1975 (R2 = .981): in the south, 570,700 and 694,300 (R2 = .954) and in the islands 266,800 and 310,200 hectares (R2 = .896). An additional refinement for estimating surface is provided by the financial means available. The first Green Plan provided 40 million lire for irrigation and land.improve- ments. In the second Green Plan (1966-1971) this was in- creased to 116 million lire. This money is to be distributed 61bid. -77- at the rate of 22 million for each of the first two years and 24 million each of the last three years. An average cost per hectare for irrigation for all 7 To arrive at the number Italy is 269,900 lire in 1963. of hectares that can be irrigated by the second Green Plan (1966-1971) it was assumed that costs would rise ten percent so that the cost per hectare would be 296,890 lire. Given the 116 million lire in available funds this means a maxi- mum of 390,717 hectares could be irrigated. For 1975, the. same reasoning was used to arrive at a maximum figure. For 1970-1975 it is assumed that the same rate of expenditure on irrigation as in the 1966-1971 period will be approved. This will mean available funds for this purpose of 149.6 million lire. Assuming also a price rise in cost of irri- gation of 15 percent between 1970-1975 means this amount of funds will provide for irrigating 438,283 hectares. The total irrigated from 1967-1975 thus becomes 829,000 hectares. For comparison the regression analysis provides an estimated additional surface irrigated from 1965-1970 of 387,500 hectares compared to the estimate of 390,717 hec— tares using Green Plan funds. For 1975 the regression es- timate is an additional 440.4 thousand hectares compared to a budgeted estimate of 483,283. 7Ministero Dell' Agricoltura e Delle Foreste, Piano Quinquennale di Sviluppo Dell Agricoltura, Relazione a1 Parlamento Sul Secondo Periodo di‘Attuazione (Roma: 1964), p. 87. -73- While these figures estimate the total addition to irri— gated surface in Italy, it may be expected that changes will occur in the future geographic distribution. We may expect less emphasis in the north and more in the south for several reasons: (1) in the north most of the best land and that located in areas most easily irrigated has already been completed, (2) the north is chiefly a forage and cereal pro- ducing region and the economic results from irrigating these crOps is not as favorable as can be obtained elsewhere, (3) most of the land that can be irrigated by flooding has al- ready been completed and the remainder must be irrigated by sprinklers requiring considerable labor that in the indus- trialized north is both scarce and expensive, and (4) the government development plan places emphasis on the develop— ment of the south. For all of these reasons, the 1952-1964 trend is expected to be altered in the future. To obtain regional estimates of irrigated surface in 1970 the assumption was made that surface in the north and Islands would follow the 1952—1964 trend, while the center would be three percent less than the indicated trend value with the south absorbing the remainder between the sum of these three regions and that made possible by funds from the second Green Plan. This procedure yields a 1970 estimate of 2,576,000 hectares in the north, 414,100 in the center, 586,800 in the south and 266,800 in the islands. ' For 1975 it was assumed that the north would be less -79- than the indicated trend value by one percent, the center by two percent and the islands would be above trend by two percent. The remainder was again assigned to the south. The results show for 1975 an irrigated surface of 2,735,400 hectares in the north, 503,000 hectares in the center, 727,200 hectares in the south and 316,400 hectares in the islands. The projected 1975 surface in all regions is less than the irrigable surface estimated by INEA. The continued increase in irrigated land is expected to encourage the following shifts: (l) a decrease in wheat and small grain acreage, (2) an increase in high income crops such as fruits and vegetables, and (3) continued yield increases for forage and corn. In the south and islands eSpecially, dramatic changes in farming occur as water is provided. In almost all cases it means a decrease in grain surface and more citrus, fruits and vegetables. Soft Wheat "Wheat is a basic commodity in the economy of Italy. It is the primary food of the people and is a staple crOp throughout the country, in all regions and on every type. of farm. Almost a fourth of the cultivated area is devoted toits production.“8 Thirty years later this statement still 8Carl T. Schmidt, "The Italian Battle of Wheat," Journal of Farm Economics, Vol. XVIII (November, 1936), p. 645. -80- describes the importance of wheat, changing only in that wheat is now just over one-fifth of total farm surface. Because of its importance most farm policy has focused on this crop. Schmidt, describing pre-war policy, tells how Mussolini appealed to the sentimental nature of Italians to make the country self-sufficient in wheat (equated to food) and at the same time increase farm income. The wea- pons of the "battle" were relatively high domestic price supports, heavy tariffs on imports and a variety of subsidy devices. The results were increasing wheat surface and erratic but higher yields. Self-sufficiency was essentially won but at the expense of livestock production. What were formerly steep, hillside pastures became wheat land that led to erosion, loss of fertility and many of the present problems of the mountain areas. Feed grain and forage pro- duction were neglected and imports of animal products rose. Today, Italian farm policy has turned 180 degrees. The controversial Saraceno Report pointed to the necessity of reducing the surface in wheat and developing the livestock sector.9 This plan advocated policies designed to contract wheat surface in the average and large size farms in the north and expand the cultivation of corn and fodders while in the southern irrigated plains fruits and vegetables would 9Emilio Zanini, "1966-1970 Programma Quinquennale 1e Possibilita Tecniche di Sviluppo dei Settori--Chiave," Agricoltura, Anno XIV, No. 12 (Roma: Dicembre, 1965), pp. 23-36. -81- replace wheat. The second Green Plan essentially follows these recommendations. Soft Wheat Surface Wheat surface continues to be responsive to policy direction. Figure III-2 illustrates the change in soft wheat surface for the three major producing regions from 1952-1965. In all three regions surface tended to increase through 1956 when mounting surpluses were a factor in reducing the domes- tic support price from 6800 to 6200 lire (8.8 percent) in the north and center and from 6950 to 6450 (7.2 percent) in the south. These changes, combined with a period of rapid economic growth encouraging off-farm migration, caused the sharp fall in wheat surface shown. The prices of the Common Agricultural Policy continue this unfavorable pattern for wheat. Price projections used later show an expected decrease of 8.6 to 9.3 percent depend- ing on the region from 1964-1970 and at the low price assump- tion for 1975. At the same time feed grain price projections call for an expected increase of almost 15 percent from 1964-1970 and 32 percent from 1964-1975. It is expected that price changes of this magnitude will lead to further reductions in wheat surface. Besides unfavorable prices, other factors are important in farmer decisions to reduce wheat surface. In order to project 1970 and 1975 production, these must be considered -32- FIGURE III-2. SOFT WHEAT SURFACE BY MAJOR GEOGRAPHIC REGIONS, 1952-1965 Hectares 1,500,000.. 1,400,000—4 1,300,000.. North 1,200,000‘- A—¥ 1,000,000—‘ Center 900,000—' 800,000- South 700,000“ I I I I I I I ‘I l I I I I I 1952 53 54 55 56 57 58 59 60 61 62 63 64 65 -83- and their collective impact weighed. Table III-2 lists the more important factors and further discussion of the effects of each follows. Behind the changing price ratios is a change in grain requirements. In recent years the shift from the traditional forage ration for cattle to mixed feeds and the rapid expan- sion of the broiler industry has created additional feed grain demand. It may be anticipated that increasing quan- tities of these grains will be needed. Policy is being changed to encourage more feed grains and less wheat. Much of the wheat land going out of production has been marginal land drawn into use by former policies. Wheat surface declined 11 percent in the mountains from 1959-1964, 7.4 percent in the hills and 2.4 percent in the plains. Although the rate of decline in the mountains is highest, the total decrease in number of hectares was only 61,000 compared to 95,000 in the plains and 107,100 in the hills. The process of farm abandonment at higher elevations is expected to continue in the poorer areas and in more favor- able areas shift to pastures and woodlots. But the complete abandonment of the remaining 500 thousand hectares of wheat in the mountains would reduce national wheat production less than ten percent. More important will be shifts occurring in the hills of Italy. It is in this area that out-migration at present 10 is greatest in absolute and percentage terms. In this loDi Cocco, Op. cit., pp. 249-332. -34- .mmmsmo HOUHDHHOQ Ocm Hmfloow .OAEocoom mo >umaum> mOH3 0 mo ucmuuomfifi muoE map so msoom ou Hmzumu pan m>HmOHUCH Ham on on Ompcmucfl no: me umaa one .mGOHmmH an hum> mGOHmHomU umEHMM mcwhaumpcs muouomm may now Omuoc on umsa mcHNflHmumcmm mo mummcmp 0:80 mcoaum>mam Hmnmfln um UCMH Hmcflmumfilnsm CH mmmmuoma Avv mmumumHE Hweumm maflfimm paw mwup Hmmmmm.umumm mawamaoomm Op mocmpcme Amv muflmwcmn mo COHUHCmoomH mcflmmmuocfl 0:0 mm: HONHHAUHOM mo mums now: >Hm>wumHmm Amy ummLB mmouo Hmsuo ou OODMflnm so down mm: Soummmou oeumsmm umoz AHV paw pmummfluufl ma OcmH Hmuumm AHV fl coaumasmcoo muflmmo mom umBoq Amy mamuH ou muuomxm £DH3 mocmum CH msHQHSm momma mo Muflaflnwmmom Abv OOMMHSm Omummfluufl OmmmmHOcH Amv mmmuow no suoo umEESm Avoma mo Baa MHHUMNNOE OOHOSHU LDHB mcwmmouomansop mo auHHHQmeom Amy IGHV mEHMM MAHOMNNOE mo wmmmuumn Amy mEHmm Umumummo chHum> IxumHmm MO 0098:: CH mmmmuocH Amv Imam nonmfln um UGMH mo Damagopcmnd Avv mono Omuflcmnome manmwn umoz Adv xooumm>HH now mmmuom cam Gowumuou Hmcowuwpmua Amy :Hmum mo muGOOEm pmmmmHUCH How @002 Am- msfimm maflewm HHmEm mo HOQESG mmumq Amy mcwmum comm mom mmoflum umnmflm Amy mEoocfl Show mo OUHDOm HonmE < AHV audaom 0mm Hops: mmUHum #0033 HO3OA Adv mommusm mmmmuosH no ucmumcoo mswuo>mm _ mmmmuomn m mcHHO>mm OZOHBUDQOMQ B¢m33 ZfiHAdBH UZHZOHBHQZOO mMOBU¢m .NIHHH_QO¢B -35- area and in the plains aggregation follows out-migration so that more viable farm units are created. Almost without ex- ception when these units are operated in a salaried type of management, land formerly planted in an inter—mixed system of trees, vines and wheat becomes used for specialized wheat production. The consequences of out-migration are expected then to have different effects according to altitude; in the mountains continued decreases of wheat land can be foreseen with little effect on total wheat production; in the hills a more specialized and productive wheat culture on fewer hectares; and in the plains substitution of wheat by higher valued crops. A part of the process of out-migration is the change in structure associated with the change in the tenure sys- tem. Farms operated by mezzadria are highly resistant to change. But as advancing age, off-farm job Opportunities for younger family members and the 1964 law passed to pre- vent new contracts Of this type gradually eliminate these sharecroppers, change can be more rapid. Where land shifts to a family farm arrangement farm organization changes little although more public financing is now available for modern- ization. Where the land shifts to a salary system more dynamic response as described above results. Government policy promoting irrigation also negatively affects land planted to wheat. This is particularly true in the south and islands where most land feasible for irri- -86- gation is now planted in grains. Aiello describes the effect of irrigation on farm organization in 46,590 farms in the land reform program, "the most consistent changes were the reduction of pastures and dry grain crOps--in the coastal lands there is a substantial increase in irrigated area counterbalanced by a reduction in dry grain crops—-in the dry lands and internal hill lands dry grain crops retain 11 With the major em- their position of major importance." phasis on irrigation in these areas indicated by the second Green Plan, a considerable reduction of all grains, particu- larly wheat, may be anticipated. Of some concern to Italian policy makers is the effect of French wheat imports on wheat production and farm income. The price in that country will be higher under the Common Agricultural Policy and may be expected to encourage further wheat production. French soft wheat can now be purchased at less cost in some areas of Italy than it can be produced 12 Dr. Amadei describes the policy by traditional methods. dilemma, "The best of all situations would be for France to grow wheat and export to Italy with no tariffs. But in the center and south of Italy a large amount of land is suit- able only for wheat; what would be the future for this part 11Carlo Aiello, op. cit., p. 62. 12Conversation with Dr. Mariani, Director of Grain 'Importing, Agangeline Corporation, Ancona, June 6, 1966. -87.. of the country--too many people presently employed in agri- 13 These apprehensions no doubt culture would have no jobs." have_foundation; nevertheless more French wheat will likely flow into Italy causing pressures to decrease domestic pro- duction.14 The factors discussed thus far indicate a reduction in wheat surface, but there are influences at work to resist these pulls. Because wheat is a major income source for farmers it is uppermost in the minds of policy-makers. Wheat income is especially important to two groups, the large land owner who has an influential voice with local and na- tional politicians and the large number of family farmers for whom farm income cannot be allowed to fall at too fast a rate. Thus, aids designed to ease the effect of lower EEC wheat prices as much as possible may be expected. 13Conversation with Dr. Georgio Amadei, Instituto di Economia e Politica Agraria, Universita de Bologna, Bologna, January 28, 1966. 14Italian wheat imports in 1965 totaled 930.7 thousand metric tons up from 540.8 in 1964 and 308.3 in 1963 but much less than the 2,451.5 thousand tons imported in 1961. France supplied essentially no wheat to Italy from 1955 to 1964 but in that year 202.3 and in 1965 375.8 thousand metric tons were imported from this country. Source: U.S.D.A., Economic Research Service, Preliminary Computer Printout, EEC Trade Study, Book No. 4. Some Italian wheat is milled into flour and exported. In 1965 277.2 thousand metric tons of wheat flour was exported (equivalent to 360 thousand tons of wheat) and in 1964 113 thousand tons of flour was exported (equivalent to 147 thou- sand tons of wheat). Source: FAO, Monthly Bulletin of Agricultural Economics and Statistics, Vol. 15, NO. 11 (Rome: November, 1966), p. 25. -88~ A second factor is the large proportion of family farmers and sharecroppers in the country. Because wheat is the most dependable income source, production techniques are familiar, five to seven year rotations are common prac- tice and small farms do not have capital for major transi- tions, wheat will remain the most important crop. Since adjustment on these farms comes slowly and in some cases not at all and government policy favors maintaining family farms, total wheat acreage in the future will not be dras— tically different than the past trend even with EEC price changesz More operations in wheat production are mechanized than any other enterprise and rising labor costs have less dampening effect than in competing land uses. Where large elements of fixed costs are incurred with the purchase of specialized harvesting equipment there is incentive to main- tain or even increase wheat output.15 In some areas of the country where irrigation is avail- able wheat remains because it is possible to harvest in June and doublecrop summer corn or forage. Several cereal-livestock farmers in the PO Valley region indicated that even at pro- posed.EEC prices this would be their most profitable com- bination. To the extent such cropping patterns persist, 15Combines with combination heads for two or more crOps are available only in small numbers. -89- EEC prices will have less effect than envisioned. The net effect of all the forces listed in Table III-2 will be a continued decline in national wheat surface. The rate of decline will differ according to elevation, type of management, input use and available alternatives, both farm and nonfarm. In the mountains low yields coupled with lower prices, inability to take advantage of modern tech- nology and difficult living conditions will cause wheat surface to fall rapidly. In the hills wheat will remain the dominant crop. Where sharecroppers and family farms remain, wheat is a major income source and production will continue much as it has in the past; where land farmed by salaried workers increases, wheat offers the best alterna- tive in the hills. Modernization of farming in the hills and mountains depends on out-migration and the willingness of land owners to sell land for consolidation. In the irri- gated plains EEC policy will have more effect and higher valued crOps including corn will be planted at the expense of wheat. 1. Statistical analysis of historical factors influencing wheat surface: Two original objectives were to quantify the effect of lower wheat prices under the CAP and to project wheat production under these prices. To accomplish the first and as a first estimator of the second, single equa- tion regressions were fitted to data on surface planted to soft wheat in each of the four geographical regions. The -90.. model for each region included the regional average nominal soft wheat price lagged one year and time as a dummy var- iable for the changes in structure discussed above but for which time series data were generally unavailable.16 The dependent variable was soft wheat surface reported at the regional level and aggregated for the north, center, south and islands. The results are in Table III-3. The two variables in- cluded explain 70 percent or more of the variation in wheat surface in each region, signs of all price coefficients are consistent with economic theory and signs of the time var- iables show the decreasing trend of wheat surface in each region. Price coefficients are statistically significant at the .05 level or better for all regions but the north and time coefficients are significant at the .01 level or better for all regions. The magnitude of the price coeffi- cients support the expectation that farmers are less respon— sive to price in moving from north to south in the country. Examination of the table of simple correlation coeffi- cients shows time to be highly negatively correlated with wheat surface and positively with wheat price to a lesser degree. This indicates that the regression coefficients 16Alternative formulations with estimates of out-migration, mechanization and prices of competing crOps were run, but sta- tistical difficulties and insignificant results indicated the research objective could best be accomplished with only two independent variables. -91- .mucmHUHMMOOU :OHmmemmu may mo mam>ma mocmoflmwc Imam paw mnouum pumpcmum mo mmumEHumm .umpuo CH mum mononucmumm OH mmusmwm mmo.e mtemHmH eme.o susom mam.o umuemo mom.o suuoz mammz um mmHuHOHummHm Aoo.- Amo.- -mm.- hemmm.mem- Aooem.m- Imome.mme.m- must-me e~o~.oeo.m H6.H mmm. Hoem.eme.mu memo.m emme.smm.ee Aoo.- -eo.- -Ho.- Romse.m~o.m- -eemm.o- Amamn.vme.~me- rusom memo.eeo.me mm.- mam. mmmm.mee.oeu Hemm.~m omee.~e~.mmm Aoo.- Amo.- -Ho.- Aevem.mmm.- -mmmm.m- Ammoe.oam.ome- umucmo oeem.mmm.mm mm.~ mes. Hemm.vom.mu woeo.oo meem.emm.moe Aeo.- Amo.- Ame.- Amomm.vmo.m- Am-ee.~m- Ammm~.omm.mnm- suuoz m-om.ooe.se m6.m 6mm. emme.meo.m-I eeoo.mo- m~m>.mom.mho mumafiumm mo Houum owumflumum mm. mafia moanm unmumcou cowmmm cementum .3.0 060:: mmHeHOHemeqm om>emmn 02¢ momHImmmH .mo .HOQEOOOQ vmfiomv "MEOMV MHHmum< MUHumHumuw HO OHHmsccd .MOHumHumum HO mHmuuch OusuHumH "mousom .mmmmum>m Hmmh 9.5..m wom.hHh.h Hum.mmo.n mmm.NHo.b 00m.©om.n om¢.mmm.w 0mm.mmm.m meuH www.mm mm@.m~ mmm.mm hmo.Hv Hmm.om mmm.mm mpcmHmH omm.omo.H oom.©mm www.mmo.H ~m©.mmH.H mgm.Hom NON.NOO.H nusom oom.omw.m mom.omv.m 00m.mmm.m mmm.om~.m 05H.mhm.H HNH.©mm.H Hmucmo mm¢.©hm.m mmh.mmm.m www.mmm.m OOH.mmo.¢ Hmm.mom.m va.on.m nuuoz Ancoa UHHHOEV GOHuOspOHm II II II II II II MHMUH ®.HH o.HH o.HH 0.0H o.m ¢.m mOcmHmH m.mH m.mH N.SH m.mH m.HH h.HH nusom m.bm m.>~ ¢.¢N m.N~ 5.5H m.bH nmucmo o.mm o.mm H.mm m.Hm n.0N 5.5N guuoz Amumuomm Mom mHmuchdv UHOHN mmmum>< gmmemmm.m mmmemm¢.m mm~.mbo.m 50>.Hmo.m moo.hmm.m www.mmm.m hHmuH www.mm mom.om Hmo.mm Hh>.mm mum.©m mmm.mo mpcmHmH mmm.¢mm om¢.omm m¢O.NH® ¢m¢.hmh mmo.mm> vmm.mmw nusom mmm.mmm www.mhm mom.hmm omm.moo.H MHH.H@O.H mom.mmo.H Hmucwo HOH.OMH.H mmm.nmo.H Omh.moH.H OOH.O>N.H nHm.HHm.H gmN.Hmm.H fluuoz Ammumuummv mommnsm . c smHm mhmH 304 mhmH OhmH MmmlvomH moolmmmH MmmmHIvmmH_ EOUH mhmH QZ¢ OhmH OE mZOHBUmemm QZ¢ WMGNN QWBUmqmm mom mZOHOMM UHmmémw IOWU m0b42.Mm ZOHBUDQQmm Qz¢ QAHHN m0¢mm>< .MU€MMDm B¢HEB Bhom .filHHH mqméfi -95- price wheat surface would increase in the north and center from the 1970 projection and would almost equal 1964—65 plantings. It appears quite unlikely that wheat prices could be administered at this rate without incurring a considerable wheat surplus in Europe. The only rationale would be a policy decision to maintain farm income at a high level. Therefore, the low price assumption is believed to provide the most probable projection and in fact, the possibility of even lower EEC wheat prices depending on the supply- demand balance in the future should not be overlooked. These projections are expected trends at a highly ag— gregated level. It is important to know the farm level response as well since conceivably, net incomes could rise even at lower wheat prices if costs fell sufficiently or wheat could be the best alternative for farmers even at lower prices. In either event macro-level projections based on past data would incorrectly interpret the future trend. Appendix Tables 4 and 5 show budgets for one hectare of dryland wheat with a low level of mechanization in the north of Italy and one hectare in the plains of the north with a high level of mechanization. The budgets are intended to be representative of family farms in the hills and family or salary farms in the plains of the most important produc- ing area. At 1964-65 prices net incomes are 44,790 lire per hectare -95- in the hills and 188,765 lire in the plains. Using projected 1970 wheat price and assuming no change in costs, net income becomes 23,870 lire in the hills, a decrease of almost 47 percent and 145,665 in the plains, about 23 percent less than 1964-65. If costs are considered net income will probably fall more. Considering the pattern of input prices in Figure III-1 nonlabor costs will show only small increases, if any, while labor and land prices can be expected to rise substan- tially. This would place the hill farm with little mechani— zation at a further disadvantage. But most of these units are family farms using unpaid family workers and rising labor costs would not affect their market costs. It would make wheat farming less attractive than nonfarm alternatives and encourage migration. These results support the regression analysis projec- tion of less wheat surface. It is assumed that reduced pro- fit on micro-level units will lead to a reduction in wheat surface--un1ess it remains the best alternative. To answer this question comparisons with other crops will follow as they are introduced. Yields Because wheat is the basic cash crop in Italy and be- cause previous government policy was designed to make the country self-sufficient in wheat, it is the crop upon which almost all productivity efforts have been expended. Schmidt -97- described these efforts, citing the government's vigorous program to raise domestic wheat output by "intensified cul- tivation but not increased acreage."18 Some success has been attained but today wheat yields are still largely dependent on natural conditions including the same factors Schmidt described, scarcity of moisture during the critical period of grain development, high tem- peratures and intense light. This dependence on Italian climatic conditions and the wide year-to-year fluctuations in yields was the biggest problem in predicting future yields. While most genetic research has been concentrated on wheat, approximately three—fourths of all wheat seed planted is not purchased from commercial sources (and by implica- tion would not be improved seed). Fertilizer use is also concentrated on wheat but still is considerably below an optimum level. Bonciarelli, in a two year experiment in central Italy, applied ammonium nitrate in quantities of 0, 40, 80, 120 and 160 kilograms of N.19 The resulting grain yields were 15.2, 18.2, 27.4, 33.3 and 41.6 quintals per hectare. Apply- ing marginal analysis to this experiment (1963-64 prices) shows the added return from the fertilizer inputs exceeds 18Schmidt.0p. cit., p. 645. 19Francesco Bonciarelli, "Dosi Crescenti di Azoto e Rendimento del Grano" Progresso Agricolo, Anno X, No. 1 (January, 1964). -93- the added cost by a wide margin at all levels of use. If we can infer from this that fertilizer will increase yields substantially (and net income also) higher rates of applica- tion in the future may be expected. Another important factor for future wheat yields is the disappearance of wheat planted on sub-marginal lands. The average yield for the two year period 1963-64 in the mountains was 12.9 quintals; in the hills, 19.9 quintals and in the plains 28.8 quintals per hectare. With the con- tinued reduction of wheat land on the higher elevations due to out-migration, average yields may be expected to increase. It was also hypothesized that a positive relationship existed between wheat price and yield since producers might use more intensive practices if their expectations are for higher prices. To test this hypothesis the directional change in succeeding years for wheat yield was compared to the previous years directional change of wheat price. For the north the movements coincided for every year since 1959 and for the center and south the movements were in the same direction for all but one year since 1958. But the results for the years prior to those cited was the opposite. It seems very likely that farmers, at least in recent years, use the previous years price as one of the important guides in allocating inputs to the wheat crop. If this is correct, the changes in price ratios affected by EEC policy may result in reallocation of inputs among crops to favor yield of -99- enterprises competing with wheat and at the expense of wheat yield increases. We may conclude that considerable improvement is still possible. This improvement may be expected to come from: (1) greater use of improved seed, (2) more fertilization, (3) more mechanization, (4) a decrease in marginal land planted to wheat, (5) a shift in the management system to more salaried operations, and (6) EEC wheat prices that may reduce input use and consequently average yields. For projecting 1970 and 1975 average yields a trend analysis was first computed over the period 1952-1965. The extrapolated trend for each region was then adjusted accord- ing to our judgment on how fast the above changes may occur. The low R2's are an indication of the relatively wide fluc- tuations engendered by weather conditions. The extrapolated trend for the north shows an annual average increase of 0.390 quintals (R2 = .157). The 1970 yield estimate was 33.07 and the 1975 estimate was 35.02 quintals per hectare. For projection purposes it was assumed that 1970 and 1975 average yields would be five and ten per- cent respectively above the trend values. The final results were 34.72 quintals for 1970 and 38.52 quintals for 1975, Table'III-4. In the center average yields have increased from 16.3 quintals per hectare in 1952 to 22.7 in 1965. The average annual rate has been 0.336 (R2 = .341). The extrapolated -100- trend values show an estimate of 22.80 quintals per hectare in 1970 and 24.48 in 1975. Following the same procedure as in the north, the trend values were increased by seven per- cent to 1970 and 14 percent in 1975. These higher values were used because of the expected continued abandonment of wheat land at higher elevations. The results show an expected average yield of 24.40 quintals in 1970 and 27.91 in 1975. In the south average wheat yields have been at a vir- tual standstill. Moreover, little improvement in the aver- age can be expected because the various government programs will cause much of the best wheat land in the plains to be irrigated and converted to more intensive uses. Thus, deSpite the adoption of technology and some land abandonment, the average yield over the next ten years will likely approximate the past trend. The 1970 and 1975 projections are there- fore 17.16 quintals and 18.63 quintals (trend value = 0.293 and R2 = .395). The situation in the islands is comparable to that in the south. The average annual increase over the 1952-1965 period was 0.113 quintals per year (R2 = .013). Projecting this to 1970 and 1975 shows an expected yield of 11.03 and 11.60 quintals per hectare. Production With both yields and surface planted dependent on -101- climatic conditions, considerable variation in production takes place from year to year. In the last eight years the change in output from the preceding year has ranged from 9.7 to 22.4 percent and averaged 16.5 percent. This var- iability, the trend to fewer hectares and generally rising yields are the considerations to note in projecting 1970 and 1975 production. The estimates of 1970 and 1975 output are simple mul- tiples of the previously projected surface and yield. Pro- duction in 1970 is estimated to be seven million metric tons, down 6.6 percent from 1964-65 levels.20 Most of this decrease is expected in the north and south. Production in 1975 is estimated to be 220 thousand tons less than 1970 levels at the low price assumption and to about equal 1970 production at the higher price. Durum Wheat The Italian consumer of pasta frequently judges this diet staple by the proportion of durum wheat used in its preparation. As industries gradually supplanted home prepared 20Allowance is not made for reduced yields and surface due to a buildup in soil salinity from the autumn 1966 floods. It was initially reported that soils in some areas would be uncultivatible for several years. Later assessment shows the damage to agriculture to be much less than first sup- posed. Letter from W. Glenn Tussey, Assistant Agricultural Attache, Rome, March 14, 1967. ('1 ’T, (L * -102- paste there has been a tendency to reduce the proportion of durum used in making the noodles. Still, 95 percent of the durum wheat produced in the EEC is grown in Italy and used in these mixes. Durum‘Wheat Surface Durum wheat enjoys a market advantage over soft wheat, but yields are generally lower. Less breeding work has been done and the older varieties can only be planted in well- adapted soils, cannot be fertilized and yield only about 20 quintals per hectare. Now a new variety is available that.is much more tolerant of growing conditions and yields 30-40 quintals in a normal year.21 With prices established by the Common Agricultural Policy and increasing yields as the lag in adOption is overcome the net income per hec— tare from durum will likely rise relative to soft wheat. This will be important in estimating future supply. Other Variables influencing the surface planted to durum include fertilizer and yields better, will remain only where it is impossible to grow durum wheat. Wheats of both types but with an increasing prOportion of durum as yields are irt'lZEroved will likely be planted in the hills where irriga- tiQn is not feasible. Out-migration from the south will continue and cause decreases in surface as sub-marginal lands are abandoned. In higher elevations where growing conditions are more favor- aL}1>‘.I.e forage will increase. In hotter, drier areas some farm chsolidation will occur with durum wheat at least maintain- ing its proportion of planted surface while in other areas land will be abandoned. Figure III-3 illustrates the past pattern for durum Wheat surface. In 1964, 64 percent of the country's produc- -104— ETIISURE III-3. HARD WHEAT SURFACE, 1952-1965 Hectares 1,300,000- 1.200.000- 1. 10C) ,000- 1,000,000- 900 .000- Islands 700 ,000— GC’C2ht,ooo_. South 400 .000... 300,000- 200,000— 100,000— I I I I I I I I I- I I I l l 1952 53 54 55 56 57 58 59 60 61 62 63 64 65 ‘1 -..P' a -105- tion came from the region of Puglia in the southeast corner and the island of Sicily. In the largest producing region, the islands, surface planted has decreased since 1957 and at a more rapid rate since 1961. This decrease has been suf- ficient to cause total surface for all Italy to decrease by 6. 1 percent from 1959-60 to 1964-65. IL- Statistical Analysis of Historical Factors Influencing Durum Wheat Surface: Single equation regressions were fitted to 1952-1965 data for each major producing region. Causal Variables discussed above were durum wheat price, the percent Of the total labor force in agriculture and time to repre- Sent the land reform program and other structural changes Il<>t easily quantified. The results, presented in Table III-5 explain 70 percent or more of the variation in the t“Mo regions. For the south signs of all coefficients were as expected. Price over the sample period has had a small effect on farmers' dacisions as indicated by the price elasticity of 0.154. Time is numerically the largest and statistically the most significant of the explanatory variables. - For the islands the regression results were less satisfying in that "wrong s.‘i-cgns" were obtained for both price and agricultural labor fQrce. The explanation for both variables could lie in tthe imprecise estimation denoted by large standard errors al'ld to the fact that surface is highly correlated with trend and to a lesser degree to the labor force variable. 1942! . .' 1 WA ‘I.“hl' I .._. thsnt . II .mucwHOmewoo GOHmmoummu 0:» mo 0H0>0H 00:00 IHchmHm 0:0 muouum pumpcmum mo mmu0EHumm .Hmpuo 0H,0u0 mmmmnucmu0m :H.mmnsmHm mmo.on machete eme.o susom "0:002 03p u0 mmHuHUHum0Hm Aeo.- Amm.- Aeo.- -oo.- Aemem.mme.o- Amome.mmmm- Aeeme.e- -mmmm.mmm.mem- . MW omme.ome.mm Ho.e men. oo~o.oom.meu Hem¢.mmnmu «Hoo.eu eaeo.mme.soe.e J mUc0HmH Aoo.v. AmH.- Aom.- Ave.- Amomm.mome- -Hmmm.eeme- Ammmm.oe- Ammo-.mmm.eme- Noem.mme.-H Hm.e Ham. Hoem.-mee Homm.meme memm.m «mo~.mee.emm susom 0u0EHumm OHumHu .Hm¢ CH moHHm MO HOHHHI Imam m OEHB OOH-”Oh HOQMA “mm-.9» ufimumflonu Ou0vcmum .3..Q ml Ho ucmoumm mmHeHoHamaqm om>Hmmo 020 momeummms .moammpm ammmz_zsmso zaeqeeH oszHagexm.mos monmmmmomm .mIHHH mamas -107- 2. Projgctions: Since the reliability of the equation for the islands is Open to question, an alternative method for projection was selected. The trend estimate does appear 'to indicate with accuracy the average decrease over time. {This coefficient was used to project durum wheat surface in 1970. The rate of decline over the five year period was .13.9 percent compared to 13.3 percent in the previous five years . For the 1970-1975 period the rate of decrease is expected 'to be less because: (1) many of the sub-marginal areas will luave been depopulated previously and (2) adoption of new \rarieties now available will improve both net income from <3urum wheat and its competitive position vis-a-vis other <2rops. Therefore, the trend value per year from 1970-1975 Vvas assumed to be only 80 percent of the regression estimate. flDhis procedure provides a 1975 estimate 78,400 hectares less 1:han 1970, a 13 percent decline for the five year period. The regression equation for the south was presumed to Ibe adequate for projection. Extrapolation shows increases fiLn durum acreage for 1970 and 1975, Table III—6. This is <2onsistent with the trend in the sample period, and more :meortant, with observations Of professional agricultural Vvorkers interviewed in this region. Since such a small proportion of durum wheat is grown .in the center, and this primarily in the southern part of iLazio, separate equations were not estimated for this region. -108- .Amoma tam acme .umnsmumo 00HpmHu0um HO mHHmsmz OGHUOHHom O00 AmmsmmH mSOHH0> 0Hu0um4 00HumHu0um HO 0HH0500< .00HumHu0um HO 0H0Hucmo OusuHumH "0Eomv nmfiomv "mousom .000H0>0 H00» 0390 00H.00h.H 0mm.mbh.H 0mm.mmO.H h0~.¢0h.H www.0Hm.H 000.00m.H >H0uH hvm.N00 >00.N00 www.moo H¢m.¢mn 0m0.mmh www.mhm 0O00H0H mmm.mm0.H NON.N¢0.H 0mm.0mm www.mmm 0HH.HHm ¢>H.mmm ausom 00¢.an 00¢.SNH www.mm 00m.nm 0H0.00 m0m.0h Hmucmu III III III III III III nuuoz A0009 OHHumz- :OHDOSOOHm III III III III III III mH0uH m.HH m.HH 0.HH N.HH H.m m.0H mOc0HmH «.mH «.mH 5.0H «.mH 5.0 0.HH nusom N.0H «.mH v.nH H.5H 0.0H 0.0H Hmucmo III III III III III III nuuoz. Awm0uomm HOG 0H0usHsov OHmHN mm0H0>€ 00m.0>H.H h00.00H.H mom.mH~.H 00v.>mN.H 000.Hmm.H omH.¢H¢.H >H0uH mHm.0mm mHN.¢Nm mH0.N00 mHm.00> ¢mh.bom 000.000 mOc0HmH Hmm.~mm www.mbm bmm.hmm 0HN.H0m mHm.0mm www.mHm nusom 000.0h 000.05 00m.mm mm0.0m www.mv hmm.Hm Hmucmo III III III III III III auuoz 400H0u00mHIMU0MHsm anm mhmH 30A mhmH ohmH 0m0I¢OmH 000ImmmH 0mmI¢mmH EmuH mhmH 92¢ OhmH OB mZOHBumemm QZ¢ deflM QWEUMQHm mom mZOmem UHmmdmO -se ess- a sass-a as as: ass-e. .033 See age .3: see.- —109- Rather, 1970 surface was assumed to be approximately equal to 1964-65 and 1975 acreage was assumed to increase to 70,000 hectares due to a higher relative price and improved yields . As a micro-level check on these projections a budget for durum wheat in the south was constructed, Appendix Table 6» At 1964 prices and yields, net income per hectare is testimated to be 34,828 lire under average conditions. As- .suming no change in costs and yields net income with projected 1970 prices would be 35,196 lire, approximately the same as in 1964. ' ' This would indicate that the projected surface would (Overstate what may actually occur. Further evidence is ob- ‘tained by comparing income from durum wheat with income :Erom soft wheat in conditions that approximate those in the asouth, Appendix Table 4. This comparison shows 1970 net :lncome to be less for durum. Unless the new varieties are J:apidly adopted so that yields will increase, it is not ILikely that 1970 surface will be as large as that projected in Table III-6 . Iiields Yields of hard wheat over the 1952-1965 period were ialmost completely determined by growing conditions. There laas been some improvement from 1961—1965 for the south, 'but in the islands a regression of yield on time was zero -110- indicating no improvement at all. New varieties available now Offer Opportunities for increased yields. In order to estimate 1970 and 1975 yields it was assumed that price ratios more favorable to hard wheat than to soft *wheat would cause average yields to at least equal the past trend of 0.307 quintals per year (R2 = .262). Therefore, -_ the south's 1970 and 1975 yields were estimated at 16.70 and 18.17 quintals per hectare. In the islands neither the trend analysis nor data from more recent years indicate any improvement. The 1970 E and 1975 projections for this region were made by assuming a.four and eight percent increase over the average yield of 10.63 quintals for the period considered. This resulted in a 1970 estimate of 11.05 quintals and a 1975 estimate (of 11.48 quintals per hectare, Table III-6. Agroduction These yield projections were combined with surface lprojections to produce the estimates of production in Table JIII-6. Production in the two base periods followed the same lpattern as soft wheat, decreasing from 1954-55 to 1959-60 Iand.then increasing about 30 percent to 1964—65. The 1970 production is projected at 1.7 million metric tons down less than one percent from 1964-65. The low price assump- tion for 1975 provides an increase of four percent from 1970 to almost 1.8 million tons. -111- Comparison with production in the three base periods and the results of the budgeting lead to the expectation 'that this estimate will exceed the actual. Only if yields :increase sufficiently to cause farmers to substitute durum :for soft wheat and to attain the yield estimates in Table III-6 could production be this great. Based on observation and advice from Italian agriculturists in the south this vvill occur. Feed Grains The second category listed for Italian crOps, feed sarains, includes corn, barley, oats and very small amounts <>f rye and grain sorghum. Like wheat, surface planted to 'these grains has been declining but unlike wheat, demand Ilas risen sharply. Feed grain requirements have in fact, :increased an average 13 percent per year since 1955 (Table III—.7) . It is evident from the table that requirements have lbeen met with increasing quantities of imports. While total :Eeed grain use was 2.3 times as great at the end of the decade, :imports were 9.3 times as large. At the same time that. u0sHEHH0Hm .00H>n00 00000000 UHEocoom ..¢.0.0.D “000500 .00 .Q .A000H .HOQEO>OZ "08000 HH .oz .0H .H0> .moHumHu0um O00 moHfiocoom H0HSuH50HH0£ 00 :Hu0HHDm MHSHGOZ .00m .000» mDOH>0Hm 030 :H 5.0H« EOHM as 000H GH 0000 0HH00E Oc0msogv H.050 0003 0coH0 mpuomx0 CHOU 03030 0u0O 0O0Hu 0400 0.0H0 0.05H 0.00 «.0 o.H 0.H 0.0 5.0 5.5 0.0H 0.0 >00EH00 0.«00 «.0«« «.OHH «.0 o.H 0.H H.« 5.0 «.0 0.0H 0.«H 000 0.0.2 0.0H« «.0HH «.HH H.0 0.0 H.0 0.0 0.0H 0.0H 0.00 H0009 % muuomxm 1.. d .4.2 0.0H00 0.0000 0.000« 0.0«5H 0.00«« «.00«H 0.000 0.000 0.500 «.«00 OHHOZ 00 0000 .4.2 5.000 «.000H 0.005 0.00H 5.«0 0.00H 0.«0 0.00 5.00 0.0H .0.0 .0.2 0.«0« 5.00H 0.00H 0.000 0.H«H 0.0« 0.0 0.0« 5.0 0.0H 000 .4.2 0.00«0 0.0000 0.0000 0.000« 0.0«0« 0.H«0H 0.000H 0.0«5 5.005 0.0H0 H0009 manomEH Amcou 0HHH0E mo mOc0msonuv 000H 000H 000H «00H HO0H 000H 000H 000H 500H 000H 000H moufiom 000HI000H .mmmdeMDm BMOAXM 02¢ mUMDOm BmOAEH .MZH¢MU QMHh 2H MQ4MB ZflHHflHH .mIHHH WHflfiB ~115- ‘Vision. The price of corn is established in Ravenna, a cieficit zone, at 4,050 lire per quintal and may be imported :for 4,300 inclusive of unloading and customs expenses. A (zertificate may be obtained declaring it national production sand the "Italian grain" is shipped to Emmericch, Germany (the Ministry of Agriculture has ordered this practice halted laut apparently it is circumvented). The Italian importer 110w has a total cost of 4,550 lire per quintal and can sell 'the grain on the German market at about 5,600 lire. Such re-exports explain only a small part of the in- <2reased volume of grain imports.24 With the ending of the special provision in 1972 this advantage will be eliminated. IJntil then the larger exports within the BBC will add to ‘the rising demand for feed grains created by the increased Ilumbers of grain consuming units and the shift from forage :feeding to grain-based rations. 23Francesco Grinzato, Convegno Nazionale della Mais- <=olltura, Dei Prezzi del Mais in Relation Alle Esiglnze delle E’roduzione Veneto Inserita in Campo Nazionale e Comunitario (Treviso: 1966), 7 pp. 24Evidence is appearing that the concession is resented 13y German grain merchants and policy makers who fear depressed Iproducer prices in Bavaria. They claim the concession was Unade to aid in developing Italy's livestock industry and linstead Italy has become a transit country for feed grain. 1X3 a result of the decree, the levy on Italian imports of feed grain from third countries can be reduced by 6,627 lire ‘per metric ton counterbalanced only by a tax of 1,947 lire to BBC countries and zero to third countries. This has resulted in grain from third countries via Italy being sold Cheaper on the Bavarian market than grain routed in the normal way from Rotterdam. Agra Europe, No. 211 (London: April 5, 1967). p. MI-4. -ll6- 92.2.2 In Table III-7 corn is 92 percent of domestically pro- cduced feed grains and 87 percent of the total available for consumption. Any discussion of Italy's demand and supply of feed grains must of necessity focus on this crop. For- tunately, for projection purposes, production is geographi— . 1 at: .._'—g cally concentrated. In the two years 1964-65, 80 percent JAM ‘nas produced in the north and 67 percent of the total was grown in three Po Valley regions: Piemonte, Lombardia and ‘Veneto. Present tendencies are for even more concentration. - With the exception of the Po Valley region production Inethods and uses of corn have changed little. In the hills (Df the north, in the center and south corn is largely pro— ciuced by family farmers and sharecrOppers in small plots (flestined for home consumption. The exact amount entering 'the market is a matter of conjecture; one source estimates that 80 percent is used directly on farm with the remaining 120 percent and imported corn traded on the market.25 A £3econd source indicates that about 50 percent is retained 26 :for on-farm use in small hill farms. In the major pro- enses from a standard outlay of 165,765 lire per hectare to 221,962 lire, yields between 97 and 120 quintals per hec- tare are obtained. With corn prices at 4,500 lire, net income is increased, by making this. expenditure. 35Enzo Manfred, "Mechanization Problems in Maise Pro- dUCtion," E'Inforamtore Agrario, Anno XVII (Verona: Feb- braio 24, 1966). 36Agra Europe, No. 211 (London: April 5, 1967), p. 5-2. -125- 1. ftatistical analysis of historical factors influencing jgorn surface: To assess the impact of the influences dis- cussed above on planted surface, single equation regressions vvere fitted to corn surface in the major geographical re- gions for 1955 through 1965. Corn price and wheat price were zassumed to be major determinants of corn surface and time was included to represent nonprice influences. The equa- tions are presented in Table III-9. The included variables explain 78 percent or more of the variation in corn surface over the sample period. Signs of all regression coefficients are as expected except corn price in the south and islands. The relatively large estimate of the standard error indicates this could easily be posi- tive or negative. In fact, the large error terms for all Price coefficients add a measure of doubt to their validity. Time appears to be a much more reliable indicator of surface Pl anted. Elasticities were computed from the equations to es- 1:il'uate the influence of price. Surprisingly, the elasticity of corn surface with respect to its own price was less than 0- l in all three regions.37 This might have been antici- PEted in the center and south but more price response was eXpected in the north. For example, farmers in the irri- gated plains are now increasing corn surface in response 37By comparison Willms computed an elasticity for all Italy of 0.18. Enno Friedrick Willms, op. cit., pp. 112-124. .000000000000 0000000000 000 00 000>00 00000 10000000 000 000000 00000000 00 000050000 .00000 00 000 00000000000 00 0000000 444 m00m.u 0606.- 00:6000 0 0:0 nusom m0~m.u 5006. 000c00 mnsm.u «Hmo. 00062 "0000Z,00 0000000000Hm 006.0 000.0 x 000.0 066.0 immm0.m0>o 0000m.mo Amnem.5o “>000.mom.vmv 0000.0mm.0 om.0 00h. mnom.~mm.vn 0000.0- msoo.mu mmmm.mm0.nnm 000000H 0 0:0 00500 M“ _ 006.0 050.0 000.0 066.0 Amm-.momo Ammmm.mo Ansmv.mo Aooos.0¢m.0mo mem0.m00.0 00.0 mum. mmom.m-.mu 000000- 0m00.v m0~m.mnm,mm~ 000000 Aoo.v 006.0 imo.o 066.0 Awmmo.000.00 00000.000 Amswm.m0o A~m00.0~m.-00 msom.m-.m0 N0.~ mum. msnm.m-.MHu m0¢0.nmn 6000.5 6550.mhm.0mm 00000 00000000 000000 00000 00000 00 00000 I000 m. 0809 00003 0000 00000000 cumocmum .3..n m Q20 .000HI000H mmHBHUHBmddm QQ>HMMQ .wodm0Dm 2000 ZflHAfiBH OZHZHdfime mom mZOHmmmmwfim .mlHHH m4m¢9 ~127- to higher prices in the last two years. Since the regression coefficient measures the rate of change in corn surface associated with price change all else assumed constant, an estimate of the effect of projected prices is available. In the north-the change in corn sur- face will equal b (Price197o - Price1965). For 1970 the increase due to higher corn price alone is 7.6840 (5,602 - 4,878) or 5,563 hectares and from lower wheat price is -37.6445 (6,275 - 6,931) or 24,695 hectares. In 1975 the increase in corn surface over 1965 under the high corn price assumption is 7.6840 (6,492 - 4,878) or 12,402 hectares. Because 1975 wheat price is projected under the high alter- native to be above the 1965 price, corn surface would be reduced from the wheat price effect. The amount would equal -37.6445 (7,273 - 6,931) or -12,874 hectares. These results show wheat prices to be much more important in determining corn surface than corn prices. 2. .Projections to 1970 and 1975: The regression equations provide the basic technique for projecting surface. Because the 1955-1965 sample period is not expected to accurately reflect conditions in the coming decade, some changes were introduced in the coefficients. Specific changes expected in the north include a substitution of corn for forage as feeding systems change, greater mechanization prompted by increased government credit and since three-fourths of the ~128- surface is now in hybrids, less reduction of old varieties of corn. These changes are expected to slow down the rate of past decrease in surface. In the center, however, the rate of decrease is expected to accelerate because of con— tinued out-migration, the small proportion of hybrids planted and little irrigable surface to devote to hybrids. In the south the rate of decrease will probably be about the same or slightly faster. Some redistribution will occur as corn is reduced in the hills and mountains and increased in the irrigated plains. But even irrigated corn does not do well in this area because higher humidity prevents flower set and hybrids are much less resistant to piralids (insects) 38 than local varieties. For estimates of corn surface in the north the trend coefficient was assumed to be 90 percent of the value in Table III-9 for 1970 and 75 percent for 1975. In the center the coefficient was increased by 25 percent to 1970 and 50 percent to 1975 to reflect the exPected change in rate of decrease. Projections forrthe south used the estimated equa— tion. I The projected corn surface in each region from apply- ing these adjustments is in Table III-10. In the north the 1970 projection is 600,954 hectares down 2.6 percent from 1965 and about half the rate of decrease from 1959-60 to 38Carlo Aiello, op. cit., p. 163. -129- .Amom0 .00000000 0:0 00m0 .00QEO>02 «05000 0000000000 00 0000002 0000000000 000 Amom0u0mm0 "02000 0000H00 0000000000 00 00000000 .0000000000 00 00000000 00000000 «0000000 .000000>0 0000 0380 00>.~¢Ms¢ om¢.omm.¢ 0m0.m-.0 000.0m0.m 050.000.m mmo.mmo.m 00000 mom.0 00m.00 000.0 0000000 000.000 0N0.o¢0 00m.0N¢ mnm.m0m «00.0hm 00N.00N 00000 050.com 000.0hm 000.000 m¢>.¢0m 000.000 mmw.v0m 000000 00¢.bmm.m 000.00h.m 000.0hm.m 00¢.000.N 0mm.000.m 0m¢.00¢.~ 0000z ~w0oa 000002V 0000000000 II II II II II II 0000H 0.0m 0.0m 0.00 N.00 0.00 0.00 0000000 0.0« 0.0« m.00 0.00 0.00 0.00 00000 0.00 0.00 0.0m ~.om 0.00 0.00 000000 0.00 o.m0 «.00 0.00 0.00 m.mm 00002 ~000000m\000000mm%,0000> 00000>¢ 000.000 mmv.mmm 00N.000 N00.000.0 000.000.0 Nm¢.0mm.0 0000H 0m¢.¢ mmw.h 000.0 000000H 0000000 000.000 ooo.mmm 000.00N 000.05N 000.00m 00000 000.000 000.0m0 00N.000 000.000 vm0.0om 000.0NN 000000 www.mmm 000.000 000.000 000.500 000.000 000.000 00002 00000000mv 0000000 0000 0000 300 0000 0000 000I¢000 000:0000 000:0000 E00H 0000 02¢ 0000 OF mZOHBUMUomm 92¢ deMN QWEUMAHm mom mdfidfi UHmmfimGOmw MOU¢S_Wm ZOHBUDQOflh QZ¢_QAHHM m0¢mm>¢ .WUdMMDm ZMOU .OHIHHH MAM¢B -l30- 1964-65. At the low price assumption corn surface in this region would be little changed from 1970 to 1975 but would decrease 5.2 percent at the high price level because land would be drawn into wheat production. As stated earlier, this wheat price would not be realistic in meeting the Ital- ian government's objective of adjusting its agriculture to EEC market needs, but could maintain farm income. Corn surface in areas outside the north will decrease faster. Total corn surface is projected at 991,215 hectares in 1970, six percent less than in 1965. The decline from 1970 to 1975 is expected to be almost six percent at the low price assumption and almost 11 percent at the higher price. Future production will shift more to areas of com- parative advantage, the irrigated plains of the north. To ascertain the effect of projected prices on farm level profits, budgets were prepared to represent corn pro- duction in the irrigated plains of the north and in dry plains of this region (Appendix Tables 7 and 8). Net income in dry areas is estimated to increase 10,071 lire per hec- tare at 1970 prices and in irrigated plains 50,120 lire. Net incomes would also depend on the outlay for productive inputs. It is assumed that these costs will not rise more than savings are affected through less use of labor and added income from yield increases. Assuming that farmers react optimally, these results substantiate the trend toward increased plantings of hybrid -131- corn. When compared to income from wheat, Appendix Tables 4 and 5, the income position in 1970 for corn is more favor- able than at present. Again, this provides added evidence that corn surface will be substituted for wheat land in areas where hybrids can be produced. Yields To project yield estimates for 1970 and 1975 a simple linear regression was used to extrapolate from the 1952- 1965 period. Time was the single independent variable and yield the dependent variable. In some cases the linear trend was judged not acceptable due to expected changes in the next ten years that differentiate this period from the base period. In these cases the regression estimate becomes solely a mechanism for quantifying past changes and the judgment of the researcher and advice of Italian technicians was relied on for the final estimate. In these cases the trend estim- ate and the final estimate are both noted as alternatives. In the north corn is largely grown in irrigated areas, more highly fertilized and with almost three-fourths of the surface planted with hybrid seed. One would, therefore, expect more constant yields and higher yields relative to other regions of Italy. The regression analysis bears out this expectation. The average yield per hectare increased from 25.8 quintals in 1952 to 44.0 quintals in 1965, with an average yield over the entire time period of 39.37 -l32- quintals per hectare. There was an upward trend of 1.35 quintals per hectare per year (R2 = .787). Extrapolating this trend gives a 1970 estimated yield of 56.24 quintals and a 1975 estimate of 62.99 quintals per hectare. By way of comparison, the average yield per hectare reported by ISTAT for the two years 1964-1965 was 46.8 for all corn and 53.3 quintals per hectare for hybrid corn. Individual farmers interviewed in the irrigated plains of the north report yields of 85-100 quintals are easily attain- able now. With these possibilities and with the expected increased adoption of technology, the trend estimates can be accepted. In the center corn is less well adapted and occupies a smaller percent of the agricultural surface (8.6 percent in the north and 4.9 percent in the center). The average yield is approximately half that in the north increasing from 9.4 quintals in 1952 to 18.0 in 1965. Again, since the total includes irrigated plains as well as hills, the aver- age yields in the best areas surpass these figures. In the center the average yield for hybrid corn was 31.0 quintals but only twenty percent of corn planted was of hybrid varie— ties. Average nitrogen use on corn, while less than the north, has doubled in the ten year period 1955-1965. The regression analysis giVes an annual increase of 0.62 quintals per hectare (R2 = .596). This trend extra- polated to 1970 and 1975 provides an estimate of 25.0 quintals -133— per hectare in 1970 and 28.1 in 1975. From the foregoing data on the present low status of techniques and the expected decrease in surface devoted to cropland in the hills and mountains of the center, it may be expected that the extra— polation of the 1952-1965 trend will understate actual future yields. Therefore, the trend estimate for 1970 and 1975 was viewed as a minimum estimate and a most probable yield estimate was computed. The higher estimate was based on three assumptions: (1) the percent of hybrid corn planted doubled from 1960- 1965 and this rate of adoption will be more indicative for the future than is the longer period, (2) nitrogen use on row crops as reported by the INEA study was 42.2 kilograms per hectare in the plains compared to 25.4 in the hills and 17.9 in the mountains and the corn surface in the more heav- ily fertilized areas will increase relative to the less fertilized areas, and (3) more favorable price ratios under EEC policy will encourage more intensive production.39 On these assumptions the annual rate of change was increased from 0.62 quintals to 0.75 quintals per year. This results in an estimated yield of 26.67 in 1970 and 30.42 quintals “per hectare in 1975. Average corn yields decrease as one moves southward where more intense heat and reduced rainfall is encountered. 39INEA, unpublished data, op. cit. -l34- The percent of surface devoted to corn in the south is about the same as in the center and is negligible in the islands. Regarding technical practices, only 1.3 percent of corn planted in 1965 was hybrid in the south and less than one percent in the islands. The average quantity of nitrogen applied was 27.4 quintals in the south and 15.5 in the is- lands in 1964. Yields have been essentially static over the period 1952-1965 averaging only 11.6 quintals per hectare in the latter year. The average increase per hectare was 0.393 quintals (R2 = .456). Beginning from such a low level of technology and with substantial changes expected to be associated with agricul- tural deve10pment programs in this region, the yields in the next ten years are expected to increase at a more rapid rate. Assuming an annual rate of increase 25 percent greater than the trend value (0.393) gives an increase per year of 0.491 quintals per hectare. For 1970 this results in an estimate of 18.34 quintals and in 1975 20.79 quintals per hectare. groduction Improvements in yields enabled Italian farmers to pro- duce slightly more corn in 1965 than in 1955 on 16.3 per- cent fewer hectares. The estimates in Table III-10 indicate a continuation of these trends. Production in 1970, obtained as a multiple of the projected surface and yield, is 4.2 -135- million metric tons, 16.6 percent greater than in 1964-65. The low corn price assumption provides an additional increase to 1975 of 8.4 percent. This would mean an increase of about 357 thousand metric tons over 1964-65 on 120,000 less hec- tares of land. Given Italian feed grain needs and present emphasis on making its agriculture more efficient, these estimates appear to be well within the range of expectation. Grain Sorghum The climatic conditions in many parts of Italy favor the production of grain sorghums rather than corn. Experi- ments are now beginning and farmers are being introduced to this grain. U.S. hybrids are sold by seed firms and the U.S. Feed Grains Council has promotional efforts to acquaint farmers with its feeding value. Results to date show hybrids give superior results to corn in dry areas of the center and south.40 Disadvantages that hinder wideSpread acceptance include: (1) too lengthy a life cycle, (2) difficulty of germination in clay soils that form much of the south, (3) slow early growth that makes the plant susceptible to insects, (4) loss of grain to birds and (5) low price compared to corn even though feeding value is equal (prOposed threshold price at Ravenna is 4,165 lire 4OG. Mariani, "Sorghum as an Alternative to Maise," L'Informatore Agrario, Anno XXII (Verona: 1966). -l36- . 41 per quintal compared to 4,450 for yellow corn). Less favorable results in dry cultivation are reported 42 It was found that sorghum yields were too close elsewhere. to those from wheat and with the price advantage that wheat enjoys and lower crop risk of winter cereals in general, little increase for sorghum was foreseen. Prospects for both corn and sorghum in irrigated land in the south was favorable. In the north sorghum finds favor for silage or green feed but currently is not widely planted for grain. It seems to be increasing as a summer-crop green feed follow- ing wheat. Italian statistics provide no information on sorghum production. Sufficient interest was encountered to indicate that it will grow in importance, particularly if it is accepted in poultry rations. Although quantitative projec- tions were not attempted, grain sorghum will clearly become a more important feed grain for domestic producers and holds much promise as an import possibility. Barley Barley is a crop of increasing importance in Italy. Over time, production has been small compared to corn and 41 MI-go 42 Agra.Europe, No. 179 (London: August 17, 1966), p. Carlo Aiello, op. cit. —l37— wheat and surface has declined continuously. But as sur- face dropped, imports followed a similar pattern to corn. Barley Surface The principal reason for the surface decline is a much lower net income than can be expected from wheat, its major competitor for land. Wheat is the principal income source for many farmers and was produced on the best land, with improved seed and fertilizer. By contrast, barley received no genetic work because of the early emphasis on self-suffi- ciency in wheat, could not be fertilized because old varie- ties developed lodging and was planted on land that remained after wheat was planted. The results are seen by comparing wheat yield to barley yield. In 1954-55 in the north the ratio was 1.56 and in the south 1.16. In 1964-65 the ratio was 1.33 in the north and 1.23 in the south. Price likewise favored wheat with a ratio for 1954-55 of 1.45 in the north and 1.66 in the south. By 1964-65 the ratio favored wheat less but still\was 1.33 in the north and 1.23 in the south. The historical pattern of barley surface may be seen in Figure III-5. Most of the country's barley is grown in the south and islands and these are the areas that have declined most in acreage. The decrease in the islands has in fact been 22.7 percent in the last decade, nearly double the national trend. Factors causing the decline in addition to its competition with wheat are out-migration from the -138- FIGURE III-5. BARLEY SURFACE BY MAJOR GEOGRAPHIC REGIONS, 1952-1965 Hectares 100,000 - 9mmo:‘~l . ‘ “ 80,000.— ‘-\ , South \ \ 60,000.— \ “Islands ‘ ‘\ \ Center _______ 40,000._ *v 30,000"‘*; “ Ni 20, 000 .. 10,000-— I I I l I l I I l l i I I I I 1952 53 54 55 56 57 58 59 60 61 62 63 64 65 66 -l39- hills where most barley is grown and irrigation of land in the plains. Even with surface declining at greater than two per- cent per year, production has—remained about the same for the past ten years. Imports, however, are three to four times the 1955 quantity. The country now produces only one-fourth of its barley requirements and this figure is rapidly diminishing. The reasons for the large increase in requirements is the development of the Preston Method of feeding cattle or "barley beef." This is a feedlot system for feeding dairy breeds to a weight of about 400 kilograms exclusively on feed concentrates. The system is gaining in pOpularity for several reasons. Most important is the type of meat pro- duced; by feeding barley the calf can be fed to a heavier weight yet retain the lean meat and rose-pink color char- acteristic of veal. If corn were fed the meat would develOp marbling, would be red in color and would bring a lower price in the market. Other reasons are the general tendency to use more concentrates and less forage in producing cattle and the increase in swine and poultry numbers. Increasing per capita consumption of beer is a second source of rising barley demand. Barley for all industrial uses, primarily brewing, increased from 95 thousand metric tons in 1961/62 to 98 in 1963/64 and 108 in 1964/65 (11.8 percent, 9.0 and 12.3 percent of total barley consumption -140- in the three years).43 In addition to a favorable demand situation production of barley will benefit from breeding improvements. Varie- ties from several countries are being tried in hopes of selecting one that can be fertilized. Improved yields and more favorable prices under EEC policy should reduce the advantage wheat now enjoys. 1. Statistical analysis of historical relationships: To estimate 1970 and 1975 production and to appraise the effect of changing price ratios, single equation regressions were fitted to data of the 1952-1965 period. It was hypothesized that wheat prices or wheat income was an important variable in farmers' decisions to plant barley. First formulations of the model included wheat price and barley price as separ- ate independent variables. The results were discouraging because the regression coefficients often had signs oppo- site to that posited by economic theory, with low levels of statistical significance and with considerable intercorrela- tion of the independent variables. To circumvent the latter problem and yet retain the same causal variables, a model was selected with the lagged ratio of nominal barley price to nominal wheat price and time as the independent variables and barley surface in each of the four regions as the dependent. 43Istituto Statistico delle Comunita' EurOpee, Agrar— statistik (Brussels: 1963, 1965, 1966). -l41- The results are in Table III-11. The sign of the price ratio was positive as expected in all regions but the south. Here effects excluded from the model apparently play an important role (regressions run with barley price as an independent variable also have negative signs for the price coefficient in this region). It should also be noted that large standard errors accompany the price ratios in the other three regions, reducing con- fidence in this coefficient. Time is quite large numerically and highly significant statistically. This would indicate that out-migration, especially from the hills where most barley is produced, and other structural adjustments are much more important in determining barley surface planted than is price. Only in the central part of the country is the time coefficient positive. Examination of Figure III-5 shows that barley surface in this region did increase until 1962, but since then has followed the same trend as the other regions. Because of this change in trend the adjusted Rz's show a much smaller proportion of the variation explained by the included variables in this region. Elasticities were derived from the regression equations. For the three regions with the correct signs all estimates were less than 0.1, indicating that a one percent change in the price ratio would be associated with a change in barley surface of less than one percent.44 The price ratio of 44One study reports a price elasticity for all Italy of 0.2, Willms, 0p. cit., pp. 112-124. -l42— .mucmflowwmmoo coflmmmummu mo mam>ma OQCMUHMHsmHm can muouum Unmwcmum mo mmumEHumm .Hmouo cw mum mommnusmumm CH mmusmfim momo.o mocmHmH mmHH.ou npsom mmso.o umucmo eomo.o nuuoz "mammz um mmHuHUflummam 160.3 Aso.v loo.v 160mm.mmav Asm¢¢.mma.mo Aamem.mms.mv vmmm.momH om. Hmm. mo~6.mmm.mu moeo.omm.m ommm.am~.nm mccmamH 106.3 AmH.V Aoo.v Ammma.omfivl Ammm¢.mmm.mv Ammmo.mmm.sv msmo.mmm~ mm. mmm. o~¢m.aom.au omve.nmm.mau swam.m¢m.ooa gusom AHo.V A~6.v Aoo.v AsmsH.~AHo Amoso.soa.mv Ammmm.mmo.nv HNM6.¢HH~ so. mow. «mum.mmm mmmo.mm~.v mmmm.mmo.sm umuqmo noo.v 166.3 loo.v newom.anv Ammmm.amm.mv Amomm.~oo.mv mumm.mmm HH.N ham. omeo.~¢on omsm.oas.a mmaa.mam.mm ruuoz mumEflumm Usumflu wmmmma .wofium . mo uouum Imam mm mafia ummszwmmaumm unnumcoo Goammm unaccmum .3 .o no ouumm mmHeHoHemaqm om>Hmmn 62¢ momaummmfl .mommmpm wmqmam zquasH oszHaquu mom monmmmmomm .HHIHHH mamas -143- barley price to wheat price is estimated to increase 27.7 percent from 1964 to 1970 and 8.4 percent from 1970 to 1975. A change of this magnitude combined with the estimated elas- ticity would increase barley surface to 1970 almost two percent or about 3,800 hectares due to price effects alone. 2. Projections to 1970 and 1975: Except for the islands the equations in Table III-11 were used to project 1970 and 1975 barley surface. For the islands it was believed that the time coefficient showing a relatively large annual de- cline would not continue from 1970 to 1975 because the struc- tural change in the interior of Sicily will not match the change of 1952-1965. For this region the 1970-1975 decrease was assumed to be one-third the past rate or 10,942 hectares per year. The projection results are in Table III-12. National barley surface decreased 11.7 percent from 1954-55 to 1959-60, an additional 12.5 percent from 1959-60 to 1964-65 and is expected to fall 13 percent to 1970 and 10 percent from 1970 to 1975. The 1975 projections are only slightly changed by the alternative price assumptions again pointing to the low response of barley surface to price. Surface in the center is projected to increase based on past experience but the change in trend since 1962 casts some doubt on this projection. -144- .Amoms umEomv moaumflumum Ho mawmcwz ocfluumaaom cam .oumunnmm cam wmma .Ammmauomma .OHQEO>OZ umfiomv maumumfi coaumflumum Hp ownmscc< .moflumflumum so mamnusmo ousuwumH "wousom .mmmmum>m HMOMIO3BM mom.mm~ saa.osm Hmo.m>m Nam.smm mvm.eo~ mam.¢mm samuH mmo.H¢ omm.a¢ Hmm.n¢ www.mm Hmm.mw oov.mm mccmHmH o¢m.mm mmm.mm Hmo.mm mam.nm om¢.hm mam.mm nusom mam.mm «mo.ooa oon.>m mna.on mmo.mm mmo.¢m Hmucmo. mov.m¢ www.mc mmm.mv mmo.mv ov¢.¢¢ mmm.am nuuoz mcou usnuuflv coauosvoum 1| II II I: II II hamuH H.¢H H.va m.mH ¢.HH m.m H.oa mosmHmH m.wa m.oa o.mH m.mH m.oa H.0H nusom m.mH m.mH o.ba m.mH >.mH H.MH umucmo m.mm m.m~ ¢.om m.mm m.ma m.hH nuuoz mnmuoms umm‘mamucmmav UHOHM mmmnm>d www.mca omm.mva mo¢.mma mm¢.HmH «mh.mam Hmo.h¢N hamuH moa.m~ mmh.mm mmv.hm mmm.¢m Hmv.mh Hmm.mm mommamH mum.om ohm.m¢ amo.mm mam.mo Nam.mh www.mm zusom 0mm.¢m Hmm.¢m mmm.Hm mn~.m¢ oam.m¢ mow.H¢ Hmucmu www.mH www.ma won.ma mmm.am Hm¢.vm mmh.mm nuuoz x&mmumuommq mommusm flmam mhmH Boa mhma Ohma mmmlfimma mowlmmma mmmlvmma EmuH mhmH QZfi ObmH OE mZOHBOHbOmm QZd mMflmw QWEUHAmm mom mZOHUmm UHEQfiMOOWU m0b¢2_wm ZOHBUDQQmm QZ< QAMHN ww¢mw>¢ .m04QMDm Wadmfim .NHIHHH WQMGB -145- Yields In past years little effort has been given to increas- ing yields of minor cereals. There have been no breeding programs at all in Italy for oats and barley as all such effort has been concentrated on wheat. Without improved varieties and with little fertilization both because of the lodging problem and because farmers choose to allocate in- puts to wheat there has been little yield improvement. This is presently changing and should be reflected in future yield increases. In the north barley is of little relative importance occupying only 0.3 percent of the productive agricultural surface. The average yield increased from 17.1 quintals in 1952 to 23.1 in 1965, an annual average increase of 0.33 quintals per year (R2 = .429). The increase appears to have come at a faster pace over the last six years. This may reflect the rising importance of barley as a livestock feed with the increased interest in the Preston Method of cattle feeding. Because technical changes are expected to occur at a faster rate in the next ten years and also because of the greater need for livestock feed, the regression trend was not accepted. Rather, a second trend approximating the change over the last six years was selected as most probable. These results show an average yield per hectare of 26.39 quintals in 1970 (1952-65 trend projection = 23.32) and a 1975 yield -146- of 29.26 quintals (1952-65 trend projection = 24.97). The average yield and the rate of increase over time is less in the center than in the north. The regression on time over the period 1952-65 shows an annual increase of 0.19 quintals per hectare (R2 = .402) rising from a 1952 average of 12.4 to 16.2 quintals in 1965. It may be expected that improved seed and more fertilizer will be adopted at a slower rate than in the north. Even so, these improvements coupled with the reduced cultivation in unfavorable condi- tions in the hills and mountains and the economic pressures of EEC prices may be expected to call forth some yield im- provement. Therefore, for the projected 1970 and 1975 aver- age yields a rate per year of 0.25 was assumed. This pro- vides a 1970 estimate of 17.02 (extrapolated trend = 16.27) and a 1975 estimate of 18.27 (extrapolated trend = 17.03). The south is Italy's most important barley producing‘ region in terms of surface and production. Average yield here has increased from 8.4 quintals per hectare in 1952 to 14.2 in 1965, a rate of 0.25 quintals per year (R2 = .410). For projecting 1970 and 1975 average yields an annual increase of 0.30 quintals per year was assumed. This results in a 1970 expected yield of 15.05 quintals (trend projection = 14.42) and a 1975 estimate of 16.55 quintals per hectare (trend projection = 15.67). In the islands the regression on time was of little help in predicting future yields.~ Over the period 1952-1965 -l47- the average annual increase was 0.064 quintals per year (R2 = .043). For projection purposes the base used was the average of the three years 1963-1964-1965 equal to 11.63. An increase of ten percent from 1965 to 1970 was assumed and a similar increase of ten percent from 1970-1975 (equal to two percent per year). The results show an expected yield of 12.79 quintals in 1970 (trend projection = 11.1) and 14.07 quintals in 1975 (trend projection = 11.4). ; Production Barley production fluctuates considerably as yields change. In the first five year interval in Table III-12 production decreased seven percent and then increased 1.3 percent from 1959-60 to 1964—65. In the ten year period shown there were shifts in the location of production. Where in 1954-55 the islands accounted for 31.4 percent of domestic output, this area contributed only 23.2 percent in 1964-65. The south on the other hand increased its pro- portion of the total from 31.4 to 32.6 percent in this time interval and the center increased from 19.2 to 26.2 percent. The tendency is for barley production to be concentrated more in the regions of Puglia, Abruzzi, Basilicata and lower Lazio. Projection results for 1970 show an expected output of 273 thousand metric tons, a two percent increase over 1964-65. Production in 1975 will be little changed from -148- the 1970 level at either the low or high price assumption. The tendency of past shifts in location of production is expected to continue with most of the barley being grown in the center and south of Italy and smaller amounts in the islands. Oats In contrast to some countries oats have remained a relatively important feed in Italy. In the largest produc- ing region, the south, oats are used extensively as feed for donkeys that serve as draft animals. In northern regions cattle or tractors serve this purpose and oats are less favored. Oats also have advantages in the south because corn is not well adapted to the hot, dry climate of this area. In all regions of the country oats are used as cut, green feed for cattle or stored as hay for winter feeding. Oat Surface Oat surface has decreased steadily in Italy and at a faster rate since 1961. Even so, the amount planted is twice that of barley and one-third of total corn acreage. The rapid decrease in surface in the south since 1961 eXplains the greater rate of decline of national surface, Figure III-6. In other regions the change over time has followed the same trend but has been more gradual. The relationship between -149- FIGURE III-6. OAT SURFACE, 1952-1965 Hectares 480,000 -' 440,000 - Italy 400,000 ._ 360,000 260,000 250,000 240,000 230,000 220,000 210,000 90,000 80,000 70,000 _. 60,000 .. 50,000 40,000 30,000 II It llll lllll 1952 53 54 55 56 57 58 59 6O 61 62 63 64 65 -150- wheat and oat plantings stands out especially in 1961 in the figure. -Bad weather reduced fall wheat plantings and land in the north and center was shifted to oats. Oat sur- face in both regions shows a large departure from trend in 1961. This competition between wheat and oats might be ex- pected to lead to increased oat surface in 1975 with the EEC policy price ratios. But other factors are more important. Feeding value of oats is less than other feed grains, income per hectare even with the changed prices is less than wheat, the replacement of draft animals by mechanical power, fewer number of sheep and off-farm migration all discourage oat production. Since these factors are expected to continue as in the past with perhaps a faster rate of mechanization in the south, oat surface will continue to lessen. 1. Statistical analysis of past relationships: Single equation regressions were fitted to 1952-1965 surface data in the four geographic regions. Independent variables were the lagged ratio of nominal oat price to wheat price and time. The signs of the price ratio coefficient for all regions but the islands was positive signifying that a rise in the price of oats relative to wheat would cause an increase in oat surface, Table III-13. However, standard errors for these coefficients were so large compared to the coefficient that little confidence is held in their validity. The -151- ms» 6:6 .mucmwoflmmmoo cowmmmnmmu mnu mo Hm>ma mocmoflmwcmflm Houum pumocmuw on» mo mumfiflumm map .Hmouo CH mum mommsucmumm CH mwudmflm some. mucmHmH mnao. nusom same. umuamo emao. nuuoz "mammz um mmfiufloflummHm xHo.V Ams.e loo.v Aamwo.smnv Amaom.mmm.mv Amamm.omm.mv mamm.m¢a.m ¢H.H owe. memH.Hmmu ommm.mam.mu mnmm.aso.mm mucmamH Aoo.v AHA.V loo.v Anoma.ammv Amvom.amm.mav Ammmm.msn.aav mmmm.~¢¢.m 6m. Has. memo.msm.mu oomH.mmm.o mmmn.¢mm.nm~ ausom Aoo.v Amm.v Aoo.v Avmma.souv Aswmv.mmm.se Amo~¢.omv.mv Homm.o~m.~ 66. Nos. mmmm.mmo.sn ¢¢o~.H¢m.s mmmm.mao.mm umucmu 100.3 As¢.v loo.v Ammmo.¢smv Aammm.¢ak.mav Aoenm.m¢o.aav mmHm.mma.¢ os.a mmk. Huam.mms.au mamm.mmo.~H mmmm.mam.n¢ nuuoz mumfiflumm oaumflu moanm poms? mo uouum Imum mm. made 0» ocean unmumcou scammm unmoamum .3 .a umo mo osumm mmHsHoHsmeqm nm>Hmmo 62¢ momnummma .moemmsm 940 stqaeH oszHaqum mom monmmmmwmm .mauHHH mamas ~152- multiple correlation coefficient adjusted for sample size shows 75 percent or more of the variation explained in all but the islands.45 Supply elasticities computed from the equations sup- 46 The port the hypothesis of a lack of price response. results indicate that changes in the price of oats relative to wheat affected by EEC policy will have little or no effect on surface planted. Since oats are usually planted for on- farm consumption and in many cases for draft animals, price is relatively unimportant in farmer decisions. Absence of price response and the little technical change in oat pro- duction makes change in structure the key variable for future oat surface. 2. Projections for 1970 and 1975: The regressions of Table III-13 were used as the basis for surface projections. In the north and islands the technique was a simple extrapola- 47 tion using price projections of 1970 and 1975. In the 45Omitting the price ratio variable decreases the ex- planatory power of the equation less than two percent. 46Willms' results show a supply elasticity for oats of 0.03. Willms, op. cit. 47Prices for oats were not projected in sub-project III. To obtain estimates for 1970 and 1975 the relationship between oats and barley price was computed for 1956 through 1965. In the north the average ratio was .924 and in the south 1.004. Therefore, a one-to-one ratio was assumed for the two future years and an oat price equal to the projected barley price was used. If oat prices are lower in keeping with their feeding value, previous estimates show it would make little difference in oat surface. -153— major producing regions of the south and center it was be- lieved that structural change would be faster than in the sample period. under this assumption the downward trend would be greater than that estimated in Table III-13. For the center the time coefficient was increased 15 percent to -1,258 for 1965-70 and 30 percent to -1,422 for 1970-75. In the south the annual rate of decrease was assumed to be 65 percent greater for both years and results in a trend coefficient of ~4,249. The projections in Table III-14 show 1970 surface to be 322 thousand hectares, 14.3 percent less than in 1964-65. Oat surface at the 1975 low price assumption is nearly 281,000 hectares an additional decrease of 13 percent from 1970. Yield The same factors that account for the low yield of barley also explain oat yields. Generally, little breeding work has been done and most of the seed planted are open- pollinated varieties, there is little fertilization, the crOp is relegated to the less favorable land and a large amount of the surface planted is harvested for forage. In the north the 1965 average yield was 21.4 compared to a 1952 average of 18.2 quintals. This represents an annual increase of 0.288 quintals per year (R2 = .581). Using the trend value to project gives a 1970 estimated ~154- .Ammma .OHmHQQmm 6cm coma "msomv moaamflumum H6 masmamz oauuumaaom mam Amomaummma .OHQEO>OZ “MEOMV mwumHm< mowumflumum Ho oaumscc< .muaumflumum Hp wamuucmu ousuflumH "moonsom .mmmum>m HmmhIOBBm hwm.ow¢ nmm.¢m¢ mvm.mm¢ amp.>mv www.mmd omo.mmm hamuH mom.mm www.mm www.mm 0mm.mm mmm.h¢ NmH.m¢. mucmHmH Hoa.mm~ www.mmm mon.omm mm~.hmm mum.w¢~ mnm.omm zusom www.moa www.0HH cmm.naa mmo.maa Hmo.maa «ma.haa Housmu mam.mm mom.H¢ mv©.>m moo.mm m¢¢.H> www.mm nuuoz Annoy owuumzv sowuosooum II II II II II II MHMUH m.ma m.mH v.NH m.HH h.m h.m mcsmHmH m.mH m.mH m.¢a h.aH m.oa o.HH gusom m.bH m.nH m.oa ¢.ma N.¢H m.ma umucmo m.¢~ m.v~ H.mm m.am m.mH H.mH suuoz Amumuown umm,mamucflsdv vamww umwuw>< hma.mhm hmm.omm Hwo.m~m hm0.m>m oam.oav ovw.~¢¢ hamuH www.0v www.mv m¢m.m¢ mom.mv moo.m¢ wah.om mocmHmH Ono.ama mmm.HoH @Hm.NmH omw.mam Hmh.o¢~ cmw.¢m~ guzom ovo.am mam.am mom.ah mmm.bh 0mm.mm omo.mw amusmo Aha.ma Noo.ha omm.¢~ mmo.mm omo.nm mma.m¢ nuuoz «mwumuomnv mummusm _ swam mhma 30A mhma Ohma Mmmlvmma momlmmma Mmmlvmmafi EmuH mhma Q24 ObmH OB mZOHBUMHomm QZ¢ mm¢fifi QWBUmamm mom mZOHGMM UHmm¢m00mw mow¢2.wm ZOHBDDQQmm QZd QAWHM m0¢mm>4 ~MU Om¢.©ow.o NhN.m>H.o mNm.¢mm.m oom.omo.o 00>.mm¢.m ooo.¢mo.m nuuoz mEumm co muwnEOZ mauumu swam muma 3oq mhma amwm Ohma 3Oq onma mOIvmmH oolmmma meIOmmH _ EmuH mhma Q24 Ohma OB mZOHBUMbOMm mOb¢E.Nm ZOHBUDnomm mmmm QZ¢ mfimeMZVMMBEODdAm m0¢mm>< .mmmmZDZ HQ8840 Q24 mmflmfi QWBUWQmm mom mZOHGWm UHEmdmwomO .NI>H mgmfifi -188- .AeomHIoomH «msomv 0£OHGQOODOON whoeumeumum HO chumscca 6cm Aoomanomma moaumflumum HO OHHmsccd "maomv mwumumd .mosumflumDm NU mamuucmo OuduflumH «mousom .Naco woman ooo.nmm Nmm.mnm man.¢mm mom.mmm F>H.ovm Hm¢.¢Nm ma¢.¢¢¢ aamuH Mwm6.mm mmm.ov eon.m~ mecmHmH who.mma mum.oma vvo.hma www.mea omo.mw omb.N> OON.mm susom mom.mma mma.mNH hma.hma wON.mNH Oho.NmH HOH.ONH www.maa uwucmo mmm.wvm mnn.mam mam.mmN ovv.wwN mmm.mmN ONN.mmN 0mm.va nuuoz AOGOB Ofluumzv coauospoum mmmm _ _ Loam mhma 3oq mnma swam Obma 30a Ohma mmlwmma omImmmH _ mmIvmmH smuH Atmsceucoov NI>H Manse -189— Little change is foreseen in cattle numbers in the center of the country. This is in contrast to several Italian writers who place considerable emphasis on out- migration, especially of mezzadria families, and a decrease in cattle numbers. Yet 1952-1964 was a period of much exo- dus from the hills and mountains and cattle numbers in 1964 were approximately the same as in 1952. It seems more cor- rect to say these factors have a negative effect on cattle numbers but other changes are occurring with positive im- pacts so that on balance cattle numbers are little changed. Projections were made for central Italy from the re- gression equation assuming only that the negative effect of rising wages would be less important to 1975 than in the sample period. This was justified on the assumption that abundant labor would be available in this region and less labor would be used as extensive cattle Operations develOp in the hills and modernized feed lots in the plains. The labor variable was assumed to be 90 percent of its es- timated value to 1970 and 70 percent to 1975. Results in the center show 1.5 million cattle at the low price assump- tion in 1970 and 1.57 at the higher price differing little in either case from 1964—65. A slight increase is envisioned in 1975 at the lower price to 1.6 million head and 1.8 mil— lion at the high price. In the south and islands the regression fitted to the sample period data is presumed to be representative for -l90— 1970. But limits to forage production and the strong pos— sibility that larger milk supplies from the region and im- ports from the north will lead to lower prices make this rate of expansion unlikely to 1975. To project cattle num— bers in 1975 the time coefficient was reduced to 80 percent of its past value. The projected number for 1970 is 1.66 million head at the lower price and 1.71 at the upper price. In 1975 1.70 and 1.76 million cantle are expected at the two price assumptions. Although there are limitations to live- stock production in the south farmers at present are anxious to acquire more capital and breeding stock and appear pleased at present profit prospects. In view of these tendencies the projected increase seems reasonable. There is a definite cyclical effect in cattle numbers in all three geographic regions, Figure IV—l. In the sample period peaks in the cycle occurred in 1954 and 1960 and troughs in 1956 and 1964. An increase in cattle numbers would therefore be expected to continue from 1964 to a peak around 1967-68. Evidence confirms this movement. "Monthly slaughter returns from eight West European countries clearly show the rise in beef cattle production during 1966--an in— crease of at least five percent over 1966 is estimated in Italy (and 1966 production was nine percent greater than 1965)."26 26 Agra EurOpe, NO. 208 (London: March 15, 1967), p. MI-l. —l9l- In coming years a recurrence of the cyclic low would be expected in 1971 and a peak about 1975. ,While the pro- jections in this study are based primarily on the factors underlying cattle production in the country, the cyclical effect should not be ighored in the projections. Indica- tions are that domestic production will be relatively low in 1970 (possibly lower than in 1967) and higher than normal in 1975. The regressions on which the projections are based include the cyclic effect and the tendency for each peak and trough to be a higher level than the previous one. 3. Number of Cattle Slaughtered: Projections were made for the total number of cattle on farms because farm level response to changed price ratios was desired and total cattle numbers were needed to estimate feed grain consumption. But it is necessary to know the number of cattle slaughtered to estimate meat consumption. Computing the ratio Of cattle slaughtered to total number of cattle for each year from 1952 through 1964 reveals two trends. First, the propor— tion slaughtered has increased reflecting improvement in calfing rates, a speed-up in the rate of turnover of the cattle herd due to the increase in the proportion of young beef animals relative to the number of cows and an increase in the turnover of cows from 10 to 16 percent in Italy.27 '27L. Borsody, "Beef and Veal Production in Western Europe: Trends and.PrOSpects," Monthly Bulletin of Agricultural Econ— omics and Statistics, FAO, Vol. 15, No. 12 (Rome: December, 1966). p. 13. -l92— Second, the number of cattle slaughtered as a proportion of the total cattle herd tends to be high in low price periods and low when prices are high and animals are retained for breeding. For the 1952-1964 period the prOportion of number slaughtered to total number was 29.2 percent in the north (an annual range of 21.2 to 38.9 percent), 40.1 percent in the center (a range of 28.6 to 56.1 percent) and 45.7 percent in the south (a range of 27.1 to 59.6 percent). Slaughter is a much lower prOportion of the total and has less var- iability from year-tO-year in the north where dairy cows and replacements are more important. This information was used to make projections of the number of cattle slaughtered. An average of the ratio of cattle slaughtered to total numbers was obtained for three consecutive years in the two most recent lows and similarly for the two most recent high periods of the cattle cycle. Since it was earlier shown that a low point on the cycle would be reached in 1971 and a peak in 1975 these average ratios can be used to estimate cattle slaughtergin these two years. The results show 29.6 percent of the total number of cattle slaughtered in 1970 and 28.7 percent in 1975 in the north, 41.3 percent in 1970 and 38.9 percent in 1975 in the center and 48.8 percent in 1970 and 43.8 percent in 1975 in the south and islands. These percentages applied to the pro- jected number of cattle provided an estimate of the number slaughtered, Table IV-2. -l93— Slaughter Weight The second major variable determining beef production is the weight at which animals are marketed. Since 1952 slaughter weights have increased from a 1952-53 average of 287 kilograms per animal to 325 in 1963, Figure IV-2. The change has been smallest in the north where average slaughter weights are the lowest in Italy and the greatest increase was in central Italy where the average moved from 326 to 364 kilograms. The gain in slaughter weight reflects the de- crease in the proportion of calves slaughtered from 23.6 percent of cattle slaughter in 1952 to 14.1 percent in 1963 and the accompanying increase in Vitelloni from 26.3 percent to 40.7 percent in the same two years. Average slaughter weights show a definite relationship to cyclical price movements of beef in Figure IV—2. In the center and south cattle producers seek maximum income by holding cattle longer and feeding to heavier weights when prices are rising. Conversely, at low or falling prices marketing occurs at lower weights. In the north the impor- tance of dairy animals imparts more stability to marketing weights in the course of a cycle and has resulted in less increase in weights over time. 1. Statistical Analysis of Historical Factors Influenc- ing Slaughter Weights: Cattle slaughter weight seems to be influenced first, by a tendency to increase over time and -194- FIGURE IV-2. BEEF SLAUGHTER WEIGHTS BY MAJOR GEOGRAPHIC REGIONS, 1952-1965 Kilograms 400 390 380 370 360 350 340 330 320 310 300 290 280 270 260 250 240 Center North I I I I I I I I I I I I I I I 1952 53 54 55 56 57 58 59 6O 61 62 63 64 65 66 -195- second by net income during the life of the animal. Single equation regressions were fitted to average slaughter weights for each of the three regions for which cattle numbers had been projected. Independent variables were beef and corn price as measures of net income and time. The equations presented in Table IV-3 essentially verify the graphical analysis of Figure IV-2. Prices have no effect on slaughter weights in the north as evidenced by the low R? and the zero regression coefficients. The time variable measures the upward trend in slaughter weights from 1953 to 1964. In the center and south the price co- efficients have the expected signs and are highly signifi- cant statistically. Over 80 percent of the variation in slaughter weight is explained in the south and islands and 90 percent in the center by the variables included in the equation. Elasticities derived from these equations indicate that farmers will in the course of the animal's life increase the marketing weight about 0.3 percent for each one percent increase in beef prices (there are limitations, of course, imposed by loss of feeding efficiency at heavier weights). In like manner, a decrease in marketing weight of about “0.2 percent will be associated with each one percent increase in corn price (again qualification is necessary because of the importance of forage rather than grain in fattening cattle). -l96— 003.0- 90m.0 00000 003.0- 90m.0 300000 030.0 000.0 00302 mammz um mmfluHUHumMHM x00.v Am0.0 100.3 100.3 13m09.v 19000.V 10000.3 x900m.0mv ~m00.0 00.3 9N0. 909m.0 3~30.0I 0~00.0 003m.00~ 00000 103.3 x30.v 100.3 x00.v Amm90.v 13000.3 1000.0 A3093.mmv 03mm.m 03.3 300. 00mm.0 9030.0- 0300.0 3900.00m 000000 10m.v 130.3 Rom.v 100.3 1003m.v A0m00.v Am000.v Ammwm.0mv mmm9.0 0~.~ 30m. 00mm.0 0000.0 0000.0 0mm0.30m 30002 mumafiumm OHumHu moaum woeum mo Houum Imam Nm. 0898 c900 mmmm unaumsou cowmmm 0.3030383 .333 0003Immm3 .m9m03mz mm9mosaqm 039940 02323033xm mom 0203mmmmomm .mu>3 03009 -l97- 2. Projection Of Cattle Slaughter Weight to 1970 and 1975: These equations were employed to project live slaughter weight to 1970 and 1975. Beef prices were the same as those earlier used to project cattle numbers and corn prices were those projected in Subproject III. Projected slaughter weights closely follow the trend just described. In the north a slow increase in average weight is foreseen from 1964-65 to 1975. In the center and south there is more year- tO-year variability, average weight increase is larger and price has a greater influence as seen by the weight at the low and high price alternatives. The results in Table IV-2 show a 1970 slaughter weight in the north at the more likely high price assumption of 288 kilograms compared to 278 in 1964-65. The same weight could be expected in 1975 if price approximates the lower alternative or would be 300 kilograms per head if the higher price is reached. In the center and south the lower 1970 price would call forth a lower slaughter weight than.in 1964-65 but at the higher price the marketing weight would be expected to average about 384 kilograms. The same tendency would prevail in 1975 with the 414 kilogram weight at the higher price a relatively large gain over 1964-65. The south par— allels the center but with less variation and at a lower average weight. 3. Conversion to Carcass Weight: The equations provide an estimate of the weight at which live animals are slaughtered, -l98- equivalent to the farm level supply of beef and veal. More important for meeting consumer needs and estimating future import requirements is the carcass weight of the animals. I The proportion dead weight is of live weight varies according to age and breed of the animal. Experimental results from feeding trials show Piemontese breeds of 400 and 500 kilograms dress out about 64 percent of a live weight.28 Heavier animals are somewhat less: the carcass weight of 600 kilogram Frisoni is 57 percent of live weight and chianini of the same weight averages about 62.2 percent. The procedure followed here was to compute for the three geographic regions considered the percentage that total dead weight was of live weight in 1960, 1961 and 1962. The percentages were for the north, 57.1 percent; center, 55.2 percent; and south, 58.4 percent. These percentages applied to the average live slaughter weight projected in 1970 and 1975 provided the estimate in Table IV—2 of average weight per animal slaughtered. 28Raimondo Raimondi, "Influenza del Peso di Macella— zione sulla Produzione Economica di vitelli Piemontesi all 'Ingrasso," Rivista di Zootecnia, Vol. XXXVIII (1965), p. 22. 29Angelo Meregalli, "Influenza del Piano di Alimenta- zione sull 'Accrescimento, la Capacita' di Utilizzazione degli Alimenti e 1e Caratteristiche di Macellazione nei Vitelloni Chianini e Pezzati Neri Frisoni," Estratto da Rivista di Zootecnia, NO. 4—5, (Firenze: 1965), p. 44. -199- Beef and Veal Production Domestic beef supply is a multiple of the number of cattle slaughtered and the average dead weight per animal.30 Both of these have been projected and total cattle meat production can now be obtained. Italian beef production in Table IV-2 is estimated to increase from 540 thousand metric tons in 1964-65 to 558 thousand at the low price projected in 1970 or 595 thousand tons at the more probable higher price. The first estimate would be 3.3 percent higher and the second 10.1 percent above 1964-65 output. By comparison, total production increased 18 percent in the five year period, 1954-55 to 1959-60 but only three percent from 1959-60 to 1964-65. A continued expansion is foreseen to 1975 with production at the lower price midway between the two 1970 estimates and increased to 667 thousand tons, a 23.5 percent increase at the higher 1975 price. The projections are for total cattle meat and do not provide separate estimates for beef and veal. This divi- sion can be obtained by extrapolating the past trend in the prOportion of each. In 1963, 14.12 percent of total cattle meat was from vitelli and 40.72 percent from Vitelloni with the remainder of total cattle meat coming from cows, bulls 30There would be a slight degree of double counting from animals imported live for slaughter. -200- and work animals.31 In the decade, 1953-1963, the average annual decline in calves as a proportion of the total supply was 3.72 percent and the annual increase of fat cattle was 3.75 percent per year. Assuming the same rate of change to 1970, calves would comprise 10.44 percent of the total in Table IV-2 and 7.82 percent in 1975. Fat cattle would increase to 51.4 percent in 1970 and 59.04 percent in 1975. It is doubtful that the rate of change will continue at this pace and these proportions should be viewed as minimum for veal and maximum for fat cattle. The budget results discussed earlier in Appendix Tables 11 and 12 indicate that farmers will make this shift in attempting to maximize income. Relative prices indicate that incomes will increase for feedlot operators and will exceed the return on veal production. If solutions to the obstacles discussed can be found, particularly a supply of feeder cattle and feed, expansion of beef production could well exceed our estimates. Milk Milk and beef production.in Europe are joint products of the cattle herd. Meeting the rising demand for meat without incurring large surpluses of milk and milk products 31U.S. Feed Grains Council, op. cit. -201- is one of the EEC's most perplexing policy problems. The situation in Italy differs from other European countries in that neither meat nor milk production are adequate to meet requirements even though milk consumption per capita is the lowest in the EEC. 'Italian cow milk production in 1964-65 totaled 8,970,900 metric tons with 7,241,875 metric tons sold, Figure IV-3. The north accounts for 80 percent of the 1964-65 output and one region alone, Lombardia, produces almost one—third of the country's milk. The most rapid growth in milk produc- tion, however, has been in the south and islands. Cow num- bers and production per cow have increased steadily in this area as public assistance for breeding stock, feed and pro- cessing plants has been made available. Milk use is primarily directed to processed products. In 1965, 50 percent was used for cheese, butter and powdered milk: 20 percent for feeding calves, 25 percent for direct consumption and two percent sterilized and sold.32 The cheese industries in 1965 used almost four million tons of cow milk to process 332,813 tons of cheese and 48,027 tons of butter.33 About 2.4 million tons of milk are used for table cheese 32Mondo Economico, Anno XXI, No. 36, (September 10, 1966). 33These statistics on milk production are reported by the Associazione Italiana Lattiero--Casearia and exceed government statistics slightly. -202- FIGURE IV-3. MILK SOLD FROM FARMS BY MAJOR GEOGRAPHIC Metric Tons 6,200,000 6,000,000 5,800,000 5,600,000 5,400,000 5,200,000 // 1,000,000 900,000'— 800,000 700,000 REGIONS, 1955-1965 - North South and Islands 600, 000 — 500, 000 - Center 400, 000 — 1955 56 57 58 59 6O 61 62 63 64 65 -203- and condensed milk which competes with other EEC countries (imports increased from 387,000 quintals to 633,000 from 1960-1965, a gain of 63 percent). About 1.9 million tons of milk in 1965 were used to make the hard cheeses which do not meet international competition and which strongly influence milk prices in Italy. 1. Number of Cows: Cow numbers have increased with the overall growth of the cattle herd and are a relatively high proportion of cattle numbers in each region. The pro- portion is highest in the south and islands indicating the generally lower calfing rate and technical practices. The proportion of cow numbers in 1963 and 1964, a low period in the cattle cycle, was used to estimate cow numbers in 1970 when a similar situation is expected. The prOportions were: 49.71 percent in the north, 53.58 percent in the center and 54.12 percent in the south. The average propor- tion in 1959, 1960 and 1961 was used to estimate cow numbers in 1975 when production should reach a peak. These propor- tions were: 50.62 percent in the north, 51.39 percent in the center and 53.37 percent in the south. Applying these percentages to projected cattle numbers provides an estimate of all cows in 1970 and 1975, Table IV-4. It is possible that this procedure could overestimate cow numbers if calf- ing rates improve and calves are fed for longer periods of time. .AmOSmmH msowum> umfiomv .09909m¢ moaumflumum HO Oflumsccd . .Ammma "meomv .OGMMHmuH oowumfiumum prsmeOU,. .AmmSmmH 0509Hm> "msomv .OsmwamuH mafiumflumum HO owumsccd .moflumfiumum HO mamuucmo OusuflumH ”mwousom .cowmmu nomw CH Umumxuma MHHB no huwucmno may on cowuuomoum cw mGOHmmu OHQQMHOOmm may mcoEm UmumooHHm ma coeuospoum xHHE Hmuoam m90.9¢o.Na 0mm.3mm.HH Nmo.mho.03 9v0.399.m 000.090.m ooo.Hdm.m .¢.z hamuH mmo.NHm.H omN.mmv.H mmm.¢vm.3 Hmm.¢om.3 m¢9.0NH.H 9mm.v¢m .¢.z mOGMHmH w ausom omo.ama.a mom.amo.a 00H.Ohm www.mmm wom.909 mNN.m00 I¢.z Hmucmo mmm.¢mm.m 39m.om9.m mam.hmh.9 th.0Nm.9 Hmm.oma.9 «3N.Hma.m .«.z. zuuoz , , mflmsoa oauumzv soauospoum xaflz W oo.NN mo.NN fim.oN vw.ON 9m.ma oo.ON .<.z hamuH 2 90.03 90.03 fim.v3 0m.¢a mo.ma mm.HH .¢.z mOsmHmH . 0 Ausom mh.NH mb.N3 m0.HH m0.aa mN.OH om.9 .¢.z Hmucmo No.0N No.0N 0N.mN 0N.mN 00.0N oo.mN .¢.z suuoz 0030003000 300 000,x332 00¢.mmv.m 9Ho.oma.m 00m.¢mm.¢ mwm.mm0.v oom.mam.¢ 0mm.03m.¢ .«.z hamuH mmm.ovm N00.mom 9No.mNm NNv.9mm omm.oom omm.Nm9 .¢.z mOsmHmH 0.5usom 93¢.mNm mo¢.mmm mmm.mmm N¢H.mom ooo.mw0 OOH.N¢m .<.z Hmusoo «ma.mmm.m 900.09m.m mHN.Hho.m Hmh.mbm.N om¢.omm.N ooa.m¢N.m .¢.z nuuoz mumnfisz 300 It 0030 0903 303 0903 0000 0903 303 0903 00-0003 00-0003 00-0003_ 6009 «J mhma 92¢ Ohma OB mZOHBUmbOEm 02¢ mm<fiw QMBUNQmm mom mZOmem UHMmdmwomw m0b¢2_wm ZOHBUDQQmm MAHZ 02¢ 300 mmm MAHS 9mmmm252 300 .vr>H mqmda -205- 2. Milk Production per Cow: Milk production in Italy is a high cost enterprise relative to other EEC countries. The causes are low average production per cow, a result of a variety of nonspecialized breeds, and feeding practices. Milk yield per cow in the north in 1964-65 was 24.06 quin— tals, 10.29 in the center and 13.09 in the south, Table IV-4 . Breeds are being improved rapidly. The government sub- sidizes imported breeding stock purchased by approved farms and provides low interest capital and in some cases gives 25 percent of the animals' cost to disseminate them to other farmers. The effects are especially noticeable in the center and south where average production per cow increased from 11.53 quintals in 1959-60 to 13.09 in 1964-65 and in the cen- ter from 7.90 quintals in 1959-60 to 10.29 in 1964-65. In the north yields have been static, averaging 25.06 quintals in 1959-60 and 24.06 in 1964-65. Average figures in all regions may be deceiving however, since better farmers in the irrigated plains of all three areas report herd averages of 30 to 40 quintals per cow. Feed is perhaps as great a problem but is not recognized as such. Most farmers use forage as the basic feed but quality of hay is quite low. Green feed is fed in season that produces well but contributes to sharp seasonal varia— tion in milk production. Improvements in feeding, esPecially increased plantings of alfalfa and greater use of feed grains -206- and concentrates should complement the reservoir of improved stock now being produced. Production per cow is expected to increase to 1975 from three influences: the increase in proportion of spe- cialized dairy cattle with improved blood lines, the exodus of farmers in the hills and mountains who tend to have lower yielding cows and the continued improvement in grain feed- ing. On these assumptions milk production in the north is expected to be 25.26 quintals per cow in 1970 and 26.02 in 1975, 11.63 quintals in 1970 and 12.79 in 1975 in the cen- ter and 14.54 in 1970 and 16.07 quintals per cow in the south in 1975. These estimates show only a slight increase in the established dairy region of the north but provide what probably are conservative average yields in the south. 3. Projection of milk Production to 1970 and 1975: Estimates of 1970 and 1975 milk output are multiples of pro- jected cow numbers and production per cow. Table IV—4 shows an expected output of 9.8 million tons at the low price alternative of 1970 and 10.1 million at the higher price, increases of 8.9 and 12.3 percent over 1964-65. Continued expansion to 1975 is foreseen with 11.3 million and 12.0 million tons at the two price assumptions. Production at this rate would mean an increase of almost 26.3 and 34.3 percent over 1964-65 output. Expected lower milk prices enter the projections in the estimate of total cattle numbers. But direct account -207- is not taken of the possibility of price ratios that make beef production more profitable than milk production. Pro- jected prices used in the cattle equations show expected price ratios of 7.25 and 8.41 in 1970 and 7.62 and 9.25 in 1975. Past experience shows that a ratio greater than 7:1 caused farmers to move sharply to meat production. These ratios indicate some of the dairy animals would be fattened for slaughter and milk production would consequently be less than projected. Budget results showing a relatively large net income from dairy production but decreasing in size with expected milk and feed prices while income from feedlot beef production increases support this conclusion. But milk pro- duction cannot be substantially reduced because of the dual purpose nature of cattle production. Swine Production Italian pork production has traditionally followed two different patterns. In the northern part of the country pigs are a joint product with cheese production to utilize milk by—products. In the remainder of the country pork is grown for home consumption, for sale as feeders in the north or for sale in small lots in nearby villages. Future out- put will be influenced by changes.in the dairy sector, structural changes on farms in the center and south and consumer demand for red meat. -208- Demand and Consumption Consumption patterns for pork are sufficiently differ- ent from those in other countries to warrant special atten- tion. These unique features determine the form in which pork is consumed as well as limiting its consumption. In per capita consumption Italy is not a large pork consumer when compared to northern European countries. The rate per person in 1965 was 8.2 kilograms up from 6.7 in 1963. This increase was in part due to the limited avail- ability of beef in this period. Beef consumption was approx- imately double that of pork which is now in third place behind poultry. Pork represents about 20 percent of all meats consumed, a percentage which has been decreasing over the past decade as beef and especially poultry have been consumed in larger quantities. The low rate of pork consumption is explained in part by a low caloric requirement caused by climatic factors. It is heightened by the generally held View in Italy that pork is unhealthy because it is hard to digest or because it contains a large amount of fat. This idea is furthered by a campaign against pork conSumption by many doctors who attribute diseases of the heart and arteries to this food. These Opinions are probably derived from earlier periods when refrigeration was unavailable and pork easily spoiled. But even today fresh porins consumed only in the cold months -209- when it is thought to be safe and a higher calorie diet is needed. Processed pork constitutes about 50 percent of the total. This is usually in the form of prosciutto, salt- cured or raw ham, and various types of salami. To obtain the desired flavor in these cuts heavy slaughter hogs are necessary; the average weight is, in fact, the highest in the world. The average live weight in these industries is 170 kilograms but ranges in size from 120 to 220 kilograms.34 The ideal animal demanded by the industry is a meaty hog, fat, low in water content and with large hams. Besides the very heavy hogs required by industry, there is considerable demand for porchetta, little pigs, that weigh around 60 kilograms. These are roasted whole by families or retail shops that sell meat in slices. In this form fresh pork is consumed all year but again demand is greatest in the winter months. The different forms in which pork is consumed make interpretation of an average slaughter weight almost mean- ingless. When combined the extremes result in an average weight that has increased over the past decade in contrast to almost all other countries. In viewing the future of the pork industry in Italy, 34Cassa per il Mezzogiorno, Strutture e Mercati dell' Agricoltura Meridionale — Carni, Vol. 6 (1966), p. 385. -210- the essential elements of demand must be considered. In particular, the low demand relative to other meats, the highly seasonal nature of consumption and the rather specific re— quirements of pork processors greatly influence the type of animal produced, how it is produced, and the amount of production. Historic Production Patterns Total numbers of swine in the country have been increas- ing since 1954, Figure IV-4. There is a cyclical effect of approximately four years duration that appears to have troughs 35 Numbers in 1954, 1958, 1962 and expected again in 1966. have increased so rapidly since 1958 that the 1962 trough became more of a leveling off than a down—turn. The growth pattern differs in the three major geographic regions. Numbers produced in the north have increased very rapidly since 1955 with only slight pauses in 1958 and 1962-63. This area produces over 50 percent of the swine in the coun- try and 40 percent are grown in the two regions of Emilia- Romana and Lombardia alone. Production in the center has 351n a recent study of the hog cycle in the region of Umbria, Cassano found the cycle covered an average duration of slightly more than 40 months. In each cycle the high phase of production lasted just over 19 months and the low phase slightly over 21 months. Cosimo Cassano, Le Previsoni Economiche per gli Allevamenti Suini, INEA, (Perugia: April, I965). p. 83. FIGURE IVLh. SWINE NUMBERS 0N FARMS, 1952-1965 80v Swine North Numbers Numbers 3.000 —. 2,800 -‘ 2,600 ~- 2,h00 ’ _. ////— Sow: I , Center» 200 2,200 .. / r 5"" /l/ 31\\\ / I Saws- 180 2.000 -- / Norgh 160 I ./“"' //l / 1,800 .—. ~\-/ . Center 120 1 A00 w / /' 1,200 3. / /,/’\/ / 1,000 ——’-’" \ ' South I. 131.005 MM,_____-__ -/ 800 —— III“-9103’~”""(”z/’7 // 0 , I (D ' ! I I I I I I I ' 1952 53 Sh 55 56 57 53 59 60 61 62 63 6h 65 -212- also increased since 1954 but at a slower pace. In the south and islands there has been little change with produc— tion in these areas largely for on-farm consumption. There is also a definite difference in the type of swine produced in the various areas. Production in the north is largely a coordinated arrangement between dairies making cheese and the ham and salami processing industries. Hogs are fed to quite heavy weights for industrial needs. Northern Italy supplies 53 percent of all pigs slaughtered but due to the heavier live weight and higher yield, accounts for 58 percent of total weight. Central Italy slaughters pigs which weigh less and yield less and slaughter weight is a lower percentage of the total than numbers produced. This relationship is even more evident in the south and still more so in the islands. The pork industries that grew up in the north as an adjunct to the milk-cheese industry are largely responsible for this region being an area of fattening and the central part of the country specializing in lattone or feeder pigs.36 36Brunelli in describing the relationship between dairies and pig growing says in the beginning the dairy barn and pigsty constituted a single structural unit with the number of pigs equal to cow numbers. After the war pigs became an increas- ingly more substantial factor in the price of milk and the relationship between milk produced and pigs raised became continually closer. Today, cheese production has moved off- farm but pigs have moved with the milk processing. Now dairies produce in a continuous cycle rather than seasonally, pro- duction per cow has increased and the production of pigs has tripled. There is still a definite relationship between milk and pigs with the optimum ratio held to be one pig for every ten quintals of milk processed per year. Paolo Brunelli, "L'Allevamento Suinicolo nell'Impresa Cesearia," Rivista di Suinicoltura, Anno IV, No. 5 (May, 1963), p. 15. -213- Even though the north has almost twice the number of swine as the center, the number of sows in the center exceeds the number in the north by almost 200,000. The regions of Emilia, Tuscany, Marche and umbria serve as a source of feeders for the northern dairy plants. Figure IV-5 schematically illustrates the flow pattern. Most feeders are produced on small farms in the center by mezzadria or family farmers. These are collected by specu- lators who may sell directly to cheese factories or more likely Operate on a contract basis for agents of these in- dustries. Pigs are trucked from a central pick-up point to a dairy plant in the north. Three factors are at work which may change this pat- tern. First, the dairies themselves appear to be dissatis- fied with the number and quality of pigs obtained. They are encouraging farmers in the north to produce more feeder pigs and this enterprise appears to be expanding. Second, dairymen in the cheese producing regions have well estab- lished cooperative and trade associations for marketing and maintaining cheese quality. These cooperatives are pressuring for government financing of an integrated system up through meat processing and down to producing feeders. Third, is the rapid out-migration of farmers in the center who have been the traditional suppliers of feeder pigs. All three changes point to an increase in large, modern farrowing operations located in the north or by nonfarmer interests in the center. -214- FIGURE IV-S. PLOW DIAGRAM OF THE ITALIAN PORK szc'roa I Feeder Pig Production Central Italy 20-40 K1108 601 \ \J \ ./ \ .J ' Collectors, I Magroni | ' From ‘ I 45-85 Kilos_ ‘\ Farms , / “‘1‘ ‘ ‘7 '- / / Feeder I \ I I Fat Hogs Pigs I / North I North {I Italy I ItalyJ ’ Agents for \\ Cheese \ Industries // 1 ‘§:::~M / \\ / \\ \\‘| \;/ I; \ \I Cheese Industries I I North Italy { I Imports I ~\ N I l v J W 43 Processed Pork (Hams, Salami, etc.) I ! .\; <.soz i 160-190 K1103 I I Home Consumption and Porcetta >407. 110-140 Kilos ~215- Besides these two traditional forms of swine produc- tion, there is a third--the production of magroni or middle- size pigs. The proportion is small and appears to be de- clining. These pigs, weighing 45-85 kilograms, are an inter— mediate step between the feeder pig producers and the fat hog producers. Some are also slaughtered for fresh pork consumption. The general system is to buy feeders around 20 kilograms and 70-80 days of age and sell magroni at a usual weight of 45-50 kilograms. 1. Technical Improvements: Through the efforts of the Ministry of Agriculture and private producers, technology is improving. The Ministry provides educational programs, breeding stock and financing to improve facilities and herds. Private industries are contributing to growing hog numbers and are providing a demonstration impact with modern facili- ties. The basic breed is the Large White (Berkshire) which together with its cross-breeds make-up 40 percent of the total production. The Landrace is fast gaining in popular- ity due to its high birth rates, fast weight gain and because it is able to meet the conformity and yield require- ments of the meat industry at a live weight of 20-30 kilo- grams less than the Large White. A cross between the male Landrace and female Large White represents the ideal type for breeders, growers and the meat industry together. Foreign breeds in total account for 80 percent of the pro- -216- duction in the north but only five percent in the south and one percent in the islands. Better breeding is reflected in improved feed conversion rates and increased yield of meat per hog. With genetic improvements has come updating of facili- ties. In the northern dairies almost all fat swine are in clean, mechanized buildings where one man is able to care for 500-800 hogs. Feeding is accomplished through an auto- mated conveyor system of mixing, cooking and serving. In the feeder pig producing areas the first modern farrowing houses are appearing. These are financed by integrators who produce for their own fattening pens or to contract out on farms. Average feed conversion rates appear to be quite high compared to U.S. rates but in fact, are little different in commercial operations. Average rates are high because ani- mals are fed to 200 kilogram weights. At these weights feed conversion rates are approximately 6:1 but in the smaller sizes the rate is less. Outside the commercial feed lots little can be said on feed conversion rates. Some improvement in conversion rates has come from better quality feed. Mixed feed production for swine has increased almost 50 percent (300 to 590 metric tons) from 1962-63 to 1965-66.37 Still most feeders continue to buy 37Agra Europe, No. 199 (London: January 11, 1967), p0 MI’6. —217- grains and mix their own rations with purchased protein mixes. 2. Prices: Prices of fat hogs at farm level generally trended downward from 1954 to 1960 but then increased sharply to a high in 1962. The major characteristic of hog prices is the four year cyclical pattern familiar in most countries. Orlando reports this price variation to average 30 percent of the price of fat hogs compared to 8-12 percent in the U.S., Denmark and similar producing countries and reaches 60-80 percent for feeder pig prices.38 There is also a very pronounced pattern within the year with pricespeaking in the October-February period when demand is highest and reach— ing an annual low point in July. At retail pork prices have steadily increased since 1960 with little of the oscillation just described at the farm level. This is explained in part by the inefficiency in marketing and distribution of meats and partly by the absence of competition. It is reported that the price of swine in Italy is established by four large pork processors. Price can be driven down by a refusal of these plants to buy pigs for 15 days. They are also exerting pressure on the state to prevent the farm c00peratives from becoming pork processors. 38Giuseppe Orlando, "Due Fondamentali Problemi del Mercato Suino," Rivista di Suinicoltura, Anno III, No. 9 (Septembre, 1962), p. 17. —218- It is evident that prices in this environment operate to the disadvantage of small.farm units and farmers them- selves point to price uncertainty as one of the major dis- advantages of pork production. Fluctuating prices, farm level prices that are expected to move lower and the exodus of the traditional pork producer indicate a shift from farm level production to larger integrated units. From 1951 to 1961 corn prices trended lower but since 1961 there has been an upward turn reflecting increased demand and probably some effects of EEC policy. But with the Special concessions to Italy, corn price increases at least to 1972 will not be a serious obstacle to pork out- put. Farm produced feeders and fresh pork are likely to be fed farmgrown corn. Most of the fat hog industry in the north is dependent on purchased corn, a good share being imported corn. Higher corn prices will have more impact here than in the rest of the country but these industries also have some market advantages as corn is purchased in large lots. Farmer c00peratives, for example, in 1966 paid 4300-4900 lire per quintal when average market price for all Italy was reported at 5,033 lire. In addition, these coops use Green Plan funds to purchase corn on credit at very low interest rates. Production and price of hard cheese may be more impor- tant than corn price in determining future pork production. -219- Cheese price up to 1962 followed a cycle similar to cow numbers but price increased from 74,987 lire per quintal that year to 135,963 lire in 1965, a rise of 81 percent in three years (corre5ponding to a 79 percent decrease in milk processed in the two largest cheese producing regions from 1962-1964). While it is easily verified that a relationship exists between milk produced, cheese manufactured and swine num- bers, an exact specification is difficult. It is known that milk yields 80 percent whey after cheese and butter are processed. The ratio for feeding hogs is in a range of 8-10 quintals of whey per pig per year.39 Thus specific swine numbers for a given plant can be cited but in the aggregate little can be said because not all dairy plants produce swine.4O It can be said that future prosPects for hard cheese production and consequently whey for feeding pigs appears favorable. The cattle cycle is now in its expansionist phase and following past trends milk production should be at a peak in 1967 or 1968 and then decline through 1970. Milk 39An Optimum relationship is one pig for every 10 quin- tals of milk processed. Paolo Brunelli, op. cit., p. 15. 40 . - . . For example, in the Parmesan produc1ng region of Emilia there are 575 c00peratives and 67 private cheese factories that together process 92 percent of all the milk in the region. All the private firms produce swine but only 50 percent of the coops have this enterprise. Farmer— members in some coops buy whey for home feeding. -220- production has been projected to increase substantially to 1975. To the extent that pig numbers depend on milk pro- duction, this should mean an expansion in pork production. Beef prices too have operated to the advantage of pork producers. Although beef is a strongly preferred food in the diet of Italian consumers rapid price increases since 1960 have increased the demand for competing meats. With the expected supply of beef continuing below desired levels, beef prices should provide added stimulus to pork produc- tion. Obstacles for Future Pork Production Both numbers of swine and quintals of meat produced increased substantially since 1958. With the exception of higher feed cost and expected lower prices of hard cheese the same factors underlying these changes are still influenc— ing pork output. An additional factor, integration, is providing stimulus to supply. A larger proportion of Italy's pork will come from this source to circumvent the massive changes in farm and market structure needed to compete with more efficient pork producing partners of the EEC. There- fore, the future production of swine must be viewed with optimism. Some problems exist that will dampen the potential expansion. Orlando cites two: the effect of price cycles, e3pecially on farmers producing feeder pigs and the low —221- and seasonal demand for fresh pork.41 Several authors point to poor management on farms as a serious obstacle. For example, one study of 28 farms over a two-Year period found an average of 14.3 pigs per sow weaned in the better farm- ing areas where 16 pigs is considered desirable.42 Another obstacle that may restrict production is the possibility of large pork imports from northern Europe when free trade begins. Most of the country's imports of pork now come from the Netherlands and Scandinavia and Dutch imports have increased sharply since 1962 when EEC policies were initiated. Processed meat imports from the Netherlands increased from 3.4 percent of total imports in 1961 to 15.1 percent in 1962 and 17.1 percent in 1964. If large volume supplies are available from northern Europe, high cost Italian producers will have difficulty competing with more efficient northern pork producers. Much depends on the expansion of demand. Persuading consumers to eat more fresh pork instead of beef will not be accomplished in a short time. A pig must be produced with less fat, refrigeration must be readily available and pork must win acceptance in the warmer months. Here too 41Giuseppe Orlando, op. cit., p. 17. 42Pier Giovanni Bucatti and Marchello Martelli, "Prob- lemi Tecnici ed Economici dell Allevamento Suino," Rassegna Suinicola Internazionale (Reggio Emilia: May 7-8, 1966). -222— there is optimism. The U.S. Feed Grains Council Sponsored a promotional campaign for fresh, lean, grain-fed pork in Torino that led to dramatic sales increases. They expect fresh pork consumption to increase rapidly and swine num- bers to double. Agangelini Corporation—-an.integrated grain importer and feed manufacturing producer of beef, poultry and swine--singled out swine as the type of livestock to increase in their plans. They foresee increased consumption of fresh pork and plan to slaughter hogs of 110 kilograms to meet this demand. Thus, existing obstacles to greater swine production are not insurmountable. It may well be that production restraints can be removed as fast or faster than demand expands. Future production should be viewed with this as an hypothesis. Swine Numbers 1. Statistical Analysis of Historical Factors Influ- encing Swine Numbers: In estimating future production, historical relationships were first considered by regressing numbers of pigs on farms in the north and in the remainder of Italy on the price factors discussed above and time as a dummy for nonprice influence. The results are in Table IV-5. In all equations the signs of the pork and cheese price coefficients were positive as expected but corn price had .mucowowmmmoo soammoummu was no mHo>oH monsowmwc Imam one muonum unaccoum mo moumfiflumm .uoouo ca mum mononucmumm CH newsman oma. . mha. Hmvcflmawm one. oma. nuuoz mom. com. 500. nuuoz mums: um moHuHUHummam _ Aeo.v Amw.v Amm.v Ama.v . 3 Anesm.mac Amooa.c Aemao.v Amenm.mmmv samuH no a «mH~.H~H om.H mam. maom.m¢ ammo.o mHHo.o momm.~voa amazememm . loo.s A¢H.v Amw.v lam.v Ah~m¢.¢mc Ammma.c Ammao.v lamee.m¢sc nann.flma mm. How. memm.mm moo~.o «Hao.o mmm~.o nuuoz loo.v Amm.v Amo.v Amo.v Amm.c Ammma.mav Amomo.c Ammoo.v Asaao.v Aoom¢.ommv momm.~HH mm.a mam. Homm.am mo~a.o emoo.o mmoo.o mo~>.on :uuoz mumfiflumm owumflu Gnoo mmmmnu xnom mo uouum Imam m mEHB mo chem mo mo unnumcou COflmmm oumocmum .3.Q $1 mowum mowum moflnm mMHBHUHBmfiflm Qm>Hme 92¢ VomHlemH .mzmdm ZO mZH3m m0 MMQZDZ OZHZqumXW mom mZOHmmmmwmm .mI>H Manda -224- the "wrong" sign. The Durbin-Watson Statistic indicates the presence of some positive serial correlation but the test at the five percent level of probability is inconclusive. I§2, the coefficient of multiple determination adjusted for small sample size, indicates 81 percent of the variation in the north is explained by the three included variables but only 34 percent in the remainder of the country. Two reasons probably account for this large difference. In the north production tends to be more stable and more a function of prices while in the other parts of the country variables omitted from the analysis are relatively more important. Second, hard cheese price is included in the north and apparently is an important variable in explaining past changes. To test this and the response to pork prices a second regression was run omitting cheese price. In this form only 66 percent of the variation in swine numbers is explained. The fiz's are somewhat inflated due to the inter- correlation of time with corn price and swine numbers. The elasticity of pig numbers with reSpect to real farm price of swine computed from these equations shows for producers outside the north a value of 0.175 computed at the means. Thus, under 1952-1964 conditions a price change of one percent in real farm price of swine results in a 0.17 percent change in the same direction in pig num- bers. The price elasticity computed from the equation fitted to northern Italian data gave quite different results; the -225- elasticity was essentially zero. This is in contrast to a supposition that farmers in this region are more price responsive than other parts of the country. The difference is likely a result of one of two effects. First, pork and cheese may indeed be true joint products such that pig num— bers are determined by the amount of milk processed and little response is associated with pork price change. Since graphical analysis indicates these two do not always move together and some hogs are produced outside of dairies, this explanation is rejected. It is more likely that the cheese price variable included in the equation assumes much of the pork price influence. This view is supported by the value of the price coefficient and resulting elasticity in the alternate equation for the north. The estimated response to price change is almost equal to that calculated for other regions. The remaining elasticity estimate of interest is that related to real corn price. As expected, the effect of a price change in the north has greater effect than in other parts of the country but because the sign is opposite to that expected and standard errors are large relative to the coefficient little confidence is held in this estimate. 2. Projection of Swine Numbers and Pork Production to 1970 and 1975: To estimate swine numbers and supply of pork the regression equations presented in table one were -226- employed. Initially several assumptions should be noted. First, the cyclical effect of pork production is assumed to continue into the future in much the same pattern as previously. This would mean a low point in the cycle in 1970 and a high in 1974. This factor alone would cause pig numbers to be below trend in 1970 and above for 1975. The cyclical effect will also affect beef production, with cattle numbers at a low point in 1970-71 and around a maximum in 1975. It appears that meat will be in relatively short supply in 1970 and more plentiful in 1975. Combined with an expected decrease in the rate of poultry meat pro- duction, pork prices in 1970 may be higher than those pro; jected in Subproject III and used in this analysis. In projecting pork production cheese output will be important. Currently, the market is very favorable and expansion is occurring. For projection of swine numbers the EEC common threshold price of 127,296 lire per quintal 43 was used. It was assumed this same nominal price would prevail through 1975. The out-migration of small family farmers and mezzadria, the principal growers of swine, will cause a decrease in pig numbers in regions outside the north. But it was assumed 43This is a theoretical price calculated from the com- mon target price of $4.67 per hundred weight of 3.7 percent milk and is to become effective April 1, 1968. Agra Europe, No. 206 (March 1, 1967), p. S-l. —227- that production in larger commercial units would at least compensate for their decline and the equation in Table IV—5 would be adequate for projection. In the north, however, more growth than indicated by the equation is expected. With supplies of meat less than needed to meet requirements additional capital is expected to flow into pork production. Expansion will also be indicated by the increased volume of milk and cheese projected in the north. The trend coeffi- cient for this area was increased 10 percent on the basis of these expectations for projecting swine numbers. Results of the projections are in Table IV-6. A 15.6 percent increase is projected for the north for the 1964- 1970 period and a 26.7 and 29.6 percent increase for the low and high price estimates of 1975. In the remainder of the country a slightly lower increase is expected. For all Italy pig numbers in 1970 would be about 750 thousand more than in 1964-65. Uhder the high price estimate for 1975 pig numbers would be 6.2 million or almost 28 percent greater than in 1964-65. It is believed that the high estimate for 1975 would be the most realistic projection given the pre— sent continuing rate of increase.in sow numbers, integrated firms and total demand for red meat. The number of hogs slaughtered varies greatly due to phase in the cycle and to level of management. A higher percent is slaughtered when the cycle is at its high point and prices are lowest. While in high price periods more .Amoma "meomv .oGMHHmuH ovaumflumum oaumscnm . paw .Ammmalmmma mo nonmmH umfiomv .mwhmum¢ mowumflumum Hp owumscsd .moauwwumum Hp mamuucoo ousuwumH "moousom .xuunsoo may mo Hoonflmemu on“ ca ucoonom on cam nuuoc may :H usmflwB m>HH mo unmonmm mm on On woumfiwumo ma unmwmz HoustMHm Ummno .muucsoo may mo amounmEmu was an o.mm cam m.mn one space was an mama can onma now 0.00 was H.¢m on On omumfiwumm mH.UmHmusmsmHm nanny :o mcw3m mo unmoumm snag .maco eoma now momma mm¢.mom mom.omm mo~.om¢ omm.omm mmm.amm. oom.~om samuH ohm.mom meo.oom 0mm.HhH Ohm.mma Ho¢.mma Hom.oma huucsou mo HopcfimEom. oaa.¢mm moa.omm hom.mam , omm.~¢m Hmm.mm~ mmm.mha zuuoz mmcoe owuuozv cowuosponm Muom III III III III III III mamuH o.mm o.om N.mm m.hm m.mm m.mm haucsoo mo umpcflmsmm w.HHH m.HHH m.HHH o.mHH w.maa m.mm Sunoz & oAmEmumoHHMv unmask HounmsmHm omen mmmum>< 2 III III III III III III hamuH _ o.¢HH o.¢HH 0.0HH mm.maa 0.0HH o.HNH muucsoo mo Hopaflmfiom m.oma m.oma m.oma mo.mma m.mma o.HNH apnea AmEMHmOHflMV unmfloz HmuamsmHm m>HA mmmuo>¢ mem.mmo.m Hmo.mom.m mmm.mmh.¢ m~mm.m~m.m om¢.m¢h.m oaw.mmm.m mamuH omm.ahm.~ www.0Hm.m mam.~vm.a mhmm.mmh.a Hom.nmh.a mom.mae.a huucsoo.mo Hopcflmfimm mmh.omm.m ¢m5.mma.m om¢.Nmm.N mmma.mma.m mam.omo.m mvN.HN¢.H Auuoz accumummsmam mHoQESZ ocH3m hmm.mma.m vmm.v¢o.o mmo.Hmm.m ooo.mmm.¢ oom.aom.¢ 00¢.Hmh.m hamuH mmo.omh.m Hmh.mmh.m non.mmm.m oom.mam.m oom.mma.m omo.mmm.a knucsou mo HmUCHMEmm mm¢.mmm.m mn¢.mam.m mmm.amo.m ooa.mao.m oow.mvo.m 0mm.mmh.a Auuoz mEumm co mumnfisz mcflBm swam mums 30a mums cams mmnvoma omummma mmuemma smuH mnma ozm onma oa moneombomm ozm mmamw omeomqmm mom monomm onmamo nomo moum: mm onaoooomm smog oz< memon3_mmemoo¢qm moamm>¢ .mmmmzwz mszm .mI>H mamas ~229- pigs are saved for breeding. Better management in the north means more pigs weaned per sow and more litters per year compared to other regions. Both these factors were considered in assuming that 94.1 percent of pigs on farms in the north would be slaughtered in 1970 and 96.0 percent in 1975. A lower assumption of 75.9 percent in 1970 and 85 percent in 1975 for the remainder of the country was used. A slaughter weight of 82 percent of live weight was employed to convert to carcass weight (one study reported a range of 80-82.7 percent and another 80-83.3 percent of live weight).44 Under these assumptions the tabled values of pork supply were estimated for 1970 and 1975. Farm level budgets. Macro-level supply reSponse estimates have a propensity for error if forecasts are made with no consideration given to changes in net profit at the firm level. To test the effect of changed price relationships and technical conditions an enterprise budget was constructed for 1963-64 conditions and the anticipated 1970 and 1975 conditions. A net profit estimate of 17.3 million lire was obtained from a 1000 swine unit in 1963-64, Appendix Table 14. Under the price and input-output assumptions of 1970 this would increase slightly to 18.1 million. In 1975 there would be a decrease in net income of 9.5 percent under the 44Pier Giovanni Buiatti and Marchello Martilli, op. cit., Cassa per il Mezzogiorno, op. cit., p. 391. ~230- low price assumption and an increase of 22.8 percent at the higher rate. At the 1975 low, net income would be lower but would still provide a favorable return on investment. Those estimates indicate that net income under con- ditions represented by these data would still be positive and actually increase in 1970 and the most probable 1975 assumption. It may be concluded that the budget data lends support to the projected increases in swine numbers in the north. Sheep and Goat Production Italian sheep and goat production has declined steadily but is still important in some areas. Numbers of both in 1964-65 were almost 18 percent less than ten years earlier but the rate of decrease for goats was approximately twice that of sheep. In 1965 there were 7.87 million sheep and 1.23 million goats remaining. The largest concentration is on the Island of Sardegna where 33.2 percent of the sheep and 24.6 percent of the goats are located. Production has declined for three principal reasons: (1) the out—migration of shepherds from the hills, (2) the land reclamation and reform programs that have reduced the large tracts of pasture land in the estates and prevented seasonal migratory movements from plains to hills, and (3) the relatively low income from this enterprise. -231- About 65 percent of sheep income is from milk, 25 per- cent from meat and 10 percent from wool.45 Milk is an important ingredient in cheese production used usually in 60:40 or 40:60 ratios with cow milk. Wool is of poor qual- ity (70 percent is used for filler and ordinary textiles) and low production per head (even though Italy is a large textile producer, most wool is imported). Lamb is consumed in the center and south in cold months and is often reserved for Special occasions. To project 1970 and 1975 meat production from sheep and goats the average annual percentage decline in each geographical region in Table IV-6A was applied to 1964-65 numbers. The projection results indicate a reduction from nine million head in the base period to 8.3 million in 1970 and 7.5 million in 1975. The decline would be most rapid in the north and central part of the country where competing enterprises offer better returns and is least in the islands where little change is expected in agriculture. Total meat production would decline in proportion to animal numbers. 45Casa per il Mezzogiorno, "L'Evoluzione dell 'Alle- vamento Ovino e Caprino in Italia e la Situazione Attuale," Strutture e Mercati dell 'Agricoltura Meridonale--Carni, No. 6 (Roma: 1966), p. 380. -232- TABLE IV-6A. SHEEP AND GOAT NUMBERS AND MEAT PRODUCTION BY MAJOR GEOGRAPHIC REGIONS FOR SELECTED YEARS AND PROJECTIONS TO 1970 AND 1975 Item 1954-55 1959-60 1964-65 1970 1975 Sheep and Goat Numbers (thousands) North and Center 3,364 2,496 ~1,987 1,627 1,208 South 3,847 3,525 3,377 3,090 2,803 Islands 3,747 3,716 3,645 3,574 3,503 Italy 10,958 9,737 9,009 8,291 7,514 Meat Production (metric tonsI 44,600 39,400 33,340 33,164 30,056 Poultry Meat Production Poultry production in recent years has been the most dynamic sector of Italian agriculture. Broiler production, representing by far the largest proportion of poultry meat, remained almost unchanged from 1900 to 1950. Small per capita increases in consumption were supplied by imports which reached a maximum in 1955 when import quotas were imposed. Beginning then in 1954 and especially since 1959, production has grown rapidly in number and improved in qual- ity so that today Italy iS the leading broiler producer in -233- the EEC. Figure IV-6 illustrates this growth from 1953- 1965.46 This vigorous output expansion is largely explained on the one hand by the nature of poultry production that permits rapid adjustment to a strong increase in consumer demand for meat and on the other by substantial injections of cost-reducing technology associated with integrated pro- ducing arrangements. Because of its importance and its distinctive requirements consumer demand will be discussed in some detail. .Demand and Consumption Per capita consumption of poultry (including rabbits and game) increased from 2.2 kilograms in 1955 to 4.0 in 47 1959 and 8.3 in 1965. This increase was associated with 46It should be recognized at the outset that Italian statistics on poultry and egg production are probably less accurate than data in other areas. Three Specific problems may be noted. (1) The official statistics have not kept pace with the rapid rise in output and according to some observers underestimate the actual by as much as 50 percent. (2) Data reported on poultry meat includes broilers, tur- keys, ducks, geese, rabbits, and wild game. While broilers represent the majority of such meat, turkeys and rabbits are also increasing rapidly. (3) Prices reported for poul- try meat are at the wholesale level and not farm level as with other commodities analyzed. 47Consumption of only broiler meat in 1964 is estimated by the National Uhion of Hatcheries at 9.5 kilos per person, almost 32 percent greater than official statistics. The estimate is based on the number of birds hatched times an average weight of 1.1 kilo/bird less a mortality rate. -234- FIGURE IV-6. ITALIAN POULTRY MEAT PRODUCTION, 1953-1965 Quintals (000) 6,000 - 5,600 — 5,200 - 4,800 — 4,400 .. 4,000 — 3,600 - 3,200 2,800 2,400 2,000 1,600 1,200 800 400 0| I I II I I I I I II II 1953 54 55 56 57 58 59 6O 61 62 63 64 65 66 -235- rising consumer incomes and a low initial rate of consump- tion relative to other Western countries. ExPerience from these countries leads to an expectation for further per capita growth.48 In addition to expanding demand, strong consumer pre- ferences for particular types of poultry meat are important. Three types of broilers are produced: (1) those allowed to Spend all their life running free on the ground, (2) those raised in industrial (integrated) systems that remain caged throughout their life and (3) those in integrated operations that are confined for the first part of their life and then allowed to run free on the ground or in houses during a finishing period. This hybrid method allows some of the feeding efficiency of the caged method while at the same time producing the more desired meat. Italian consumers strongly prefer the farm raised bird because of its "gamier" taste and firmer flesh. Earlier battery produced birds were fed fish meal and the odor and taste of these first inte- grated chickens still conditions the mind of the consumer. The degree of preference for the three categories is seen in typical market prices. Chickens produced in cages are sold in supermarkets for 450 lire per kilogram to 48A dissenting view is held by some Italians who be- lieve that on a per capita basis Italy will remain low in poultry meat consumption. The reasoning is that beef and veal are much preferred to poultry. -236- 690-780 lire in the poultry shops. Chickens produced on the ground bring 890-1100 lire per kilogram and nostrani, or farm produced broilers, bring 1200 to 1800 lire.49 Another facet of consumer preference that is of par— ticular importance to this research is a desire for poultry meat and eggs with considerable yellow pigmentation. Pro- ducers have historically fed plata corn from Argentina to obtain this coloration. This corn is more vitreous and has a higher percent of carotene than U.S. yellow corn. Although results from both Purina and U.S. Feed Grains Council ex- periments shows that the same coloration can be obtained by using U.S. yellow corn with carotene additions or alfalfa meal added, most producers still desire,and feed rations based on South American corn.50 Historic Production Patterns 1. Integrated Producing Arrangements: Rising consumer demand for meat is more easily met by expanding poultry output 49Ufficia Italiano del U.S. Feed Grains Council, La Pro- duzione Avicola in Italia (Roma, undated), p. 108. 50The Purina experience is enlightening. They use little Plata corn in poultry rations because its feeding value is much less than its market price. They still add some Plata corn for color, however, because it is necessary to sell the feed. If Italy reduces the IGE tax at point of sale, a complete mixed feed could be sold instead of the present system of selling a blended concentrate which the farmer mixes with his own or purchased corn. AS long as the feeder buys corn himself, he will buy Plata corn. If a complete feed mix is sold U.S. yellow corn with additives can be substituted. -237— than other types of livestock because of the Shorter life cycle and adaptability to intensive production methods. These characteristic features have made poultry production ideally suited to integrated arrangements and it now domin— ates broiler output. AS late as 1957 farm-type production provided 75-80 percent of the domestic supply, 15-20 per- cent was supplied by a mixed type and at most 10 percent 51 By 1965 industrial produc- came from industrial flocks. tion was estimated to be 90-95 percent of the total. Integration brought four elements that radically changed techniques of production and lowered costs. This technology in turn has made possible the rapid expansion in numbers in reSponse to consumer demand. The first change has been confinement growing in batteries that has increased labor efficiency and contributed to larger volume production. A second element has been the rapid adOption of mixed feed for poultry. About 80 percent of the firms producing live- stock feed have been built Since 1960. Compound poultry feed production has increased from 250 thousand metric tons in 1958 to 560 in 1962-63 and to 1,150 thousand in 1965-66, approximately doubling in each time period.52 Substitution of these rations for feeds formerly used has helped increase feeding efficiency. 51Ufficia Italiana del U.S. Feed Grains Council, op. cit. 52Agra Europe, No. 199 (London: January 11, 1967), p. MI-6. ~238- At present four to four and one—half kilograms of mixed feed are required per kilogram of broiler meat produced in a battery system. Birds weighing 1.8 kilograms are produced in 60-65 days at a cost of 300 lire per kilo. By compari- son broilers produced on the ground require 70-80 days. Some indication of the effects of changing technology on costs of production may be seen in an OECD report that Shows a cost per kilo of 600 lire in 1954 and 350 lire in 1960.53 Another contribution of integration has been improved meat strains of poultry. Almost all battery produced birds are from strains originally produced in the United States. POpular varieties are Vantress, Peterson and Hubbard. These meat-type crosses also contribute to improved conversion rates. The effects of integration parallel those of the U.S. experience; larger but fewer producing units, increases in capital employEd, labor saving technology, improved man- agement levels and decreasing per unit costs. 2. Feed Costs: Falling corn prices have also encour- aged poultry expansion. Corn prices fell sharply from 1953 to 1961 but Since have been rising. Poultry prices also fell considerably from 1953 to 1958 and since have been increasing rapidly except for 1961. Even in the earlier 53OECD, Survey on the Organization of Marketing_Pou1try Meat with Special Emphasis on Broilers, No. 58, (Paris: 1961 Series), p. 136. -239* period with declining poultry prices, cost reducing technol- ogy and falling feed prices were sufficient for steady growth in poultry output. Since 1958 when poultry prices trended upward, output expansion has been even greater. 3. Marketing and Distribution: The wide variety in which poultry is marketed is manifested in a diversity of marketing conditions and forms in which the birds reach the consumer. A rapidly decreasing proportion of birds are sold live, usually directly from farmer to consumer or from farmer to retailer to consumer. Slaughtered birds are in three forms: (1) drained of blood, plucked but with head, feet and intestines, (2) drained of blood, plucked, without crop and intestines but with vital organs still attached (approximately 80 percent is in this form) and (3) completely cleaned with organs attached to the body.54 Formerly, broilers passed through as many as Six stages in the marketing chain. Increasingly the expansion of inte- grated organizations is shortening the market pattern. The integrator will usually collect birds from the farmer or from his own cages, process and sell directly to large retailers or sell to wholesalers who process and sell to a retailer. Not only does this structure reduce margins but also makes for better grading and quality control. 54Ufficio Italiano del U.S. Feed Grains Council, op. cit. —240- Under present marketing conditions poultry prices are at best inaccurate and at worst dishonest. The variety of forms in which poultry is marketed, the absence of grading standards and the small number of buyers in a given market, particularly with refrigeration and freezing facilities, make for little competition. Published price quotations are of little use in establishing a market price based on quan- tity and quality sold and.indeed provide little information to producers and consumers alike.55 Other Poultry Meats Initially, it was noted that poultry meat statistics include several types of meat. Previous discussion focused on broiler production because it is the largest item and the most rapidly growing. Two other sources, turkeys and hens, have also increased substantially in recent years. Turkeys have traditionally been produced in small farm flocks for Christmas and special occasions. Like broilers, production is rapidly shifting to larger, integrated opera- tions. The effects are lower prices, increased consumption and.increased output with the adoption of modern technology. 55Published prices are collected by the Chamber of Commerce in the wholesale markets. With an increasing pro- portion of the birds sold bypassing this market, published figures are likely to deteriorate still farther in repre- senting "true" prices. -241— Restaurants, especially the tavola calda or short order places are increasing their sales of turkeys in sandwiches and roasts. Though it is evident that turkey production is expand- ing, little information is available on the number or rate of increase. Two examples underscore the lag in reporting. Recently, a representative of the U.S. Agricultural Attache's office visited a one million turkey Operation in the Piemonte. The output of this farm alone exceeded the total reported in that region. In Emilia the Communist Farmers COOperatives are planning a multi-million bird output by 1968. These turkeys will be grown under contract with their farmer mem- bers and processed by the cooperative. While such.isolated cases do not provide a clear View of turkey production, they do contribute to a consistent pattern of expanding output. With a meat product meeting ready consumer accept- ance and technology available to reduce costs of production, continued expansion may be expected. I, Cull hens from commercial laying flocks add to the poultry meat supply. AS the following discussion will Show, egg production and number of hens have been increasing sig- nificantly since 1955. In 1964, 69 million hens were Slaughtered yielding an estimated 1.170 million quintals of meat.56 Approximately 20 million hens came from industrial 56Ufficio Italiano del U.S. Feed Grains Council, Op. cit. -242- units and 49 million from rural farms. Culled hens usually reach the market at about 15 months of age weighing about two kilograms. Poultry meat supply from this source in the future depends on the demand-supply relationship for eggs. For the past ten years there has been a fairly steady increase, but in the near future expansion will be Slower. Obstacles for Future Production In order to estimate future production consideration must be given to several factors that will affect poultry output. In various degrees these hamper the further growth of the industry. 1. Price Cycles: From the producer vieWpoint recur- ring price cycles are a serious problem. In recent years large injections of capital and technology through.integra- tion have caused short-run expansion above market needs. Results have been farm level prices as low as 250 lire per kilogram, less than the average 300 lire estimated cost of production (this may vary from 250-320 depending on scale of plant and level of technology). Usually when prices fall below 300 lire, production decreases sharply until prices rise. While these price variations are to be expected in such a dynamic industry, the effect is to force out the less effi- cient and poorly capitalized Operations. Price cycles may -243- be expected to continue with the level of prices dependent on cost reducing technology on the one hand and rising demand on the other. 2. Distributing and Processing: Of greater concern is the bottleneck in this stage named by one study as being the most critical obstacle. "The main drawbacks to more rapid expansion have been high retail prices resulting from wide marketing margins and lack Of processing, cold storage and marketing facilities."57 By providing more acceptable physical facilities and eliminating some of the outmoded collection methods, an improved quality product at lower cost can stimulate demand. 3. Trade Policy: Bearing on both prices and the mar- keting system is the government's policy on imports. In the‘ past imports have been permitted as payment for industrial products sold to countries with limited foreign exchange.58 Oftentimes trade agreements are consumated without regard to the domestic market situation and the results were falling prices and considerable criticism from Italian producers. 57Randall Stelly and James E. Kirby, op. cit., p. 16. 58Trade statistics clearly point to the rise in poultry meat imports from Eastern Europe. U.S. exporters, however, have met much difficulty in securing import licenses. Fur- ther, the Rome office of the Institute of American Poultry Industries described the rigid packaging and temperature requirements imposed on U.S. poultry while imports from Poland and Hungary are received in cotton bags with minimal health inspection. -244- ‘On the Opposite side of the trade flow Italian exports have been hampered by domestic taxes and competitor's export subsidies. Cost Ofproduction in several EurOpean countries has been reported as: Germany, 350 lire; France, 320 lire; Italy, 310 lire; Belgium, 295 lire, and Holland,‘270'1ire_.59 Yet French chicken sells at 160 lire per kilogram less on the German market than does Italian chicken.6O This differ- ence is largely due to an expOrt subsidy of 120 lire paid by the French government and taxes paid on purchased inputs by Italian producers. Both of these policies will likely change when the Common Agricultural Policy becomes effective and Italian exports will be more competitive on the Western European market. 4. 'Tgxgsg The General Taxation on Entry (IGE) referred .to aboveincreases the cost of production and has an adverse' effect on domestic consumption. The U.S. Feed Grains Council has estimated that the cumulative IGE tax per slaughtered chicken including feed, baby chicks and other inputs as well as the broiler itSelf comes to 67.25 lire or about 11.2 percent in the most favorable circumstances. For small 59Filippo Sassetti, "Attualita e Provisioni sul Mercato dei Prodotti Avicoli nel MEC," Giornate Avicole Varesine, Vol. III, (Giugno 18-22, 1964), p. 40. 60Giulio Zucchi, "Le Ricorrenti Crisi Avicole in Rap- porto alla Dinamica del Mercato e della Produzione," Gior- nate Avicole Varesine, Vol. III, (Giugno 18-22, 1964), p. 40. —245- farmers where inputs and birds go through more turnover points and are taxed at each the rate can be 12.6 percent. In addition, a consumption tax (imposto di consumo) of seven percent (in some cities, Rome and Naples, it is 10.5 percent) and a commune tax of 3.5 percent is added. This means an additional tax of 75 lire per bird or more. If present pressures to have these taxes eliminated are successful, poultry meat consumption should increase. (Since compar- able reductions would occur in prices of other meats there would be no substitution effect.) 5. Feed Grain Prices: Feed grain prices will increase in Italy under the Common Agricultural Policy.61. Since prac- tically all industrial poultry is fed with imported grain, the industry will be quite vulnerable to grain price increases. Sassetti estimates the increase in feed grain prices will increase the cost of poultry rations 15-16 percent.leading to a five percent increase in the cost of producing broilers.62 This estimate equal to 14 lire per kilogram is in agreement with another of 21 lire for industrial flocks and 10 for farm flocks under the aSSumption that feed is 70-80 percent 6lIt should be remembered that Italy has been granted Special concessions on corn import prices until 1972. There- fore, for most of the period of this study Italian producers will continue to have an advantage over northern Europe pro- ducers in this reSpect. 62Filippo Sassetti, op. cit., p. 26. -246- 63 This amount, though small in of total production costs. proportion to the total cost, will cause some increase in price at the retail level. It is doubtful that consumer demand will be greatly affected since all grain-consuming livestock will be expected to share in the general price rise. Opantity of Poultry Meat 1. Statistical Analysis of Historical Factors Influ— encing Poultry_Meat Production: Single equation regressions were used to quantify the influence of the factors believed to be major determinants of poultry meat supply. In the 1953-1965 period these were: (1) cost reducing technology, (2) decreasing feed grain prices in relation to poultry price, and (3) the structural change associated with integration. Independent variables used in the equation were whole- sale price of broilers and market corn price, both deflated by the index of consumers prices, and time (1953 = 1). Some explanation of the price and time variable is required. Time series data for poultry prices at farm level are unavail- able. The use of deflated wholesale prices results in regres- sion coefficients that overstate the influence of price on 3Georgio Amadei, "The Economic Consequences of an Increase in Price of Feed Grains," Revista di Politica Agraria, No. 4 (December, 1965), pp. 21-37. -247- supply. The amount of the upward bias is related to the size of the farm-wholesale margin. From prices quoted earlier it is apparent that this margin has approached 100 percent. Therefore elasticities derived from the equation should be interpreted with this in mind. Time was included to repre- sent all excluded variables. In particular, it is assumed to be a measure of the impact of technology and integration on output. The results Of fitting the equations to the data are shown in Table IV-7. The Sign Of the poultry price regres- sion coefficient is consistent with economic theory but corn price does not have the expected negative Sign. Both price coefficients are significant at the .06 probability level and time at less than the .01 level. With this for- mulation 97 percent of the variation in supply of poultry meat is explained by the variation of the independent var- iables. Although the tabled value indicates the possibility of positive serial correlation, results from using the Durbin- Watson d statistic were inconclusive at the five percent level. Examination of the table of simple correlations reveals the two independent variables, corn price and poultry meat, are highly intercorrelated with time. Such multicol- linearity tends to distort the estimates of the coefficients and their standard errors. The relatively large estimate of the standard error presented reflects this and further -248- .mucmaoflmwmou cosmmmummu on» no mHo>mH OUGMOAMHG Imam.pcm muonum pumtcmum mo moumEflumm .HOOHO CH mum momO£DGOHMQ SH newsman omh.o Hm¢.OI memo: on» um mmauflonummam IIIIIIIII kIIIIIIILIIIIILIIIIIIIIIILIIIIIIIIIIIIIIIIIIIILIIIIIIIIIIIIIIIIIIIIIIIIII loo.c Amo.v Aao.v lam.v lovem.mmv Amnmo.v Awemo.mmv Aammm.mamac mmmo.eea vo.m mam. omem.eoa ommo.o mmms.~mmu momm.m~mH NHmUH mcmm OUHHQ mo CHOU ou OUHHm ooaum mam mo oflumm nuflflHHnflniflnflnHfluflfflflnflLnflflflflflflnflflJnHnflHuHnHJnHufluuflflMwflHflflHfluuuuflflflflkflflfluuuflfluflflufl HOO.H mmm.a memo: may as mowufloaummam ''''''''' [ill-I'lllullulI'Il .IIIIIIIIIIIL l'I'IIl-II III-III'IIIIII. 'II'I'IIIIIII IIIIIIIIIIIII loo.v Amo.c Aoo.c loo.c isomo.omv Amnma.v Asmao.c Asmaa.mnmv ¢N¢5.mma hm.a mom. mmwm.mmm 05mm.o memo.o mphw.mmmol NamuH mumEHumm Ofiumflu cuoo whoafioum mo Houum Imam m. made no mo ucmumcoo GOAOOm pumpsmum .3 .n m mownm moans 00m 02¢ ZOHBUDQOMQ Bfimz WmBADOm mmHaHoHsmmqm om>Hmmo O24 mmmaummma .zOHaoooomm zH mqmdfi -249- reduces confidence in the coefficient for corn price. With these reservations elasticities were computed for poultry meat with respect to real prices lagged one year. The estimated value was 1.225 computed at the means of the time series. This estimate should be viewed as an upper bound because wholesale prices are used for estimations and a more acceptable elasticity for the 1965-1975 period would be judged to be in the range of 0.50 to 0.84. The elasticity of poultry meat supply with respect to corn price is 1.001. 2. Projections to 1970 and 1975: To project poultry meat supply to 1970 and 1975, the regression equation was extrapolated using the expected percentage change in price from Subproject III. These results show 1970 output to be 429,037 tons of meat, an increase of 26.1 percent from the 1964-65 level of production. For 1975 an increase of 31.7 percent to 564,943 quintals at the low price estimate was obtained and 590C181 quintals, a 37.6 percent increase over 1964-65 at the high price forecast. These estimates indicate a reduction in the rate of past growth because the price projections employed assume substantial reductions in farm level real price of poultry meat and increased corn prices. Technology is now avail- able in Italian broiler production that will lead to scale economies and increased competition among producing units. Considerable exodus of less efficient producers combined -250- with lower producer prices may be exPected. Continued growth under these conditions will come from large units that can survive with lower profit per unit. EggyProduction Historical Production and Marketing Patterns Like broilers, egg production has changed much in recent years. It is experiencing improved technology, greater out- put and lower prices. Integrated business arrangements are again the primary cause. The National Incubators Union estimates that in 1964 20 million selected hens in industrial units produced an average 200 eggs each for a total of four billion eggs.64 About 49 million hens in farm flocks produced 110 eggs each for a total of 5.39 billion eggs. In addition, five million hens produced about 140 eggs each for hatcheries. On the basis of these estimates 42.5 percent of commercial egg pro- duction in 1964 came from industrial flocks. By contrast, in 1962 another source estimated that 90 percent of egg pro- duction came from family-type poultry farms.65 While all of the eggs produced in industrial flocks are placed on the 64Enea Grarneri, "Il Mercato EurOpeo del Pollame e delle Uova," Giornate Avicole Varesine, Vol. I (Giugno 26-30, 1965), p. 50. 65Ufficio Italiano del U.S. Feed Grains Council, op.cit. -251- market, 75 percent of the rural production is consumed on the farm. The remaining 25 percent is sold directly to con- sumers or in small lots to retailers. The structure of the commercial egg market is still heavily dependent on wholesalers. For example, in the larg- est producing province Of Forli', 88 percent of egg sales passed through this market. In the region of Reggio Emilia sales to wholesalers was the principal channel but sales through farm cooperatives increased from 8.5 percent in 1964 to 23.8 percent in 1965. The National COOperative Consorzio Of Poultry Farming (CONAV) has been established by the Agricultural Ministry to bring some order to egg marketing. Since farm produc— tion is concentrated in the months of February to September, prices and quantities have tended to fluctuate widely. The Consorzio seeks to pool and grade eggs to reduce wide price swings. Egg standards defined by the National Con- sorzio and approved by the Ministries of Agriculture, Industry and Health provide for first and second quality. Weights in first quality increase in five gram increments from 45 to 65 grams and carry the names of "Extra, Standard, Average 66 and Baby." Second quality eggs are not placed on the mar- ket for direct consumption but are broken and sold in volume. 66Giuseppe Perticara, "Sui Problemi della Qualifica- zione e Distributione del Avicole," Giornate Avicole Varesine, Vol. I (Giugino 18—22, 1964), p. 76. -252- With changes in production techniques and marketing flows has come changes in organization of firms producing eggs. Particularly noteworthy is the trend to fewer and larger units. A study by the Chamber of Commerce in Italy reports 32,650 industrial farms for commercial egg produc- tion and 2,980 of these have more than 1,000 birds. Some are quite large. For example, Cip—Zoo, a feed and hatchery business collaborates with Ovo-Motta, a large food and bakery chain to maintain 600,000 hens producing over one hundred million eggs per year. Agangelini, a large grain importer and feed mixing firm operating in the center and south of Italy is planning for a one million layer operation to pro- duce 250 million eggs per year. Management feels that cap- ital requirements are so great as to cause little competi- tion. Even farm producers are finding it necessary to have 5,000-6,000 hens for a profitable Operation. The substantial increase in supply since 1960, the pre- sent buildup in production potential and the small increase in per capita consumption foretell of severe competition in the industry. As with other forms of poultry, trade agreements signed with Eastern European countries, particu- larly Poland, call for payment to Italy with eggs in lieu of hard currency. Combined, these factors point to downward pressure on egg prices which in fact, has steadily occurred since 1960. Such a Situation might well be expected to have a -253- dampening effect on the country's egg production. Without doubt, lower prices will cause some exodus of the less effi- cient producers. The effect on number of eggs produced is not so clear. The proportion of eggs produced in modern, integrated arrangements is still relatively small (42.5 percent in 1964) leading to the expectation that technology may continue to reduce costs faster than prices will fall. Further, plans of large integrators at this stage are for continued investment. Once this capital becomes committed, it will be expected to continue in production as long as egg prices do not fall below variable costs of production. Viewed in this perspective, egg production may be expected to increase although at somewhat of a reduced rate. Qpantity of Eggs 1. Statistical Analysis of Historical Factors Influf encing Egg Production: A regression analysis was employed to analyze past relationships over the period 1953—1965. Total egg production for the country was assumed to be a function of the ratio of real egg prices to real corn prices as a measure of the profitability of production, the salvage value of hens and time as a dummy for technology and other nonprice variables. The equation provides little help in defining the price effect on output. Because egg prices trended downward over the period considered while production increased, the coeffi- -254- cient for egg prices when entered as a separate variable or as here in a ratio assumed a negative Sign instead of the expected positive value (the problem may also be due to incorrect specification Since data to more correctly explain nonprice effects was unavailable). The coefficient was highly significant statistically while hen price was less so but with the expected Sign. As expected, time, reflecting the influx of technology and integrated business arrangements was an important var- iable. Results Show supply has increased an average 164.3480 quintals per year over the 1953-65 period. For the future a Slower rate of growth is likely given the present higher level of technology as well as the effect from expected lower egg prices. An estimate of the response of egg production to changes in the price ratio was computed from the equation. Sign disregarded, the estimate indicates that a change of one percent in the price ratio would be associated with a 0.48 percent change in egg output. Cull hens appear to have considerable weight in producers decisions since a one per- cent increase in hen price is expected to be associated with a 0.75 percent change in the same direction in egg production. 2. .Projections to 1970 and 1975: In making projections the egg and corn price percentage changes expected from 1964 to 1970 and 1975 in Subproject III were employed. With these prices the price ratio continues to decrease through -255- 1975 indicating lower profit margins from egg production. Hen prices were assumed to decrease the same relative amount as broilers and projected prices were deflated by an index of consumer prices expected to rise three percent per year. To project future egg production the equation in Table IV-7 was employed but the trend variable was increased 15 percent over that estimated from the sample period. The reason was an expectation of much more expansion by large integrated concerns. The projections Show an expected output of 528.9 metric tons of eggs in 1970, an increase of 15.6 percent over 1964-65. This rate of growth is almost half the 32.8 percent increase from 1959-60 to 1964—65 and is explained by the lower egg prices and higher feed grain prices expected and the resulting exodus of many marginal producers. Continued expansion from large scale operations is expected to 1975. In that year national egg production is expected to be 600.8 metric tons at the low price assumption and 622.0 tons if the higher egg price prevails. These levels of production would mean a 13.6 percent increase over the 1970 projected figure at the lower egg price and 17.6 percent at the higher price. In summary, both poultry meat and egg production is expected to expand but competition will be much more intense. Larger units using very efficient technology will dominate production and many of these will be closely united with ~256- grain importers. Exporting countries will find Italy an increasingly difficult market for poultry products except those countries like Communist China and Eastern Europe that Sign trade agreements to purchase manufactured goods. CHAPTER V SUMMARY AND CONCLUSIONS The central objective of this study was to project Italian production of grains and livestock and by compari- son with projected demand determine the trade surplus or deficit of each commodity. These projections in turn are dependent upon an evaluation of the expected rate of change in farm structure, adoption of technology and adjustment to market prices expected under the Common Agricultural Policy. To meet these Objectives multiple regression analysis was employed to explain past changes in output of grain- meat products as a means of understanding the impact of key causal variables in each Of four geographic subdivisions of the country. These equations, adjusted where necessary to account for noncomparability of the sample period and the future were used to make 1970 and 1975 projections. »Since data aggregated at'this level may falsely interpret future trends, the projections were tested by computing budgets representative of situations and localities producing a large proportion of each commodity. Assuming that producers react optimally, relative profitability indicates expansion or contraction of the product and served as a check on the projections. ~257- —258¥ Summary Initially, descriptive material On Italian agriculture focused attention on the diversity of production conditions and the relatively large number of independent family farmers that by U.S. standards are small, highly labor intensive and committed to a traditional farm organization. The role of government policy was discussed pointing out that goals favor- ing the increase of family farms as part of a broader pol— icy of reducing unemployment has actually contributed to an increase in small units incapable of mechanization and scale economies except through COOperative participation. The resulting high-cost production of many products, espec- ially livestock, will place Italian agriculture at a dis- advantage viS-a-vis other members of the community when all trade restrictions are removed. Not all production is antiquated. A modernized agricul- ture is beginning to take form with the influx of capital and management from outside traditional agriculture. This form is most recognizable in the production of poultry meat and eggs and to a lesser degree in pork production. It is from this source that future increases in livestock produc— tion must come. Poultry production has been the most dynamic sector of Italian agriculture. Poultry meat production increased 5.2 times from 1955 to 1965 and egg production increased 1.4 times in the same time span. Modern buildings, equipment -259- and strains of chicks used to produce 90 percent of the broilers make output as efficient as almost any other coun- try. A smaller but rapidly growing proportion of egg pro- duction is Similarly produced. Output expansion Of both has been so rapid that prices have generally trended downward over the past decade. This trend is expected to continue and will place greater emphasis on large-scale, efficiently managed production. Although the combination of lower pro- duct prices and increased feed grain prices will lower profit margins, technology will enable larger producers to continue output expansion. Poultry meat output is projected at 429 thousand tons in 1970, 26.1 percent above 1964-65, and 565 and 590 thousand tons in 1975 (66.1 and 73.5 percent increase) at the two price alternatives. These levels of output would still leave an expected deficit of over 90,000 tons of poultry meat at all but the most favorable supply position of 1975, Table V-l. The deficit does not represent an inability of Italian producers to meet requirements but reflects the effect of lower prices on output and the exodus Of less efficient Operators. The deficit in egg production is projected to widen from the 89 percent self—sufficiency rate of 1964-65. Egg output in 1970 is expected to be about 100 thousand tons less than consumption and 120-140 tons less by 1975. Pro- duction could be much greater if present plans for very -260— possHucoo . . . O.no H.mw m.Oh m.mo N.Nm OGOHOHmwsmIHHOm unmoumm mmm.ooo.H 5mm.mmH.H H®0.0MB mmo.mhh Hmm.mmm monnsm no uHOHMOQ oov.HHN.m OOv.HHN.m OOO.mmm.N oom.mmm.m mNH.mNm.H GOHumESmsou nOO.HmH.N mom.mNo.N mHm.oom.H mom.vwb.H hmH.mmv.H OOHuOdpoum mums: Hmuoa OOH OOH OOH OOH uSOHOHMMOmIMHOw unmoumm msHmusm HO uHUHme OOO.¢NM OOO.¢Nm oom.om~ OOO.NNN QGOHumEdmcoo OOO.¢Nm oov.¢Nm oom.wmm OOO.NNN :OHuosOoum omummz Hosuo v.mm w.mw ¢.Nm O.mm ucwHuHmmsmIMHom unmouom mHn.mo 5mm.vm moo.Hm hmm.hH msHmusm Ho uHOHme oom.mmo oom.mmo oon.omm nmo.mmm QSOHumEomcoo HmH.omm mom.¢mm nmo.va HHH.o¢m mcoHuospoum huuHsom o.mm ¢.ma H.5m N.wm uSOHOHmmsmIMHom ucoonmm «Hm.> Nmm.om hmv.vH mmH.h mSHmHsm Ho DHOHMOQ 00¢.hnm 00¢.hnm OOh.¢om mHH.vov AGOHumEDchU www.mom mom.wmm mom.om¢ Omm.wmm OCOHuosponm xuom v.o¢ H.mm ¢.mv m.mv ¢.¢o uSOHOHmmsmIMHom ucooHom con.mmm mem.o>o.H Ham.mmw www.mom m¢>.mmm mOHmnsm no uHOHMOQ oo>.m¢m.H OOh.mvm.H oom.hNN.H OOm.hNN.H NNm.mmm QSOHUQESmSOU OOO.>OO Nmm.mhm mHh.¢mm mom.mmm nhH.ovm MSOHuOSUOHm Hmo> use moon Anson OHuumE SH uzmHm3 mmmoumov swam m5 33 ...an 33m 0an 33 23 mo\$3 23H man 02¢ OhmH OB monBUMOomm 92¢ moI¢OOH .moz¢H¢m DZdZMQINAmmDm Q24 ZOHBAZDMZOU .ZOHBUDQOMQ nmfivbflomm MUOBmW>Hq 92¢ B qufifi -26l- .coHumEDmSOU ou Hmswm OOESmmm mum mummE mSOOGMHHmOmHz on ou Umuuwnoum one m©\¢omH SH mcou OOh.MH mH Home wmuom .mmh.m cam hOH.OH .mhmH UGO OhmH CH mmo.om one OOH.mm on on pouomfloum pom OOHHOQ omen mnu :H msou OO¢.mm mH ume umom one momam mo SOHDUDOOHO .mSOOSMHHmumHE paw .mumom pas moose .ummE omuon mopsHocHo .coHumHsmom >9 pmHHmHuHsE nonsmuom .H .> Eoum mmumEHumo COHumESmGOU muHmmo mom mum moousom Q .>H Hmummsu CH mmHQmu o>HuommmmH mnu mum mmousomm m.mm m.om s.mm o.mm ucmHonmsmIMHmm unmoumm 00¢.ONH OOO.H¢H OOm.MOH mmm.mm msHmusm Ho UHOHMOQ OOO.N¢> 00¢.mwh OON.~mO NmO.¢Hm QsoHumESOGOU OOO.NN® oom.oow oom.mNm OOh.nm¢ MCOHHUDUOHO moon m.HOH m.mm m.om o.mm m.mm UGOHOmesmIMHOm unmouom www.cmHAIv vm¢.mmm OOH.H®m l mmm.moo Om¢.¢H msHmHsm Ho uHUHmon oom.mom.HH oom.mmm.HH OON.O¢¢.OH OON.O¢¢.OH Omm.mwm.m QsoHumesmcoo m>m.>¢O.NH 0mm.Hmm.HH Nm0.th.OH bom.H>h.m oom.Ohm.m MGOHUOOOOHA xHHz roam mhmH 30a mean nmnm ohms zoo osmH mo\¢omH smuH AOOSCHUGOOV HI> mqm<fi -262- large producing units of some integrated concerns material- ize. In contrast to growth in poultry output, the cattle sector is the most problematical aspect of Italian agricul- ture. Beef and veal annually comprise about 50 percent of meat consumption and with a relatively high income elasticity and rising real incomes, increased demand is expected. Pro- duction, however, is impeded by the traditional structure and small size of producing units. As recently as 1961, 51 percent of Italian cattle came from family farms of less than 10 hectares in size. Expansion of cattle numbers on these farms is severely limited by inadequate food supplies, size of buildings and capital to purchase improved breeding stock and feed. Even though an estimated supply elasticity of 0.3 indicates that reSponse to higher beef prices is expected, capital restrictions, the inability to change farm organi- zation and the out-migration of the two major groups produc- ing cattle, family farmers and mezzadria, point to only a small increase from the traditional sector. Rather, cattle increases must come from feed lot Operations financed by large family farmers or integrators from the feed and meat industries. Projected beef prices indicate that profits will be sufficient to expect increased output from this source even with rising feed grain prices and labor costs. A major obstacle at this point is a dependable supply of -263— feeder cattle. Increasingly, imports have been sought to meet this need but with the pessimistic view of cattle pro- duction in Europe, feeders in needed numbers will likely be available only at premium prices. These effects enter the projections in Table V-l that show rising beef and veal production failing to keep pace with consumption. From a present self-sufficiency rate of 64.4 percent, domestic beef and veal production is expected to be only 45.5 or 48.4 percent of consumption depending on price assumptions in 1970 and 35.1 or 40.4 percent in. 1975. Total beef and veal production (with veal comprising a declining proportion of the total) is expected to be 558 or probably nearer 600 thousand metric tons in 1970, an increase of 3.3 to 10.1 percent over the 1964-65 level. If feeder cattle and feed are available, production could increase as much as 23.4 percent in the ten years to 1975. Even so, deficits of 633 thousand and 983 thousand tons under the most favorable price conditions are foreseen by 1970 and 1975. This would require beef imports in 1970 at approx- imately twice 1964-65 rates and three times as large in 1975 if projected consumption is met. If consumer demand for meat is satisfied, an increas- ing proportion of pork and poultry meat will likely be sub- stituted for beef and veal. Per capita consumption has been rising although most pork is consumed in processed form. Production of both meats is more easily adapted to -264- changes in demand than cattle Since structure is less of an impediment and scale of producing units favors adoption Of modern technology. The estimated elasticity in fact, indicates a one percent change in swine price to be associated with a 0.17 percent change in the same direction in swine numbers. Production of pork is projected to increase 23.5 per- cent and consumption 24.9 percent from 1964-65 to 1970. These rates Of growth would mean a Slight deficit of about 14,000 tons of pork. Between 1964—65 and 1975 an increase of 40.3 percent in output if the lower of two price assump- tions is realized and 43.5 percent at the higher price is expected. Consumption, projected to increase 42.9 percent will create a deficit of 20.6 thousand tons in the first case and only 8,000 in the second. Based on these projections, Italy's self-sufficiency in all meats steadily declines from 82.2 percent in 1964-65 to about 70 percent in 1970 and 63 or 67 percent in 1975 depending on the price expected. Import demand for all meats would be expected to be around one million tons by 1975 practically all in beef. The increase in livestock and poultry numbers and changes in feeding methods has created a strongly rising demand for feed grains. It was initially hypothesized that a large part of this demand would be met by a substitution of feed grain surface for land planted to wheat as price ratios —265- changed under the Common Agricultural Policy. Our results did not substantiate this assumption to any great extent. Wheat surface is expected to decline but only at a slightly faster rate than in the past ten years. For many farmers wheat is a major income source that is familiar, easily mechanized and part of long-term rotations. Regress- ion results Show it to be the only grain with any price responsiveness, however, and lower prices combined with out-migration will reduce surface planted. But potential yield increases from additional fertilizer and improved seed are expected to keep production near levels of the 1960-65 period. Feed grains Show little response to price change and with the exception of corn there has been essentially no improvement in yields in the past decade. Income from small grain does not compare favorably with wheat under present or expected yield and price relationships. Corn was estimated to have a supply elasticity with respect to its own price of 0.05 but a much higher reSponse to change in wheat price. Rising yields as hybrid seed and fertilizer are used and more favorable prices will cause farmers to replace wheat with corn in many areas where irrigation is possible. If irrigated surface is optimally used in terms of total feed production, some surface will probably also shift from pro- ducing forage to corn. Projections of animal feed requirements reflect three ~266— trends in Italian animal husbandry: (l) consuming units of each type of livestock are projected in Chapter IV to in- crease in number, (2) all types of livestock are being fed larger quantities of grain and (3) an improvement in the conversion of feed to meat and livestock products as improved feeds andsbreeds of livestock are used. The first two re- present increased feed grain requirements but the third indicates a decrease in total feed needs including grains. Feed grain requirements for 1964-65 were based on the input-output coefficients in the budgets appearing in the Appendix. Since these budgets generally represent a more efficient conversion of feed to livestock products than prevails on typical farms, the grain requirements were adjusted upward to conform with the estimate of total grain fed re- ported in the source in Table V-2. Changes in the rate of grain feeding over time were estimated by computing a ratio of total feed grain consumed by animals and equivalent animal units.1 The ratio increases annually from 0.442 in 1959 to 0.819 in 1964 but then declines slightly to 0.747 in 1965. Based on this trend the rate Of grain feeding is assumed to increase 10 percent per year from 1965 to 1970 1To convert all livestock and poultry to equivalent feed consuming units, the following factors were applied to numbers: all cattle, 1.0; calves, 0.25; Sheep and goats, 0.14; swine, 0.20 and chickens, 0.01. Horses, mules, etc. were not considered because of inadequate data and their relatively small grain consumption. -267- poocHusoo m.nos H.ooH 5.00H s.ooH m.mm soamnunmmsmIMHmm ugmoumm mmo 0H mm mm on uncomma mom.m mmm.m mon.m mon.m Ham.m ncofluoseoum oHummsoOIsHmmsm me me me mm mm mmmmmoq 0mm 0mm new mom mmn momma II . II II II II moms HOHHumSUcH emo.m emo.m amm.> emm.~ mnv.m meoom amass OHH oHH om om as memmm Hmseca mam.m mam.m eem.m ¢¢6.m mom.m mucmsmuHsvmm UmGHMHU UCOh m.¢m m.mm m.He ~.~e m.me eucmaoemmsmumHmm unmoumm mom.m sm¢.m who.h emm.m mHn.e peonmmo mno.m .mnm.m 5mm.e “mm.e mam.e acofluoseoum oHummsoOIsHmmsm no mm mm mm as mmmmmog mmm mmm mom mom mmm mvmmm mom mom mmm mmm Hmm mmms HmsuumsecH omm omm omm omm mum mnoom amass one owe com com mam umnuo moH.~ nmo.~ mon.H mon.H «mm.H mama enm mmm mms amp mam pmmz_>uuHsom vmm.~ mam.~ omm.m omm.~ omm.~ mcezm mwm.m sm~.6 MHm.m mm~.m mem.m mHuumo HHa www.ms www.ms ooo.HH was.OH mm~.m mommm Hmqua ~¢6.¢H mom.mH moo.mH HHm.HH Hm~.m mucmsmussomm mchuw poem Anson OHHuOE Unemsonuv seem 30a anm zoo mama swuH mama msmH onma osmH nemmH mka oza oka cs monaomeomm oza .mmueomH .mozaqam ozazmoqummsm 62¢ onsaquHso .onsosoomm .mzHamo .~I> mamas -268- .COHuHUpm CH new» Hem mCou UCmmCOCu OOO usonm mUCwmmHmmH OUHmo .HHH noummno CH moHQmu Eoum mCOHuomflonm pCm COHuospoum Hmsuod .xHumHumumHmHmC .momousm n .moumEHumo Uouomnoum mum mhmH UCm OhmH .mmsmmH mCOHHm> .muHCCEOU oHHmO OOHumHumum OusuHumH "mouoomm H.mo m.mo H.mo m.oo .m.mn socmHonmsmImamm unmoumm omm.m use.m mHo.H mmn.m onm.¢ uHonma Ham.eH ¢¢H.¢H omm.mH omm.mH mmn.mH cOHuusvoum oHummsonImHmmsm NvH NOH MMH MMH «OH mommoq mom mom Hom Rom mum emmm mom mom mmm mmm Ham mms HmsuumsocH «mm.m emm.m eo~.m wom.m mmm.m woos amass enm.ms ems.ma omo.HH omm.oa Hmm.m 6mmm amenaa Hov.m~ Hmo.mm moa.om mme.0m mam.ma mucmsmuesomm mHmmeU HH4 amen zoo gone 30a mama swuH mHmH mHmH onH cums nemma AOOCCHHCOOV NI> wands -269- and a somewhat lower rate of seven percent from 1970 to 1975. The increase in the rate of grain feeding, especially to beef and dairy cattle, more than compensates for expected gains in total feed conversion. Total feed grain requirements for animal feed in Table V-2 are expected to rise 29.6 percent from 1964—65 to 1970 at the low projection of liVestock numbers and 32.6 percent at the more probable higher rate. The expected expansion to 1975 would be 52.2 or 62.3 percent greater than 1964-65 feed requirements. The largest absolute quantity of feed and the greatest increase would be fed to cattle as both numbers and grain feeding rates increase. This assumes that the basic cattle feed, now based on forage, must include much greater quantities of feed grains if expansion in num- bers occurs. Feed grain used for purposes other than animal feed is also reported in the table. Use for human food is projected to decline following the trend to lower consumption of pglenta, a corn product, in the traditional consuming region of the north. Moderate increases are foreseen in other use cate- gories. Total feed grain requirements are projected in Table V-2 to rise from 9.2 million tons in 1964-65 to 11.8 or 12.1 million tons in 1970 depending on cattle numbers and to 13.8 or 14.6 million tons at the two 1975 alternatives. Domestic supply, only half of total consumption in 1964-65, is pro- -270- jected to rise 10.5 percent to 1970 and about 18 percent to 1975. The projected deficit in feed grain supplies is expected to widen from 4.7 million tons in 1964-65 to 6.8 - 7.1 tons in 1970 and 8.5 - 9.6 in 1975. The self-sufficiency ratio continues to decline and by 1975 only one—third of total needs are expected to be produced within the country. Corn represents about 85 percent of feed grain use but the largest percentage increase is likely to be barley as more cattle producers utilize the "Preston Method" of feeding. Food grain requirements in Table V-Z are expected to change little from present levels of use. If meats, fruits and vegetables are available at reasonable prices per capita consumption of grains will decline. At the projected demand and supply levels a very Slight wheat surplus may be expected. This quantity will be greater by the extent that milling requirements cause imports of hard wheats to blend with Italian wheat. In addition Italy is the common market's largest rice producer, annually growing 600—700 thousand tons and exporting over 100 thousand tons. Production of rice steadily declined until 1964 but since has increased as prices have risen. A small increase is foreseen to 1975 in response to higher EEC price but expansion will be limited by high labor costs and competition with corn for irrigated land. The national deficit expected for all grains closely approximates that of feed grains alone. In 1970 approximately -27l- two-thirds of total grain needs are projected to be domes- tically produced and somewhat less in 1975 as feed grain needs continue to increase. Total external needs for all grains is estimated at about seven million tons in 1970 and 8.5 to 8.9 million tons in 1975. Conclusions In the course of this study it has been evident that changes in Italian agriculture have not kept pace with changes in other sectors of the economy. This failure, combined with limited agricultural resources, place the country at a rela- tive disadvantage in grain-livestock trade with other EEC members and limits its ability to provide desired food needs. Policy makers generally recognize the problem and are attempt— ing to capitalize on Italy's natural advantages in producing wine, fruits and vegetables for trade within the EEC and manufactured goods for trade both within and outside the community. In regard to commodities of interest in this study structural rigidities and Size are especially noticeable in grain and cattle production. Wheat is a major income source and farmers are reluctant to reduce plantings of this crop to produce more feed grains which have lower yields (except corn) and sell at lower prices. The absence of price response of feed grains and the high price of wheat established relative to the world market price make it -272- difficult to bring about needed adjustments. It is likely that a small surplus of soft wheat will be made more diffi- cult by French exports. Italian wheat producers may, in fact, find themselves delivering wheat to the EEC price support agency while more French wheat is purchased by Italian industries. In contrast, increasing quantities of feed grain imports will be needed if the livestock indus- try is to develop. The expected feed grain deficit will provide attractive markets for all corn exporting countries. U.S. corn exporters are under some handicap in the Italian market because of a reputation for blending high moisture corn that may arrive in poor condition and because bilateral trading agreements often favor grain exporting countries that purchase Italian manufactured goods.2 Since most imported corn at present is fed to poultry and swine, U.S. corn is also at a disad- vantage to Argentine BEEEE corn. If promotional efforts now underway are successful in demonstrating that U.S. yellow corn with additives can provide the same coloration in eggs and poultry meat the market position of U.S. corn for this use will improve. U.S. corn will definitely be more in demand for cattle feed as both numbers and rates of grain feeding increase. 2The Federal Appeal Certificate that prevents the buyer from disputing the grade of U.S. corn is also a major point of dispute among all European grain importers but is at least partially compensated by U.S. companies willingness to guar- antee grain quality. -273- An increasing quantity of U.S. corn is being re-exported to Germany as Italian importers take advantage of an EEC concession to import corn and barley at lower prices until 1972. Italy's exports of corn increased from eight thou— sand tons in 1962 when the regulations became effective to 676 thousand tons in 1965. unless further restrictions are imposed by the EEC, transhipment to northern European countries will draw larger quantities of U.S. corn to Italy until 1972. Italians are expected to demand much larger quantities of beef and veal than can be supplied from domestic sources. Argentina at present is the largest source and is expected to maintain its dominant position. U.S. beef is at a market disadvantage because corn-fed, marbled beef is less desired than younger, forage-fed animals and most U.S. beef is priced above competing countries. The Italian livestock industry is also expected to need substantial imports of feeder cattle. Most Italian feeders are Offspring of dairy-type cows on family farms and supply is inadequate for even present needs. Imports have come in increasing numbers from Eastern EurOpe with France and Germany supplying animals irregularly. Past experience.with U.S. dairy calves was not satisfactory because of high Ship- ping costs and arrival in poor condition. Overcoming these two Obstacles would lead to expanded sales of U.S. calves on the Italian market. -274- Milk is produced jointly with cattle meat and attempts to increase beef output will provide increased quantities of milk. This in itself is not undesirable for Italy since it currently imports some fresh milk and large quantities of milk products. Projections Show the possibility of a slight surplus milk output in 1975 that could be exaggerated if milk production per cow, which in recent years has remained constant, increases as present breed and feeding improve- ments become effective. The major threat, however, is not from Italian milk production but from its EEC partners. Increased exports of fresh milk, milk powder and cheese as surpluses develop in these countries could place high- cost production in Italy at an extreme disadvantage. With- out doubt, Italian production Of both cattle meat and milk will be adversely affected by milk flows within the EEC. In total, Italy represents a growing market for feed grains and meats. Trade flOws with the other five members of the community will continue to mount but these countries anticipate deficits in these same commodities. Foreign exchange for food purchases could provide a problem for Italy and increased purchases will probably be attempted from countries willing to Sign exchange agreements to pur- chase Italian industrial products. U.S. exporters should find ready markets for grains but will face greater price and nonprice competition in supplying needed meats. BIBLIOGRAPHY —275- BIBLIOGRAPHY £21152 Aiello, Carlo. La Dinamica della Struttura Agricola mel Mezzogiorno, Cassa per Opere Straordinarie di Pub- blico Interesse mel'Italia Meridionale, Roma, 1964. Antonietti, Alessandro, D'Alanno, Attilio and Vanzetti, Carlo. Carte delle Irrigazioni d'Italia, Istituto Nazionale di Economia Agraria, Roma, 1965. Barberis, Corrado. Le Migrazioni Rurali in Italia, Milano, November, 1960. Barbero, Giuseppe. Riforma agraria italiana, risultati e prospettive, Milano, December, 1960. Biondi, Paride. 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APPENDICES -286- 00¢ Cm ~287- .AmomH .uoeomv n oHosa .HH oSsHo> .OCSOHOOHCO<.HHOO «Hosanna OusoaHnCoo on .OOHuuHusum Hp oHsuusoo ousUHusH "cannon mmO.ooo.H oHn.Hn~ Han.OnH mnm.HON u~a.¢¢H Oo¢.m~H oam.nsH ssn.o~ “mayo can.n~H.m nn¢.¢o~ onH.H¢H mon.nmc OOO.HOH.H omm.~ew awn.O~n OHo.o eHuoHuuem eHCoHoO wo~.enH.a mso.an.O nna.ewh No~.¢«h om~.th noe.oo~ aoo.n- nOu.~a hueHsm moo.mHu.nH OOH.wch OOO.mnm ~m¢.HHa.H NaH.OHm.~ ¢H~.¢~w.~ -o.Onm.n Onm.ouo canon AHHSOM mam.Hsn.o~ NON.mmn.s um~.¢ea.H cc~.ma¢.n «OH.OO0.0 nOm.0~m.n OO0.00~.¢ mwO.mOn Msuoa u Hsun new.unn eoc.onH OOH.¢o ~O~.OHH ON0.0N Omm.mm Ons.no mno.~ uuCuO ~n~.¢¢ me~.~ ¢-.¢ «Hm.OH meH.HH nno.¢ emw.OH on sHuanusm eHCoHoo On~.OOm.H O¢¢.~oa new.~eH n¢¢.OnH OH0.0~ MHm.Ho www.mw nhH.hH huanmI NOO.H~¢.~ th.me Hon.ann www.mne N¢n.~¢n mOO.m¢m OOn.m~m hon.eOH sauna AHHssm OHa.mem.e nun.H~n.H sm~.Hwn o¢n.aae «mo.oom OOH.Oue ~no.ooo ouo.aNH Hausa "aOCsHuH m~n.w~¢ O¢O.- ¢¢O.Ho omm.om ~wo.oo un.om nMH.Ow HOO.NH Congo OHn.~¢~ oe~.¢H can.e~ ~H~.mn ~5H.Oa OOa.ao «Ho.mm wah.o sHueHuuem mHsoHoO mn¢.m~n.~ n~¢.~¢n.H mom.nOH nnm.~nH oHo.om mNO.ww mo¢.~m nan.ae hueHsm mn~.mmo.n mnO.NNH MH0.00H “ne.soe Omm.wnn OH¢.~mm Hnm.Hu~.H HHe.e~N canon hHHaam eqw.mmo.o Hua.OOO.N oew.¢n¢ OO0.00s um¢.onn own.¢~O.H mnH.mm¢.H meo.wn~ Heuoa "hHeuH Cuonusom -~.¢m «mm.~ mmn.~ «OH.O «On.m omo.o n~¢.~H OOH.e Congo emH.neo.H wwH.Hun mme.mw eaO.~nn mun.wwm mum.oue ~o¢.ONH NNO.H aHueHnuem sHCoHOO mn¢.mmo.H Om~.nn¢.H shO.HwH Om~.HwH Oom.¢m mno.an onH.mn wmo.o huoHsm seH.amo.H mma.nm ca0.0w Omw.~n~ ONH.O~n mHm.¢mm ONH.w~m no~.mo mason “HHaom aa¢.~Hn.m wno.~m¢.H emO.~nm sO~.nah mnw.wOO.H HnH.me -~.Onn Omm.no Heuoa "mHsuH Houusoo nmm.~e New mom heo.c an.m sc0.0H Hoo.~H MNH.n guano www.moH.H son.o Omn.nu Ons.¢- mcm.Hm¢ mnm.Om~ nan.nOH «aw sHusHuuem eHCoHoo <¢O.H¢m.m noe.n¢n.~ ow~.sm~ eon.oo~ onn.nHH eum.mn OOH.nn mmm.o ansHem nHH.¢m¢.n um¢.nnH omm.nnu non.HHm OaN.mOH.H Nw¢.mOm.H ano.n~o.H hon.oom canon sHHS; um0.000.0H Oso.mHs.~ OOH.O~n noo.oom.H sO~.~N~.H ~nm.moo.H Hne.HO¢.H emu.¢- Heuoa uhHeuH Cuonuuoz Hausa OOqOOH OO OOHIHO O OO OnIHO ON OO OuuHO O OO OHIHO a oo oo H Io asses ocoa.mo o oomuu9m_auom aou< fi Hem." <52 Unmgmu 2 8233032: no ME Hosanna no man E 55352 52m .H 533. Una—2mg APPENDIX TABLE 2. —288- LAND III FARMS BY TYPE OF i-IANAGEMENT AND ALTITUDE ZONE, 1947-48. 1961 AND CHANCE Geographic area 1947-48 Total Fandly' Colonia Other Salary surface farms parziaria Northern Italy MOuntains 4.686.067 3.039.008 354.550 53.745 1.238.800 Hills 2.033.505 1.345.287 522.455 18.651 147.114 Plains 3.642.057 1.859.420 686.625 208.583 783.339 Total 10.361.629 6.243.679 1,563.628 280.979 2.167.253 gentral Italy MOuntains 2.081.441 859.700 712.166 18.481 490.994 Hills 2.975.178 603.868 1.526.194 42.603 808.981 Plains 475.771 132.554 182.969 15.682 144.566 Total 5.532.390 1.596.122 2.414.961 76.766 i;:444:241_ Southern Italy Mountains 2.580.750 1.558.558 242.201 46.558 733.423 Hills 3.419.247 1.847.529 638.934 80.495 852.289 Plains 986.465 541.750 142.636 21.811 280.268 Total 6.986.462 3.947.831 1.023.771 148.874 1.865.980 Islands Mountains 1.075.535 578.726 216.517 72.606 207.746 Hills 2.920.934 1.616.022 716.493 293.889 294.530 Plains 760.050 411.733 135.456 55.389 157.472 TOtal 4.756.579 2.606.481 1.068.466 421.884 659.748 Italy MOuntains 10.423.853 6.035.956 1.525.534 191.400 2.670.963 Hills 11.348.864 5.412.706 3.397.606 435.638 2.102.914 Plains 5.864.343 3.049.547 1.147.686 301.465 1.365.645 Total 27.637.060 14.498.209 6.070.826 928.503 6,139.522 ABSOLUTE CHANCE Nbrthern Italy Mbuntains -156.969 -985.738 ~222.012 . -41.472 +875.423 Hills -94.133 -76.830 -124.223 +390 +121.288 Plains -149.053 +264.199 -79.466 -192.769 -54.213 ‘TQtal -400.§§2 -798.3§4, -425.701 -233.850 +1.091.384 Central Italy Mountains -635.905 -319.402 -459.089 -10.019 +152.705 Hills +444.152 +323.648 -203.728 -15.088 +332.852 Plains -28.083 +38.788 -113.241 -11.938 +58.308 ‘Iggglll -219.836 +49.149 ~769.690 -37.045 +543.865 Southern Italy MOuntains -245.186 -493.905 -179.555 +37.414 +390.870 Hills -37l.667 -44.500 -434.172 +111.848 -4.843 Plains +314.312 +224.238 -117.533 +130.494 +77.145 Total -302.54l -3l4.167 -731.260 +279.746 +463.172 Islands MOuntains -183.380 -186.374 -209.245 +6.865 +205.374 Hills 450.957 +72.414 -687.404 +105.127 +560.820 Plains -55.318 -20.909 -127.554 +18.976 +74.169 Total -187.741 -134.869 -1:024.203 +130.968 +840.363 Italy Mountains -1.221.500 -1.985.476 -l.070.119 -7.217 +1.841.312 Hills +49.432 +289.937 -1.442.822 +202.458 +999.861 Plains +106.673 +415.667 -432.349 -54.610 +177.965 Total -1.06§;395 -1.279.872 -2.945.290 +140.629 +3.019.138 Infill." neuter“ -289— APPENDIX TABLE 2. (continued) Geographic area 1961 Total Family Colonia Other Salary surface farms parziaria Northern Italy Mountains 4.529.098 2.053.270 132.538 12.273 2.114.223 Hills 1.939.372 1.268.457 398.232 19.042 268.402 Plains 3.493.004 2.123.619 607.159 15.814 729.126 Total 9.961.077 5.44;.345 1.137.927 47.129 3.260.637 Central Italy Mountains 1.445.536 540.298 253.077 8.462 643.699 Hills 3.419.330 927.516 1.322.466 27.515 1.141.833 Plains 447.688 171.342 69.728 3.744 202.874 Total 5.312.554 1.639.156 1.645.271 39.721 1.988.I06 Southern Italy Mountains 2.335.564 1.064.653 62.646 83.972 1.124.293 Hills 3.047.580 1.803.029 204.762 192.343 847.446 Plains 1.300.777 765.988 25.103 152.305 357.413 Total 6.683.921 3.633.670 292.511 428.620 2,329.152 Islands Mountains 892.215 392.352 7.272 79.471 413.120 Hills 2.971.891 1.688.436 29.089 399.016 855.350 Plains 704.732 390.824 7.902 74.365 231.641 Iotal 4.568.8 8 2,471.612 44.263 552.852 1.500.111 Italy Mountains 9.202.353 4.050.480 455.415 184.183 4.512.275 Hills 11.398.296 5.702.643 1.954.784 638.094 3.102.775 Plains 5.971.016 3.465.214 715.337 246.855 1.543.610 Total 26.571.665 13.218.337 3.125.536 1.069.132 9.158.660 PERCENTAGE CHANGE I NOrthern Italy Mountains -3.3 -32.4 -62.6 -77.1 +70.6 Hills -406 -507 '23s7 +200 4620!} Plains -4.o +14.2 -11.5 192.4 -o.9 Total :t.C «;lZ-7 -27.2 -83.2 +50.3 Central Italy MOuntains -30.5 -37.1 -64.4 -54.2 +31.1 Hills +14.9 +53.6 -13.3 -35.4 +41.1 Plains -5.9 +29.2 -61.9 -76.1 +40.3 Iotal -3.9 19.0 -31.8 -48.I7 +37.6 Southern Italy Mbuntains -9.5 -31.7 -74.1 +80.3 +53.3 Hill. '1008 “'2.“ '6709 +13809 -005 Plains +31.8 +41.4 -82.4 +1296.5 +27.5 Total -4.§:: -7.9 -71.4 +187.9 +24.8 Islandg Mountains -17.0 -32.2 -96.6 +9.4 +98.8 31118 'I’ls7 44904 ‘95s9 +3507 +190sl} Plains '702 “500 -9401 +3402 ‘I'll'7so Total gggép 12;; -9§;§3 +31.0 +127.3 Italy Plountains '11. 7 '32. 9 '70. 1 '30 7 4'68. 9 Mills +0.4 +5.3 -42. +46.4 +47.5 Plains +1.8 +13.6 -37.6 -18.1 +13.0 TOtal " 8 .8s8 .4835 +15s 1 +490 1 (continued) -290- Sources: 1) Giuseppe Medici, I ti 1 d'im resa nell'a ricoltura italiana, Nate: Istituto Nazionale di Economia Agraria (Roma: 1951), 510 pp. 2) Istituto Centrale di Statistics, 10 Censimento Generals dell' égricoltura Roma: Aprile, 1961). The data from the two sources is not directly comparable since the surface reported by medici exceeds the surface in the Census by more than one million hectares. The difference is that the Census does not include forests, uncultivated, abandoned or small parks and neglected garden land. An adjustment is attempted by Tassinari (Rivista di Politics Agraria, Sept. 1964) by adding the difference to the land reported by the Census. He believes a fairly good comparison can be obtained for land by type of management but not for mountains, hills and plains because in 1958 some new communes were created and boundaries of others changed. —291— .mmH .a .Hmeomc HH>x .Ho> .oamHHmuH HmasuHsmHmmmuHHou oHpmaccc .CovCH Com mama .NmmH pom mmmH .mmmH .msmH Com mHCO omuaoooa mm: mama .HH .8 .HmmmH "meomc .u can onamH<.m .< .Huuomaouaam I II . HmmmH-mmmH mo mosmmH “meomv HquCooCmo .Hsouoz .HOHCuumCS .mHHmuH CH mHOOHCwm ocoHNmuNHCmooo: ma .HHooHam< HnOpo: Hpoouom "oopsom l Ii-..llll - mm Hm mm :m Hm Hm m: cm cm as mHmHH - mm am am mm mm :m an H» an Hm mecmHmH - om mm :m Hm mm m: m: s: c: an ausom -- mm m: m: m: Hm H: m: m: a: H: panama - me am we as me am mm on as Hm zunoz oAx OCm m .2 mo unmade: Coo mEmaOHHxv COHuoesmCou CONHHHuCom mm:.m mam.m m:~.m Hmo.m m:o.m mmm.m mmm.m mah.w «mm.u Hum.a :m:.~ sHmuH mHm mom son mmH mmH mmH «mH 55H 03H HNH «NH meamHmH mm: cs: mH: Hem omm «Hm mam emu sum HHN «on zusom can mmm mom spa mmm «mm «an I Hmm mom . :HH HmH smacoo :o:.m mmm.m mum.“ Hmm.~ can.“ HmH.~ omH.m mmH.m HHo.u one.“ mmm.H nusoz kooCmuoo: mo moosoosmv COHumeCCH HHH.mH omn.mH mos HH ~m~.0H m:o.m HmH.m m:m.a mma.m mmH.m Hmm.m Hmm.: sHmHH mas mos mmm mam :mm mm: as: so: mam sea «on mvamHmH m:m.H Ham.H mHm.H :mo.H msm «mm mob m:> Hmm mam .ssm auaom Hm3.~ mmH.~ mmm.H mom.H omm.H omm.H mmH.H epo.H moo.H cum sow pmuaoo HHo.OH mom.m Hmm.a «No.5 mmH.m «Hm.m mmm.: :Hm.: mmo.: wmm.m Ho~.m gupoz mAmHHCO Cozom OCm muouomaa mo mumnosomv CovaNHCmnoo: mmmH :mmH mmmH mmmH HmmH ommH mmmH mmmH HmmH mmmH mmmH eopH II I' l.’ mmeImmmH .ZOHOEm AdeBHDOHmu< mondz Hm mBszH homo amaomqmm .m mqmch xHszmm< -292- APPENDIX TABLE I. ESTIMATED COSTS AND RETURNS FROM SOFT wREAT, DRY PLAINS or PO. VALLEY, Low LEVEL or MECHANIZATION, 1963-196l-a Item Description Unit Quantity Price Amount Gross Receipts: Grain quintal 20 L 6,941 L 139’5no Straw quintal 16 900 _l34292. Income from sale of grain and straw 153,9nob Variable expenses: Seed (nonselected) quintal 2,3 5,977 15,047 Fertilizers N Sowing quintal 1 3,266 3,226 N TOPdPeSSing quintal 1 3,199 3,199 P quintal 2 1,839 3,678 First plowing: Tractor hour 10 900 9,000 Labor hour 15 300 4,800 Narrowing: Work animals hour a 500 4,000 Labor hour 16 300 u ,800 Sowing: Work animals hour 10 500 5,000 Labor hour 20 300 5.000 Spreading of fertilizer: Labor hour 10 300 3,000 Binding: Custom (4.5 hrs/ha) ha 1 8,300 8,300 Labor per Ha hour 9 300 2,700 Stacking: Labor hour 6 300 1.300 Transportation and prepara- tion of sheaves for threshing: Work animals hour 20 500 10,000 Labor hour 40 300 12,000 Threshing and packing grain in bags L.350/q1 x 20 7,000 Pressing on threshing floor L. 200/21 x 16 q. 3,200 Stacking of straw: Labor L. 50/q1 x 16 q. 800 APPENDIX TABLE 4 (Continued) Item Description Unit Loading grain L.30/L x 20 q. TOTAL EXPENSES NET REVENUE OVER VARIABLE EXPENSES Cost per quintal of grain L. 5,457 —293— Quantity Price Amount 600 109,150 nu,790 aPrices of wheat and all materials are a twoiyear average of the 1963-64 and 1964-65 crop years reported in: INEA, Annuario dell' Agricbltura Italiana, Vol. XVIII (Roma: 1964 and 1965). bUsing projected 1970 prices of 6,651 lire per quintal of wheat in the north, gross income per hectare would total 133,020 lire and net income 23,870 lire. Materials cost would probably change little but yields are not likely to rise - sufficiently to offset increases in labor cost so net income would probably be lower still. —294— APPENDIX TABLE 5. ESTIMATED COSTS AND RETURNS FROM SOFT WHEAT, PO VALLEY PLAIN, HIGH LEVEL OF MECHANIZATION, 1963-1961-a Item Description Unit Quantigy Price Amount Gross Receipts: Grain quintal 40 L. 6,941 L. 277,640 Straw uintal 35 900 31,500 Total gross income q 3097I40b Variable Expenses: Séed Selected quintal 1.8 9,755 17,559 Fertilizer N quintal 3.0 3,199 9,597 ' P quintal 6.0 1,839 11,034 K quintal 0.5 4,537 2,268 Need control 2-4-D kilogram 1.2 2,400 2,880 Labor and machines First plowing Large tractor hour 8.0 900 7,200 Labor hour 9.7 300 2,910 Prepare Soil Labor hour 19.3 300 5,790 Narrowing Average tractor hour 3.2 800 2,560 Labor hour 3.6 300 1,080 Leveling Soil Small tractor hour 0.9 1,000 900 Labor hour 1.0 300 300 Weeding Small tractor hour 1.5 1,000 1,500 Labor hour 2.0 300 600 Sowing Drill 5 tractor hour 2.4 1,500 3,600 Labor hour 2.5 300 750 Harvesting-Binding (L SOD/quintal x 40 quintal) (.097 per quintal of wheat) 20,000 MT 50 CV D hour 2 Labor (.38 hour per quintal of wheat 6 Collecting and Baling Ray (L SOD/quintal x 35 quintal) 10,500 Average tractor hour 2 ' Labor hour 4 Transportation of Grain Small tractor hour 2.8 1,000 2,800 Labor hour 9.6 300 2,880 Transportation and Stacking of Bales Small tractor hour 6.65 1,000 6,650 Labor hour 23.45 300 7,035 Total expenses 120,375 Net Revenue over variable expenses 188,765 Cost per quintal of grain L 3,009 3Prices of wheat and all materials are a two-year average of the 1963-64 and 1964-65 crop years reported in: INEA, Agngagig_gell' Agrigoltura Italians, Vol. XVII (Roma: 1964 and 1965). b08108 PPOIGCtOd prices Of 5,551 lire per quintal of wheat in the north, gross income would total 266,040 lire and net income 145,665 assuming no change in costs. If yield increases are not sufficient to offset cost increases net income would be somewhat less. -295- APPENDIX TABLE 6. ESTIMATED COSTS AND RETURNS FROM DURUM wHEAT, AVERAGE LEVEL OF MECHANIZATION, SOUTH ITALY, 1963-61-a Item Description Unit ggantity Price Amount Gross Receipts: Grain quintal 16 L. 9,025 L. 144,400 Straw quintal 10 900 9,000 Total Gross Income 153,400 Variable Expenses: Seed quintal 2 12,281 24,562 Fertilizer. N at seeding quintal 1 3,226 3,226 N topdressing quintal 1 3,199 3,199 P quintal 3 1,839 5,517 First plowing, Large tractor hour 9 1,000 9,000 Labor hour 15.4 300 4,620 Harrow and Level, Average tractor hour 5 900 4,500 Labor hour 12 300 3,600 Fertilizing Labor hour 8 300 2,400 Seeding, Average tractor hour 3.5 1,300 4,550 Labor hour 7 300 2,100 flowing Labor hour 35 300 10,500 Harvesting and Binding, custom hectare 1 10,000 10,000 Stacking Labor hour 6 300 1,800 Transport and prepare sheaves: Labor hour 25 300 7,500 Average tractor hour 4 900 3,600 Threshing custom quintal 16 350 5,600 Baling straw custom quintal 10 250 2,500 Stacking straw custom quintal 10 40 400 Loading grain quintal 16 25 400 Total expenses 109,57h Net revenue over variable expenses 43,826 Cost per quintal of grain 6,848 8Prices of wheat and all materials are a two-year average of the 1963-64 and 1964-65 crop years, reported in INEA, Annuario dell' Agricoltura Italians, Vol. XVIII (Rome: 1964 and 1965). bUsing projected 1970 prices of 9,048 lire per quintal in the south, gross income per hectare would total L 144,768 lire and net income L 35,196 lire. -Zflb- APPENDIX TABLE '7. ESTIMATED COSTS AND RETURNS FROM HYBRID CORN, DRY PLAINS 0F P0 VALLEY, AVERAGE LEVEL OF MECHANIZATION, 1963-1964a Item Description Gross Receipts: Grain Stalks Income frgm sale o§_§rain + Stalks Variable Expenses: Seeds Fertilizer: N sowing N covering P K Insecticide for soil Manure . Loading, transportation 8 spreading of manure by hand: Tractor Labor Main Plowing: Tractor Labor Complementary Labor: Average power tractor Labor Spreading of fertilizer by hand Spreading of soil insecticide: Labor Sowing: Average power tractor Labor flowing: Labor Forrowing Harvesting of ears by hand Cutting, loading + unload- ing of stalks by hand Threshing of ears L.150/q1 x 35 Transportation of stalks: Low power tractor Labor Total expenses Unit quintal quintal kilogram quintal quintal quintal quintal kilogram cu m2 hour hour hour hour hour hour hour hour hour hour hour hour hour hour hour hour Net revenue over variable expenses Cost per quintal L. 4,088 20 80 50 Price 4,886 300 200 3,226 3,199 1,839 330 1,200 1,000 300 900 300 900 300 300 300 1,500 300 300 300 300 300 1,000 300: 171,010 15 000 186,010 6,000 3,226 6,398 5,517 I 6,600 30,000 9,000 3,000 7,200 3,000 2,700 1,200 3,000 300 4,500 1,200 6,000 2,000 20,000 15,000 5,250 2,000 600 1331091 42,908 a Prices of corn and all materials are two-year averages, 1963-64 and 1964-65, reported in INEA, Annuario dellfzéggjcoltura Italians, Vol. XVIII (Roma: 1964) p. 249. b At the projected 1970 and law 1975 price assumption of 5,602 lire per quintal, gross income would be 196,070 lire and net income assuming the same costs would total 52,979 lire. It is not unlikely that variable expenses will decrease with increased mechanization and with costs of nonlabor inputs rising less than wage rates. —297— APPENDIX TABLE 8. ESTIMATED COSTS AND RETURNS FROM HYBRID CORN, IRRIGATED PLAINS 0F PO VALLEY, HIGH LEVEL OF MECHANIZATION, 1963-196L-a Item Description Unit ngptigy Price Amount Gross Receipts: Grain quintal 70 L. 4,886a L. 342,020b Variable Expenses: Seed kilogram 20 240 4,800 Fertilizers: N sowing quintal 2 3,226 6,452 N covering quintal 3 3,199 9,597 P quintal 4 1,839 7,356 K quintal 1 4,537 4,537 Insecticide for soil kilogram 20 330 6,600 Need killer kilogram 4 4,600 18,400 Manure cu m2 uo 1,200 48,000 Loading of manure with bucket loader hour 2 1,000 2,000 Labor hour 2 300 600 Transport and spreading of manure (meccanic) hour 4 1,000 4,000 Labor hour 4 300 1,200 Main plowing: Average power tractor hour 6 900 5,400 Labor hour 10 300 3,000 Complementary labor: Average power tractor hour 3 900 2,700 Labor hour 4 300 1,200 Fertilizing with fertilizer Spreader hour 2 900 1,800 Labor (including one spread- ing of fertilizer by hand) hour 5 300 1,500 Spreading of soil insecticide, Labor hour 1 300 300 Sowing: Average power tractor hour 2 1,500 3,000 Labor hour 2.5 300 750 Leveling and Furrowing: Average power tractor hour 5 1,300 6,500 Labor hour 6 300 1,800 Weeding: Equipped tractor hour 1 1,000 1,000 Labor hour 1.5 450 450 Thinning out: Labor hour 20 L. 300 L. 6,000 —298- APPENDIX TABLE 8 (Continued) Item Description Unit Quantity Price Amount Combine harvesting L.369/q1 of hernals (type - Laverda M 120 with silas) 25,830 Irrigation 10,000 Transportation of grain: Low power tractor hour _3 1,000 3,000 Labor hour 9 300 2,700 Total expenses 190,472 Net revenue over variable expenses 151,548 Cost per quintal L. 2,721 aPrices of corn and all materials are two-year averages, 1963-64 and 1964-65, reported in INEA, Annuario dell' Agricoltura Italiana, Vol. XVIII (Roma: 1964), p. 249. bAt the projected l970 and low 1975 price assumption of 5,602 lire per quintal, gross income would be 392,140 lire and net income, assuming the same costs, would total 201,668 lire. It is not unlikely that variable expenses will decrease with increased mechanization and with cost of nonlabor inputs rising less than wage rates. -299- .Aseas .Hauee “Essie .musuaooauwr‘ Sop 33350 35...:ch A .oowumwuaum Z... . fiasco ousflumu ”ouuaom «no.5 ~a~ sen.n ”an as».ae~ a~m.m se~.m~ sad.” n~e.m oe.eo~ -ono a-.~ "so.o~ we~.~ a...~e~ eem.n eon.nn use.» moo.- oo.oo~ - ~e.on Bee on sne.o «sh.nsn oss.so~ u...mn~ «ca.ns on~.~ae ooa.sefl ~na.ee~ eo.on - ~e.o~ o~e.e~ ~o~.- oae.on~ an~.m- nan.n- en~.nu ~a~.m~m.~ ono.~se eoo.~oo.~ oo.o~ - so.“ ~nn.~ Noo.~ «on can." ~nn.~ new." eoe.e- so~.o- ~e~.-~ oe.~ - ~.o .Nmmmmuwummw “ma.o ~nm «a ed see.e~ o-.~ ~eo.a ~nn.~ eo~.n oo.oo~ w¢e.n nae “an an ase.~ fine.” -n.- ana.~ eeo.e eo.oon - so.on eon.o enn.~ eme.n n-._ Nae.o~ sac." .eon.ee han.m~ eea.e~ oo.en - ~o.o~ acn.~ use.” a-.~ -~.~ o-.e nee.e o~e.ne onn.on m~o.ee oo.o~ - so.“ can nnN n we «so an” noo.s~ unn.- enn.n~ so." . ~.o Leeann“ ~oe.~ emu men am ”so.- nem.~ nne.n ewe oan.~ oo.oo~ n-.~ -e can can na~.e «no can.“ ene.~ e-.m eo.oo~ - ~o.om eon.n eun.~ noo.n ass.“ ane.m enh.~ «no.nn wan.h~ Hoo.ee ee.om - ~e.o~ o-.e -n.n mne.n oae.n~ Nuo.n noe.~ ~ma.o- nao.-~ ~ae.~e~ oo.o~ - ~e.~ «LN use an a- con men e-.~n n~n.~m kne.en eo.~ - ~.o .Nmmmmnmmmmm cos n onw no" n~n.n~ on~.~ was and e~e.~ oe.oo~ as h Nam.” e~n.H nan.n «as Nun.“ can noa.~ oo.oo~ - ~o.on was ”a“ kee.n~ ~ne.nm man.~ meo.~ aeo.on He~.- no~.a~ oe.on - ~o.o~ can one use.ne mo~.Ho~ nao.~ ana.~ ee~.eo «No.3ofi ~ne.o- oo.o~ - ~o.~ ohw an“ «no mac." so" me” ~h~.m a~o.- Nem.au mw.~ - ~.c saga League has n slo.e has amn.mo~ man.“ eco.n~ . ans nee.~ eo.oo~ and.“ an“ o~m.m nan ooo.e- anh.~ eno.he ea~.n noo.o oo.oo~ - _o.on coo.m Baa.“ «an.a- mo~.~e eeo.ss_ ecu.“ en~.eoe soo.eo nn~.eeH eo.om - ~o.o~ «no.o~ ~na.n cum.eo~ ase.oo “no.es eeo.e nee.ea~._ enn.~en ~n~.o~e oe.o~ - ao.s one one ham «am can aha ~aw.~m noe.ee n-.ae so.“ - ~.o ”mammnmummm 0300 NO o.H—uh NO 0300 NO Eon HO n80 HO an“ «O 6300 NO gum NO Elm HO flout—um NO Hue—52 Mona—2 H0332 H03 N03 Hun—Ba uufla Huea kWh-.52 nauo .wonuo _ euuvmuuox F Eon hamumm 1 Baum 5.3mm W 153. .Hoad .25; no ”Num 92¢ 822% he NM: £5: UHE§§O rm mafia zo m38 mo mung .o Manda. 595m: APPENDIX TABLE 10. —300- ESTIWTTED COSTS AND RETURNS FROM A 30°CO'" DAIRY HERD SELLING FRESH MILK, IRRIG/‘TED PU IN OF WESTERN P0 VALLEY, 1963-64 Item Description Unit Quantity Price Amount Gross Revenue Milk, 30 cows at 35 liters per day for 305 day lactation less 18.5 quintals for calf feed Quintal 3,181: L. 5,872 L. 18,696,448 Calves, sold at 20 days 1:269:000 of age at weight of 60 kilos each " 16.2 80,000 1,269,000 Cull cows, cull 10 °/o per year at 5 quintals each " 15 2":638 41.2185 L- 20:335:01 Total Gross Revenue Variable Expenses Feed for cows, "inter (Nov. 15-Apr. 15) Feed mix-3 kilo/cov/day " 135 6,295 8h3:°75 Hay-12 kilo/cow/day " 540 2,000 1,080,000 Beet pulp-2.?kilo/cow/day " 112.5 5,390 606,375 Summer(202 days Peed mix-3 kilo/cow/day " 182 6,245 1,136,590 Green forage-45kilo/cowlday " 2,727 ' 366 998,082 Feed for calves - mothers milk 2.5 liters/calf/day/ reduced from sales Straw for bedding " 40 600 24,000 Labor, 2 men full-time Each 2 829.762 1.659.524 Herd replacements - 10 ‘D " 3 “7,519 1925357 Breeding " 30 3,000 90:000 Medical and vet Expenses " 30 3:538 109:1“) Electricity " 30 2,728 81,840 Insurance " 30 l , 157 444119 TOTAL VARIABLE EXPENSES In 6,806,194 W7 NET REVENUE OVER VARIABLE EXPENSES L. 13,528,825“ . . . . Continued -301— APPENDIX TABLE 10 (Continued) aTo compare net income in 1963-64 with 1970 and 1975. product prices projected in Subproject III and projected input prices were employed. No change was made in input-output ratios but increases in milk per cow (especially important outside the north) and decreases in labor require- ments (most important in the north) would increase net income above the Testimates that follow. Fer 1970 milk price is projected at 5,959 lire per quintal. It was assumed that cull cows would increase at the same percentage change pro- Jected for all cattle, 11.3 percent from 1964-1970, making this price, 27,422 lire per quintal and feeder calves would increase 50 percent more than all cattle to 93.520 lire per quintal. Qualified labor for livestock in the north is assumed to be 25 percent greater in 1970 at 1,037,202 lire per year, mixed feed to increase by the same amount as feed grains, 14.8 percent or 7,169 lire per quintal and hay to increase to 2,200 lire per quintal. Under these assumptions gross income in 1970 would be 20,899,810 lire; variable expenses, 7,621,981 and net income from.the 30 cow unit, 13,2779829 lire. For 1975 it seems reasonable to use the high price assumption for meat and the low assumption for milk. Product prices would then be 5,959 lire per quintal for milk, 34,986 for cull cows (again assuming the same change as all cattle) and 130,400 (again assuming feeders will be 50 per- cent greater than the change for all cattle). Input costs are assumed to be: labor, 1,555,803 lire per year; feed mix 8,312 (high grain price assumption; and hay, 2,400 lire per quintal. Gross income would be 21,610,726 lire; variable expenses, 9,129,514 lire and net income over variable expenses 12,481,212 lire for the 30 cow unit. -302— APPENDIX TABLE 11. ESTIMA COS AND RETURNS 0M 20 V NORTHERN ITALIAN QAIRY REGION, 1963-1964 Item Dgscription unit Quantity Price Amount Gross Receippp: 20 calves at 150 kg each quintal 30 L.59,012 1,770,360 Variable expense : Feeder calves, 20 days old weighing 55 kg each quintal 11 80,000 880,000 Feed (128 day feeding period)a Artificial milk, 4.5 litersquintal 11.5 23,700 272,550 per day per calf - 450 grams of milk meal (1 kg - .333 UP) Mixed feed, 1.7 kilo per quintal 43.5 8,190 356,265 day per calf (1 kg - .97 UP) Hay, 0.5 kilo per day quintal 12.8 2,000 25,600 per calf (1 kg - .454 0?) Labor 3 hours per day hour 384 345 132,480 Vet and medicants each 20 400 8,000 General expenses (electricity, water) each 20 200 4,000 Straw bedding quintal 30 900 27,000 Marketing expense 1% of gross 27,900 Mortality 2% of gross ” 55,800 Taxes each 20 360 7,200 Total variable expenses 1,796,795 Net revenue over variable expenses -26,435b Cost per kilo of meat 599 a Average rate of gain - .941 grams per day, feed requirements - 3.374 H.P. per day. Feed requirements are averaged over the period. Initially more milk meal gs fed and less other feed. For 1970 veal price is projected in Subproject III to be 66,556 at the high price assumption. Input price changes are assumed to be: feeder calves, 93,520 (50 percent greater than the increase for all cattle); mixed feed, 9,402; hay, 2,200 and labor 431 lire per hour. At these rates, gross income would be 1,996,680 lire, variable expenses, 2,033,821 lire and variable expenses would exceed gross income by 37,141 lire. In 1975 veal price is projected at 84,895 lire per quintal at the high alter- 'native. Input price projections are feeder calves, 130,400 lire per quintal; Inixed feed, 10,901 lire (high price assumption); hay, 2,400 lire per quintal and labor, 517 lire per hour. At these rates gross income would total 2,546,850 lire, -onv¢IA1-1A Anna-Ian‘s. O 19', 0L1 a...) _-a.. l--.-_a- -‘-- -303- APPENDIX TABLE 12. ESTIMATED COSTS AND RETURNS FROM 50 VITELLL, DALE! TYPE IN NORTHERN ITALXL 1963-64 Item Description Unit Quantity Price Amount Gross Receipts: 49 animals at 4 quintals quintal 196 L.43,911 L.8,606,556 each Manure -- value assumed equal to bedding Total Cress Revenue 8,606,556 Variable appenses: Feeder calves 20 days of age, weigh- ing 55 kg each quintal 27.5 80,000 2,220,000 Feed: First perioda (128 days) to weight of 150 kg. artificial milk, 4.5 liters/day/calf quintal 28.8 23,700 682,560 450 grams of milk meal (1 k8 = 0333 Hope) Mixed feed, 1.7 kg/ quintal 108.8 8,190 891,072 day/calf (1 kg - .97 H.P.) Second feeding period (218 days) to weight of 400 kgs (H.P. per day = 4.64) Mixed feed, 3.02 kg/ day/calf quintal 322.6 6,245 2,014,637 (1 kg = .92 U.F.) Hay, 4.1 kg/day/calf quintal 438.0 2,000 876,000 (1 kg = .454 U.F.) Labor, one man for 80 cattle year 6.2 829,762 518,601 Vet and medicants each 50 1,000 50,000 Taxes and contribute each 50 l;250 62,500 General expenses (lights, water, etc.) each 50 700 35,000 Marketing (1% of gross sales) 105,332 Total Variable Expenses . 7,455,702 Net Reggppe over Variable Expenses L.1,150:854b Cost per kilogram of meat 380 a Feed requirements are averaged over the feeding period. Initially, more milk meal and less concentrate is fed. To compare the income position of cattle production in 1963-64 with that expected in 1970 and 1975 projected cattle and feed grain prices from Sub-project III were employed. In 1970 the expected beef cattle price is 48,890 lire per quintal at the higher price assumption. Input price projections are: feeder calves, 93,520; feed for young animals, 9,402 and for mature stock, 7,169; hay, 2,200 lire per quintal and labor, 1,037,202 lire per year. Gross income at these prices would be 9,582,440 lire, variable expenses, 8,454,700 and income above variable expenses 1,127,740 lire for 50 head of cattle. In 1975 beef cattle prices are projected to be 62,356 lire per quintal at the high alternative. Input prices are: feeder cattle, 130,400; feed mix for young cattle, 10,901; feed mix for older cattle, 8,312; hay, 2,400 lire per quintal and labor, 1,555,803 lire per year. At these prices gross income would be 12,221,776 lire, variable expenses 10,412,449 and net income above variable expenses, 1,809,327. Any increases in feeding efficiency or economical substitutions of labor saving equipment would increase net income. —3O4- NC .7 I s . . . 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ESTIMATED COSTS AND RETURNS FROM BROILERS, PRODUCED IN BATTERIES, 10,000 PER CYCLE, FIVE CYCLES PER YEAR, 1963-1964 (Purchasing mixed feed) Item, Description Unit Quantity Price Amount Gross Receipts: 9,500 birds at 1.8 kg each and 65 - 70 days old quintal 171 37800 6,463,800 Manure: value assumed equal to cleaning cost Total gross revenue 5:453:800 Variable expenses: Baby chicks each 11000 110 1,210,000 Feed: feed conver- sion ratio = 2.22 : l (3.96 kg of feed for 1.8 kg broiler) first phase, to 5 weeks 1.3 kg per bird, 10,500 birds quintal 136.5 8000 1,092,000 second phase, 5 weeks to 65-70 days, 2.7 kg per bird, 9,700 birds quintal 270.9 7600 2,058,840 Labor: one man for 70 days days 70 2273 159,110 vet and medicants each 10000 15 - 150,000 Expenses, heating, lighting, water each 9500 15 142,500 Taxes, I.G.E. 3.3% on value sold 213,305 Total variable egpenses 5,025,755 Net revenue over variable expenses 1,438,045 -308- APPENDIX TABLE 16. ESTIMATED COSTS AND RETURNS FROM A 2000 UNIT INDUSTRIAL EGG Item Gross Revenue: OPERATION BUYING MIXED FEED 1963-1964 Description 200 eggs per hen (average weight of 100 eggs = 5.70 kg) Cull hens 1,600 hens at 2 kg each Manure: value assumed equal to cleaning cost Total gross revenue Variable eppenses: Baby chicks Feed for chicks first 8 weeks, 4 kg/chick Feed for pullets, 9-24 weeks, 2000 birds at 12 kg/bird Feed for layer, 6-18 months, 1,800 birds at 50 kg/bird Labor (8 man unit for 1% years at L. 622,214 per man per year) Vet and medicine‘ Electricity were: Gas for heat Tetal variable expgnses Net revenue over variable expenses Unit thousand quintal each quintal quintal quintal each each each each Quantity 400 32 2200 88 240 900 2000 2000 2000 ELISE .322222 25782 10,312,800 60870 1,947,840 12,260,640 350 770,000 7500 660,000 7000 1,680,000 7200 6,480,000 466,660 200 ‘ 400,000 60 120,000 30,000 25 ___5.9.229 10,656,660 1,603,980 "11111111111111181111“