ABSTRACT

A SIMULATION ANALYSIS OF PLANNED
DAIRY FARM DEVELOPMENT IN EASTERN QUEBEC

BY

Robert St-Louis

Serious criticisms concerning the use of public funds for regional
development programs in Eastern Quebec suggested the need for this
study. Among the proposed major regional programs were a number of
dairy development strategies. The consequences of these strategies
at the farm level were chosen as the primary objective of thisfithesis.
Towards this end the study included an investigation of the current
problem situation in the dairy subsector and an appraisal of various
policy alternatives for increasing profitability of dairy enterprises
in the area.

In the first part of this study, the planning issues in the dairy
subsector were examined. A series of factors combine to create a serious
low productivity and income problem in dairying in Eastern Quebec. These
factors were (1) limited supply of highly productive resources, (2) lack
of growth of effective demand for milk, (3) limited job opportunities
outside of farming in the region, and (4) poor performance of both the
dairy processing industry and the dairy input suppliers.

Increases in resource productivity were singled out as a major
possible source of increasing income from dairying. Associated with
this, however, is the fact that large quantities of resources (especially

human resources) now committed to dairying would be forced to shift to

Robert St-Louis .~

other uses. From the standpoint of regional agricultural planning, the
area where information most seriously falls short of the needs was shown
to be with respect to milk demand projections.

The sedond part of this thesis analysed alternative regional dairy
strategies. These included (1) the establishment of specialized dairy
replacement stock farms, (2) improved feeding practices, and (3) farm
consolidation and community pasture programs. Additional alternatives
considered were (4) subsidizing replacement purchases and (5) artificial
insemination. The focus was to compare these alternative strategies
from the farmers' point of view. This was done in two steps; first,
by analysing field data on dairymen's intentions concerning the various
alternatives, and second, through use of a simulation model to project
changes in net cash income and cow productivity on two synthesized
farms. Primary data from a survey conducted in the area were used.

The analysis of the respondents' intentions indicated the following.
Mbst dairymen recognized that limited availability of good quality feed
was a serious problem in the region. A major concern of the majority
was improving the producing capacity of their cows. There was
disagreement, however, as to whether artificial insemination might be
more appropriate than purchasing replacements to increase the supply of
more productive cows.

The simulation experiments provided the following results. Those
based on low feeding rates indicated that limited availability of good
quality feed may be an important factor accounting for low dairy farming

inéome. Those simulated under improved feeding rates, to the contrary,

Robert St-Louis
showed some potentials for increasing income from dairying. On the basis
of the present value of cash flows discounted at 6 per cent, A.I. was
found to rank first on both the large and the small simulated enterprises,
but only by a slight margin over purchased replacements for the larger farm.
The practice of buying replacements appears, however, to require more
capital than other herd improvement practices.

The major policy implications emerging from the study were the
following. If policy makers chose to promote buying replacements, increased
credit may be a major associated need. Since regional dairymen have strong
preferences for raising their own replacements, additional incentives might
be required to make them shift to buying replacements. If greatly increased
promotion is seriously considered, the returns to this development strategy
could be evaluated by benefit-cost analysis.

With respect to future research the following issues appear important;
(1) analysis of the development potentials of dairying in other areas of
Canada as compared to Eastern Quebec, (2) the impact of recent milk supply
restrictions on regional dairying, (3) the effects of collective bargaining
on the distribution of the rewards for increased productivity in the industry
and (4) the likely effects of various planning strategies on the regional

milk supply and demand balance.

A SIMULATION ANALYSIS OF PLANNED
DAIRY FARM DEVELOPMENT IN EASTERN QUEBEC

By

Robert St-Louis

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Agricultural Economics

1970

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k;\

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~40

ACKNOWLEDGMENTS

The author wishes to express his appreciation to the
members of his Guidance Committee: Dr. Robert D. Stevens,
Dr. M. L. Hayenga, Dr. M. Steinmueller and Dr. J. H. Stapleton
for their assistance during his graduate program at Michigan
State University. Special thanks are given to the author's
Thesis Committee: Dr. R.D. Stevens, Dr. M.L. Hayenga and
Dr. C.R. Hoglund for their guidance, advice and encouragement

in the development and preparation of this research project.

Appreciation is also extended to the Conseil des
Recherches Agricoles du Québec for the financial assistance

which made possible this portion of my education.

Mbst of all, the author is especially indebted to his
wife, Renee, for her assistance, interest and encouragement
during his graduate program. She has, in addition, contributed

many hours at the typewriter.

Any errors or omissions found in this manuscript are

solely the responsibility of the author.

ii

TABLE OF CONTENTS

 

 

Page

ACKNOWLEDGMENTS ii

TABLE OF CONTENTS iii

LIST OF TABLES vi

LIST OF FIGURES x

LIST OF APPENDICES xi
CHAPTER

I. Introduction 1

General Problem Situation 1

Importance 4

Objectives 5

Methodology and Sources of Information 6

Organization of Thesis 7

Part I. Regional Planning in Canada: The Case

of Eastern Quebec 9

II. Emergence of Economic Planning in Canada 9

The Meaning of Development Planning 10

On the Role of Planning 11

Planning in Canada 13

The Need for Using Project Appraisal Criteria in Canada 16

Agricultural Planning in a Canadian Perspective 20

Summary 23

III. The General Planning Problems and Objectives in Eastern Quebec 25
Definition of the Region 25
Major Resource Problems in Agriculture 33

iii

TABLE.)F CONTENTS (continued)
CHAPTER
The Causes of the Low Income Problem in Regional Agriculture
Lack of Growth of Effective Demand
Limited Employment Opportunities Outside Farming
Slow Rate of Adoption of Modern Technology
The Combined Effects
Planning Alternatives Considered by the Bureau
d'Aménagement de l'Est du Québec
Summary
IV. Planning Issues in the Dairy Subsector of Eastern Quebec
Problems of the Dairy Subsector in Eastern Quebec
The Dairy Processing Industry
Farms Producing Milk in Eastern Quebec
The Suppliers of Dairy Farming Inputs
Long Run Objectives and Comparative Advantage
Economic Rationality in the Regional Dairy Subsector
Government Activity on the Milk Market

On the Dynamics of Resource Adjustments: A Summary

Part II. Analysis of Alternative Regional Dairy
Development Strategies

V. Alternative Dairy Development Strategies and
Farmers' Intentions

Introduction
Alternative Dairy Development Strategies
The Regional Dairy Farmers"£ntentions
Factors Associated with the Respondents' Preferences
Summary
VI. Model and Data Used for Simulated Experiments
On Simulation
Description of the Model
System Specifications

iv

Page
45
45
46
47
48
48
52
54
54
54
64
83
88
97

106

118

124

124
124
126
133
142
149
152
152
156

162

TABLE OF CONTENTS (continued)
CHAPTER
Assumption of This Thesis
Data Used in Simulated Experiments
Summary
VII. Micro and Macro Implications of Alternative Strategies

Criteria for Evaluating Alternative Regional Dairy
Development Strategies

The Farm Level Resultscf Alternative Strategies
Trend Projections
Projections under New Program Strategies
The Ranking of Alternative Strategies
Effects of Various Strategies on Capital Requirements
Validity of the Mbdel and Its Results
Strengths and Weaknesses of the Model
Sensitivity Analysis
Issues in the Economic Appraisal of Alternative Strategies
Aggregation Issues
Problems Related to_the Evaluation of Labor
The Income Distribution Problem
Regional Milk Supply and Demand Balance
Summary
Part III. General Summaryiand Policy Implications
VIII. Summary and Conclusions

Policy Implications

Further Research Needs

Page
168
172
192

195

195
196
197
200
207
210
212
215
219
228
230
232
233
235
237
240
240
244

245

TABLE

10.

11.

12.

13.

14.

LIST OF TABLES

The Importance of Economic Sectors in Eastern
Quebec Based on Employment. 1963.

Population of Eastern Quebec. 1901 to 1966, and Distribution
of the Regional Population in Urban, Rural-Farm and Rural
Non-Farm, 1951 to 1966.

Number of Farms per Zone, and Rate of Disappearance
of Farms, 1961 to 1966.

Total Number of Farms and Number of Commercial Farms
per Zone, 1966.

Percentage Distribution of Population by Twenty-Year
Age Groups in Eastern Quebec and in all Other Areas
of the Province of Quebec, 1966.

Value of Agricultural Products Sold by Eastern Quebec
Farmers, by Groups of Products, 1965.

All Census Farms and Census Farms not Reporting Sales
of Dairy Products, Eastern Quebec, 1965.

Estimates of the Number of Farms by Classes of Annual
Net Farm Income, Eastern Quebec, 1965.

Summary of Cost Allocation of Development Projects
by Program Area.

Changes in the Number of Dairy Processing Plants and

Changes in the Proportion of Total Sales Accounted
for by Plants in Various Size Groups, Canada, 1961 and 1966.

Costs per Dollar Value of Shipments of Goods of Butter
and Cheese Plants by Size Groups of Plants, Canada. 1962.

Production and Price of Milk According to Utilization.
Quebec, 1956 to 1968.

Milk Equivalent of Factory Products by Month, Quebec
and Ontario, 1968.

Creamery Butter Production per Region of Quebec,
Monthly Index, 1966, June = 100.

vi

Page

29

34

34

38

39

41

43

51

56

58

60

62

63

LIST OF TABLES (continued)

TABLE

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

All Census Farms, Census Farms Reporting Milking Cows
and Census Farms Reporting Sales of Dairy Products,
Number by County in Eastern Quebec, 1966.

Census Commercial Farms, Commercial Farms Reporting
Milking Cows and Sales of Dairy Products, and Commercial
Farms Classified as Dairy Farms, Number by County in
Eastern Quebec, 1966.

Sales of Dairy Products Reported by All Farms and by
Commercial Farms, and Proportion of Total Accounted

for by Commercial Farms, by County in Eastern Quebec,
1966.

Changes in The Number of Commercial and Non-Commercial
Farms by County in Eastern Quebec, 1961 and 1966.

All Census Farm Operators, Commercial and Non-
Commercial Farm Operators Reporting Off-Farm Work
by Groups of Days Worked off the Farm, Eastern Quebec, 1966.

Number of Cows and Heifers, Two Years or Over, Milking or to
be Milked, per Commercial Dairy Farm, by County of Eastern
Quebec, 1966.

Changes in Size of Dairy Farms, Quebec, 1956-1966.

Percentage of Respondents with 10 Milking Cows or
More Reporting Specified Types of Equipment in Eastern
Quebec, July, 1969.

Breeds of Dairy Cows Reported by Farmers with 10 Cows or
More in Eastern Quebec, July, 1969.

Proportion of A11 Farm Operators of a Given Age Group
In Eastern Quebec, Quebec and Ontario, 1951 and 1966.

Improved Agricultural Land Area Devoted to Major Crops,
by County of Eastern Quebec, 1966.

Hourly wages in Butter and Cheese Factories by Groups
Based on Value of Sales, Canada, 1962.

Per Capita Consumption of Dairy Products in Canada,
Retain Weight, 1951-1953 and 1961-1963.

Respondents' Intentions Concerning their Dairy
Farming Enterprises.

Respondents Favoring a Specific Strategy for Increasing
Size of Herds, Number and Percentage.

vii

Page

65

66

67

68

69

71

71

76

79

82

84

94

112

136

138

LIST OF TABLES (continued)
TABLE Page

30. Respondents Favoring a Specific Combination of Strategies
for Increasing Yields of Dairy Herds, Number and Percentage. 138

31. Number of Heifers that Some Local Dairymen Might Buy
per Year from the Dairy Stock Raisers at Various Prices. 140

32. Respondents Holding Specified Opinions Concerning
Artificial Insemination, Number and Percentage. 140

33. Respondents in Three Dairy Herd Size Categories who
are Likely to either Expand or not Expand Herd Size in the
Next Five Years, Number and Percentage. 144

34. Respondents in Three Classes of Average 1968 Herd
Production per Cow Likely to either Expand or not
Expand Herd Size, Number and Percentage. 144

35. Respondents in Three Classes of Average 1968 Herd
Production per Cow Reporting a Specified Herd Size,
Number and Percentage. 146

36. Respondents in Two Dairy Herd Size Categories who
Tend to Favor Specified Practices, Number and Percentage. 146

37. Respondents in Two Classes of Average 1968 Herd Production
per Cow who Tend to Favor Specified Practices, Number and
Percentage. 147

38. Distribution of Herd Sizes on 68 Farms, Eastern Quebec, 1969. 174

39. Composition of Herds with Respect to Age and Milk Production
per Cow on 43 Small Herds and 25 Large Herds, Eastern Quebec,
1969. 175

40. Factors for Conversion of Records of Milk Production
to the Mature-Equivalent Basis for Mixed-Bred Herds in

Eastern Quebec. 177
41. Specifications for Four Dairy Rations Considered in
this Study. 179

42. Expected Production Capacity of Heifers Raised from
Respondents' Own Herds for Farm Groups I and II,
Eastern Quebec. 184

43. Estimated Percentage of Cows Removed from the Respondents'
Herds for Various Reasons, 68 Respondents, Eastern Quebec. 190

viii

LIST OF TABLES (continued)

TABLE

44.

45.

46.

47.

48.

49.

50.

51.

52.

53.

54.

55.

Summary of Simulated Experiments

Projected Outcomes for Farms I and II under Trend
Conditions (Experiments 1 and 7).

Projected Outcomes for Farm I under Alternative Program
Strategies, 1969 and 1975.

Projected Outcomes for Farm II under Alternative Program
Strategies, 1969 and 1975.

Ranking of Simulated Experiments on Basis of Present
Value of Cash Flows Discounted at 6 per cent.

Projected Net Change in Farm Capital Invested in
Cows for Various Simulated Experiments.

Levels of Milk Production Associated with Various Feeding
Rates, Simulated and Measured in Survey.

Projected Outcomes for Farm II with Increased Costs of Feed.

Projected Outcomes for Farms I and II with Price of Purchased
Replacements Set at $200 per Head.

Projected Outcomes for Farm II Associated with a Higher
Quality Range of Purchased Replacements.

Estimated Variability in Returns and in Average Production
per Cow for Farm II under Three Experimental Conditions.

Projected Milk Production of Farms I and II.

APPENDIX TABLES

1.

Daily Production per Cow in Quebec, Ontario, and by County
of Eastern Quebec, July lrst, 1966.

Annual Forage and Grains Fed, and Milk Production per Cow:
Dairy Herds of Mixed Breeds, Eastern Quebec, 1960.

Values Assigned to Variables in Simulated Experiments.

Projected Outcomes for Farm I Under Alternative Program
Strategies.

Projected Outcomes for Farm II Under Alternative Program
Strategies.

ix

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193

198

201

205

209

211

213

221

223

224

227

236

257

263

265

271

272

LIST OF FIGURES

FIGURE
1. Map Showing the Eastern Quebec Region.
2. Map Showing the Agricultural Zones in the
Eastern Quebec Region.
3. Hypothetical Marginal Cost Curves for Two
Different Technologies of Butter Production.
4. Hypothetical Market Equilibrium Situation when
the Board Acts as a Buyer if Butter.
5. Hypothetical Market Equilibrium Situation when
the Board Acts as Seller of Butter
6. System Relationships.
7. Generalized Flow Chart for Simulation MDdel.

Page

26

31

99

108

109
157

163

LIST OF APPENDICES

APPENDIX Page
A. Methodological Considerations on Survey Design. 254
B. Factors Affecting Yields of Dairy Cows. 256
C. Questionnaire. 258
D. Summary of Survey Results on Feeding Rates. 263
E. Summary of Data Used in Various Simulated Runs. 265
F. Summary of Projected Outcomes for Farms I and II. 271

xi

CHAPTER I

INTRODUCTION

general -..__Pr0b3 smiltsaatian

During the last fifteen years both the Federal Government of
Canada and most provincial governments have shown greatly increased
concern over serious disparities of income between regions as well as
between areas within regions. This concern has resulted in greater
public involvement in regional development programs. The most recent
major legislation dealing Jith the problem of rural poverty in Canada

is the Agricultural Rehabilitation and Development Act (ARDA) passed

in 1962-1 Essentially, the ARDA is an arrangement for federal provincial
costwsharing of approved projects for the development of depressed rural
areas. These projects are activated by provincial project proposals and
sanctioned by enabling agreements on the part of participating provinces.
This thesis is concerned with one such project proposed for Eastern
Quebec, an economically depressed area in the province of Quebec.2 As

a result of this project a multi-sector planning study was undertaken in

 

1Past and current Canadian policies addressed to the problem of
rural poverty in Canada are reviewed by Hadley Van Vliet. ”Canadian
Approaches to Rural Poverty," Journal of Fagmugggngmics. vol 49 no 5.
December, 1967, pp. 1209*24. See also Helen Buckley and Eva Tihanyi,
Canadian Policies for_Rural Adjustment: A Stugy_9f the Economig_lmp§gt
of ARDA, PFRAL and MMRA (Queen's Printer. Ottawa, Canada), Special Study
No. 7, prepared for the Economic Council of Canada. October, 1967.

 

2Other projects financed by ARDA are concisely described by L E
Poetsche. "Regional Planning for Depressed Rural Areas--The Canadian
Experience." Canadian Journal of Agricultural Economics, vol. XVI, no. 1,
February. 1968 pp. 8-20,

2
1963 and completed in 1966 at a cost of $3.8 millions.3 The completed
regibnal development plan included a series of recommendations for
specific government action to induce improvements in the performance
of existing industries and to facilitate the emergence of new economic
activities in the secondary and service sectors. Agriculture, fish-
eries, forestry, mining and tourism presently constitute the backbone
of this regional economy (Table 1).

The most serious criticism which was addressed to this regional
project emphasized that no feasibility studies had been made for the
individual projects recommended in the plan.4 This weakness was reco-
gnized by public authorities who are now responsible for financing its
implementation. Specifically, in the 1968 public document describing
the nature of the inter-governmental agreement covering the implemen-
tation of the Eastern Quebec plan, there is a clear expression of the
need for further research on the programs recommended. The mandate
reads as follows:

The impact of the implementation of each program or group of

programs (proposed in the Eastern Quebec Plan) has to be

measured and assessed, and if necessary these programs have

to be modified in order to achieve better results.5

This dissertation follows this mandate, assessing a number of the

proposed programs for the first planning period (1968-75). This research

 

:3A11 monetary data included in this study are expressed in Canadian
currencies. They can be readily expressed in United States currencies
by using the following ratio: $1 (USA)= $1.08 (Canada).

4Hadley Van Vliet, op. cit., p. 1216. R. Capel, "Development Plan
for the Pilot Region: Lower St.Lawrence, Gaspe and Iles-de-la-Madeleine,"
Book review published in Canadian Journal of Agricultural Economics, vol.
XVI, no. 1, 1968, pp. 98-100.

5Department of Forestry and Rural Development, Lower St.Lawrence,
Gaspe- and Iles-de-la-Madeleine Area of Quebec: Federal-Provincial Rural
Development Agreement (Queen's Printer, Ottawa, Canada), 1968, p. 56.

 

TABLE 1. The Importance of Economic Sectors in Eastern Quebec Based
on Employment, 1963.

m W

 

Persons Employed by Sector
Sector Numbera Proportion

 

('000 persons) (per cent)

Primary 22.0 30.5
Agricultureb 13.0 18.0
Forestry, fisheries and mining 9 0 12.5

Secondary 13.2 18.3
Food and beverages 1.8 2.5
Pulp and paper 0.6 0.8
Lumber, construction and others 10.8 15.0

Tertiary 37.0 51.2

TOTAL 72.2 100.0

 

Source: Development Plan for the Pilot Region; Lower St. Lawrence, Gaspe
and_;1es-de-la-Madeleine, A Summary, by Bureau d'Aménagement de
l'Est du Québec, and Rural Development Branch, Department of
Forestry and Rural Development, Otana, June 1967.

8The estimates for agriculture are especially tentative because
farming relies very heavily upon members of the farm operator's family
as a source of labor in Eastern Quebec. A more relevant measure of the
relative importance of specific sectors of economic activity in the
regional economy would be the proportion of total income generated in
each sector. Unfortunately, reliable data on only a few sectors of eco-
nomiq activity are available.

bSome sectors of economic activity hire workers for only a few
months in a year. As a matter of fact, the number of persons employed
in all sectors, with the possible exception of some activities in the
service sector, fluctuates heavily over the year in the region. Since
primary activities are more seasonal than others in the region, it must
be emphasized that this table probably overestimates the importance of
primary activities. These data are thus very crude indicators of the
relative importance of specific sectors of economic activity in the region.

4
studies only the group of programs advocated for increasing the produc-
tivity and profitability of dairy farming enterprises in the region.
Some alternative dairy development strategies are also evaluated.

Importance

Dairy farming is presently an important source of income for a
large portion of the rural population in Eastern Quebec. Sales of dairy
products accounted for about 50 per cent of gross farm income in the re-
gion in 1966. Evidence indicates;however that a large majority of the
people involved in dairy farming in the area barely earn a subsistence
income despite the fact that dairying is heavily subsidized.

The planners' stated objective for the dairy farming industry is
to increase productive efficiency. In order to achieve this objective
they propose two general groups of programs. The first group of programs
aims at creating exit opportunities for the people who want to discon-
tinue farming. The second group of programs aims at increasing supply
of adequate resources for the people who wish to further commit them-
selves to dairy farming. The planners believe that both groups of pro-
grams must be pursued simultaneously because of the limited prospects
of a larger market for regional milk production.

The planners'6 objective for the regional dairy farming industry
is one over which reasonable individuals may disagree. This disser-

tation intends to present evidence as to whether or not the policies

 

6Henceforth we shall use the term "planners" to mean the group of
researchers who participated in the planning effort conducted in Eastern
Quebec from 196? to 1966. the term "plan" to mean the policy recommen-
dations that they advocated and the term "region" to specifically refer
to Eastern Quebec.

5
proposed are likely to achieve increased productive efficiency rather
than to directly Challenge the objective itself. What is not known yet is
the following: Do the benefits to be generated by the proposed dairy develop-
ment strategies in the area justify the costs of these actions? If not,
are there alternative strategies that can be justified on that basis? These
questions cannot be appropriately answered without sound empirical evidence
on the expected impact.of various projects on farm income.

Planners have not yet fully explored the likely impact of their
policy recommendations within benefit-cost or other appropriate analy-
tical framework. The reasons which might explain this situation are not
altogether clear. There is some evidence indicating that the ARDA authori-
ties failed to supply the planners with guidelines for project appraisal.7
Benefit-cost accounting was made a requirement for approval of projects by
ARDA only after the development plan for Eastern Quebec had been completed.

The thrust of this thesis is to show that reasonable estimates of
the likely impact of alternative dairy development strategies on dairy
farmers' income can be obtained. These estimates are essential to provide
basic data for an economic appraisal of the various projects.

Objectives

The specific objectives of the study are the following:

1) to review the general regional problem situation and set

forth the nature of the regional planning effort undertaken;

2) to determine the most important difficulties currently faced

by the regional dairy industry;

 

7Hadley Van Vliet, op. cit., p. 1216

6
in the regional plan for solving the problems of the dairy
farming industry;

4) to present evidence on regional dairymen's expressed prefer-
ences regarding the pelicy alternatives considered in this study.
These policy alternatives include (a) the establishment of special-
ized dairy replacement stock farms, (b) improved feeding practices,
and (c) farm consolidation and community pasture programs.

Oiher alflérnanives considered are (d) subsidizing replacement purchases
and (e) artificial insemination.

5) to determine which set of policy atternatives might most contribute
to increasing the income of representative dairy farming enter-
prises;

6) to indicate how the findings generated in this study might be
used to develop an extensive benefit-cost analysis of alter-
native dairy development programs.

Methodology and Source of Information
The model used in the analysis is based on a simulation technique
developed by Robert F. Hutton.8 It is a general purpose model designed
tosimulate the performance of a synthesized dairy enterprise under expe-
rimental conditions. The model is particularly useful for projecting changes
in profitability and productivity of a dairy enterprise associated with va-
riations in herd size, feeding rations,rep1acement practices, cost of feed

and price of milk. .A detailed description of the structure of the model

 

8Robert F. Hutton, A Simulation Technique for Making Management
Decisions in Dairy FarmingzNarrative, Flow Chart and Computer Code Descrip-
tion, Agricultural Economics Report No. 87, U.S. Department of Agriculture,
Economic Research Service, February, 1966.

will be presented later in the study.

This study focuses on a limited number of alternative dairy develop-
ment strategies for improving the performance of the regional dairy farming
industry. The model is used to simulate two synthesized dairy farms under
the conditions which might prevail in the rggion under the various policy
alternatives considered. In this study two main criteria are used to
evaluate the likely consequences of the regional dairy development stra-
tegies at the farm level. They are the net cash income per year of the
dairy enterprise and the average production per cow per year. The model
is used to project these performance criteria under alternative dairy herd
improvement and/or feeding practices. The measured contributions of res-
pective dairy development programs to the increases innnetccaSh income‘from
dairying and in average yearly milk production per cow is then presented
as a guideline for comparing the policy alternatives considered. 3

Mbst of the information used in this study comes from two sources.
The first consists of the regional planning documents dealing with the
agricultural sector and their supporting studies.9 The second source

consists of primary data obtained from a sample survey which was undertaken

 

9Development Plan for the Pilot Region: Lower St.Lawrence,;Gaspe
and Iles-de-la-Madeleine, A Summary, by Bureau d'Aménagement de l'Est
du Quebec, and Rural Development Branch, Department of Forestry and
Rural Development, Ottawa, June, 1967.

Esquisse du Plan: 1'Agricu1ture, published and edited by the Bureau
d'Aménagement de l'Est du Quebec, 1967.

Plan de Dgygloppement. Région Pilote: Bas St-Laurenty,Gaspgsie et
Iles-de-la-Madeleine, Chapitre II, "Objectif de Modernisation des Sec-
teurs de Base Traditionnels, Deuxiéme Partie: Le Secteur de 1'Agricu1ture,"
Cahier' 3, published and edited by the Bureau d'Aménagement de l'Est du
Quebec, June, 1966.

8
for this research project.10 Many othersources of information are also
drawn en in documenting the current problem situation faced by the regional

dairy industry.11

 

10Henceforth, the survey will be referred to as Eastern Quebec
Dairy Farms Survey, 1969.

11Numerous quoted from French documents are presented in this study.
Theirtranslation is mine.

PART 1

Regional Planning in Canada: The Case
of Easterngguebec

CHAPTER II
EMERGENCE OF ECONOMIC PLANNING IN CANADA

Government policies to offset regional agricultural disadvantages
span the history of Canada. Federal policies directedtboaptieeuand
income support, crop-failure assistance, and many other agricultural
policies formed part of the measures used for promoting agricultural
development through the post-Confederation period (from 1867 on).
Combining with various provincial programs more or less oriented towards
agriculture, they provided a broad overlay of rural welfare measures
which eventually became major components of the current general agri-
cultural policy in Canada.

Those measures have apparently failed to eradicate the generalized
hard-core poverty problem that still subsists in many rural areas in
Canada. In the early 1960's legislators were prone to believe that eco-
nomic planning within a regional framework might succeed where general
policies had failed. This belief was instrumental in leading to the
Eastern Quebec pilot planning study, the first major attempt on the part
of the Canadian Federal Government to search for special solutions to

the economic and social problems of a severely depressed area.

10
The Meaning of Development Plannigg

The regional development plan for Eastern Quebec can first be
examined by observing the underlying concepts conveyed by economic
planning and by describing the conditions that surrounded its emergence
in Canada.

The many definitions of development planning stem from the very
fact that both development and planning mean different things to dif-
ferent people. For instance, if one were to agree with Myrdal's conten-
tion that "the movement of the whole social system upwards is what all
of us in fact mean by development,"1 and define planning as the "coor-
dination of policies in order to attain and speed up development,"2 he
could then argue that almost every country of the world is presently
planning the path of her development. If, on the other hand, one were
to adopt a more pragmatic point of view, he might agree with Stolper's
proposition that "the actual planning problem consists of mobilizing
and allocating resources for growth in the best manner that time and
circumstances permit."3

For the purposes of this study, development planning means syste-
matic and coordinated research undertaken either for or by public decision-
makers in order to find a set of strategies that are likely to contribute

the most to whatever economic and social objectives a country is striving

 

I 1Gunnar Myrdal, Asian Drama: An Enquiry into the Poverty of Nations
(New York: Pantheon, 1968), vol. 111, p. 1869.

21bid., p. 1864
3Wolfgang F. Stolper, Eganning Without Factsnyessons in Resource

Allocation frgm Nigeria's Development (Cambridge, Mass.: Harvard University
Press, 1967), p. 52.

11
for. The set of strategies may include both private and public invest-
mentnprojects, changes in public regulations, creation of new institu-
tions and/or changes in the functions of on-going institutions, and
much more. The way in which the research.im.conducted may or may not
involve those people on whose initiative the implementation of a plan
is likely to rest. The expression "likely to contribute" was purposedly
introduce in the definition to point out that--in Lewis's words--"a plan
is essentially a set of guesses about the future, since the assignment
of priorities requires uncertain estimates of likely results, benefits
and costs."4
On the Role of Planning

The role of planning cannot be discussed in the abstract. In market
economies, the role of planning for higher productivity in the private
sector lies in finding a set of strategies which will most likely induce
private persons to employ their time and resources more productively, given
that the set of strategies is consistent with (l) the objectives of the
society, (2) the quantity of resources and the amount of time available
to implement these strategies, and (3) the specific interest of that
part of the society which will most directly be affected by the set of
strategies.

There is no standard list of the ways and means whereby a govern-

ment can contribute to raising the rate of growth in the private sector

 

4W. Arthur Lewis, Development Planning, The Essentials of Economic
Policy? (New York: Harper and Row, l966),p. 25.

 

"a...“

12

of an economy. In this study, the role of planning is defined to include

a combination to the following elements:

1)

2)

3)

4)

5)

6)

Exploring and assessing alternative objectives set out by
public decision-makers and others in order to find out which
of these objectives are consistent and can be achieved by

the appropriately defined aggregate unit of a nation;
Developing alternative sets of strategies which are consistent
with the chosen objectives and which are most likely to induce
the desired growth in the private and public sectors of the
economy;

Seeking information and analytical methods which are approp-
riate for evaluating the relative merit of alternative sets

of strategies;

Setting forth specific projects and programs to carry out
chosen sets of strategies;

Presenting decision-makers and the public with sound estimates
of the total economic and social impact for each alternative
set of strategies; and finally,

Estimating the commitments of public and private funds that

each alternative set of strategies entails.5

These elements, viewed singularly or in combinations, are most

commonly used in defining the role of economic planning in market eco-

nomies.

Whether or not more is expected from economic planning (such as

rationing a commodity during a war period) seems to depend upon (1) the

 

5More specific elements which fit into these categories can be found
in W. Arthur Lewis, op. cit., p. 22.

13
system of values held by a society, (2) the relative size of the public
sector as compared to the private sector, (3) the nature and the degree
of suddenness of problematic situations, (4) the status of the planning
group in regard to other gobernment agencies and (5) the means of
government intervention which are constitutionally recognized at a
point in time.
Planning in Canada
Planning in Canada is in its early infancy. In the 1950's the
need for greater coordination of public policies affecting the growth
of the Canadian economy began to be expressed in both the political and
the academic circles.6 Many people felt that one of the major problems
that the Federal Government and the provincial governments would have
.to focus upon in the 1960' was that of significant income disparities
between provinces and between areas within provinces. It was also felt
that the general front of Canadian welfare policy originating in the

late 1940's had contributed little more than temporary alleviation to

 

6The need for coordination of Canadian agricultural policies has

recently been stressed by McCalla, in whose opinion "A conglomeration
of quasi-independent policies, without a broader set of coordinated
objectives makes the adjustment of Canadian agriculture to changing
market situations particularly difficult." See Alex F. McCalla, "A
Review and Appraisal of Agricultural Policies in Canada," published

in Agricultural Policy (Proceedings), Thirteenth Annual WOrkshop,
Canadian Agricultural Economics Society, June 19-21, 1968, University
of Guelph.

14
a self-perpetuating problem and that the costs of solving social prob-
lems through welfare measures had been increasing too rapidly.7

The changes in public policy orientation were slow to come.8 It
appears however, from the few changes that took place in the early 1960's,
that most levels of government in Canada are committing themselves to a
modest attempt to sobfie the problems of income disparities on an area
basis. This approach is apparently based on the value judgment that the
various regions of the country should be expected to share in the growth
in total output and income of the nation as a whole. It is also based on
the belief that it might be easier to achieve a coordination of economic
policies on a local basis than at higher levels of decision-making.

The surging commitment on the part of public decision-makers to
search for solutions to the income disparity problem on an area basis
gave rise to three main difficulties. On the one hand, the concept of
economic regions--differing from political district boundaries--could
not be readily defined in unequivocal terms. On the other hand a
choice had to be made between the objective of maximizing the rate of
growth of output and productivity for the benefit of a region without
regard for the impact of its development on that of other regions and
that of securing an appropriate balance in economic development among

the various regions which, at the same time, would be consistent with

 

7H. Van Vliet argues that the Canadian concept of welfare policy
reflects "the broader concepts of social welfare stimulated by European
precedents, especially U.K. implementation of the cradle-to-the-grave
philosophy of social security." See H. Van Vliet, op. cit., p. 1210.

8Van Vliet, op. cit., p. 1224, argues that "The commitment to the
effort, in terms of both resources and concern, suggest that the war on
poverty has scarcely been joined in Canada." -

15

the economic and social objectives of the country as a whole. The
assumption underlying this discussion is that the growth rate of income
recorded at the-n'a‘tiionall level is itself related to the nature of the
interregional distribution. The exact nature of this relationship is
a subject of controversy in Canada. The differences in viewpoint among
economists and policy decision-makers appears to hinge heavily upon
their appraisal of the degree of effectiveness in the organization and
functioning of market forces. Not enough evidence is yet available to
clearly determine whether or not the serious interregional disparities
of income in Canada are significantly related to imperfections in
operating market forces.9

The third major difficulty has to do with the present conflict
of jurisdiction! between levels of government in Canada. This last
issue is briefly elaborated in the following paragraphs.

According to W.M; Nicholls, "Research in the national interest
is a responsibility of the federal government" in Canada.10 However,
any casual observer of the policital evolution of Canada over the last

decade might admit that not everybody agrees over what does or should

 

9Further research on this issue is needed. Someipcoplefhéfiawe
that operating market forces have not been so effective as to produce
a significant convergence in the degree of interregional income differ-
ences in Canada. Factual evidence confirming this belief is, however,
at most cursory. See S.E. Chernick, Interregional Disparities in In-
come (Queen's Printer, Ottawa, Canada), Staff Study No. 14, prepared
for the Economic Council of Canada, August, 1966, p. 66.

10William M. Nicholls, Views on Rural Development in Canada (Queen's
Printer, Ottawa, Canada), Special Study No. 1, prepared for the Canadian
Council on Rural Development, 1967, p. 125.

l6
constitute the national interest. The very challenge of the concept
of national interest in Canada has been detrimental to the status of
planning at all levels of government. The recent explosion of advisory
groups (most of which are called Councils) serving specific levels of
government“ reflects a need for coordination of economic and social
policies in Canada.

The regional development programs which have already been under-
taken in Canada cannot be fitted within a national or even a provincial
planning framework. The question whether Canada needs a more formal
economic planning structure is beyond the scope of this research. Lat
it be sufficient to point out that the issue of rural poverty in Canada
has been instrumental in giving rise to regional development programs.

The Need for UsingiProject Appraisal
Criteria in Canada

 

The question whether income redistribution to the benefit of a

region such as Eastern Quebec should constitute an important objective

in Canada cannot be answered by any scientific method. This is because
the answer involves a series of value judgments with moral and ethical
ramifications. However, the recognition of an important social objective
as a policy goal must not preclude the simultaneous recognition of the
economic costs and benefits. For instance, any government agency aware
that a given set of strategies might contribute more than another set

of programs to increase the well-being of dairy farmers in Eastern Quebec,

17
for a given cost, could be rightfully blamed if it proceeded to choose
the latter set of strategies.

The importance of sound economics has been frequently emphasized
in public statements by leading representatives of various government
agencies in Canada. Yet evidence indicatestthattfihe~valuable tool of
benefit-cost accounting has played a veryylimited role in government
investments until quite recently. This evidence was presented by
various authors whose conclusions sustain the following comments by
Buckley and Tihanyi:

ARDA at least made some beginning in working out the methods of

more rigorously applied benefit-cost principles.......Yet, in

every day ARDA operations, statements of benefits in the most
rudimentary terms are apparently acceptable as a basis for
evaluating the merits of project sponsored from ARDA funds.

There are several reasons for believing that benefit-cost account-
ing studies are necessary for sound economic planning and that such
studied need to be conducted at the policy formulation stage. The
first general reason is that the benefit-cost analysis framework forces
the planners to think in terms of alternative projects competing for
scarce resources and to take a hard look at the possible outcomes of
alternative strategies. The second general reason is that screening
projects at the implementation stage may be too late in those cases
where the research planning effort has created a momentun for new expec-

tations regarding government policies. Much public controversy may be

avoided by screening projects at the policy formulation stage itself.

_

11Helen Buckley and Eva Tihanyi, o . cit., p. 21

18
Methods for Valuing Alternative Development Projects
Two methods of benefit-cost analysis are commonly used to appraise
(dearelopment projects. The first method which is often referred to as
fiJnancial analysts examines the private profitability of a given project.
Arunual benefits, estimated on the basis of monetary revenues and costs
acuzruing to the private entrepreneurs, are related to the amount of
capital invested. The second method, usually called economic benefit-
cnast analysis, has been defined in the following terms:
Cost-benefit analysis is a practical way of assessing the desir-
ability of projects, where it is important to take a long view
(in the sense of looking at repercussions in the further, as
well as the nearer, future) and a wide view (in the sense of
allowing for side-effetts of many kinds on many persons, indus-
tries, and regions, etc.) i.e., it implies the enumeration and
evaluation of all relevant costs and benefits.12
There are three major conceptual differences between the private
Prwxfitability criterion of financial analysis and the real profitability
curiterion of economic cost-benefit analysis. These differences are the
f011owing:
1. Economic analysis recognizes that the contribution of a
project or a group of projects to the growth of the economy
is a indirect as well as direct. The direct effects consist
of the immediate contributions to production. The indirect

effects are those generated by the project or group of pro-

jects in all other sectors linked to the project.

12H.R. Prest, and R. Turvey, "Cost-Benefit Analysis: A Survey,"
The Economic Journal, vol. LXXV, no. 300, December, 1965, p. 683.

 

l9

2. Economic analysis is not conceptually restricted to the use
of actual prices as measures of economic value. Prices
adjusted to reflect true opportunity costs to the economy are
used when one, two or all three following circumstances prevail:
a) some resources of the economy are not fully utilized;

b) production under decreasing cost functions--which can be
attributed to indivisibilities either in input or output
industries-~characterized one or some of the sectors
affected by the project; and/or

c) market imperfections of different kinds exit in the
economy.

3. Economic analysis relates benefits not exclusively to the
private capital invested but rather to the sum total of annual
costs which include both capital and project operation costs
over time.

Financial Analysis as a Step in
Benefit-Cost Accounting

Since private entrepreneurs normally respond to the monetary
Ireturns accruing to them rather than to the economic returns--measured
21n.terms of opportunity costs-accruing to the total economy, it must
1>e emphasized that the economic benefit-cost analysis is not a substitute

for financial analysis when the use of shadow prices is justified.13

g

13This argument may be clarified by an example. Suppose that a
dairy development project proposed in Eastern Quebec was shown to have
an economic benefit-cost ratio significantly higher than one but that
hired labor was appropriately valued at zero cost. The important question
is the following: Does the benefit-cost ratio imply that the dairy
farmers will get enough benefits from the project to make a positive

20

The logic of this argument suggests that planners must be concerned with
both the financial and the economic criteria for project appraisal if
there are valid reasons to believe that the use of shadow prices is
needed for computing the economic criterion.

The analytical part of this study is restricted to estimating
the relative merit of alternative development strategies for increasing
the well-being of dairy farmers in the regional economy of Eastern
Quebec. The financial analysis criterion is therefore used. There are
valid reasons to believe, however, that the current market price for
some important factors of production might differ from their real oppor-
tunity costs in alternative uses in the regional agriculture. Evidence

on these possible differences is presented in the following chapters.

Agpicultural Planning in a Canadian Perspective
Planning is a concerted and coordinated development effort.

Whether or not planning for agricultural development can be viewed as

a major subset of general planning depends upon the relative importance
of agriculture in the total problem situation. It might also depend

in practice. upon (1) the way in which the public institutions servicing
agriculture (including the Ministry of Agriculture) define their con-
stituency and (2) the willingness of these institutions to participate

into a concerted effort at either the national or the regional level.

 

response to it? The answer is "not necessarily" because the dairy farmers
are preoccupied not by the real value of the hired worker in alternative
use but rather by the wage rate that they must pay in order to hire

labor services. Rationality on the part of the dairy farmer must there-
fore be measured in terms of his financial costs and returns.

21

The early regional development efforts undertaken in Canada were
directed primarily to land-use conversion and resource-oriented forms
of agricultural development. There was a tendency on the part of the
researchers who participated in these studies to pay little attention
to the growing interdependence between agriculture and the nonfarm
sectors and to disregard the relative importance of nonfarming activities
in rural areas. However, a significant shift in emphasis began to take
place in the early 1960‘s partly as a result of a revision in the ARDA
legislation. It was thought that government funds allocated to planning
research would probably provide a substantially more significant impact
on disadvantaged rural areas if research were carried more strongly to
encompass structural readjustments of agriculture and the broader
development of nonagricultural phases of rural economy.

Agricultural economists were particularly affected by this change
in program focus. Those who participated in the early efforts mostly
as farm management specialists are now required not only to contribute
to an understanding of resource adjustments at the farm level but also
to suggest means for strengthening the interdependence between agricul-
tural and nonagricultural sectors in depressed rural areas.

The essential newness and as yet limited extension of the above
emphasis precludes definitive assessment of the future importance of
agricultural planning in Canada. However, there are some reasons for
believing (1) that there will probably be a substantial increase in
the demand for agricultural planners in Canada, and (2) that agricultural
economists will be asked to perform as members of planning teams concerned

with a broad array of problems, including the potential contribution of.

22
the agricultural industry to the future development of depressed rural
areas.

The regional approach to development planning that has begun to
emerge in Canada during the last decade can be theoretically connected
with what V. Ruttan has called "the industrial impact hypothesis."14
The industrial impact hypothesis postulates that economic development
tends to occur more rapidly in specific locational matrices which are
primarily industrial-urban in composition and that certain agricultural
areas of a country appear to benefit more from their favorable location
in relation to such centers than other agricultural areas located at
the periphery of these centers. Discussing the theoretical as well as
the practical implications of this hypothesis for regional planning in
Canada is beyond the scope of this study. It must be emfliasized how-
ever that an agricultural planning approach relying heavily upon that
hypothesis might lead to disregarding an important factor, namely the
ability of a region to export agricultural commodities for which it
has comparative advantage. It is notan overstatement to suggest that

agricultural economists with sound expertise in agricultural market

 

14Vernon Ruttan, "Growth Stage Theories and Agricultural Develop-
ment Policy," The Australian Journal of Agricultural Economics, vol.IX,
no. 1, 1965, p. 23. This general hypothesis has many proponents. In
North America its major proponent has been T.W. Schultz who expressed
it in the form of three tentative statements concerning the ways in
‘which economic development appears to propagate itself over a country's
geographical space. See T.W. Schultz, The Economic Organization of
Agriculture (New York, Toronto, London, McGraw-Hill Book Company, Inc.),
1953, p. 147. Other proponents' views are summarized in Bela Balassa,
The Theory of Economic Integration (Homewood: Richard D. Irwin, Inc.,
1961), pp. 193-98.

23

analysis might have much to contribute to regional planning in Canada.
Their absence might otherwise lead to a serious aggravation of the
agricultural surplus problems that have plagued Canadian agriculture
for the last decade.

Economic planning is essentially a team effort. The nature of
the regional income disparity problems currently existing in Canada
indicates that the demand for agricultural economists with some exper-
tise in planning might substantially increase in this country in the
foreseeable future. The nature of the planning approach which has been
brought to bear on these problems in turn indicates that agricultural
economists will be expected to work in close<:ooperation with.specialists
in other disciplines.

Summary

The inroads so far made into the complex problem of rural poverty
in Canada represent a bare beginning. Canada has just begun an approach
to the problem of income distribution within its lagging rural areas
aftermany years of concentration on the income distribution problem
between agriculture and other sectors of the economy. The program
activities undertaken so far reflect a serious lack of a basic theory
of area and regional economy as viewed within the national perspective.
Their effectiveness has been partly dissipated by failure to approp—
riately evaluate the payoff accruing to alternative uses of public funds
for alleviating rural poverty.

This points out the need for concerted and coordinated efforts

where stringent project appraisal criteria are applied for screening

24
alternative development strategies. The relative importance of agri-
culture in the poverty areas of Canada suggests that the expertise of
agricultural economists might be in greater demand in the foreseeable
future. Their expected contributions may need to shift somewhat from
farm management research to macro supply and demand analysis. However,
the expertise of farm management specialists will continue to be needed
for finding effective ways and means of implementing agricultural devel-
opment strategies, particularly with regard to the incentives which
farmers need in order to change their farming methods and production

patterns in desirable directions.15

 

15The ways in which farm management specialists might substantially
contribute to planning for agricultural development are explored in
detail in Rainer Schickele, Farm Managgment Research for Planning
Agricultural Development (New York: Agricultural Development Council,
ADC Reprint, December, 1966).

CHAPTER III
THE GENERAL PLANNING PROBLEMS AND OBJECTIVES
IN EASTERN QUEBEC

This chapter gives an overall view of the recent changes that
were wrought into the social and economic organization of Eastern
Quebec. Special emphasis is laid upon the economic situation of the
agricultural sector. This information is presented as a background
for understanding the general objectives that were set forth in the
regional development plan.

Definition of the Region

To study the social and economic problems currently faced by

the population of Eastern Quebec, let us first circumscribe the region
and examine its recent economic and social evolution. The Eastern k
Quebec region comprises the following nine counties: Riviére-du-Loup,
Témiscouata, Rimouski, Matane, Matapédia, Bonaventure, Gaspe-North,
Gaspe-South and Iles-de-la-Madeleine. The area, with the exception of
Iles-de-la-Madeleine county, is bounded on the south by the province
of New Brunswick and on the North by the St.Lawrence River (Figure l).
Iles-de-la-Madeleine, located 120 miles away from the mainland eastern
boundary of the territory, is recognized to share very little economic
complementarity with the mainland area of Eastern Quebec. Moreover,

this county has been treated as separate geographical entity in the

25

26

 

 

    

  
  
 
 

I T I I l I
qt t-I-flm‘ 61100 O
49- L- River J ‘9
2.3-3: 4811 '

 

 
 
 
 
 
 

IfsQe—ln

11.61610 0

Scale in miles”
0 5
1—————1

 

 

 

 

 

 

‘091
.f‘ .00' d
U 0”
\‘o. I ..

   

Province of
Quebec

 

 

  

 

 

Figure 1.

Map Showing the Bantu-‘1 Quebec iiu{_-,'C.'.~'.}Il.

 

 

 

27
development plan. Therefore, for the purposes of this study the Eastern
Quebec region excludes Iles-de-la-Madeleine county.
The Human Resources

The population of Eastern Quebec increased at a decreasing rate
from 1901 until about 1961, when it started to decrease in absolute
terms (Table 2). An important exception to this trend occured between
1931 and 1941, when the population of the area increased by 23 per cent.
Althoggh no precise estimates can be obtained, cursory evidence indi-
cates that this exceptional diversion from the long-run trend can be
partly attributed to the so-called "retour a la terre"(back-to-the-farm)
movement which took place in Quebec during the depression period and
its aftermath. An interesting study has shown that the characteristics
of the farms located in the rural towns incorporated before 1931 dif-
fered substantially from that of the farms established in towns incor-
porated after 1931.1 The first farm settlers were apparently apt at
selecting the most ecologically suitable soils while the wave of would-
be farmers of the 1930's apparently had to settle on types of soils
generally less suitable for agriculture.

A peculiar characteristic of the region is the relatively high
proportion of the population classified as rural non-farm. The rural

farm population decreased by almost 50 perrrcan't between 1951 and 1966

 

1Yves Dubé and Jean-Marie Martin, Problemes de 1*Agriculture dans
la Région du Bas Saint-Laurent (published and edited by the Département
des Sciences Sociales de L'Université Laval, Quebec City, Canada), Le
Conseil d'Orientation Economique du Bas Saint-Laurent, Quebec, 1963,
pp. 81-106.

28
while the rural non-farm population did not start to decrease until
around 1961 (Table 2). Part of this phenomenon can be attributed to
the change of definition of a census farm between 1951 and 1961.2
However, adding up rural farm and rural non-farm population eliminated
this conceptual inconsistency. The joint estimate indicates that the
absolute importance of these two groups has been slowly eroded but
their relative proportion of the total population was still 62.7 per
cent in 1966.
The Natural Resources

The region is typically rural. The activities of the people in
the area were almost exclusively centered on the use and transformation
of natural resources until around 1900. They still.are, to ajvery
significant extent. These resources have been described in the fol-
lowing terms:

An unexplored underground, marginal farm lands, a limited forest,

a limited stock of cheap fish species and a touristic potential

which, up to now, has not been put into advantages. The situation

is aggravated by the fact that this real but marginal reservoir

of natural resources does not support an adequate industrial

sector. At the present time, there are only a few important

industries in the territory, and out of five hundred and sixty-

one industries, four hundred employ less than fifteen people

each.3

For the purposes of this study attention is concentrated on the

resources of the agricultural sector. Various technical studies which

 

2See footnote "a" of Table 2, for the definitions of urban, rural
non-farm and rural farm population.

3Francois Poulin, "The Planning of Regional Development: Eastern
Quebec," Canadian Journal of Agricultural Economics, vol. XIV, no. 1,
1966, pp. 7-8.

29

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30
were made in the agricultural areas of the region appear to support
the following generalizations. The region's cool climate and abundant
water supply make it well-suited for growing grass. Grains and par-
ticularly oats appear to grow equally well. Because of the abundance
of weeds cereals are mostly grown as shelter and forage crops. Cereals
grown for grain, however,_are mostly limited to coastal areas where
the sea moderates the climate. The humidity which tends to favour
growing of forage crops also poses a serious problem for their storage.
The ecological conditions of the region make it difficult to dry hay
in the field while maintaining good quality in storage. The climate
of the region is alSo suited to produce a few vegetable and fruit crops,
especially potatoes.

The region can be meaningfully divided into five agricultural
zones where the climate, the type of soils and the topography are
unequally favorable to the development of a viable farming industry
(Figure 2). The physical characteristics of these zones can be described
as follows:

1. Zone A. Comprising less than 25 per cent of the settled area
of the region, this zone is considered the most ecologically
favourable to the development of the farming industry. It
is suitable for growing cereals and for harvesting two crops
of hay per year. Out of the 11,314 farms recorded in the
region in 1961, 3,796 were located in this zone.

2. gppg_§. This zone has proportionately less cleared arable

land than zone A. Its arable soils are also of inferior

31

 

 

      

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32
quality. The climate is more rigorous and cereal growing is
'more hazardous in zone B than in zone A. Some 3,193 farms
were located in that zone in 1961.

3. Zone C. This zone has only 16 pervcent of the region's
cleared arable land but its soils are particularly well-
suited for agriculture. However, the climate is more rigorous
than zone B. Cereals cannot be grown except as a nurse crop
to be harvested as fodder and only one cut of hay per year
is possible. Some 2,088 farms were recorded for this zone
1961.

4. Zone D. This is the most disadvantaged of the region's agri-
cultural zones. Its cleared arable land is stony and poorly
drained. The climate is unsuitable for cereals. Some 1,185
farms were located in this zone in 1961.

5. Zone E. Despite the fact that it is considered ecologically
unsuitable for any agricultural crop, this zone had 1,052
farms in 1961. These farms were mostly subsistence and part-
time farming operations.4

The technical difficulties associated with farming activities in

Eastern Quebec appear to increase significantly as one goes from zone A
to zone E. On the one hand, the rate of disappearance of farm opera-
tions has recently been more rapid in zones C, D and E than in zones A

and B (Table 3). On the other hand, commercial farms are now substantially

 

4Factual information on these physical characteristics of the
region was drawn from "Development Plan for the Pilot Region: Lower
St.Lawrence, Gaspé and Iles-de-la-Madeleine, A. Summary," op. cit.,
pp. 46-500

 

‘JL

33

more numerous in zones A and B than in the other zones (Table 4).5

As a matter of fact, about one farm operation out of two was a commer-
cial farm in zone A, one out of three in zone B, one out of four in
zone C and only one out of six in zones D and E, in 1966.
Major Resource Problems in Agriculture

Eastern Quebec is considered as one of the most economically
depressed areas of Canada. While the use of average measures has its
limitations, some comparisons between the Province of Quebec as a
whole and the region of Eastern Quebec might illustrate the nature and
extent of the problem situation which was faced by the planners. For
example:

1. Personnel disposable annual income per capita has been roughly
estimated at $ 606 in Bonaventure, $ 643 in Gaspé (Gaspe-East
and West), $ 647 in Matane and Matapédia, $ 693 in Riviére-du-
Loup and Témiscouata and $ 800 in Rimouski, as compared a)
$ 1217 for the Province as a whole in 1961. The comparable
figure for the populous region of Mentreal was $ 1444 per
capita in the same year.6

2. Transfer payments accounted for $ 58 million (or 27 per cent)

of a total disposable income of approximately $ 220 million

 

5For census purposes, commercial farms are defined as agricultural
holdings of one or more acres with a value of agricultural products,
in the 12 months prior to the census, of $ 2,500 or more (excluding
institutional farms).

6Gerard Vibien, Répartition Régionale du Revenu Personnel au
Qpébec,ol96l, Plannificationcfi: Développement Regional, Serie II Rapport
dUXnalyse, Cahier II/3, Published by the Conseil d'Orientation Economique
du Quebec, Quebec, November, 1967, p. 122.

 

in;

34

TABLE 3. Number of Farms Per Zone, and Rate of Disappearance of Farms,
1961 to 1966.

m

 

 

 

Zones Number of Farms 1966-1961 X 100
1961 1966 1961
(per cent)

A 3,796 3,122 -l7.8
B 3,193 2,540 -20.5
C 2,088 1,530 -26.7
D and E 2,237 1,714 -23.4
Total 11,314 8,906 -21.3

 

Source: 1966 Census of Canada: Agriculture, Quebec, Catalogue No. 96-606,
Dominion Bureau of Statistics, Ottawa, Canada, February, 1968.

3Farm operations were allocated by zones according to the list of muni-
cipalities specified in "Plan de Développement," Cahier 3, op. cit.
pp. 64-71.

TABLE 4. Total Number of Farms and Number of Commercial Farms Per

 

 

 

 

 

Zone, 1966.
Zones Number of Farms 1966 Commercial X 100
Total Commercial Total
(per cent)

A 3,122 1,435 46.0

B 2,540 997 39.3

C 1,530 391 25.6

D and E ;,1;3 ,__g§§ 16.6

Total 8,906 3,108 34.9

 

ww—

Source: Same as Table 3.

aSame remark as in Table 3

35
recorded for Eastern Quebec in 1961.7 The comparable figure
for the Province of Quebec as a whole was 13 per cent in
1961. It must also be pointed out that gdvernment financial
aid granted to agriculture in the region represented about

40 per cent of gross income from sales of farm products.8

3. Approximately 38 per cent of the labour force was engaged in
primary seasonal activities in Eastern Quebec in 1963, com-
pared to 15 per cent for the Province as a whole. Mbreover,
seasonal unemployment was considerable in the former area.

It has been estimated that approximately 35 per cent of the

wage earners in Eastern Quebec were unemployed for more than

six months in 1963.9

Although more precise data are not available for comparing

Eastern Quebec with other areas of Canada on a real income basis, these
indicators describe a regional economy which is seriously depressed.10
A discussion of the major social problems associated with low incomes
and high levels of unemployment in the region is beyond the scope of

this study.

 

7Ibid., p. 119.
8Francois Poulin, op. cit., p. 8.
9Ibid., p. 7

10Even if one makes adjustments for spatial price differences, the
income differences tend to remain large between regions of Canada.
Evidence on this matter can be found in S. E. Chernick, op. cit., pp.
47-51.

 

u~:.‘wa-'rc-'pr -

36
The main issue which is further explored in this study is the
following: What is the combination of economic forces which has led
to the general economic stagnation presently experienced in Eastern
Quebec? A possible answer to this question is suggested in the
following pages.
Problems Related to Migration Patterns
Perhaps the lack of natural resources alone does not suffice to
explain why poverty is such a serious problem in Eastern Quebec. Low
educational levels and disproportionafie presence of the least productive
population age groups may be important causal factors. Consider. for
example that: 5
1. Eastern Quebec attracted population from other areas of the
Province of Quebec during the early land settlement period
(1850-1900) and also during the depression and its aftermath
(1930-1940).
2. The natural rate of increase (birth rate minus death rate) in the
regional population was still as high as 15.5 per cent over the

period 1951-1956 as compared to a 11.6 per cent for the province

of Quebec as a whole over the same period.11

3. The level of education of the regional population was esti-
mated to be consistently and substantially less than the

provincial average.12

 

11Robert D. Hirsch, Gerard Vibien ahd Bernard Robert, L'Origine et
la Nature desyDgsiquilibres Régionaux au Quebec, Planification du Develop-
pement Regional, Sgrie II Rapport d'Analyse, Cahier ii/2, published by the
Conseil d'Orientation Economique du Québec, Québec, February, 1968, p. 73.

121b1d., p. 109

37

4. The net regional outmigration totalled 35,334 people between
1951 and 1961. Most of the people who left the region from
1951 to 1961 were between 15 and 44 years of age.13

5. The regional cities and towns have grown very slowly. Indeed
the regional population is presently distributed among 200
small localities located mostly along a 500-mile coast-line.
The ten most important towns in the region have a total popu-
lation of about 60,000 people or 20 per cent of the regional
population.

6. Selectivity of migration has apparently contributed to leave a
regional population which is seriously distorted in its age
distribution characteristics as compared to the rest of
province of Quebec (Table 5).

It may logically be hypothesized, on the basis of these facts,
that two long-run factors have been particularly defavorable to the
economic development of the region since 1940. The first factor has to
do with the increasing degree of selectivity in migration patterns.

The second factor consists of the apparent failure of low wage rates to
attract investments in the region. No one of these factors is unique to
Eastern Quebec. The combination of these factors, however, appears to
have been particularly effective in generating serious social and economic

problems in the region since about 1940.

 

13Ibid., pp. 75 and 80.

38

TABLE 5. Percentage Distribution of Population by Twenty-Year Age
Groups in Eastern Quebec and in all Other Areas of the
Province of Quebec, 1966.

 

 

 

 

 

 

 

 

Age Groups Proportion of Total Population in Specified Age Groops
Eastern Quebec All Other Areas of Quebec
(per cent) (per cent)
0-19 51.7 43.0
20-39 22.6 28.0
40-59 17.0 19.9
60 and over 8.7 9.1
100.0 100.0

 

Source: Compiled from 1966 Census of Canada (Ottawa, Dominion Bureau
of Statistics), Catalogue No. 92-610, vol. I (1-10), Population,
Age Groups, March, 1968.
Nature and Resource Problems of Agriculture
In the early 1960's, primary agricultural activities--that is

activities which can be directly associated with farming--absorbed about

16 per cent of total regional labour force of about 83,000 people.14 In
the meantime, census reports indicated that 65.6 per cent of the popu-
lation in Eastern Quebec, as defined herein, was nonurban by residence
(Table 2). The difference between these estimates indicates that a sub-
stantial proportion of the regional population earns a living in rural

activities that are not directly related to farming.15

 

14F. Poulin, op. cit., p. 1

15The number of people who live and work in the rural areas of the
region. is probably smaller than the number of people classified as non-
urban by residence.

39

The Importance of Dairying in the Region

The production of dairy commodities is the predominant source
of income from farming in the region. Milk sold on the market accounted
for 46.7 per cent of total farming income derived from the sales of
agricultural commodities in 1965 (Table 6). Moreover, the predominance
of dairy salvage in terms of the regional beef output leads to the con-
clusion that total regional marketings of cattle to yards and plants
are in the form of heifers, calves and culled cows.16 In addition the
proportion of total annual milk production which is fed to livestock
skim milk may be quite significant in Eastern Quebec. However no precise
estimate of the quantity of milk used as an input on own farms could be
obtained.

TABLE 6. Value of Agricultural Products Sold by Eastern Quebec Farmers,
by Groups of Products, 1965.

 

 

 

 

m w

Groups of Products Value Percentage for Specified Groups
($'000) (per cent)

Dairy products 10,131 46.7

Pigs 3,579 16.9

Cattle 3,196 14.7

Field crops 1,420 6.5

Forest produtts 1,283 5.9

Poultry Products 880 4 2

Others Cl,l91 5 5

All groups $ 21,688 100.0

 

Source: 1966 Census of Canada: Agriculture, Quebec, op. cit., Table 23,1
to 23.10.

 

16T.C. Kerr, An Economic Analysis of the Feed Freight AssiStance
Policy, published by the Agricultural Economics Research Council of
Canada, Ottawa, Canada, Publication No. 7, Spetember, 1966, pp. 103-05.

40

The general structure of regional farming includes the following

features:

1. In terms of income generated through the sales of agricultural

commodities, the dairy enterprise might, with very few

restrictions, be currently considered the mainstay of farming

in the region.

2. Dairy enterprises can be found on various types of farms.

17

The farms on which they are found have either one or a com-

bination of the following enterprises;

a) a
b) a
c) a
d) a
e) a

f) a

dairy enterprise;
combination of dairy-related crops;
swine enterprise;

forestry-related enterprise;18

chicken enterprise;

potato enterprise; and

g) other minor enterprises.

No data

are available for determining how many farms have a

given combination of these enterprises. However, census data

tend to

indicate that combinations a) and b) usually in con-

junction with c) and/or f) are most frequently found.

 

17There were 7,468 farm operators (out of a total of 8,906 census
farm operators) who reported cows potentially in lactation, in 1965.

18The forest occupies 14,000 of the 16,000 square miles of Eastern
Quebec. A minor fraction of this forest area extends on the border of
current farm areas. However forest-related enterprises appear to decrease
in importance as a source of farm income in the region.

41
3. The few farms which do not have dairy enterprises tend to have
smaller annual gross sales of agricultural products. Only
one census farm out of four did not report any sales of dairy
products in Eastern Quebec. in 1965. Moreover, 93.9 per cent
--or 2,162 out of 2,302 census farms-- of those farms sold less

than $2,500 of agricultural produCts in 1965 (Table 7).

TABLE 7. All Census Farms and Census Farms not Reporting Sale of Dairy
Products, Eastern Quebec, 1965.

 

Class of Sales All Census Farms Census Farms Not Reporting
Sales of Dairy Products

 

(value of sales) (number) (number)

$2,500 and more 3,108 140
50- 2499 24_7_8_2 2,163

TOTAL 8,890 2,302

 

Source: 1966 Census of Canada: Agriculture, Quebec, Catalogues No. 96-
636 and 96-606.

Evidence on Low Returns to Factors of Production in Regional Agriculture
The returns accruing to the factors of production committed to
farming are low. Yet nobody has been able to accurately estimate regional
net farm income.19 This is understandable since consistent data on farm

costs are not yet systematically collected in the region. However,

crude approximations made in this study indicate that very few farmers

 

19By net farm income we mean the residual income with which a farm
operator is left to remunerate his own labor, his capital and managerial
ability.

42

might earn their living from farming alone in Eastern Quebec (Table 8).

Farms might be appropriately classified into the fol-

lowing categories:

1.

Farms with the largestygrowth potentials. This category

might include those farms which reported sales of agricultural

products of more than $ 10,000. Table 8 indicates that there

were 174 such farms in Eastern Quebec in 1965. It is tenta-

tively suggested that these farms might possess some combina-

tions of the following characteristics:

a) operator's superior managerial ability;

b) favorable location vis-a-vis the regional urban markets;

c) enough capital and borrowing capacity to finance the
acquisition of additional resources;

d) operator devoting most of his work time to the farming
operation;

e) relatively high productivity.

Farms with restricted growthypotentials. This category might

comprise those farms which reported sales of agricultural

products of more than $ 5,000 and less than $ 10,000. Some 945

farms came under this category in 1965. The major barrier

faced by these farm operators might be that of getting hold of

additional funds to finance further growth. Furthermore, the

probability that these farmers will continue farming in

foreseeable future might be relatively high.

Farms without current growth potentials. This category con-

sists of those farms which reported between $ 2,500 and $5,000

43

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on nonnmo nonuo some wanuwmaoaaoo one momenn omonu gonna ou ucouxo may .menmm oEoocn newnma

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manned .odm: nosuo osu no .manmm oeoocn noHHmBm mo no>mm an wens m mopponunn on meson :oEooan non
anew Hmonuonnodhnz enameoo On mommmao Ham now uaoo non on an conumonamnuase any .onmn oco can :00

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.mmmao some now pom: :oEoodn mmonw some: «0 ucoo non om um woumEnummm

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an menmm mo nonanz oEoocH uoz nosuo uoz Hmonuonuomhm :oeoonH amono: mmono mo mango

 

.momH .oonono anoummm .oeoocH Bnmm uoz Hencc< mo mommmao an manmm mo nonanz .w wam<e

44
sales of agricultural products. Some 1,989 farms were in
this category in 1965. The probability that these farmers
will continue farming either as a full-time or a part-time
occupation will depend heavily upon the success of
the government policies in inducing a greater regional demand
for labor outside of farming. Most of these farmers are
likely to have sporadically entered the off-farm labor market
in the past. Their reluctance to give up farming might be
related to the fact that the nonagricultural activities offer
very few stable job opportunities in the region. Those farm
operators who want to continue farming will need considerable
help in setting up larger and more productive farming operations.

4. Farms without future growth potentials. This category includes

all those farms which reported less than $ 2,500 sales of agri-
cultural products (5,782 farms in 1965). Few of these farmers
are likely to consider that farming is their main occupation.
Furthermore, the disappearance of most of these farms can be
expected in a foreseeable future. Farm operators in this
category who will continue farming are probably people who
assign a high value to their rural type of living.

The fact that 7,771 farms or 87 per cent of all the farms in the
region are in the last two categories suggests that low level of profit-
ability is a major problem faced by a majority of the farm operators in
Eastern Quebec. The question which needs to be explored at this juncture
is the following: What are the main causes of such incomes in regional
farming? A possible answer to this question is presented in the following

section.

45

The Causes of the Low Income Problem
in Regional Agriculture

An addition to the limited supply of highly productive resources
which will be discussed later the regional farming industry shows three
characteristics which combine to "explain" the chronically low returns
accruing to some factors of production currently committed to farming.
These are (1) lack of growth of effective demand, (2) limited employment
opportunities outside farming, and (3) slow rate of adoption of modern
technology.

Lack of Growth of Effective Demand

EVidence indicates that three factors seriously militate« against
the farming industry of Eastern Quebec in the long-run. These factors
are the following:

1. Its farming industry is highly based upon dairying.

2. Its dairy processing industry is almost exclusively specialized

in butter production.20

3. The size of the regional population has recently started to

decrease (Table 2).

The first two factors imply that the regional farming industry was
particularly vulnerable to the consumption trend which has adversely
affected the Canadian dairy industry during the last decade. This
adverse trend has been documented by W. Mackenzie who argues the following:

One of the main problems of the dairy industry (in Canada) is

that per capita consumption of dairy products is falling about

as fast as population is growing, leaving little room for total
expansion of production. Ten years ago, in 1956, the consumption

 

20 Evidence on this characteristic will be presented in the fol-
lowing chapter.

46

per capita of dairy products was 1,029 lbs. per annum. By 1966,

the per capita consumption had fallen to 885 lbs. The main fac-

tors contributing to the fall are the declining consumption of

fluid milk and cream per capita and the falling consumption of

butter.... There is every reason to suppose that the decline

is likely to continue.21

In addition, the recent decrease in regional population directly
resulted in an adverse shift in the local demand function for milk
products as well as for other agricultural commodities which are pro-
duced and mainly consumed in the region. The other agricultural commodi-
ties of significant importance in the region are pigs, potatoes, chickens,

eggs and cattle most of which were cows (Table 6).

Limited Employment Opportunities
Outside of Farming

The general state of poverty which characterizes the regional
farming industry indicates that, in order to remain competitive, a
large proportion of the farmers in Eastern Quebec have been
willing to accept low remuneration for their own labor. This situation
may be ascribed to a host of factors contributing to depress the value
of their work outside of farming. Age, low level of education, high
costs of migration, psychological attachment to the region and stagnant
regional demand for nonagricultural workers are some of the factors
which contribute to the existence of agricultural labor with low

alternative opportunities.

 

21William Mackenzie, The Canadian Dairy Industpy, Rural Develop-
ment Branch, Canada Department of Forestry and Rural Development, ARDA
Project No. 15033, August, 1967, p. l

47
It is interesting to note that the population of the region
started to move out at an unprecedented rate between 1961 and 1966
(Table 2). Evidence indicates that this outflow of population was
partly generated by numerous employment opportunities which became

available in the North Shore area of Quebec during the same period.22

It may be hypothesized that these employment opportunities were par-
ticularly attractive to a large segment of the Eastern Quebec population
because the disadvantages due to low levels of education and costs of
migration were minimal in this particular instance.
Slow Rate of Adoption of Modern Technology

The introduction of modern agricultural technology has lagged
in Eastern Quebec as compared to other major farming areas of file
Province of Quebec.23 This lag can be partly explained by (1) the lack
of growth of effective demand for the agricultural commodities which
are produced in the region, (2) the relatively low opportunity cost of
agricultural labor and land in the region, (3) the nature of that teth-
nology which is either labor-saving (such as modern milking parlors) or
land-saving (such as fertilizers) and (4) the inability of farm opera-
tions in Eastern Quebec to generate funds which can be reinvested in

farming.

 

22The North Shore area of Quebec is bounded on the south by the
Eastern Quebec region. The economic development of this area was
mainly generated by the discovery of its rich iron ore deposits during
the 1950's.

23This statement will be documented in the following chapter.

48

This study submits that the slow rate of adoption of modern prac-
tices by the regional farmers has much to do with the current levels of
input and output currently faced by the people. This proposition
will be substantiated later in the study.

The Combined Effetts

The combined effects of limited agricultural resources, location
which is not particularly favorable with regard to the large national
urban markets, slow growth in effective demand for regional agricultural
commodities, limited employment opportunities outside of farming and
slow rate of adoption of modern technology resulted in an agricultural
economy which apparently needs new incentives to further contribute
to the economic development of the region. The interaction of these
characteristics suggests that economic events outside of agriculture
have had a considerable influence upon the extent and duration of the
lowiincome problem in regional agriculture.

Much of the controversy over the appropriate economic pelicy for
regional agriculture revolves around which of these characteristics can
be modified by public policy so as to provide new incentives for
development.

Planning Alternatives Considered by the
Bureau d'Aménagement de l'Est du Quebec

The nature of the problems which were encountered by the planners
in Eastern Quebec led them to consider three alternative economic

development strategies for the region. The first strategy consists

49

exclusively of economic incentives to encourage a further migration

from the region to the major urban centers of the province. The

second alternative revolves around measures which would induce an

increase in the productivity of agriculture, forestry, fisheries,

mining and tourism. Both alternatives were rejected because it was

felt that

they would result in

considerable loss and under-use of the existing social and
structural facilities, a major decline in the tertiary sector,
and an extremely costly, if not impossible task of providing
the local population with urban services. 5

The third option which is considered (and retained) is more

ambitious.

1.

In more detail this option amounts to the following:
Increase the productivity of the five sectors which currently
dominate the economic structure of the region, namely agri-
culture, forestry, fisheries, mining and tourism, while
recognizing that this objective will very likely be accom-
panied by a release of human resources from agriculture,
fisheries and forestry.

Facilitate the transfer of human resources, through retrain-
ing programs, to other sectors of economic activity located

either inside or outside the region.

. Stimulate more rapid growth of the few small urban centers of

the region by attnacting new industrial activities and new
services, thereby increasing the probability that the human
resources which are being retrained as well as the local new-
comers in the labor market will stay in the region.

Take advantage of the fact that the subzones which are eco-

logically most suitable for agriculture (zones A and B) are

 

24Development Plan for the Pilot Region, op. cit., p. 6

50
located more favorably than others (zones C, D and E) in
relation to the few urban centers of the region.
Promote development projects which are economically profit-
able while taking fully into account the secondary benefits
which might be generated through a reinforcement of the

economic ties between rural areas and urban centers.

In attempting to alleviate some of the social and economic prob-

lems of the region by promoting these objectives, a number of policies

were advocated for the agricultural sector by the regional planners.

These policies can be classified under three main categories:

1. Policies for inducing increasesyin the_product;yity_of farms

3.

owned py_people who choose to continue farmipg: Since this
study is directly concerned with the set of programs for the
dairy farming industry, it is convenient to discuss their
content at a later stage of this study.

Policies directed at facilitating the transfer of human
resources from agriculture to the nonagricultural sectors:

On the one hand, older farmers would be encouraged, through
pensions, to leave farming when this is likely to favour the
enlargement of neighbouring farms, the establishment of
younger men in farming or the formation of community pastures.
On the other hand, training and labor mobility programs are
proposed for younger farmers who choose to leave farming for
another trade.

Policies aimed at developing andlor strengpheningythe agricul-
tural marketing institutions of the region,yand at increasing

the productivity of the agriculturalyprocessing industry: The

51

content of these programs is not explored in this study.25
It appears fair to argue that the approachuadoptedgbynmhewplanners

of Eastern Quebec gives substantial attention to the agricultural

sector. This is reflected by the proportion of funds which have been

allocated for improving the performance of this sector in the region

(Table 9). In addition to the 8 per cent allocated directly to agricul-

ture, the program area called "Social Development and Manpower Improve-

ment" also involves a substantial amount of funds which will be used

for implementing farmers's retirement and retraining projects. However,

the proportion of funds which will be committed to these projects could

not be estimated in this study because of lack of data.

TABLE 9. Summary of Cost Allocation of Development Projects by Program
Area.

 

Program Area Cost of Projects Percentage of Costs
per Program Area

 

 

($000) (per cent)

Agriculture 19,850 7 7
Forestry 17,630 6.8
Fisheries 22,760 8.8
Recreation and Tourism 22,100 8.5
Social Development & Manpower

Improvement 114,100 44.1
Urbanization 21,850 8.4
Regional Transportation 31,100 12.0
Research 4,400 1.8
Administration ~ 5,000 1.9
TOTAL 258,790 100.0

 

SourceILower St.Lawrence, Gaspe and Iles-de-la-Madeleine Area of Quebec,
Federal-Provincial Rural Development Agreement, op. cit., pp. 58-60.

 

25Further information concerning the content of the regional plan
can be found in the following sources. Francois Poulin, op. cit.,pp. 1-14.
Also Francois Poulin, "Constraints and Objectives of Regional Planning in
Quebec." Journal of Farm Economics, vol. XLIX, no. 5, December, 1967, pp.
1271-76. Also Bureau d'Aménagement de l'Est du Québec (BAEQ), Development
Plan for the Pilot Region, op. cit.

52
Summary

Evidence presented in this chapter indicates that the incidence
of low incomes is high among all population groups in Eastern Quebec.
Recent patterns of migration within the region also indicate that the
incidence of low incomes in the region might be highest for those
groups that are most dependent upon agriculture.

Poverty in regional agriculture appears to result from a number
of interacting factors. Most low-income farms combine few investments
in modern technology and low productive natural and human resources.
Selective migration has been particularly unfavorable to the region,
leaving a population somewhat distorted in age distribution. In
addition, high birth rates combined with low incomes have created a
serious lack of resources to invest in education.26

There are several reasons for believing that the emergence and
continued existence of low incomes in regional agriculture is closely
related to a severe lack of urban-industrial expansion. This dimension
of the total regional planning problem appears to be particularly
significant in Eastern Quebec mainly because the income elasticity for
the agricultural commodities currently exported by the region (especially
butter, potatoes and fluid milk) is low. Combining with the recent
decrease in total regional population, this factor has apparently left

little room for expansion of production in those agricultural commodities

 

26It is interesting to note that similar characteristics appear
to be present in low-income farming areas of the United States. Evi-
dence on this matter can be found in Dale E. Hathaway, Government and
Agriculture: Economic Polioy in a Democratic Society (New York and
London: The MacMillan Company and Collier-MacMillan Ltd., 1963), pp.
167-75.

53

that presently constitute the largest source of income in.regional
farming. However, the planning objectives which were retained by the
regional planners recognize that there is substantial room for improve-

ment in the technical efficiency of resources committed to ragriculture

in the region.

CHAPTER IV
PLANNING ISSUES IN THE DAIRY SUBSECTOR OF EASTERN QUEBEC

This chapter analyses the salient features of the dairyiaub-
sector in Eastern Quebec.1 First, it reviews the main problems of
this regional activity. Second, relevant aspects of trade theory are
assembled for examining the long-run government objectives concerning
the continuance of the dairy industry in the region. The assumption
of economically rational dairy farmers is also explored. Other issues
discussed have to do with past and current governement interventions on
the dairy product markets.

Problems of the Dairy Subsector in Eastern Quebec

Within the regional dairy subsector there appear to be partic-
ularly significant possibilities for increasing factor productivity.
The ensuing discussion examines these possibilities in the dairy pro-
cessing industry, the dairy farming industry, and the industries sup-
plying dairy inputs.

The Dairy Processing Industry
The regional dairy subsector is almost exclusively based on butter

production. In 1963, there were 46 dairy processing plants in the region.

 

1The dairy subsector is defined to include the dairy farmers, their
input suppliers as well as the processors and distributors of dairy prod-
ucts. Characteristics of the distributors of dairy products in Eastern
Quebec could not be considered in this study because factual information
is not available.

54

55

In the same year, some 300 million or 95 per cent of a total of 313
million pounds of milk recorded at these plants were processed into
butter.2

There are apparently three major factors that have an important
adverse effect upon the competitive efficency (least-cost production)
of the dairy processing industry in Eastern Quebec. These factors are
small plant sizes, lack of product diversification at the processing
level and significant underutilization of production capacity during
eight months of the year.3
Small Size of Dairy Processing Plants

It is generally believed that in some industries efficient pro-
duction requires relatively large plants. Recent trends in the Canadian
dairy processing industry are particularly significant in that regard.
The following were some of the major changes that took place in the
dairy processing industry between 1961 and 1966 in Canada (Table 10).4
On the one hand, the number of dairy processing plants decreased very
significantly from 1,710 to 1,308. On the other hand, the number of
large plants, reporting sales of $1 million or more, increased signifi-
cantly from 180 to 240, and the proportion of total sales of the
Canadian dairy processing industry accounted for by these large plants

went from 59.5 per cent in 1961 to 70.2 per cent in 1966.

 

2Bureau d'Aménagement de l'Est du Québec, Esquisse du Plan, 1'Agri-
cu1ture, op. cit., p. 183.

3Ibid., p. 185.

 

4The dairy processing industry includes butter and cheese plants,
pasteurizing plants, condenseries and ice cream manufacturers.

56

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sum .02 onwoamumo .GOHmn>¥a monnumnocH mnmEHnm can wannsnowwscmz .Amonumnumum mo awonsm
connnEon .momnwo .manuov .monnuommasmz mo mnmcoo Hmnnd< .ooaH can Nomalsnonnouomm memo noonnom

 

 

 

 

 

 

 

 

 

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m.nn enn n.en ans H.s 1 sun can a.¢a¢ on com
~.~n nun m.mn nmn m.~n- «cm was a.aae on cow
~.e Ne m.n no a.wm- sou mma a.aon as con
m.n ma n.~ mu s.we- can Hum a.aa as on
m.o m s.o m w.mm- no nan a.ae cu mu
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%

.oomH one Hana .mpmcmo .mnonw ounm some an madman no new mouanooo< moanm
annoy mo cowunomonm on» an momnmso one mucunm wcnmmooonm hnnwn mo nonenz as» an mownmso .oH mamms

57

Assuming that butter and cheese plants have shared in this
trend, it appears that economies of size may be one to the major variables
accounting for this rapid structural evolution.5 As a matter of fact,
aggregate data indicate that the larger the butter and cheese plants
in Canada, the smaller their variable costs per dollar or sales
(Table 11).6

A technical study of the Eastern Quebec butter industry shows
that the regional plants have failed to keep up with the national
trend. The largest butter plant in the region processed 33 million
pounds of milk while the other reported less than 15 million pounds
of milk in 1963. It has been estimated that, given the input and output
prices in the region and the current level of technology available,
a specialized butter plant must process between 50 and 60 million pounds

of milk a year in order to produce at least costs, whereas a diversified

 

5Reporting of data on plants processing only butter and cheese
has been discontinued in 1963. Apparently this modification in the
reporting of data on Canadian dairy processing industries can be
attributed to increase in product diversification within the industry.

6No data on fixed costs were available at the national level.
Regional studies which have been made indicate, however, that admin-
istration is one of the high cost items in butter manufacturing. In
general administration expenses decline as the volume of butter
increases. See Ferdinand Ouellet, La Consolidation des Usines Laitié-
res dans la Région du Bas St-Laurent-Gaspésie, published and edited
by Bureau d'Aménagement de l'Est du Québec (BAEQ), 1964, and W.B.
Rogers and H. S. Baker, "An Economic Analysis of the Alberta Butter
Industry," Canadian Journal of Agricultural Economics, vol. XVI, no. 1,
February, 1968, pp. 40-44.

58
dairy processing plant must process between 100 and 150 million
pounds of milk a year in order to make the most efficient use of its
resources.7

TABLE 11. Costs per Dollar Value of Shipments of Goods of Butter and
Cheeselflants by Size Group of Plants in Canada, 1962.a

Costs per Dollar Absolute Difference Between

 

of Sales Consecutive Size Groups

$ 10,000 to 24,999 $029760“
25,000 to 49,999 029465‘ -0.0295
50,000 to 99,999 0.9491 90.0026
100,000 to 199,999 0.9384 -0.0107
200,000 to 499,999 0.9374 -0.0010
500,000 to 999,999 0.9354 -0.0020
1,000,000 to 4,999,999 0.9326 -0.0118
5,000,000 and over 0.8855 -0.0381

TOTAL 0.9261

 

Source: Dairy Factories, 1962 (Ottawa, Canada, Dominion Bureau of
Statistics), Industry Division, Catalogue No. 32-209, June,
1965, p. 7

aThese include salaries and wages, cost of fuel and electricity and
ncoSto6f materials and supplies used.

Lack of Product Diversification
The second major element of the low income problem in the regional

dairy subsector is the lack of product diversification at the processing

 

7Bureau d'Aménagement de l'Est du Quebec, Esquisse du Plan,
l'Agriculture, op. cit., pp. 181-85.

59
level. Because of the importance of dairy processing in the provincial
food manufacturing industry, it is interesting to take a broad view
of this problem.

The total production of milk in the Province of Quebec increased
from 5,713 million pounds in 1956 to 6,733 million pounds in 1968
(Table 12). During the same period, the quantity of milk absorbed
by the fluid milk market decreased from 1,613 to 1,359 million pounds
while the quantity used by the manufacturing milk industry increased
from 3,553 to 4,981 million pounds. The most significant change which
took place during this period was the emergence of cheddar cheese
production. The proportion of manufacturing milk utilized for flhe
production of cheddar cheese increased from approximately 7 per cent
in 1956 to 16 per cent in 1968.

Shifts in supply and demand functions have apparently been par-
ticularly favorable to dairy farmers producing for the fluid and the
cheddar cheese markets. Farm prices increased, on the average, from
2.70 to 3.30 per cwt. of milk for cheese and from 4.50 to 5.79 for
fluid milk between 1961 and 1966 for the Province of Quebec as a whole
(Table 12). It appears, however, that price increases in the fluid
market resulted from increasingly effective supply restrictions. Under
these conditions, it seems reasonable to hypothesize that the farmers
who sell a large proportion of their production to butter plants had
to bear most 6f the hardships which resulted from the substantial
increases in total milk supply, expecially after 1967. Farm prices

per pound of butterfat decreased from t74.9 in 1964 to £65.3 in 1968.

60

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one knumopaH mo unmsunmmon .conuoom Hmnnuasonnw< .Amonnmnuwum mo smonnm .oononov

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monomnnm mnonnm> now on: oEo: haemoe mowsfionHm

oHannm>m no: <2 "Honenm

 

 

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xanz. smooco uamnouunm mnoSuo smooso Jan: conuosoonm new»
enunn not ans: sppasppo “peso newsman ppuusm pagan aspen

 

 

msHm> anmh owmno>< ucon>nnmm xanz.wmnn9uommnamz

 

 

.moan as omen .upnono .aonsmunnnua on waaepouo< annz no spasm ppm conuoseonn .mn mam<n

61

The adverse effects of these provincial trends are particularly
significant with regard to the agricultural economy of Eastern Quebec.
In 1963, 335 million pounds of milk were marketed in the region. Out
of this total, 310 and 21 million pounds were respectively purchased
by butter plants and by the fluid milk market.8 It thus follows that
approximately 5 per cent of all the milk produced in the province of
Quebec in 1963 came from Eastern Quebec whereas the region accounted
for 9 per cent of total provincial use for butter production.9 It
appears safe to conclude, on the basis of these facts, that lack of
product diversification is one of the major elements accounting for
the low income problem in the regional dairy subsector.
Underutilization of Productive Capacity

The third major problem of the dairy processing industry in
Eastern Quebec appears to be a significant underutilization of the
productive capacity of dairy processing plants during the fall and winter
seasons. This problem is, to a very large extent, common to most dairy
processing plantsiin both the Province of Quebec and Ontario but appears
to be less acute in Ontario than in Quebec (Table 13). Furvhermore,
a comparison of the seasonality of milk procurements of butter factories
among regions of Quebec indicates that the monthly index of butter pro-
duction in Eastern Quebec (region 1) follows a seasonal trend common to

almost all regions of Quebec (Table 14). The only major exception is

 

3Ibid., p. 176

9Unfortunately, no other reliable sources of information were
available to describe price and production trends in the region itself.

62

TABLE 13. Milk Equivalents of Factory Products by MOnth, Quebec and
Ontario, 1968.

 

 

 

 

 

 

 

 

Quebeca j_ Ontarioa

Monthly Quantity Monthly Index Quantity Monthly Index
Periods June 3 100 June = 100

(million lbs) (million lbs)
January 161 23 0 225 45.9
February 133 19.0 205 41.9
March 185 26.5 251 51.2
April 377 54.0 338 69.0
May 534 76-5 422 86.1
June 699 100.0 490 100.0
July 671 96.0 451 92.1
August 633 90.6 424 86.6
September 535 76.6 389 79.4
October 485 69.4 364 74.3
November 315 45.0 272 55.4
December 251 35 9 246 50.2
Year 4,981 4,094

 

Source: The Daipy Review, January, 1969 (Dom;nion Bureau of Statistics,
Ottawa, Canada,) Catalogue No. 23-001, Supplement to the Dairy
Review, January. 1969, p. 5.

aThe total quantity of milk processed in these two provinces added up
to 78.3 per cent of all milk processed in Canada in 1968.
the Montreal region, where the monthly fluctuations in butter production
are not as large as in the other regions of Quebec.
Since the cost of milk procurement is one of the major components
of the butter factories' total costs, two hypothetical explanations may
be postulated in order to explain the seasonality of butter production in
the region. They are the following: (1) periods of cow freshening coincide
on almost every dairy farm of the region; and/or (2) the dairy farmers of

the region rely rather heavily upon pasture as an input to their

«I Am...

 

.1 III 1'.

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63

 

 

 

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64
dairy enterprise.10 This brings the study into the discussion of the
problems of both the dairy farmers and the firms supplying inputs to
these farms.
Farms Producing Milk in Eastern Quebec

Not only is it difficult to define a dairy farm or a dairy farm
operator, but it also turns out to be at least as difficult to identify
the persons who provide the labor services that produce dairy products
in the region. In 1966, 84 per dent of the 8,906 census farms recorded

in Eastern Quebec reported milking cows but only 74 per cent of all

 

farms reported sales of milk (Table 15).11 Thus there were 1,880
farmers in the region who reported milking cows but did not report any
sales of milk. It must be pointed out that 1,852 out of these 1,880
farmers were operating non-commercial farms in 1966.

An alternative way of categorizing the statistical universe is
to compare commercial to non-commercial farms. In 1966, some 2,996
out of 3,108 commercial farms reported milking cows; 2,968 out of these
2,996 farms reported sales. Moreover, 1,949 out of the 2,968 commercial
farmers participating into the milk market reported milk as being the

major enterprise of their agricultural operation (Table 16). Moreover,

 

10It must be pointed out at this juncture that milk pricing schemes
are also an important factor affecting freshening practices followed by
dairy farmers. This factor will be discussed in section four.

11The 1966 Canadian agricultural census defines a farm as an agri-
cultural holding of one acre or more with sales of agricultural products
during the 12 months prior to the census date (June 1, 1966) of $50 or
more. An operation to which this definition applies is in turn defined
either as non-commercial if it reports sales adding to more than $50
but less than $2,500 or as commercial if it reports sales of $2,500 or
more.

65

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HmuOu no N kuOn «0 N
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menmm mnmnoo no nonenz
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66

r261! In «#1. xi: .. f. . .. . c- ‘r

.ouonoonn

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o.oooH
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nnHon mo moHom one o3oo wonHHE wnHunomom menom HoHonoEEoo .oenom HoHonoEEoo ononoo .oH mHm<H

67

the 2,968 commercial farms which reported sales of milk accounted for
74.7 per cent of all sales of dairy products having originated in the
region in 1968 (Table 17). For the purposes of this study, a dairy
farm is therefore defined as a commercial farm reporting sales of
dairy products during the 12-month period prior to the 1966 census
date.

The choice of this definition can be justified on the basis of
the following facts:

1. The number of non-commercial farms has decreased on an aver-

age of 36 per cent between 1961 and 1966 in Eastern Quebec

 

(Table 18). Presumably, most of the farm operations which

disappeared were non-commercial units.

9

TABLE 17, Sales of Dairy Products Reported by all Farms and by Com-
mercial Farms and Proportion of Total Accounted for by
Commercial Farms, by County of Eastern Quebec, 1966.

 

 

Sales Sales of Share of Commercial

of all Commercial Farms in Total
County Farms Farms Sales by County

($'000) ($'000) (7.)
Bonaventure 672 352 52.3
Gaspe-East 248 205 82.9
Gaspe-West 74 45 61.1
Matane 1,084 832 76.8
Matapédia 1,707 1,290 75.6
Rimouski 2,701 2,055 76.1
Riviére-du-Loup 2,610 2,191 84.0
Témiscouata 1,035 592 57.3
TOTAL 10,131 7,562 74.7

 

Source: 1966 Census of Canada: Agriculture, Quebec, Catalogue No.
96-606.

 

68

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mo mama no wood #90 oumm

 

 

 

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.oooH cam Homa
.oonoso auoummm ow kuasoo An manmm HowopoBEoouaoz bum HmwouoEEoo mo Honasz onu aw mowamso .wH mqm<H

 

69

2. It is necessary to distinguish between farming as a major
source of income for the operator and farming as a side
occupation performed in order to supplement salaries and/or
wages earned outside the farm. Such a distinction appears
particularly relevant in Eastern Quebec. While the propor-
tion of operators of both commercial and non-commercial farms
who held off farm jobs was almost equal in 1966, the former
spent proportionally much less time off the farm than the
latter (Table 19).

3. The definition used in this study automatically excludes

 

almost all farms which produce milk only for home use.
Given these facts, the definition of a dairy farm adopted in the
staidy seems workable, convenient and conceptually valid.
TAd3IE 19. All Census Farm Operators, Commercial and Non-Commercial

Farm Operators Reporting Off-Farm Work by Groups of Days
WOrked Off the Farm, Eastern Quebec, 1966.

¥

 

 

 

 

Ntunber of Number of Farmers Reporting Class in Proportion
Days Off Days Worked Off the Farm to Total
the Farm Non- Non-
Commer- Commer- Commer- Commer-
Total cial cial Total cial cial
\
(number) (per cent)
1~72 days 3,008 1,506 1,502 51.4 73.0 39.6
73-156 days 1,666 436 1,230 28.5 21.1 32.5
57—365 days 1,179 122 1,057 20.1 5.9 27.0:
TOTAL 5,853 2,064 3,789 100.0 100.0 100.0
\

 

Soul‘ce: 1966 Census of Canada: Agriculture, Quebec, Catalogue No.
96-606.

70

Characteristics of Commercial Dairy
Farms and Their Operators

Six characteristics of the regional dairy farming industry appear
to be factors leading to the current depressed nature of the industry.
These characteristics are size of dairy herds, seasonality of milk
production on the farms, techniques of dairy farming, low production
of cows, low level of education and high incidence of old age among
the regional dairymen.

Size of Dairy Herds

 

The average dairy herd size on the commercial dairy farms of the ;
region was about 18 cows in 1966 (Table 20.) Averages for counties
indicate, however, that dairy herds are relatively larger in Matane,
Metapédia, Rimouski, Riviére-du-Loup and Témiscouata counties than in
Bonaventure, Gaspe-East and Gaspe-west counties. Unfortunately, a
lack of consistent data prevents estimation of the changes in the sizes
of the regional herds over time.

For the Province of Quebec as a whole, the total number of farms
reporting fewer than 18 milk cows decreased by approximately 55 per cent
between 1956 to 1966. Meanwhile, the number of dairy farms with 18 to
32 milk cows increased by almost 57 per cent. The strongest percentage
irreases~occurred among the herds of large size. However, the very
large dairy herds, those with 63 or more cows, remained relatively few
in number (Table 21). It is particularly interesting to note that the

changes in each size distribution appear to have taken place more

71

TABLE 20. Number of Cows and Heifers, Two Years or Over, Milking or
to be Milked, Per Commercial Dairy Farms, by County of

Eastern Quebec , $119.66..

 

Average Number of Cows

 

County Per Farm
Bonaventure 13.5
Gaspe-East 14.0
Gaspe-west 13.4
Matane 18.2
Matapédia 19.3
Rimouski 18.0
Riviére-du-Loup 18.4
Témiscouata 18.3
Eastern ' Quebec‘a 18 . 1

 

Source: 1966 Census of Canada: Agriculture, Catalogue No. 96-636.

aWeighted average.

TABLE 21. Changes in Sizes of Dairy Farms, Quebec 195641966.

 

Farms reporting specified number of milk cows

 

 

 

Number of Percentage Change
Milk cows 1956 1960 1966 1956 to 1961 1961 to 1966
(%) (%)

1 to 7 38,926 23,846 13,284 -38.7 -44.3

8 to 17 47,632 39,107 25,852 -17.9 -33.9

18 to 32 13,104 15,285 18,287 +16.6 f19.6

33 to 62 ' 1,375 2,152 4,333 +56.5 0101.3

63 or more 58 97 220 +40.2 $126.8
Total 101,105 80,509 62,020

 

Source: 1966 Census of Canada: Agriculture, Catalogue No. 96-606.

 

72
rapidly between 1961 and 1966 than between 1956 and 1961. These changes
raise a question concerning economies of size in dairying.12
Economies of Size Dairying

Interesting studies in the United States show that there are
significant economies of size in dairying.13 It seems impossible, how-
ever, to generalize on the basis of these studies alone. The main diffi-
culties arise from the following.facts:

1) the inputs which are assumed fixed in;the intermediate length
of run-barn size, housing and milking arrangements--differ
from study to study;

2) the quality of the cows is seldom homogeneous; and

3) the quality of management from farms to farms differs
substantially.

Keeping in mind the limitations mentioned above, it appears that
two generalizations can be made, on the basis of these studies, which
might be applicable to Eastern Quebec dairy farming. They are the
following:

1. The introduction of modern dairy technology, which includes

such facilities as pipeline milkers, herringbone milking

parlors and loose housing loafing barns, appears to be

 

121n this study, economies of size are defined as "the reductions
in total costs per unit of prodUction resulting from changes in the
quantity of resources employed by the firm or in the firm's output."
This definition is borrowed from J. Patrick Madden, Economies of Size
In Farming, Theory, Analytical Procedures, and a Review of Selected
Studies, U.S. Department of Agriculture, Economic Research Service,
Agricultural Economic Report No. 107, Fabruary 1967, p. 1.

13No systematic study of economies of size in dairy farming has
yet been published in Canada. The most interesting ones which have
been published in the United States are reviewed in J.P. Madden, pp.
§i£., pp. 34-70.

 

73

profitable on farms that have at least 40 cows with relatively
high production capacity. This conclusion seems consistent
with the significant changes in the size distribution of

, Quebec dairy farms between 1951 and 1966 (Table 21). However,
the average size of herds on Eastern Quebec commercial dairy r
farms in 1966 indicates that very few farms might currently 1
have herds large enough (Table 20) to efficiently operate
with advanced dairy technology.14

2. A number of offsetting relationships appear to explain perv

 

sistence of small dairy farms. On the one hand, smaller
farmsare:generally less efficient than the larger ones.
Despite their relative inefficiency, however, they tend to
persist because they do add something to the net income of
the operator and very often contribute to reducing living
costs of the operator's family. The fact that the operators
of small dairy farms sell their labor services outside the
farm for longer periods than the operators of larger farms
in the region is consistent with this explanation. As a
matter of fact, 60 per cent of the regional non-commercial
farms operators reporting off-farm income worked off the farm
for 73 days or more in 1966 whereas the comparable figure

for the commercial farm operators was 27 per cent (Table 19).

 

14This statement is supported by the findings of W. James White
"The Adoption of Modern Dairy Practices," Canadian Journal of Agricultural
Economics, vol. XVI, no. 1, 1968, pp. 29-39. White's study deals with
Canadian dairy farms producing manufacturing milk and cream.
He concludes that "the majority of Canadian dairy farmers who produce
manufacturing milk or cream are not utilizing modern management practices
and techniques."

74

Under such circumstances, the rate of disappearance of small dairy
farms in Eastern Quebec might have considerably been slowed down by the
lack of stable job opportunities outside of agriculture. Mbreover, the
demand for seasonal workers during the slack period of dairy farming
might have contributed to prolonging the existence of small farms in
the region.
Seasonality of Milk Production on the Farms

The foregoing discussion suggested that the very high degree of
seasonality of butter plant's operations in the region might be partly

explained by the following situations:(1) periods of cow freshening

 

coincide on almost every dairy farm of the region, and (2) regional
dairy farmers rely rather heavily upon pasture as an input to the
dairy enterprise.

There are no firm empirical data to either confirm or deny those
characteristics but the seasonality of butter plant operations bears this
out. The only information available consists of cursory evidence found
in one of the published planning documents. It states that "almost all
calvings on the dairy farms in Eastern Quebec happen during the spring
season so that the period of lactation of cows is concentrated in the
summer season".15

The whole system of milk production in Eastern Quebec appears to
depend largely on utilization of summer grazing and on cheap(Cerag¢)

winter rations. But there is a serious need for further research on the

 

15Bureau d'Aménagement de l'Est du Québec, Esquisse du Plan, 23.
cit., p. 188.

 

1

75

interacting forces which perpetuate this situation. The main factors
that apparently need to be considered are; costs and returns for varying
seasonal freshening and production, milk price variations by month, level
and composition of seasonal feeding rations and the relative importance
of milk utilized as fluid in the region and the possibilities and costs
of preserving more forage for winter feeding. Since empirical data on
most of these factors are not available, the belief that regional farmers rd
would substantially benefit from more even production over the year cannot

be adequately substantiated.

Technology of Regional Dairy Farming

 

The third salient feature of regional dairy farming is its low
level of technology as compared to the modern dairy technology which
is now available in countries with advanced dairying. It is appropriate,
at the outset, to distinguish between dairy crop technology and the
technology of the dairy enterprise itself.
Dairy Crop Technology: Two features stand out as far as dairying crop
technology is concerned. First, ensilage of forage crops is not a
common practice on dairy farms of the region (Table 22). Secondly,
harvesting of hay (baled and loose) and oats for grain--the two most
important dairy-related crop enterprises in the region--is carried out
with the same type equipment on almost all the dairy farms of the region.
The question whether it would be profitable for these farmers to shift
gradually from barn storage to ensilage practices has been raised by the

planners in the following terms:

776

The humidity which favors growing of forage crops also poses a
problem for their storage. It is difficult to dry hay in the
field and maintain good quality in storage. Ensiling of storage
crops is the theoretical solution, but in practice, because
investments have been made in buildings and machinery with barn
storage especially in mind, silage is recommended only in cases
where reinvestment is needed to replace building and machinery
that are no longer suitable for the storage of hay. Artificial
cool-air drying could be introduced in other cases. Investment

in ensilage equipment is more urgent where two harvests of forage
are possible and field-drying of hay in the autumn is difficult.16 r~

TABLE 22. Percentage of Respondents with 10 Milking Cows or More
Reporting Specified Types of Equipment in Eastern Quebec,
July, 1969.a

 

Proportion of Farms Surveyed
Items Reporting Specified Items

 

11K

 

(per cent)
A. Dairy Crop Technology

- tractors 95
- tractorsplows 93
- threshing machines 72
- planters 87
- binders 86
- silos l
- mechanical cool-air dryers 0

B. Dairy Enterprise Technology
- barn type:

- stanchion barns 100
- loose housing barns 0
- cream separators 90
- milking machines 90

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

8See Appendix A, for methodological considerations on the design of the
survey. This table includes information reported by 76 respondents. The
respondents may have other items (balers, hay conditioning equipment,
gutter cleaners, milk coolers, bulk tanks and others) not covered by the
questionnaire.

 

———v

16Develgpment Plan for the Pilot Region: A Summary, op. cit., p.46.

77

Ensilage or artificial cool-air drying may be sound technical
solutions for the storage problem faced by these dairy farms. Unfor-
tunately, no well-documented study on the profitability of alternative
technologies for harvesting and storage of forage crops has yet been
undertaken in the region. It may be suggested, however, that these
farmers have not shifted to ensilage or cool-air drying (Table 22) F-
because they are convinced that it would not be profitable to do
so given the present size of their herds and investment which is

already tied up in barn storage facilities.

 

Dairy Technology: As far as the dairy enterprise-technology is concerned,

lfln'

a general pattern emerges. First, common stanchion barns are found on
almost all of the regional dairy farms. Second, the transformation of
raw milk on the farm by the use of cream separators is a widespread
technique in the region (Table 22). Apparently, regional dairy farmers
believe that this practice is the most profitable for them, given the
nature of the dairy processing industry operating in the region.
Butterfat is presently sold to butter factories whereas the bulk of
skim milk is fed to calves and hogs raised on dairy farms. The peculiar-
ity might partly explain why multiple enterprises are such a common
feature of dairy farms in the region. This in turn suggests that
maintaining multipurpose barns may be one important cost that these
farmers have to pay in order to achieve a certain degree of flexibility.
A gradual shift from a regional dairy-processing industry exclus-
ively oriented on butter to one which would buy whole milk from the

farmers might generate significant changes in dairy-farm technology.

78
The relative technological backwardness of housing and milking arrange-
ments on dairy farms cannot, however, be totally explained by the nature
of the lihks between dairy farming and dairy processing in the region
because size of the dairy herd is also an important factor determining

the profitability of the latest innovationsiin dairy housing and milking

 

F
arrangements.
Low Production Capacity of Dairy Cows
The fourth salient feature of regional dairy farming has to do
with the production capacity of cows. The difference in the production ,

capacity of two dairy cows can be partly explained by a group of fac-
tors which are amenable to analysis under experimental conditions.
Appendix B presents a partial enumeration of such factors. To esti-
mate the amount by which the production capacity of dairy cows differ
from region to region of a country, however, has so far proved a rather
intractable problem. Breeds, period of lactation, management practices
commonly followed, climate, length of period on pasture, feeding levels
and feed ration composition along with prices of inputs, to name but a
few. are known to differ significantly from one region to another.
Because of these variations it is almost impossible to disentangle
inheritance factors from the host of other variables which are known
to affect the yields of dairy cows.

An effort was made during the field survey to collect some evi-
dence on the capacity of cows in regional dairy herds. Unfortunately,

this evidence does not permit to go much beyond the descriptive stage.

vn-rrvw u»

 

 

79
Conclusions which may be drawn from it are the following:

1. Herds of mixed breeds are by far the most popular among
regional dairymen (Table 23). The fact that the Ayrshire-
Holstein mixed breed is so highly favoured by the region's
dairy farmers cannot be easily explained. It is generally
recognized that one of the strong points of Ayrshires is

their excellent grazing qualities and that this breed ranks

 

TABLE 23. Breeds of Dairy Cows Reported by Dairy Farm Operators with
10 Cows or More in Eastern Quebec, July, 1969.a

 

Number of Farms Reporting

 

Breed Specified Breed
Mixed-Breedb 69
Ayrshire 5
Guernsey 0
Holstein 2
Canadian 2
Jersey _0.
TOTAL 78

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

aSee Appendix A for methodological considerations on the design of the
survey. ‘

bOne type of mixed breed is most frequently reported in the region. It
resulted from the crossbreeding of either Holstein sires with Ayrshire
dams or Ayrshire sires with Holstein dams. The latter is found slightly
more frequently than the former.
high in beef production for a dairy breed. As beef producers
the Holstein breed, also ranks high for a dairy breed. The

Holstein breed, however, ranks lower than the Ayrshire breed

80
as grazers on hilly or scanty pastures.17 The question
whether regional dairy farmers have been able to develop a
mixed breed which combines these traits cannot be answered
in this study. The absence of Jerseys in the region indi-
cates, however, that these farmers are ready to forego higher
income opportunities on manufacturing milk in order to realize
higher income opportunities on the sales of calves and culled
cows. Since local farmers receive about $4.20 per 100 pounds
of milk (including subsidies) and about $15.00 per hundred
pounds of culled cows, the possibility may be foreseen that
the trade-off between prospective income opportunities might
currently favour the Ayrshire over the Jersey in the region.
It is appropriate to recall at this juncture that Jerseys
stand very low, even among dairy breeds, as meat producers.
The climate of the region may also partly account for the
absence of Jerseys.

2. Evidence indicates that the milk yields recorded for regional
dairy herds are, on the average, substantially lower than
those recorded for the entire province (Appendix B).

Improving the yields of their dairy herds appears to be one of

the major preoccupations of dairymen in Eastern Quebec. There is no

agreement among them, however, as to how this might most appropriately

 

17C.H. Eckles, and E.L. Anthony, DairyyCattle and Milk Production
(The MacMillan Company), fifth edition, 1956, pp. 49-51 and 81-83.

81

be achieved. This issue will be elaborated in the next chapter.
Age of the Farming Population

There is a widespread belief that farming no longer attracts
younger elements of the working population in Eastern Quebec. If this
were true, it could then be argued that poverty in regional agriculture
cannot be exclusively attributed to inadequate capital resources.

Evidence indicates that the proportion of younger farmers (34
years of age or less) to the total number of farmers in the region
decreased from 24.5 per cent to 15.1 per cent between 1951 and 1966
while the proportion of older farmers (55 years of age or more)
increased from 23.3 per cent to 28.1 per cent during the same period
(Table 24). Comparable figures for the provinces of Quebec and Ontario
indicate, however, that this phenomenon is not peculiar to Eastern
Quebec. As a matter of fact, the magnitude and the direction of this
change in both Eastern Quebec and the province of Quhbec as whole
were much similar but this trend started earlier in Ontario than in
Quebec (Table 24).

The increased age of farmers raises a whole spectrum of social
and economic issues which are beyond the scope of this study. Let
it be sufficient to emphasize that empirical evidence tends to support
the belief that regional farming attracts less and less younger ele-
ments of the working population despite limited job opportunities in

other regional activities.

82

Low level of Education of the Farming Population

There is also a widespread belief that the level of education of
the farming population is in general lower than: that of most of the
other segments of the total population in Quebec. Moreover, another
widely held belief states that there are significant differences in the
regional levels of education for any given segment of economic activity
in Quebec. These two propositions areruM: mutually exclusive. As a
matter of fact, both propositions could be concurrently substantiated
if enough evidence could be brought to confirm that farm operators are
relatively less educated than the rest of the working population in
Eastern Quebec, and that farm operators in the region are relatively
less educated than farm operators in the more developed regions of
Quebec.

TABLE 24. Proportion of all Farm Operators of a Given Age Group in
Eastern Quebec, 1951 and 1966.

 

Percentage of Farm Operators in Specified Age Group

 

 

 

 

Age Group Eastern Quebec Quebec Ontario
1951 1966 1951 1966 1951 1966

(per cent) (per cent) (per cent)
34 years or less 24.5 15.1 23.3- 15.9 17.3 13.6
35 to 54 A 52.2 56.8 51.4 54.3 49.5 49.7
55 years or more 23.3. 28.1 25.3 29.8 33.2 36.7
TOTAL , 100.0 100.0 100.0 100.0 100.0 100.0

 

Sources: 1966 Census of Canada: Agriculture, Quebec (Ottawa, Dominion
Bureau od Statistics), Catalogue 96-606; and 1966 Census of
Canada: Agriculture, Ontario (Ottawa, Dominion Bureau of
Statistics), Catalogue 96-607, June 1968.

 

83

A study entitled "Problémes de l'Agriculture dans la Région du
Bas Saint-Laurent" appears to be one of the best documented sources of
information on the comparative levels of education of the population in
Eastern Quebec.18 The study indicates that both the farm operators of
Eastern Quebec and their offsprings of school age are at or very near
the bottom of any inter-regional classification devised on the basis of
educational criteria. Moreover, the authors of that study were lead to
conclude that all the data which they could gather "clearly indicate
that the level of education of a very large majority of the (rural) popu-
lation was significantly inferior to that of the urban population in
Eastern Quebec."19 The propositions that farm operators are reLatively
less educated than the rest of the working population in the region,
and that farm operators in Eastern Quebec are less educated than their
counterparts in the more progressive regions of the Province thus

appear to be substantiated.

The Suppliers of Dairy Farming Inputs

This section suggests that the suppliers of inputs to the regional
dairy farming industry might have also faced serious difficulties of
their own in the region.
Dairy Feed Market

There were 33 plants processing grains in the region in 1963.
Not much is known about these feed mills except that they are very
small enterprises selling the bulk of their production to the dairy

farmers of the region. Looking in turn at the types of crops cultivated

 

18Yves Dubé and Jean-Marie Martin, op. cit., pp. 41-44.
19Ibid., p. 44

84
by commercial farmers in the region indicates that a very large proportion
of the crop acreage is devoted to the production of feed crops which
are inputs to the dairy enterprises. Hay, improved pasture and oats
for grain accounted for 87.1 per cent of total crop acreage in the
region in 1966 (Table 25). Very little wheat is grown in the region
and the proportion of total crop acreage devoted to corn and rye was
less than 0.01 per cent in 1966.

The regional feed mills are faced with a very sporadic demand for
feed from the dairy fiarmers. As long as the dairy farmers will keep on
growing most of their feeds at apparently lesser costs than they can
buy them, feed mills are very likely to remain purveyors of mixed feeds
and/or protein supplements which are not otherwise available on the
farms. In the long-run, this situation might be altered by the occurence
of either a substantial decrease in the cost of feed processed by the
feed mills or a substantial increase in the opportunity cost of labor
on the dairy farms, especially with respect to labor used in growing
crops fed to dairy livestock.

Transportation of feed grains from the Canadian Prairies has been
subsidized under the Feed Freight Assistance Policy Sincell94l. 'The
objective of the policy has been to achieve some form of regional price
equalization on feed grains throughout Canada through a subsidy off-
setting costs of transport from the Lakehead to Eastern Canada and from
Alberta to British Columbia. However, the influence of the Feed Freight

Assistance Policy is marginal in Eastern Quebec. A crude estimate

Fm:

 

iL.

85

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.mowmuo>m wouawwo3 mum cowwou onu pom mouswwm owwucooummo

.ucoo Mom Ho.o cmnu mmoH was owmucoouoa onu umSu moumowocHn

.xuowoumo gnu aw mono unmuuanH umoE on“. in.“ accumuomm

 

 

 

o.ooH ¢.q H.¢ q.q w.mH ~.om H.m¢ 0mm osofiwom”
o.ooH o.m ~.o o.s o.aa o.om ~.os mm: 838368....W
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umsuo HH< pom uso pox“: pom sumo amusuHsoHuwm

mumo wo>oumefi

huosoo >3 mmopo Hafime cu wouo>op HmuOu mo owmuCoouom Hmuoe

 

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l ., . :1. vIlI I.. 1 i A

 

 

86

indicates that slightly less than 1 per cent of dairy feed concentrates
used by regional dairy farmers came from the Prairies.20

The reasons which might explain why so little Prairies feed is
used in Eastern Quebec are not entirely clear but it can be argued that
price instability is one of them. This was brought into focus by T.C.
Kerr, in whose opinion,

the implications of closed navigation season and the possibility

of a shortage of grain developing in Eastern Canadian points

during the winter season are still highly significant in terms
of feed grain price instability.21

It would be hazardous to draw generalizations from so little
information. The only conclusion which appears to be supported is that
the links between dairy feed suppliers and the regional dairy farming
industry apparently need to be improved.

Credit Market

Not only is it difficult to find relevant information concerning
the sources of regional dairy feed supply, but it also turns out to be
at least as difficult to document the main characteristics of the
regional agricultural credit market. It is therefore. hoped that the
following observations will partly fill the gap.

Two main sources of agricultural credit can be readily identified.
The first one is the so-called "Office du Credit Agricdle," a government

agency involved in the business of lending money to farmers at a lower

 

20Compiled from T.C. Kerr, op. cit.,pp. 136-38. It was computed
by assuming that regional dairy farmers bought about 5 peroCent of all
freight-assisted feed grain shipments transported to the Province of
Quebec in 1963-1964 and that the 236,744 cows found on regional commercial
dairy farms were fed about 1,000 lbs.of grain concentrates per year. Kerr's
study indicates that the 5 per cent assumed above can be viewed as a maximum.

21T.C. Kerr, 0 . cit., pp. 75676.

87
interest rate than private lenders. The second one is mostly made up
of private lending institutions. The quantity of credit supplied to
local dairymen from each source could not be estimated.

A study has been made by Dubé and Martin on the basis of the
Office du Crédit Agricole files for the years 1946 to 1956. Their
major conclusion was that the most progressive farmers of the region
borrowed very little from the government agency and that the main reason
given by farmers for borrowing fromthis source was to repay current
debts.22 However, there is no basis for determining whether or not this
situation still prevails in the region.

It might be hypothesized that, because of their low levels of
income, a great majority of the dairy farmers in Eastern Quebec have
been unable to finance the growth of their dairy enterprise through
reinvestment of generated net income. Most of these farmers have
apparently borrowed at one time or another on either the private and/or
the government credit markets.23 However, the large number of farmers
who declared that they wanted to borrow from the government agency in
order to repay on-going debts indicates that many regional farmers have
not realized the returns that they expected on their agricultural
investments.

Suppliers of Dairy Equipment and Fertilizer
Very little is known about the problems of the regional market

for dairy equipments and fertilizer. It would appear that a few

 

22Yves Dubé and Jean-Marie Martin, op. cit., pp. 153-59

23Ibid., pp. 157-59.

88

regional cooperatives might have been able to bid down the prices of
these inputs for their members. A well documented study of the problems
of the industries supplying inputs to regional agriculture is needed

for determining the extent to which the improvement of their performance
might contribute to the well-being of the farmers in the region. It
appears very unlikely that regional dairy farming will achieve much
higher profitability without a more effective support from both the
dairy input supply industry and the dairy processing industry.

It appears that a great majority of the regional dairy farmers have
persisted in their trade because of government income transfer programs.
The main issue which must be raised concerning some regional development
planning objectives is whether or not a large proportion of them could
thrive while competing with other dairy producing areas of Canada
without continual government help.

Long-Run Objectives and Comparative Advantage.

The thrust of planning in market economies must be the promotion
of economic activities which can hold on their own under free market
conditions. One of the main, and usually most difficult, tasks of
planners is therefore to predict comparative advantage in the economic
activities which they attempt to promote. The ensuing discussion con-
siders the planning issues in the dairy subsector of Eastern Quebec
within this perspective.

Distinction Between Fluid
and Manufacturing Milk

A major distinction is made at the outset between fluid milk

and manufacturing milk. For the dairy industry which supplies fluid

89

milk, the end product, because of its relatively high transportation
costs and perishability, dictates that the fluid milk industry will
locate relatively close to markets. The manufacturing milk industry
on the other hand does not appear to be as closely tied to markets.
Its location depends upon a number of factors, including, a steady
and adequate supply of milk and/or cream from dairy farms, the avails
ability of labor, concentration of the industry to the extent that it
determine whether ornotcrpuimum size processing plants can be achieved
in a specific region, adequate transportation services and many other
factors.

In the Province of Quebec, Montreal has a fairly large milkshed
which appears to extend farther away year after year. Quebec city
and the few other smaller urban centers also receive the bulk of their
fluid milk supply from their surrounding rural communities. It might
reasonably be expected that the dairy farmers of Eastern Quebec will
not be able to penetrate these major urban fluid milk markets in the
foreseeable future, unless the farmers of these two major milksheds are
presented with and take further opportunities of restricting supply in
order to bid up the price of fluid milk within these areas. Even under
these circumstances, however, greater collective action (which is in
the offing) would very unlikely create interregional price discrepancies
such that one might consider the possibility of competitively trans-
porting milk from Eastern Quebec to Montreal for instance. Under
current conditions the area supplied by fluidlmilkwprbducedsnofrEasternf

Quebec includes the totality of the small urban markets of the region

90

itself, a growing market on the so-called North Shore of Quebec and
marginal entries into some adjacent areas. It is expected that the
dairy farmers of Eastern Quebec will be able to supply this fluid milk
market at less costs than any other agricultural region of Canada in
the foreseeable future. A detailed discussion of the nature and the
size of this market is in a later section of this chapter.

For the dairy industry which supplies manufacturing milk, the
situation is much more ambiguous. It is appropriate to recall that
95 per cent of all milk produced in the region in 1963 (300 million
out of 313 million lbs) was processed into butter. The question which
naturally arises at this point is the following: Can the continuance
of this industry in the region be explained in terms of the theory of
comparative advantage?

Regional Comparative Advantage in Dairying

On the basis of Haberler's formulation of the theory of compara-
tive advantage one might hypothesize that Eastern Quebec devotes a
substantial quantity of its resources to produce butter because the
cost of producing butter in terms of alternative commodities foregone
is currently less in this region than in the other regions of Canada
which do not produce this commodity or which devote a decreasing amount
of resources to this commodity.24 It is appropriate to introduce a
clarification at this stage. This clarification has to do with the

fact that this study compares Eastern Quebec with the rest of Quebec

 

24G. Haberler, The Theory of International Trade (London: Hodge,
1963).

9D

and Canada. It therefore arbitrarily excludes the United States as
competitor. The only justification for this exclusion is that butter
is a highly protected commodity in Canada. As a result of an embargo
set up by the Canadian government, butter. is sold in Canada at a price
at least twice higher than the current world price. Challenging this
policy is beyond the scope of this research. It is therefore accepted
as a statement of fact which is likely to prevail in the foreseeable
future.

In order to substantiate the comparative advantage of the region
in agriculture, we first rely upon the following excerpts of arguments
advanced by the planners:

The final option is based on the belief that the various types
of farm production should be regionalized in Quebec, where each
would specialize in the type of production in which it has a
comparative advantage. Since forage crops can be used equally
well for dairy production or beef-cattle raising, a choice must
be made between the two. However, if the long-run increases in
production within a region are to some extent proportional to
the natural advantages of that region, it appears that the Pilot
Region (Eastern Quebec) should specialize in dairy rather than
beef production. There is a tendency for the raising of beef
cattle to be concentrated more and more in the Western Provinces
while, in dairying, Quebec and Ontario continue in the lead.
Moreover, Quebec has been gaining relatively, while Ontario has
declined. Since the objective of the "Bureau d'Aménagement de
l'Est du Québec" is to make intensive use of all production
factors while ensuring an adequate income, development efforts
should be towards the dairy industry. . . . It should be added
that the reorganization of agriculturelwill decrease the number
of farmers, and hence will impose the need to create enough jobs
in other sectors. The substitution of beef for milk would greatly
accentuate this problem. Total conversion of the dairy industry
to livestock raising would bring about a further decrease of
about 4,000 individuals classified as farmers.25

 

25Development Plan for the Pilot Region, A Summary, op. cit.,
p. 41, 46 and 47.

”9:3er

92

Two major preoccupations of the planners are carried by these
statements. The first one has to do with the choice of agricultural
strategies which would be consistent with the agricultural comparative
advantage of the region. The second one has to do with the labor dis-
placement effect of the alternative strategies which could satisfy the
requirements of regional comparative advantage. As far as their first
preoccupation is concerned, the planners argue that the past trends
in agricultural resources allocation by Provinces of Canada indicate
that Quebec's share of the national dairy market has been increasing.
Evidence shows that this argument is true. Quebec's share of total
milk production in Canada went from 33 per cent in 1950 to 36.7 per
cent in 1964.26 However, no data are available to determine whether
or not Eastern Quebec's share of the national production has been
increasing over time. This study submits that Strictly valid con-
clusions on comparative advantage cannot be reached on the basis of
past trends alone. This is especially true with respect to both
dairying and cattle feeding where government intervention has been
such that the monetary costs of production can no longer be equated
with the real costs to the economy.

On the basis of the previous discussion on the nature of the
problems in the regional dairy subsector, it appears that regional
agriculture has become heavily specialized in butter production because

of its relatively low costs of producing butter in terms of alternatives

 

26T. G. Kerr, op. cit., p. 99.

_____;_

93
foregone.27 It is interesting to note on that respect that total
industrial employment in the region decreased from 6,096 in 1949 to
5,739 in 1965.28 Under these circumstances, it may be argued that the
regional dairy processing industry had little difficulty to attract
labor services at relatively low wages as well as to buy manufacturing

milk at relatively low prices.

:4- - .j'.‘ H

By combining the various characteristics of the regional dairy

 

subsector it appears possible to explain the presence and the contin-

uance of butter production in Eastern Quebec in the following manner.

'W‘mt .- :

Butter production is known to be a highly seasonal economic activity
in Canada (Table 13). This structural characteristicsof the dairy
industry implies that butter factories must be able to attract labor
mostly during the summer season. The supply of labor is not likely

to come from the dairy farming population since the farmers are also
producing at their peak levels during the same period. From the point
of view of entrepreneung it would appear that an advantageous location

consists of a region where both raw materials and labor services can

 

27Trant argues the following: "In recent years, the number of
dairy cows has been increasing in the Province of Quebec, but de-
clining in most others. This has been attributed to the limited
alternatives available to Quebec farmers, who have been faced with
a short growing season more suitable for forage production than for
the fattening of livestock. Consequently, while most Canadian dairy
producers would be hurt by free (international) trade, Quebec producers,
because of their limited alternatives, would be more likely to remain
in dairying than producers in other provinces." In Gerald I. Trant,
David L. MacFatlane and Lewis A. Fisher, Trade Liberalization and
Canadian Agriculture (University of Toronto Press), published for the
Private Planning Association of Canada, 1968, p. 54.

28Growth Patterns in Manufacturing Employment by Counties and
Census Divisions,,1949-1959/1961-1965 (Ottawa, Canada, Dominion Bureau
GP Statistics), Catalogue no. 31—503, Occasional, October, 1969, pp.
24" 31 o

94
be bought at the lowest price, given that such a location does not
involve transportation costs which more than offset the relative advan-
tage in production. This appears to be of special importance for the
smaller firms as far as the cost of labor is concerned (Table 26).
As a matter of fact a considerable amount of verbal information spread
throughout the technical studies made in the region indicates that the
regional butter plants have been paying somewhat lower wage rates and
lower prices for their milk than the plants located in other areas of
the country with advanced dairy industry. The relatively high level
of seasonal unemployment in Eastern Quebec as well as the marked ten-
dency for regional dairy farming to depend largely on utilization of
summer grazing are consistent with these findings.

TABLE 26 Hourly Wages in Butter and Cheese Factories by Group Based
on Value of Sales, Canada, 1962.

 

Average Hourly

 

Size Groups Man Hours Paid Wages Wages
(11 (2) (2/1)

($'000) ('000 hours) ($‘000) ($/hour)
Under 10 6 5 0.83
10 to 24.9 22 23 1.05
25 to 49.9 130 146 1.12
50 to 99.9 481 536 1.11
100 to 199.9 1,382 1,580 1.14
200 to 499.9 2,854 3,439 1.20
500 to 999.9 2,006 2,533 1.26
1,000 to 4,999.9 3,739 5,068 1.36
5,000 and over 1,127 1,807 1.60
TOTAL 11,748 15,137 1.29

 

Source: Dairy Factories,_l962 (Ottawa, Canada, Dominion Bureau of
Statistics), Catalogue No. 32-309, June 1965.

95
Can Regional Comparative Advantage in Dairying
be Maintained?

An important planning issue in the region consists in the fact
that current regional comparative advantage in dairying must be attri-
buted to low factor costs rather than to relative physical efficiency
in production. If the current comparative advantage of butter plants
in the region can be partly explained by lower factor costs due to
low opportunity cost of the people supplying these factors, a relevant
question which naturally arises is the following: To what extent can
this comparative advantage be maintained in the future if the planning
effort is successful in its broad attempt to raise the opportunity of
the neépLae supplying labor services and milk? The answer is that this
comparative advantage is likely to be lost unless a major breakthrough
is achieved in raising the technical efficiency of both the butter
plants and the dairy farms supplying the raw material to these plants.
The dairy development strategies proposed by the planners are genuinely
oriented towards this objective. Discussing whether or not this break-
through may be achieved in the regional dairy processing industry is
beyond the scope of this study.

In conclusion it appears that there is a substantial potential
for efficiency improvements in the regional dairy subsector and that
the planners were probably right in arguing that dairy development
strategies oriented towards both the milk processors and the dairy

farmers would be more likely to succeed than dairy farming development

 

96
projects alone. Dairy Farming was retained by the planners as the
sector of agricultural activity which will most likely continue to

justify its presence in the region in the foreseeable future.29

The belief that dairy farming is likely to become a more profit-
able activity under the impetus of the development projects is based,
however, on the assumption that the dairy farmers will react to these
policies according to the planners' expectations. It is our own
belief that the dairy farmers of Eastern Quebec will respond to these
policies according to their individual interests in the same way that
they have rationally responded in the past to the environment and the
government policies which directly or indirectly affected the conduct
of their business. The belief that economically depressed areas are
inhabited by economically non-motivated people has persisted to some
extent in Quebec. This belief has crept into the planners' arguments.
However, the assumption of economic rationality on the part of the
participants in the regional dairy subsector has not been carefully

examined.

 

29Discussion presented in this section reaches an agreement with
the planners--and with Trant (see footnote 26)--over the argument that
a region like Eastern Quebec has but a limited number of alternatives
in agriculture. This study submits, however, that one long-run alter-
native which deserves some further attention is that of raising cattle
in Eastern Quebec. Such research would need to compare two sub-
alternatives. The first one would involve raising cattle to maturity
in the region. The second alternative would consist in raising starters
ohatiwouldlbezexported to grain-crop regions where they would be fed to
maturity. The former sub-alternative has been given some consideration
by the planners of Eastern Quebec but the latter has not.

97

Economic Rationality in the Regional
Dairy Subsector

It has been said again and again that people in poor communities
do not care to maximize the returns accruing to the factors of production
which they own, including their labor services. The following are excerpts
of arguments drawn from the regional planning documents which carry this
belief:

The first reason for the region's lag is marginality caused by

difficult bio-physical conditions, distance from important urban

markets, and the higher cost of supply that distance imposes.

Another reason is that the farm is not always regarded as an

economic enterprise that should be profitable . . . Present farm

structures are not properly balanced; the production factors of

land, labor and capital are not combined to give the best results.30

However, it is possible to account for much of the poverty in
regional agriculture without assuming that it is partly due to lack of
economic motivation.31 Those who argue lack of economic motivation need
to demonstrate resource adjustmentsstriCtlyMunder the farmers' control
«dfiafllwould increase output significantly with due regard to (l) the
current physical and institutional environments within which they have
to operate, and (2) the present input and output price levels in the
regional dairy subsector. The hypothesis advanced in this study is to
the contrary, namely the poverty in the regional dairy subsector must be
attributed to the inadequate resources (including human resources)

from which these farm owners seek to obtain as much

 

30Development Plan for the Pilot Region, A Summary, op. cit., pp. 42
and 44.

31The word "assumption" is purposedly used in this statement
because nobody has yet proved that these people lack economic motivation.

 

 

98
income as they can. The approach of the following discussion is to
apply the concepts of production economics to show that low resources
productivity in the rggional dairy subsector is not necessarily due to
lack of economic motivation. The discussion is restricted to the
butter plants and the dairy farms, the two major users of production

factors in the regional dairy subsector.

The Butter Factories

An example illustrates the complexity of cost conditions in butter
processing which can explain why small high unit cost plants might have
persisted in Eastern Quebec. Butter production was shown to be a highly
seasonal activity in the region. As a matter of fact, regional data
showed that the peak-production (June) of butter was about fourteen
times as large as the through-production (February) in 1966 (Table 14).
under such circumstances, it makes little sense to think of butter
plants operators in Eastern Quebec as trying to minimize the cost of
a given output steadily and regularly to be produced. Stigler suggests
that the objective of such firms faced with significant problems of
output instability is rather to minimize the cost of a probability
distribution of outputs, the probability distribution indicating the
fraction of time each output is expected to be produced. He shows
that the desire to obtain output flexibility might make horizontal
short-run marginal cost curves a deliberate objective of maximizing

behaviour on the part of those firms faced with such problems.32

 

32George Stigler, "Production and Distribution in the Short-Run",
Journal of Political Economy, June, 1939, pp. 312-22.

99

The lack of data on costs of production of butter plants in
Eastern Quebec prevented use of "real" cost curves to demonstrate the
validity of this theory. Suppose, however, that a butter plant in
(Easterh Quebec can choose between a method of production A which is
very rigid and highly efficient for a particular level of output and
a method of production B which is considered as a flexible but less
efficient method of production (Figure 3). Let the horizontal axis
denote the average butter output per month and curves A and B the
average variable cost curves for methods A and B respectively. The
monthly distribution of the output over the year may be such that the
operator makes more profit whth method B than he might with method A.
It is notzclear that this hypothetical case would apply directly to

the current situations of any of butter plants in Eastern Quebec.

1: - ,

     
 
    

marginal Marginal cost curve /
cost per \ for technology A /’
pound of \ //
butter \ /

I

Marginal cost
curve for
technology B

/ /

 

S

—1
Average quantity produced per month

FIGURE 3. Hypothetical Marginal Cost Curves for two Different Techno-
logies of Butter Production.

 

100

However, there are reasons to believe that Stigler's argument is of
great relevance for the problem at hand.33

If in fact one or more methods of production of type A are avail-
able to and known by the region's butter plant operators, it may still
be economically justifiable not to adopt these methods until greater
monthly stability in output is achieved. Therefore, comparing resources I
use efficiency on these plants with that of plants in other areas such

as the Mbntreal region where monthly output instability appears to be

 

less than in Eastern Quebec (Table 14) must not lead one to conclude
that the former are not attempting to minimize costs of production. It
only allows one to conclude that the environments of both regions are
substantially different and that changing those elements of the environ-
ment which cause greater monthly output instability might be one of
the important conditions for further cost decreases in butter plants
of Eastern Quebec.
Dairy Farmers

A major basis for assuming irrationality in resource alloca-
tions on dairy farms is the observation that significantly different
patterns of resource uses are employed. However, empirical studies
on the economies of production in dairy farming and the asset fixity
theory show that such differences in resource combinations do not

necessarily imply lack of economic motivation.

 

33It can be suggested that the dairy processing industry is an
"ideal" case where Stigler's hypothesis could be tested. It would
be interesting to rank dairy processing tehcnologies along either
a capital-intensity or a labor-intensity continuum and determine under
what conditions one technology is more competitively efficient than
another. The data which are necessary for testing this hypothesis are
not currently available in Quebec.

101
Variable Factors
Many empirical studies of production functions for dairy cows
have been made in the United States.34 All of them tend to show that
the isoquants of the forage substitution relationship have relatively
small curvature. Frick and Mighell have concluded, on the basis of
the earliest studies, that

The near linearity of the isoquants of the forage substitution
relationship and the annual total milk response curve both

seem to indicate that the combinations of feed inputs and levels
of production can be widely shifted with no great effect on
profits . . . The fact that we do have extreme variations in
quantity and quality of feeds consumed by milk cows and a great
array of skills and experience among dairymen is some evidence
that a considerable variation in feeding dairy cows is within
the limits of economic tolerance.

 

It thus appears that definite conclusionslon the relative effic-
Ciency of variable resources use on dairy farms are difficult to reach.
This is especially true of cases where self-feeding of pasture and
hay, made possible by low land prices, saves considerable labor costs
in a region like Eastern Quebec while a substantially higher price

for land might not allow this practice to be pursued to the same

 

34The results of the earliest studies are summarized in G.A.
Frick and R.L. Mighell, Adequncy_gf Dairy Feedipg Input-Output
Research Data from the Point of View of the Economist, published in
"Nutritional and Economic Aspects of Feed Utilization by Dairy Cows?
edited by C.R. Hoglund, Glenn L. Johnson, Charles A. Lassiter and
L.D..Mccilliard (Ames: Iowa State College Press), 1959, pp. 107-

115. More recent estimates can be found in Leo M. Hoover et als.
"Economic Relationship of Hay and Concentrate Consumption to Milk Pro-
duction," Journal of Farm Economics, vol. IL, no. 1, Part I, February,
1967, pp. 64-78.

35G.E. Frick, et als.,op, cit., p. 114.

102

extent in a region like Montreal.
Fixed Assets

Let us shift our attention to the allocation of the so-called
fixed assets on dairy farms. G.L. Johnson defines a fixed asset as
onefnr' which the marginal value productivity in its present use is
greater than its disposal price and smaller than its replacement cost.36
This definition is adopted in this study. Johnson's asset fixity

theory is essentially based upon the recognition that some factor

markets are imperfect for agriculture in general and.morenso‘for acme um‘

specific segments of the agricultural sector. It is appropriate for
this study to extend this statement a little further and argue that
some agricultural factor markets may be more imperfect in some regions
of a country than in others in the sense that the difference between
the acquisition price and the salvage value of a given factor may be
larger in the former than in the latter. The following discussion
explores the implications of such a theory for resource allocation on
Eastern Quebec's dairy farms.

*pr the sake of brevity, Johnson's logical derivation of fixed

asset theory is not restated in this study.37 However, in order to

 

36G.L. Johnson, "Supply Function--Some Facts and Notions," Agri-
cultural Adjustment Problems in a Growing Economy (Ames: Iowa State
College Press, 1958), p. 78.

37A clear and concise explanation of this theory can be found in
Dale E. Hathaway, op. cit., pp. 110-18.

 

DOB.
show that this theory applies, we first need to examine the possibility
of a significant difference between acquisition cost and salvage value
for one or more inputs used on a given regional dairy farm at a given
point in time.38 Two inputs which come readily to one's mind are
labor and land. For an individual already engaged in dairy farming
in the region, the acquisition cost for his labor measured, as of
1969, would be the opportunity cost of the income foregone by not
entering another occupation at the time he entered dairy farming.
On the other hand, the salvage value of his labor from the dairy farm,
as of 1969, is essentially the earnings thatEhe«couldvreceiue<either
in other industries or in the other sectors of the agricultural industry
where his labor could be sold.39 The difference between the acquisition
cost and the salvage value of this person's labor may be fairly large
since seniority and experience are known to improve the earnings of
nonfarm workers, as Hathaway has pointed out.40 As far as land is
concerned, the acquisition cost in Eastern Quebec might be viewed as
the price paid for it at the time a dairy farmer started his operation,
plus the accumulated costs of clearing and improving it. The salvage
value of this land is the price this farmer could receive for it if

he were to sell it at the current time. Evidence indicates that the

 

38It is important to emphasize that the discussion refers to indi-
vidual dairy farms rather than to an "average" dairy farm of the region.
This specification stems from the fact that the asset fixity theory leads
to situations which connot be readily aggregated.

39D. E, Hathaway, op. cit., p. 120.

401616., p. 121.

104
value of most farm land outside agriculture is very low in the region.
It also indicates that the salvage value of most dairy farm land for
other agricultural uses is also very low in the region. Witness, the
substantial number of former farm lots which lay idle in Eastern
Quebec."1 Thus, there is likely to be a substantial divergence between
acquisition costs and salvage value for land in Eastern Quebec as of
now.

The inputs which are characterized by this divergence between
the price of acquisition and their salvage value at a given point in
time are numerous in dairy farming. For instance. fences and hay
storage buildings. to name but a few, have relatively high acquisition
costs but their salvage value are known to be very low.

One at the major contributions of Johnson's asset fixity theory
has been to show that in order to readjust his factors of production
to make more profits a farmer must consider not only the prices of
inputs (including price of acquisition and price of salvage whenever
they differ) and output but also the bundle of factors that he is
starting with. For instance a regional dairy farmer who finds himself
with too much land might rationally decide to sell some of it until
the amount of land with which he is left earns at least as much in

its current use as its salvage value. A dairy farmer who finds himself

 

41Esquisse du Plan, op. cit., p. 124.

 

—_ .- -.-_—._.'l-

 

105
with too little land, however, might rationally decide to buy some of
it until the amount of land acquired earns at least as much in its
prospective use as its acquisition price. Both might have started with
factors in identical quantity and of comparable quality, except for
land, and end up with substantially different factor endowments once
the readjustment process is carried out.

The asset fixity theory implies, among other things, that diver-
sity among dairy set ups in a depressed region like Eastern Quebec
is not by itself a valid basis for arguing that most of their operators
are economically unmotivated. Even more, a larger diversity among
dairy set ups in Eastern Quebec than in the region like Montreal would
not be a valid basis for arguing that dairy farmers are less economic-
ally motivated in the former region than in the latter if it could in
fact be shown that the markets for fixed assets are in general more
imperfect in the former than in the latter region. Substantiating
this tentative statement would require data which, unfortunately, are
not available.

It is thought that the term "standardization of dairy farm struc-
tures", which is often used in the regional planning documents, is
carried too far. The planners' expectations might be disappointed by
the dairy farmers' response to the planning policies unless these
policies are also successful in reducing the divergence between the
acquisition price and the salvage value of those resources which are
trapped in dairy farming.

The foregoing discussion can be summarized as follows. First,

 

106
evidence indicates that the feeding rations on regional dairy farms
vary substantially from farm to farm (Appendix D). These differences
do not necessarily imply lack of economic motivation on the part of
most of these farmers. Secondly, the structures of dairy farms--when-
ever the structures are defined in terms of the combinations of fixed
assets--may also be substantially different from farm to farm. These
differences are no proof of economic irrationality on the part of most 3 l
of the farmers as long as some significant imperfections exist on the
markets for some fixed factors used by the farmers. Thirdly, the

owners of the small butter plants in the region may not and probably

 

do not lack economic motivation. Monthly output stability may be a
crucial requirement for the technological improvement of their enter-
prises. This does not deny, however, the possibility that a few larger
plants might achieve economies of size which are not currently within
the managerial and financial reach of the smaller plant operators. But
for an individual small butter plant owner, this might result in his
plant going out of operation.
Government Activity on the Milk Market

Attention is shifted at this juncture to the government strategies
which currently affect the demand for and supply of dairy products in
Canada as a whole and in Eastern Quebec in particular. The government
has been involved in affecting supply of and demand for dairy products

to such an extent that these policies need to be explored.

107
The National Dimension

Public intervention has heavily affected the conditions of adjust-
ment of supply and demand on the Canadian dairy products market. Since
1933 the status of milk boards has been characterized by an advance from
a temporary postwar measure to a permanent position. The government of
Quebec has followed the same path as other provincial n
governments in promoting collective bargaining by milk producers as a I
means of coping with the farm price and income problem. The rationale
behind this type of marketing arrangement is to raise dairy farm prices

and income by providing these boards with the means of achieving a mono-

 

polistic pricing technique which is commonly referred to as a two-price
plan. Carried under provincial legislation, these plans take advantage
of the facts that the price elasticities of demand differ in the fluid
milk and the manufactured milk markets and that the cost of discrimi-
nating between.the markets are relatively low. Milk going into the
fluid trade sells at a higher price than manufacturing milk.

Three techniques are used to enforce this marketing system.
First, supply quotas and limitations in the number of shippers on the
fluid milk market are imposed upon the industry. The purpose of these
measures is to stabilize supply on the privileged market (fluid) while
ensuring that the income transfer from consumers of fluid milk to the
dairy industry are not gradually eroded by a lack of discipline.
Second, price support applies to manufacturing milk products. This
price support policy is intended to improve the relative income of
manufacturing milk producers in relation to fluid milk producers, or

at least to prevent it from worsening. Third, as a result of the new

108

Agricultural Stabilization Act of 1958, the Agricultural Stabilization

Board (hereafter referred to as the ASB) is assigned the task of sup-
porting the price of butter. This institution. deserves further at-
tention, especially with regard to its impact on the agricultural
economy of Eastern Quebec.

The relationships between the forces of supply and demand under
the ASB system can be illustrated graphically. In its capacity to
enter into the market as either a buyer (during the high milk output
months), the A83 is able to maintain an effective floor price. During

the high-milk-output months, the action of the Board is shown (Figure

4) to introduce a kink in the demand curve at whatever price the Board

is ready to buy. Curve Sh is the horizontal sum of the marginal costs
curves of the butter plants given an unsubsidized price of butterfat

on production.
I} 1

Price .8 S
of D h h
butter \\\\\\\\\\ J//////////////////%

l .

 

 

 

P1 """‘ ‘ """
l , DD1: demand function
I for butter per
: unit of time
|
l
I
I I
l I
I I
l 1 A
O ; r
qz q1 Quantity of butter

per unit of time

FIGURE 4. Hypothetical Market Equilibrium Situation when the Board
Acts cm a Buyer of Butter.

 

109
Curve 31h is the horizontal sum of the marginal cost curves of the
butter plants given a subsidized price for butterfat in production.
The equilibrium price on the market is P1 and the total quantity sold
on the market is ql, out of which qz is bought by consumers and(q1-q2)
by the board to be temporarily held in stock. The processor receives

P1 plus the subsidy per pound of butter. During the low milk output 1

-2}? .

months, both SL and SlL-- which are defined in the same way as Sh and

03“-?

Slh except for the time period--are shown to have an horizontal section

 

'4 715‘. a"

which represents the supply of butter by the Board (Figure 5). Figure 5 is

 

 

 

l
i
8L
I .
1
Price F D ~L
of
butter
E1 : demand function
for butter per
unit of time
o. . I
q12 q11 quantity of butter

per unit of time

FIGURE 5. Hypothetical Market Equilibrium Situation when the Board
Acts as a Seller of Butter.

110
built under the assumptions that (l) ql - q2 in Figure 4 is equal to
qll ‘ 912 in Figure 5, that is the Board will supply whatever quantity
of butter it has accumulated during the previous period, (2) there is
perfect foresight 0n the part of the Board as to the anticipated low-

supply-months function, (3) the Board is willing to sell at P1, thereby

' .-.\...nfl

not recovering the costs of storage, and (4) the demand function is the
same for both periods. Under these assumptions, the equilibrium price

with both the subsidy and government entering the market either as a ;

 

“EA ‘ l

buyer or a seller is maintained at P1 throughout the year.

This theoretical representation is conditional upon the assump-
tions made. For instance it is very unlikely that the Board will in
fact be able to equate q11 - q12 with ql - q2 year in and year out.
Moreover, dividing the production year into two subperiods may not
valid. There may be more than two subperiods in a year during which
the aggregate supply function shifts to a significant extent. However,
whatever may be the appropriate time unit for the diagram, the prin-
ciple remains the same as long as the government agency remains com-
mitted to resell at whatever price will cause its temporary stock to
find buyer. This price could be expected to be around P1 if the gov-
ernment's supply expectations came close to being realized.

The main question which arises at this point is: To what extent
do the dairy farmers supplying manufacturing milk benefit from such
government's intervention? The answer is far from being evident. The
butter subsidy contributes to increasing the quantity of butter effec-

tively demanded by the consumers since the demand for butter is not

 

11L
completely inelastic to price changes. This has a direct effect on
the derived demand for manufacturing milk. But the presence of the
ASB as a buyer during the high supply months and as a seller during
the low supply months also affectSc the degree of competition from
margarine. Since butter would probably be less expensive in high milk a
supply months and more expensive in low milk supply months under free
market conditions than it is presently, it is difficult to determine
whether or not the balance of these effects makes butter more compe-

titive with margarine in Canada. A thorough econometric analysis

 

"1‘" -.

would be needed for estimating these consequences.

Another important aspect of the previous question is that the
price support programs in conjunction with the ASB's operations
contribute to stabilize the price of manufacturing milk throughout
the year. Trant holds the following opinion in that regard:

Although the desirability of stabilizing the prices of certain

dairy products throughout the year above the level of sta—

bility achieved by the free market is debatable on economic
grounds, the present programme has achieved this result with
fixed prices throughout the year.42

The question whether the Canadian dairy processing industry might
benefit from a gradual return to a free market system constitutes a

very complex issue. On the one hand, there are reasons to believe that

a more balanced distribution of milk supply throughout the year will not

 

42Gerald I. Trant, Recent Canadian Dairy Price Policies (Guelph,
Ontario, Department of Agricultural Economics), Ontario Agricultural

College, 1963, p. 10.

112

be achieved in Canada until a certain amount of seasonal price flexi-
bility is tolerated. On the other hand, there are alSo reasons to
believe that the government intervention has reduced milk price uncer-
tainty to a certain extent, which in turn might have significantly
contributed to the steady increases in total Canadian production.

It is now generally recognized that Canada is a surplus producer {‘
of both fluid.amd manufacturing milk. Some recent research efforts ;

have been made in order to disentangle the host of factors which have

 

contributed to this situant6n043 It has been found that the Canadian
dairy industry has been adversely affected by the evolution of both
domestic (Table 27) and foreign demand.44 Concomittant with this trend

TABLE 27. Per Capita Consumption of Dairy Products in Canada, Retail
Weight, 1951-1953 and 1961-1963.

 

 

Annual Averages Annual Averages

Itema 1951-53 1961-63

(pounds) (pounds)
Fluid milk and cream 409.9 327.6
Butter 21.4 17.8
Cheese 6.7 8.3
Milk in ice cream 32.9 30.3
Skim milk powder 3.9 7.9
Evaporated whole milk 18.3 17.5
Other dairy products 2.9 4.5
Dairy products, total 495.9 413.9

 

Sources: John Dawson, Changes in Agriculture to 1970, prepared for the
Economic Council of Canada, Study No. 11, December, 1964, p. 5.

aUnfortunately consumption figures for margarine are not available.

 

43G.I. Trant, op. cit., and William Mackenzie, op. ci .
44G.I. Trant, D.L. MacFaflLame and L.A.Fisher, op. cit., pp.48-56.

 

113

in demand have been a series of changes in the supply of milk which
appears to aggravate the imbalance between total (domestic and foreign)
consumption and domestic production.45 For the sake of brevity, these
changes in supply are not discussed in this study.46

The dairy dilemma currently faced by the Canadian agricultural P:
policy makers appears to be that of opting between the objective
of developing a more competitive dairy farming industry and the objective

of maintaining the status quo. Mbre specifically, the long-run govern-

 

mental choice seems to revolve around (1) a sudden withdrawal from

IT

processors's subsidies and direct payments to manufacturing milk pro-
ducers with all the hardships thereby imposed upon this portion of

the dairy subsector, (2) a phased withdrawal from the same programs
with conCurrent projects aimed at increasing the productivity of the
farms likely to remain in the industry and facilitating the transfer

of individuals who are going to leave it, or (3) no withdrawal from the
former programs with the concurrent projects specified in (2).47 Each
alternative is value-loaded and a move in any direction is likely to
end up in the political arena. The second option would seem the better
alternative but the main ground for disagreement has to do with the

programs needed for the displaced people.

 

45The threat of imitation and filled milk may still be felt to
a lesser extent in Canada than in the United States. Its future
consequences«cannotyrhowevehunbeototalw1y“ignoredw'. It: Furnc'

46See G.I. Trant, op. cit., pp. 3-7, for a discussion of these
changes.

476.1. Trant, op. cit., and William Mackenzie, o . cit., advocate
new dairy policies which would fit under alternative (2). Both pro-
posals are worth being investigated.

114

The analysis undertaken in the following chapters of this study
is predicated on the assumption that the support price policy announced
for the year commencing April 1, 1969 will be maintained in the fore-
seeable future.48

The Regional Dimension r

The remaining issue has to do with the expected levels of supply A
and demand for the dairy products of Eastern Quebec. It must be pointed
out at the outset that no systematic attempt has been made by the

regional planners to project demand for the dairy products of Eastern

 

Quebec. This is understandable under the present lack of statistical
information necessary for undertaking such a task. It is therefore
hoped that the following verbal discussion on some important factors
which might affect the long-run demand for regional dairy products
will partly fill in the gap created by the lack of empirical data.
There are many factors which are likely to affect the demand for

both fluid and manufacturing milk processed in the region. The following

 

48The support price for manufacturing milk for the year commenc-
ing on that date was set up at $4.85 a 100 pounds of milk testing 3.5
per cent butterfat. To supplement the market value and provide the
$4.85 support level, the rate of direct subsidy for manufacturing milk
is set at $1.25 per 100 pounds of milk for deliveries up to quota. To
finance the cost of surplus disposal, however, the Dairy Commission holds '
back from subsidy payments an average of 29 cents per 100 pounds on milk
deliveries. There is a differential rate of hold back on deliveries up to
quota and on those in excess of quota. For deliveries up to quota the rate
is 26 cents per 100 pounds of milk. On deliveries in excess of quota the
rate is 52 cents per 100 pounds of milk.

 

Hun.-

 

 

115

list is restricted to those which are probably the most pertinent.
Fluid Milk

The improvement in the means of transportation between Eastern
Quebec and the North Shore could be expected to substantially increase
the demand for dairy products in Eastern Quebec, especially fluid milk.
It appears that Eastern Quebec has already a competitive advantage in
supplying fluid milk to the North Shore where agriculture is almost totally

absent. The major obstacle impeding larger fluid milk shipments from the

 

region to the North Shore appears to be the inadequacies of the marketing

1"

system, especially transportation. The size of the North Shore market is
small but its increases have been substantial. The population of the
North Shore was 42,664 in 1951, 60,996 in 1961 and 107,663 in 1966.

The rapid rate of disappearance of small residential farms where
milk and butter are produced mostly for the family needs can also be
expected to generate an increase in demand for the same products through
commercial channels in the region. However, this will be true only to
the extent that these families do not emigrate.

Finally, the greater discipline necessary to achieve monopolistic
price discrimination will probably become easier as both the number
of dairy farmers as well as the number of small farmers selling milk
to consumers on a "petty trade" basis decrease. There are reasons to
believe that increased local demand for fluid milk might be affected

by the countervailing power of the local cooperatives, especially if

4 Kenn—a

 

 

116

mergers among small cooperatives take place at a faster rate. Emphasis
on seeking higher prices for fluid milk might be expected.
Manufacturing_Milk

The income elasticity of demand for most dairy products at the
farm level is believed to be very low in Canada. Estimates range from
0.2 to zero depending upon the assumptions made, the milksheds con-
sidered and the periods of the studies. The fact that regional urban
incomes are substantially lower than the national urban average might

lead one to expect the income elasticity for dairy products to be

 

slightly higher than 0.1 in Eastern Quebec. This might be especially L
true for milk used in producing cheese, ice cream, skim milk powder

and evaporated milk. However, the increases in demand tohbeuexpeCted

because of income increases will probably be fairly small. Moreover,

the planners' projection indicate that the regional population will

probably be fairly stable in the foreseeable future. Increases in

demand for dairy products due to regional increases in population will

thus probably be of little importance.

The changes in the demand for butter processed in the region will
likely continue to depend upon economic conditions external to the region
as well as on the future governmental policies affecting the level of
subsidies on butter. Any change in the level of the consumer's subsidy
might be expected to significantly affect the entire agricultural
economy of the region. Therefore, it cannot be concealed that the
degree of uncertainty concerning the total demand for butter processed

in the region is fairly high. The decrease in per capita comsumption

‘2' .'

 

 

 

 

 

117
of butter in Canada (Table 27) indicates that a change in consumers'
tastes may have had an unfavorable effect on this commodity.
No major efforts had been made by the local dairy processors to
diversify their production until the planners suggested that five

large diversified dairy processing planning plants, instead of the 46 small

 

butter plants which existed in the region in 1964, appeared to be a feasible F1
alternative in the region. Apparently, these larger processors would be

able to compete on the skim milk powder (roller and spray) markets on a

wider geographical basis. This would allow these plants to utilize the

residual products of their butter enterprises (skim milk). E:

In summary, it appears that the future increases in demand for
the dairy products processed in Eastern Quebec will mostly depend
upon the potential for a greater entry into the North Shore fluid
market and upon the possibility of competing on the Eastern Canadian
skim milk powder market. Butter will very likely remain an important
commodity processed in the region but its relative importance might
decrease significantly in the next decade.

The future of the dairy farming industry in Eastern Quebec
hinges largely upon the agricultural trade policies to be followed by
Canada in the next future. A rapid move towards international trade
liberalization measures might be a serious threat to the dairy sub-
sector of the region. A slow move towards freer trade, however,
might be favorable to it if the policies advocated by the planners
were successful in raising the productivity of both the dairy farmers

and the dairy processors in the region. It seems reasonable to

118
conclude that the regional dairymen cannot currently compete with
Danish and New Zeiland dairymen in producing butter on a free trade
basis.

On The Dynamics of Resource
Adjustments: A Summary

The dynamics of resource adjustments must be viewed in the con-

text of constinuously changing regional demand functions due to popu-
lation and income growth and other factors as well as changing supply

functions due to changing technology and factor prices. In a dynamic

 

framework focus is placed on estimating the rates of change of these E
functions in order to provide a framework for more detailed exploration
of particular policies and programs to aid the development of a region.
Within this dynamic framework the standard body of economic
theorYleads to the following conclusion. If the organization mechanisms
of market economies were functioning perfectly, all economic agents
would seek to sell their labor services, as well as therservices of the
other factors which they own, where their marginal value product is
the greatest, thereby.imposing upon the economy an inherent tendency
to lead to a reduction in income differences between factors, indi-
viduals and areas. The questions which naturally arise are the fol-
lowing: Why is it then that the returns accruing to factors of pro-
duction in a region like Eastern Quebec may exhibit a persistent and
significant tendency to diverge from those of other regions? And why
is it that the returns accruing to factors of production in the dairy
subsector of Eastern Quebec may exhibit a persistent and significant
tendency to diverge from those of other sectors either inside or out-

side the region?

119
In order to answer these questions, it seems appropriate to
question the relevance of some of the assumptions of standard economic
theory on the basis of the information that was presented in the pre-
vious sections of this chapter. This may be a fruitful way of sum-
marizing the foregoing description of the problems of the regional

dairy subsector.

I.“ ._

Standard economic theory classifies factors of production into

groups which are supposedly homogeneous. For instance, labor is

treated as a homogeneous factor of production. However, to the extent

T__‘3“&i. '

that education generally increases the salable value of one's labor
services, it can be argued that the returns to labor will differ from
region to region partly because of the fact that the levels of education
of their people are substahtially different. The pieces of evidence
brought into this study tended to show that farm operators are rela-
tively less educated than the rest of the working population in Eastern
Quebec, and than farm operators in the more developed regions of Quebec.
This implies that the value of the dairy farmers' labor services

in Eastern Quebec tends to be low both in the current use (their MVP

in dairy farming) and in the alternative employment opportunities open
to these farm operators. The fact that most of these farm operators
hold off farm jobs for a few months in a year is not inconsistent

with the previous proposition. It only implies that those sectors which
are known to demand seasonal labor services (mostly fisheries, tourism, and
forestry-related operations) are creating for a few months conditions
where the salvage value of farmers labor services is greater than its
MVP in agriculture. Evidence shows that the regional dairy farmers

respond to these job opportunities.

 

 

 

 

III.

120
Static standard economic theory also assumes perfect mobility
of factors of production between sectors and between regions. The
content of this assumption has been challenged in at least three
ways, namely in that (1) it says nothing about the costs of migration,

(2) it implies perfect communication of job opportunities wherever

3

they are, and (3) it is based upon the notion of markets free of
imperfections. There are reasons to believe that the costs which a
farmer's family has to bear in order to emigrate from Eastern Quebec

are fairly high. However, no data are available to substantiate this

 

proposition. Evidence available shows that the size of these families
is very large-— the average ranging from 6 to 8 persons on census farms
--and that there is a strong tendency for those leaving the region
to be in the lower ages.49 The fallacy of the assumption of perfect
communication of job opportunities is self explanatory. The issue of
imperfect markets was also raised in the previous discussion. It was
argued that some fixed assets currently utilized in regional dairy
farming are trapped into agriculture because of the significant diver-
gence between their acquisition price and their salvage value. The
suggestion that this divergence may be even larger in Eastern Quebec
than in the other region of Quebec was tentatively proposed.

The foregoing description of the dairy subsector in Eastern
Quebec leads to the conclusion that resource adjustments have taken

place in the region despite the fact that factors currently used

 

49Compiled from 1966 Census of Canada, Catalogue No. 96-606,
op. cit.. The low average of six persons per census farm was for Gaspé-
East dnd the high average of eight persons per census farm was for
Matane.

-121

hithis subsector tend to earn income which is substantially lower
than provincial averages. The main adjustments have been the following:
1. The diminution in the number of dairy farming operations
has proceeded at a relatively rapid rate during the Last decade.
2. Dairy farming has attracted relatively few of the younger as
elements of the working population during the last decade.
3. The size of the remaining dairy farms slowly increased over

time.

 

The nature of government intervention may have considerably slowed

MD":-
,.

down the rate of resource adjustments in the dairy subsector. Its main
effect is probably to increase the MVP of most resources used in the
production of dairy products in the region. In the past, emphasis has
been laid on government intervention through income redistribution
measures such as subsidized production in preference to policies which
would have increased the physical efficiency of the production factors.
The discussion of the comparative advantage of the regional dairy
subsector leads to the conclusion that Eastern Quebec might be able to
compete--on a real cost basis--with other dairy farming regions of
Quebec, at least in the regional market. However, the potential for
its growth will largely depend upon its capacity to increase its share
of the North Shore fluid market where it appears to have a comparative
advantage and upon its ability to shift to other commodities such as
dried skim milk which might make the regional farming industry more

competitive on the larger Eastern Canadian market.

122

In conclusion it appears that the problems of the dairy subsector
in Eastern Quebec are shared, to a significant extent, by the other regions
of Quebec, with the possible exception of the region of Montreal where the
process of agricultural resource adjustments seems to have proceeded mote
rapidly. The increases in the costs of some important factors of production--
notably labor and land-- are likely to have been substantially higher in the
region of Montreal than in the other regions of Quebec. This might partly
explain why land-saving and labor-saving technologies have been introduced
more rapidly in the former region than in the latter ones. One might think
of the modern dairy housing and dairy milking arrangements as being labor
saving technologies as compared to the traditional types of dairy techno-
logies that are still commonly found in Eastern Quebec. One might also
think of pasture fertilization and changes in dairy feed rations towards
greater use of grain concentrates as being 1and~saving technologies in
dairy farming, the latter case being self explanatory whenever purchased
grain concentrntes are substituted for other feeds which were produced on
dairymen's own farms. The differences in the structures of dairy farms
of Eastern Quebec as compared to the region of Mortreal are found to be
consistent with this pattern of resource allocation. The marginal use of
freight-assisted feed grains by dairy farmers of Eastern Quebec is also
logically consistent with these prop031tions.

Disagreement with the planners' interpretation of the current resource
allocation in the dairy subsector of Eastern Quebec is expressed in the
study. I: is argued that lack of economic motivation cannot be proved
on the basis of the present patterns of resource allocation in the regional

dairy subsector. However, there are reasons to agree with

 

123
the planners' views that (1) the dairy subsector can only be developed
with the rest of the regional economy but not despite of it, (2) the
development of the dairy subsector will entail a substantial reduction
in the number of dairy farms and butter plants, and (3) government
intervention needs to shift from income redistribution measures to
programs which would increase the productivity of the agricultural
resources of the region. The general conclusion is that the regional
agricultural economy needs more productive resources, including the
human resources, and freer entries into other markets in order to be
able to compete with other dairy areas of Canada. The planners' argument
that it is desirable to encourage dairy farming in the most promising
zones (A and B) and to discourage dairy farming in the less ecologically

suitable zones (C, D and E) of the region seems acceptable.

1h-

.. 4:1

 

I“: in»: as..- w

PART II

Analysis of Alternative Regional Dairy F7-
Development Strategies

CHAPTER V

ALTERNATIVE DAIRY DEVELOPMENT STRATEGIES
AND FARMERS' INTENTIONS

 

Introduction

‘81.. “

 

Conflicting values and beliefs are held concerning the future
orientation of dairy farming in Canada. It appears that this issue
has reached its greatest momentum ever since the total quantity of
Canadian dairy products sold per year has flattened down.1 The fact
that "almost three-quarters of the volume of milk being used in Canada
is produced as a specialized activity by one-quarter of the farmers
(who produce milk)" indicates that the problem has at least two dimen-
sions on the supply side.2 On the one hand, it has been argued that
the long run goal of the future Canadian dairy policy should be to move
the industry toward the goal of greater competitive efficiency in pro-
duction. This point of view is usually associated with the belief that

higher production efficiency can only come through specialized dairy

 

1W. Mackenzie, speculates that the total demand for Canadian dairy
products might start decreasing in the foreseeable future. It appears
that the new trend towards stability in total Canadian consumption of
dairy products has started in the late 1950's. See W. Mackenzie, op. cit.,
pp. 1-4.

 

124

125
farming with dairying as the sole or dominant enterprise of the farm.3
On the other hand, it has been argued that one of the major issues currently
faced by the Canadian dairy industry is the intra—industry income distribu-
tion problem. This point of view is commonly associated with the belief

that the price differential between fluid and manufacturing milk and

- -. {If

differences in managerial skills are partly responsible for the fact that

fluid milk producers have moved faster towards specialization and the use

of modern technology than non-fluid milk producers.4 .

 

3.,“ '

Mbst researchers who have been concerned with dairy farming in
Canada recognize, however, that the volume of milk currently sold in
Canada could be produced on fewer dairy farm operations with the use
of substantially fewer resources per pound of milk produced. For instance
the argument has been advanced that "there were enough apparently fixed
resources on Ontario fairy farms to permit an expansion of cow numbers
by 18 per cent."5 There are several reasons of suspecting that the same
argument might hold, at least to the same extent, for the Eastern Quebec
dairy farming industry as of now.

In the following parts of this study the long-run government objective
for the regional dairy farming industry is presumed to be the goal stated
by the regional planners. This goal is the promotion of production effic-

6

iency. It is therefore assumed that the other agricultural planning

programs will be successful in facilitating the transfer of human

 

31bid., p. 44.
4See W.J. White, op. cit., p. 30.

5G.I. Trant, op. cit., p. 6.
6Development Plan for the Pilot Region, op. cit., p. 40.

126

resources from agricultural to other sectors of economic activity. The
discussion that follows is also predicated on the assumptions that the
regional dairy farmers are economically motivated and that they are likely

to respond to larger income opportunities as they perceive them.

I}...

Alternative Dairy Development Strategies
The planning approach which has been proposed for raising the levels
of productivity and the profitability of dairy farming in Eastern Quebec

comprises two general groups of programs. The first group of programs aims

 

NY-

at facilitating the transfer of human resources from non-commercial farms
to other sectors of economic activity located either inside:of outside the
region.7 While these program strategies are important to aid in improving
resource adjustments in the region, they are beyond the scope of this research.
Let it be sufficient to recall that approximately 65 per cent of all the
census farms recorded in the region in 1966, or 5,798 out of 8,906, were
non-commercial. The second group of programs aims at facilitating the
acquisition or more and higher productive resources by farm operators who
choose to continue farming. This study is exclusively concerned with this
second general group of programs.

According to the regional development plan, three major dairy develop-
ment strategies which fit into the second general group of programs, would

be given priority during the first planning horizon (1968-75). These

 

7There is an important issue related to this group of programs
which is not explored in this study but which must be mentioned. This
issue consists in the fact that approximately 33 per cent of all the
operators of non-commercial farms in the region, or 1,915 out of 5,798,
were 55 years old or more in 1966. Presumably, most of these older farmers
do not have many off farm opportunities.

127
strategies are as follows:
Strategy I: Improvement of Dairy Stock

The further development of specialized dairy stock raising farms

is one project for improving dairy stock in the region. Private dairy
farms located in agricultural zone C (Figure 2) would be encouraged to
buy some dairy stock from other areas of the Province of Quebec and to Ti
specialize in raising dairy stock. These farms would raise heifers with
higher production capacity (through progeny testing and preferential use ,

of superior sires) than those which are now commonly raised on the regional

 

dairy farms. The heifers would be offered for sale to the dairy farmers
of the region prior to their first calving. The regional planners suggest
that the average production (mature-‘equivalent basis) of these heifers
might be around 8,000 pounds per year and that they would sell for about
$250. While recognizing that this objective is rather low, the planners
seem reluctant to suggest that very high production-capacity cows should
be immediately introduced in the region. The sources of their reluctance
are not, however, clearly spelled out in the regional planning documents.
The planners' point of view appears to be based on the presumption that a
gradual adoption of more suitable dairy management practices will have to
be followed before very high productive cows can be systematically intro-
duced in the area. The figures on cow productivity suggested by the
planners will be used in the main analytical part of the study while more
productive cows will be considered in the sensitivity analysis.

It is thought that there are at least two additional stock replacement

strategies which are worth analyzing also. One alternative strategy would

128

consist in selling heifers raised on the specialized dairy stock farms at
a subsidized price. The subsidized price which this study intends to consider
will be specified later. A third strategy would consist in the improvement
of dairy stock in the region through articifial insemination.
Strategy II. Improvements in Feeding Rations.

The planners have expressed the opinion that a significant increase
in the yields of dairy cows could be achieved in Eastern Quebec through
major improvements in the feeding rations. Unfortunately, this opinion

has not yet been adequately substantiated. The main question, however, is

 

.11

whether or not an improvement in dairy feeding rations is economically
justifiable, given the input and output prices faced by the regional dairy
farm operators.

It appears that there are two main possibilities for improving the
dairy feeding rates in the region. The first possibility consists of
increasing the quantity of forage and/or grains fed to dairy cows. This
could be done either by increasing yields of dairy crops possibly by increas-
ed fertilizationg or by expanding crop acreage through buying or renting.
The second possibility consists of improving quality and feeding value of
the forage crops. This could be done by earlier and more frequent harvest
or by shifting from hay and oats for grain to silage. Since intake of

forage is related to quality, improved quality forage can increase milk

 

8Increased fertilization appears to be technically suitable for the
region since the high moisture conditions which prevail in the area are
known to be favorable to the response of hay and pasture crops to fertilizer
applications. It is generally recognized, however, that pasture fertiliz-
ation increases dry matter production and yields of native herbage, though
generally not to such an extent as is obtained when improved species are
seeded. No research results have yet indicated that fertilization of hay
and pasture crops might have a high payoff in the region. This study submits

129
yields without increasing rates of grain feeding.

According to the regional planners both possibilities can be pursued
in the region. It is believed that regional supply and demand for land
ecologically suitable for dairy farming can be equated at relatively low
price levels. On the one hand, the planners foresee that the new exit F“
opportunities which will be offered to the regional farmers will contribute
to shifting the land supply function to the right. On the other hand, a

greater discrimination in the allocation of quotas on the part of the federal

 

government, especially to very small dairy operations, may be expected to

LIL .

substantially reduce the price of land on those operations which lost or
expect to loose their quotas since the quotas are mostly capitalized in
the value of land. Under such circumstances, there might be a real
possibility for those dairymen who want to continue farming to expand their
crop acreage. It is also believed that production of total digestible
nutrients can be significantly increased on local dairy farms by shifting
from oats harvested as grains to oats harvested as silage. Investments in
silos and silage equipment would be necessary in the latter case.

In order to substantiate these beliefs, this study considers a range
in feed quality and characteristics that serve to demonstrate the effects
of variations in feed quantity and quality that might reasonably occur in

the region. Information collected in the survey is used to estimate current

 

that this alternative strategy for increasing-dairy feed supply in the ,
region is worth being further investigated. Widespread use of plant nutrients
on hay and pasture crops does not appear to have yet caught on in Eastern
Quebec. It is highly unlikely that there will be any immediate and sharp
increase in the use of fertilizer on these crops. This practice might
increase in the region, albeit slowly.

130

feeding rates on various farms of the region. These estimates are combined
with information on species of grasses and legumes grown in the area to
specify the range of dairy rations used in this analysis. A thorough
discussion of these feeding rations is presented in the following chapter.
Strategy III. Farm Consolidation and Community Pasture Programs

Farm consolidation and community pastures have been advocated by the
‘planners in order to facilitate the expansion of dairy farm sizes. From
.a purely pragmatic point of view, both policies could be considered as
<:onstraints in this study because these policy recommendations have al-

zready been accepted, and thus the market for agricultural land will be

controlled by a government agency.
The activities originally proposed for the government agency (Service

'ifeschnique Agricole) which is to dominate the land market of the region are

as follows:

This Service (Service Technique Agricole) will have the task

of preparing agrarian schemes by zones and sub-zones. It will
have the power to buy, rent, enlarge, improve and determine
the potential use of land as well as the power to administer
community pastures and to select . . . those operators who can
utilize them. For the purpose of facilitating its task and in
order to acceherate the farm enlargement and the land improve-
ment processes, it will be endowed with a preemption right on
all the land offered for sale in the agricultural zones. More-
over, in cases where agricultural land will have laid idle for
five years, this Service will be given the power to temporarily
withdraw the owner's right of use and transfer this right to
someone interested in renting this land.

It is not the purpose of this study to question whether such a

government agency needs to be established in order to correct market
\

9Plan de Développement, Cahier 3, op. cit., pp. 144-45.

131
imperfections in the region. The planners have expressed the opinion
that lagging adaptation in land sizes of regional farms are due to
malfunctioning of the regional land market. Apparently, regional
agriculture is faced with a serious problem of fragmentation of crop
land which makes it difficult to develop contiguous farm units. One
might argue that regional land market imperfections will correct them-
selves by the improved interaction of free market forces as further
economic development proceeds in the region. However, more convincing
voices have apparently led the policy decision-makers to believe that
effective government intervention is necessary for launching further
agricultural development in the region.

The presence of the government agency on the regional land market
might give rise to two slightly different situations. In the first situation,
tihe agency would exercise its preemption right in all agricultural land
t:ransactions. In the second situation, the agency could exercise its
Preemption right only in those instances where it is felt that some very

serious market imperfections need to be corrected. In the former situa-

tion the :regional agricultural land market would be completely dominated
by the government agency whereas a free agricultural land market would
cOntinue to operate in the latter situation. Tight controls may also
be expected in the former situation. If a dairy farmer's ability to
e1 ther buy or rent land from the government agency is to be determined
on the basis of the quantity of cropland that he already owns, then one

Can foresee the possibility that his growth objectives might be hampered

by these controls.

 

132

This study proceeds under the assumption that government inter-

vention in the regional land market will be minimal. Two price levels

for land devoted to agriculture are considered. Current agricultural

land market prices are used in most experiments simulated while the

likely consequences of increased price of agricultural land are con-

sidered in the sensitivity analysis.

Other Dairy Development Strategies

Other planning programs have been recommended for increasing the

productivity and profitability of dairy farming in Eastern Quebec. These

;programs may be classified in two groups. The first group comprises a

set of incentives for young farmers to acquire more adequate vocational

training. It also includes recommendations for improving the teaching

methods and the vocational school training facilities in the region. The
second group includes a set of incentives for the regional dairy process-
:Ltlg industry to consolidate its operations and to diversify its production.

11!: is very unlikely that these programs will have an immediate impact upon

tlie profitability of dairy farming in the region. In the long run, however,

iii: tnight be expected (1) that investments in human resources will have
a substantial payoff in the region and (2) that product diversification

1‘1 'the dairy industry will contribute to raising the price received by

regional farmers for their milk output. Quantifying the net benefits

t<> lae derived from these programs would in itself constitute a major

133
research study.10
This study is restricted to analyzing the likely consequences of the
alternative dairy development strategies described as strategies I, II, and
III. It is necessary to recognize that significant improvements in the
dairy farmers managerial ability might be achieved in the region because
of the implementation of strategies which are not considered in this

study. Such improvements might substantially contribute to increasing these

farmers' capacity to discover and select between new dairy income opportun-

 

v.1:

ities. The fact is, however, that these farmers are now faced with a

choice of either making a positive response or making no response whatsoever
to some specific regional dairy development programs. Some evidence on

the intentions of a selected group of regional dairy farmers with regard

to these programs is presented in the following pages.

The Regional Dairy Farmers' Intentions
One of the main objectives of this research is to find out how

a dairy farmer in a given situation is most likely to react to the new

 

10Two major difficulties may be anticipated by the researchers who
would undertake such a study. First, almost all the relevant data will
have to be collected through survey. Secondly, the uncertainty concern-
ing the future orientation of the federal milk subsidy program would
greatly affect the confidence limit for the estimates obtained. For
instance, the potential market price increases received by the regional
dairy farmers because of product diversification at the processing level
might be readily erased by a reduction in subsidies. The latest changes
in the federal milk price policy indicate that a gradual return to,a freer
milk market might be forthcoming in Canada. Predicting when and how fast
these changes are going to take place is an intractable problem.

in.
a

 

134
government programs. The likely response of the regional dairy farmers
to the new programs may be classified as follows:
1) farmers who continue in dairying and make a positive response
to the new dairy development opportunities;
2) farmers who continue in dairying but make no response to
the new dairy development opportunities;
3) farmers who opt to leave dairying as a result of exit oppor-
tunities in the new government programs or for other reasons.

The empirical evidence presented in the following parts of this

 

1'1. .
'.

study covers a limited segment of the total number of regional farms
reporting dairy enterprises. It is therefore necessary to begin this
discussion by placing the surveyed population in the perspective of

the total population.

The Surveyed Population
Seventy-eight Eastern Quebec dairy farmers were surveyed in the
summer of 1969. Each farmer participated in a personal interview in
which he was asked a series of questions including some regarding the
future growth potentials of his dairy enterprise as he perceives them
and the most likely course of action that he intends to follow in
order to make his dairy enterprise more profitable.

The farms included in the survey were not selected on a probability

sample basis.11 As a result, these farms are not necessarily representa-

tive of all the commercial dairy farmers in the region. There is unsuf-

 

118ee appendix A for details on the design and execution of the
survey. The original questionnaire can be found in appendix A.

135
ficient information available on a probability sample basis for Eastern
Quebec commercial dairy farms to permit an estimate of the extent to
which the estimates presented in this study tend to approximate, or to
diverge from, the estimates that would result from information on a
probability sample of all regional commercial dairy farms. Ffi’
The criteria which were used to select the communities where the

survey was conducted are explained in details in Appendix A. These

criteria are likely to result in a sample of commercial dairy farms from

 

1 ET _

which limited inferences can be drawn about commercial dairy farms located
within the two major regional milksheds. Commercial dairy farms located
within the boundaries of these two milksheds probably have more adequate
resources than other commercial dairy farmers in the region. The likeli-
hood that they will continue farming may be fairly high. It is therefore
necessary to emphasize that the farms surveyed are not necessarily repre-

%
sentative of other strata within the regional dairy farming industry.

General Results
The results of the survey indicate that a high proportion (62.8

per cent) of the respondents intend to increase both the size and the
production capacity of their dairy herds. A third of the respondents
said that they intend to increase the production capacity of their herds
but that they do not plan to milk more cows in the next five years
(Table 28). This leaves a small minority (3.9 per cent) of respondents
who wish to either leave dairying or continue in dairy farming with the

same number and the same type of cows..

136

TABLE 28. Respondents' Intentions Concerning Their Dairy Farming
Enterprises.

 

 

 

Number of Percentage of Respondents
Specified Strategy Respondents in each category
(number) (percentage)
Increase herd size
and production
capacity of cows 49 62.8
Increase production
capacity of cows
only 26 33.3
Increase herd
size only 0 0.0
No change planned 1 1.3
Leave dairying _2 , 2.6
TOTAL 78 100.0

 

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

Most of these farmers thus seem to recognize that increases in
either dairy herd sizes or in production yields of cows (or both)
might significantly contribute to improving their income situation.
There is substantial disagreement, however, among the respondents as
to how they should go about increasing the size and the yield of their
dairy herds. On the one hand, a large majority (85.7 per cent) of the
respondents who wish to increase the size of their dairy herds intend
to raise their own heifers (Table 29). A rather small minority (14.3
per cent) of the respondents wish to buy either all of or only some of

their new heifers.

137

On the other hand, a slight majority (61.3 per cent) of the
respondents who declare that they want to increase the yield of their
cows believe that they can achieve this objective by improving the
quality of their sires and thereby raise cows with higher production
capacity (Table 30).. This belief is shared, to some extent, by a
smaller proportion of the respondents (22.7 per cent) who feel that
they also need to increase feeding rations in order to achieve this
objective. A smaller group of farmers (8.0 per cent) intend to raise
heifers with higher production capacity and to improve feeding rations
but fail to mention how they expect to go about raising more productive
cows. All other respondents (8.0 per cent) would apparently resort to
buying all of or some of their replacement animals, in conjunction with
some combination of other strategies, in order to increase the yield of
their dairy herds.

These results raise some serious questions concerning the estab-
lishment of specialized dairy-stock-raising farms in the region. Apparently
some deep reluctance towards shifting from a raising-own-replacements
strategy to a buying-replacements strategy might be expected on the part
of a large majority of these regional dairy farmers. Two factors might,
however, substantially contribute to reducing their reluctance. First,
lowering the price of the heifers (possibly through a subsidy) to be sold
by the specialized dairy-stock-raisers might be expected to increase
the number of buyers. Secondly, a momentum for adoption of buying-
replacements strategy might build up over time if (1) the early adopters

thereby significantly increased the productivity and the profitability of

 

f,
. -:.':"

 

{We
.‘

138

TABLE 29. Respondents Favoring a Specific Strategy for Increasing Size
of Herds, Number and Percentage.

 

 

 

 

 

Number of Percentage of Respondents
Specified Strategy Respondents in Each Category
(number) (percentage)
Raise all replacement 5;
cows on own farms 42 85.7 ;
Buy all replacement cows 5 10.2 ’
Raise and buy replace- :
ment cows 2 4.1 ;
1
TOTAL 49 100 .0 j
2
.1:

Source: Eastern Quebec Dairy Farms Survey, 1969.

TABLE 30. Respondents Favoring a Specific Combinatirnxof Strategies for
Increasing Yields of Dairy Herds, Number and Percentage.

 

 

Specified Combination Number of Percentage of Respondents
of Strategies Respondents in Each Category
(number) (percentage)

Improve quality of own sires

and raise more productive

heifers on farm 46 61.3
Improve quality of own sires,

feed more hay and grains and

raise more productive

heifers on own farm 17 22.7
Feed more hay and grains and

raise more productive

 

heifers on own farm 6 8.0
Feed more hay and grains and

buy new heifers 3 4.0
Buy all or some of the new

heifers ._§ 4.0
TOTAL 75 100.0

 

Source: Eastern Quebec Dairy Farm Survey, 1969.

139
their enterprises, and (2) the gains accruing to the adOpters become vis-
ible to the non-adopters. The results of the survey confirm none the less-
that a significant group of respondents (24.4 per cent) might shift either
partially or totally to a buying replacements strategy in the coming
years.12 Some evidence also indicates that this group of farmers would
make a positive response to reductions in the price of heifers sold by the
specialized dairy-stock raisers (Table 31).

It hardly needs to be pointed out, however, that a strategy which

 

1. Ins-ii. 't’ '
A

would allow these dairy farmers to raise more productive heifers on their
own farms might gain wider and faster acceptance among them than a general-
ized buying replacement strategy, especially if purchases of more productive
heifers were not subsidized. These findings strongly suggest that arti-
ficial insemination may be one of the most suitable alternatives to
recommend for the region. Conforming to the general organization of this
research, the following discussion presents some evidence on the likely
response of regional dairy farmers to this alternative before analysing
its economic consequences.

The results of the survey indicate that a majority (52.6 per cent)
of the respondents have used artificial insemination in the past and
will probably continue to use it in the future, especially if its cost
decreases (Table 32). A few of the respondents (5.1 per cent) have
used it in the past and said they will not use it in the future even

if it becomes less expensive. The most astonishing finding, however,

 

12This comprises 8 per cent of the respondents who generally favor
a buying-replacement strategy (Table 30) plus 16.4 per cent of the res-
pondents who do not generally favor a buying-replacement strategy but who
might shift to it if the price of heifers sold by specialized dairy-stock
raisers is not higher than $250.

140

TABLE 31. Number of Heifers that Some Local Dairymen Might Buy Per
Year from the Dairy Stock Raisers at Various Prices.a

 

Average Number of Heifers Likely
Price of Heifers to be Bought Per Farm Per Year

 

$250
$200
$100

O‘DJN
n
J

" «A .14

 

aBased on 19 respondents' answers.

bRound numbers.

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

‘mae'imn7__ ‘ . ' I

TABLE 32. Respondents Holding Specified Opinion Concerning Artificial
Insemination, Number and Percentage.

 

Number of Percentage of Respondents
Speéified Opinions Respondents In Each Category

 

Has used A.I. in the past

and will probably use it in

the future, especially if

less expensive 41 52.6

Never used A.I. in the past

and will probably not use it

in the future, even if less

expensive 32 41.0

Has used AJI. in the past

but will probably not use it

in the future even if less

expensive 4 5.1

Never used A.I. in the past
but will probably use it in
the future if less expensive _1 1.3

 

TOTAL 78 100.0

 

Source: Eastern Quesbec Dairy Farms Survey, 1969.

141

has to do with the relatively high proportion (41.0 per cent) of res-

pondents who said that they never used artificial insemination in the
past and will probably not use it in the foreseeable future even ifl”
it becomes less expensive. As a matter of fact, only one respondent
declared that he never used it in the past but would probably give it
a try if it became less expensive. Some 43 out of 45 respondents who

declared having used artificial insemination in the past said that they

paid $5.00 per cow serviced. Some 32 out of 42 respondents who said that

 

they will probably use it in the future if it becomes less expensive ex-

auq-t-flal InlJ. - 11;). 1-

pressed the opinion that $3.00 per cow serviced would seem a reasonable
price for them. It must also be pointed out that, apparently, none of '
those respondents who have used artificial breeding in the past has
completely shifted to this practice, witness the fact that all of them
still own one or two dairy sires.

These finding on the respondents' apparent opinions concerning
artificial insemination bring forth the following remarks. There are
reasons to suspect that the adoption of artificial breeding might have
impinged upon some serious barrier in the region. However no evidence
is available for confirming whether or not this barrier can be associated
with either a general lack of education or with some serious sociélogical
and religious hindrances, but it appears that improvements in technical
information might substantially contribute to more widespread adoption
among the regional dairy farmers.

It has been argued that dairymen in thinly populated and/0t remote

areas of countries where A.I. became firmly established still continue

142
to prefer natural service.13 The facts which could explain this situa-
tion havetot yet been adequately investigated but it appears that the
conditions of supply of A.I. services in these areas might be relatively
deficient when compared to areas located near major urban centers. It
is thought that poor supply conditions may be as important as factors
related to demand conditions in explaining the low level of adoption

of A.I. services by dairy farmers in remote areas of countries with

‘LILO 151.1.” .

advanced dairying. The very scatter and low density of cows in such

areas probably makes it costly or unprofitable for the inseminators.

 

This factor is important because the services of the inseminator must
be available within the specified period of time when cows are in heat
for A.I. to be profitable.

Supply and demand conditions notwithstanding, the fact remains
that the appeal of alternative breeding methods to dairymen varies from
one dairy operation to another. The following section attempts to
determine whether the response of a regional dairy farmer to alternative
dairy development strategies is likely to be related to the current

size and milk yield of his dairy herd.

Factors Associated with the Reppondents' Preferences
It may tentatively be argued that the farmers' response to alter-
native dairy development strategies is likely to differ significantly
on farms of different herd sizes and of different levels of productivity
as measured by the herd's average milk production per cow. These hypo-

theses are based on four presumptions. First, operators with relatively

 

131. Micheal Lerner and H.P. Donald, Mbdern Development in Animal
Breeding, (London; Academic Press, Inc., 1966), p. 137.

143
large herds are expected to be more innovative and more financially
secure than other dairy farmers in the region. Secondly, operators
with relatively large herds are expected to have greater managerial
capacities than other regional farmers. Thirdly, respondents who
already own the most productive dairy herds are expected to more likely
continue to raise their own dairy replacements then other respondents.
Fourthly, operators with relatively large dairy herds are expected to
be in a preferable position to assume whatever risks a dairy herd
expansion strategy might currently entail.

As expected, the results concerning the respondents' preference
for higher dairy herd expansion or no herd expansion during the next
five years support the hypothesis that current dairy herd size may
be an important factor associated with the decision to expand the size
of the dairy enterprise (Table 33). As a matter of fact, the results
show that respondents with average (18 to 25 cows) and relatively
large (26 cows or more) dairy herds are almost equally likely to favor
a dairy herd expansion strategy whereas the respondents with relatively
small herds (17 cows or less) are less likely to favor expansion.14 The
overall results, however, fail to support the hypothesis that current
average dairy herd production per cow may be an important factor assoc-
iated with the decision to expand or not to expand the size of the dairy
enterprise (Table 34). This finding sounds astonishing, especially

with regard to the factual evidence indicating that one is more likely

 

14It is interesting to note that respondents favoring expansion
appear to be distributed according to a bimodal probability function.

144

TABLE 33. Respondents in three Dairy Herd Size Categories Who are
Likely to Either Expand or not Expand Herd Size in the Next
Five Years, Number and Percentage.8

M

Herd Sizegfinumber of cows)

 

 

 

 

Favored Strategy 17 or less 18-25 26 or more Total

Number of farmers 33 31 14 78 ‘M‘
- - - z - - -

Expand herd size 45.5 77.4 71.4 62.8

Not expand herd size 54.5 22.6 28.6 37.2

Source: Eastern Quebec Dairy Farms Survey, 1969 '

 

I m'nt '

3A two-way chi-square test between herd size and the decision.bo either
expand or not expand herd size is significant at the 0.05 level of test.
The calculated value of the Chi-square was 6.31 compared to 5.00 at the
five percentage point of the Chi-square distribution with two degrees
of freedom. Thus the null hypothesis that tne two factors are indepen-
dent must be rejected at that level of the test.

TABLE 34. Respondents in Three Classes of Average 1968 Herd Production
Per Cow Likely to Either Expand or not Expand Herd Size,
Number and Percentage.a

A:

 

Average 1968 Dairy Herd Production Per Cow
Favored Strategy less than 6,000 6,000-6,999 7,000 or more Total

 

 

Number of Farmers 227 34 22 78
7. _____

Expand herd size 54.6 70.6 59.1 62.8

Not expand herd size 45.4 29.4 40.9 37.2

 

Source: Eastern Quebec Dairy Earns Survey, 1969.

aA two-way Chi-square test between average herd production per cow and
the decision to either expand or not expand herd size is not significant
at the 0.05 level of test. The calculated value of Chi-Square was 1.61
compared to 5.99 at the five percentage point of the Chi-Square distri-
bution with two degrees of freedom. Thus the null hypothesis that the
two factors are independent cannot be rejected at the level of the test.

145

to find the most productive dairy herds on farms with relatively large
herds than on those with relatively small herds (Table 35).

It may also be hypothesized that dairy herd size and present herd
productivity may be important factors associated with the respondents'
likely decision to pursue one the following options: (1) keeping on
raising their own replacement cows by natural service, or (2) buying |
some or all of their replacement cows, or (3) keeping on raising all
replacements animals while attempting to breed more productive cows

through more frequent use of artificial insemination. However, the

 

1“: .'i

results of the survey'fmfl to support the hypotheses that dairy herd
sizes (Table 36) and average herd yields per cow (Table 37) may be
important factors associated with the respondents' expressed preference
for either one of these options. This implies that present herd sizes
and present herd productivity are not strong bases for predicting which
dairy herd expansion and/or improvement strategy might be preferred by
a given dairy farmer.

The overall results thus lead to the following conclusion. As
expected, the survey results indicate that the respondents with rela-
tively large dairy herds (18 or more) are likely to further
expand their dairy enterprise than respondents with relatively small
dairy herds (less than 17 cows). The overall results, however, fail
to support the hypotheses that current herd sizes and current average
herd yields per cow are related to the respondents' expressed preference
for alternative means to expand their dairy enterprise.

In conclusion it appears that the respondents with relatively

small herds tend toefiknv greater reluctance to further commit themselves

146

TABLE 35. Respondents in Three Classes of Average 1968 Herd Production
Per Cow Reporting a Specified Herd Size, Number and Percentage.8

 

 

 

 

Herd Size Average 1968 dairygherd production per cow
(Number of Cows) less than 6,000 6,000-6,999 7,000 or more Total
Number of Farmers 22 34 22 78
- _ Z - -
17 or less 63.6 50.0 18.2 44.8
18-25 31.8 35.3 45.4 37 2
26 or more 4.6 14.7 36.4 18 0

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

aA two-way Chi-square test between herd size and average herd yield per
cow (combining thelast two rows in order to avoid having last row cell
frequencies less than 5) is significant at the 0.05 level of test. The
calculated value of Chi-square was 9.82 compared to 5.99 at the five
percentage point of the Chiwsquare distribution with two degrees of
freedom. Thus the null hypothesis that the two factors are independent
must be rejected at that level of the test.

TABLE 36. Respondents in Two Dairy Herd Size Categories Who Tend to
Favor Specified Practices, Number and Percentage.a

 

 

Herd Size Specified Strategy
Will probably Will probably Will probably Total
use A.I. more buy some of or continue to
intensively all new re- raise all repla-
placements cements on own

farm with natu-
ral service

 

 

No. of Respondents 4(35) (20) (23) (78)
- - Z _ -

17 or less 45.7 40.0 39.1 42.3

18 or more 54.3 60.0 60.9 57.7

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

aA two-way Chi~square test between herd size and likely decision to pur-
sue a given strategy is not significant at the 0.05 level of test.
The calculated value of Chi-square was 0.34 compared to 5.99 at the five
percentage point of the Chi-square distribution with two degrees of
freédom.'Fhus the null hypothesis that the two factors are independent
cannot be rejected at that level of the test.

 

147

TABLE 37. Respondents in Two Classes of Average 1968 Herd Production
Per Cow Who Tend to Favor Specified Practices, Number and
Percentage.8

 

Will probably
continue to

 

 

Average 1968 raise all
dairy herd Will probably replacements
production Will probably buy some of on own farm
per cow Use A.I. more or all new with natural

(pounds) intensively replacements service Total
Number of
Respondents 35 20 23 78

- - Z - -

6,500 or less 51.4 50.0 52.2 51.3
more than 6,500 48.6 50.0 47.8 48.7

 

Source: Eastern Quebec Dairy Earmv“Sflrvey, 1969.

3A two-way Chi-square test between average herd production per cow and
likely decision to pursue a given strategy is not significant at the
0.05 level of test. The calculated value of Chi—Square was 0.03 com-
pared to 5.99 at the five percentage point of the Chi-square distribu-
tion with two degrees of freedom. Thus the null hypothesis that the
two factors are independent cannot be rejected at that level of the
test.

to dairy farming than those respondents with relatively large dairy
herds.15 Determining whether the small dairymen are actually holding

back from investing in dairying while waiting for favorable changes

in exit opportunities is beyond the scope of this research.

 

15The farmer's age is probably an important factor related to
these differences. This factor was not considered in this study but
the conclusions presented in this section indicate that one might need
to give it some consideration in order to explain differences in the
regional farmers' intentions.

 

148
It hardly needs to be emphasized that the survey results fail
to clearly indentify a single group of strategies which a large majority
of the regional dairy farmers might adhere to in the short run. The
variety of beliefs concerning the most appropriate combination of means

for increasing net income from dairying in the region raises some

 

in.
serious questions concerning the relative merit of alternative combi-
nations of dairy development strategies as perceived by the farmers .
themselves.16 This study puts forward the argument that one of the j

I
following three situations might exist which could partly explain the El

existence of these divergent beliefs on the part of the respondents.
First, it is possible that all combinations of strategies considered
in this study were perceived by the respondents as being of equal
merit, i.e. each one of the strategies might allow them to increase
their dairy net income by about the same amount in the foreseeable
future. Secondly, it is also possible that not all combinations of
strategies over which they were questionned were perceived as being
of equal merit but that the most economically justifiable ones might
entail too great a loss in freedom to attract the revealed preferences
of the majority of respondents. Thirdly, the regional dairy farmers
may conceivably have developed a negative attitude towards all govern-
mental programs in general. Such an attitude would imply that they

tend to assign very high discount rates to new income opportunities

 

15A still wider spectrum of beliefs might be expected if the
respondents were asked to formulate their preferences from a larger
number of alternatives.

149

originating via further government's intervention.17

In the following chapters of this study WB shall attempt to
analyse the economic consequences of each alternative set of strategies
and determine whether any one of them might have a significantly higher
payoff than others, at the farm level. We thus tentatively presume pm.

that the first situation above is very unlikely to arise.

.o .

Summary

 

. “.45. ‘J’fli'nu

I.“ ‘
.
.'§. z" .

Three major means of increasing productive efficiency of regional

..
.n

dairy farming enterprises were described in this chapter. They were
(10 improvements in herd stock, (2) varying feeding practices,and (3)
farm consolidation and community pastures programs. Information
obtained from a survey of regional dairy farms--representative of a
limited segment of the total regional dairy farming industry-- was then
used to determine whether or not the regional dairymen intend to expand
herd sizes, improve feeding rates and/or increase the production capa-
city of their cows, and if so how.
Among the results, probably the most pertinent were the following:
1. Approximately 63 per cent of the respondents might be expected
to further commit themselves to dairy farming in the foresee-

able future. These respondents wished to increase

 

17While conceding that the Canadian dairy pricing policy has, in
Lgeneral, been consistently favorable to fluid milk producers, it is
appropriate to reemphasize the fact that, in recent years, about 25
per cent of manufacturing milk producers' gross income derived from
the sale 6f milk consisted in subsidy payments. The amount of the
subsidy is subject to revision each year, which is giving rise to some
uncertainties among manufacturing milk producers.

150

the size and the milk yield of their dairy herds. These
farmers might make a positive response to the government's
proposed program despite the fact they held substantially
different opinions concerning the most adequate stock
replacement strategy to be followed. Approximately 60 per ‘r:
cent of respondents indicating positive response tended to i:
favoun raising their own replacement cows while the other 40

per cent might choose to buy some of or all ofctheir replace-

 

IYF .-' l. .. . ._ .

ment animals. The results of the survey also indicated that 4 ;
articifial breeding might attract a large proportion of its
potential users among those respondents who currently favour
raising their own replacement cows.
Approximately 34 per cent of all the respondents might be
expected to hold back, at least temporarily, from further
major inveStments in dairying. Some 60 per centvof these
owned relatively small herds of 18 cows or less.
Only 3 per cent of the population covered by this sample
might be expected to leave dairy farming within the next

five years.

. As expected, the number of cows currently milked appeared to

be associated with expansion intentions. No statistical

relationship was found, however, between current herd size
and the respondents‘ expressed intentions to improve their
herds' milk yields. Moreover, no apparent statistical rela-

tionship between current herd size and the respondents!

151

expressed preferences for an alternative stock replacement
strategy was revealed by the survey results.

5. The current milk yields of the respondents' herds were found
not to be statistically associated with either the likely
decision to further expand herd's size or the respondents'
expressed preferences for an alternative stock replacement.

strategy.

 

1' [L.K.”

The major conclusion which emerges at this juncture is that there
is substantial disagreement among the respondents as to what is the
most appropriate course of action for them to follow in order to improve
their earnings while remaining committed to dairy farming. These
results clearly indicate, in our opinion that there is a serious need
for further investigation of the micro consequences that might be

expected from alternative courses of action.

CHAPTER VI

MODEL AND DATA USED FOR SIMULATED EXPERIMENTS

 

p9,.

The main objective pursued in the following two chapters is to
estimate the probable impact that alternative dairy development stra-
tegies might have on the profitability of representative dairy farming
enterprises in Eastern Quebec. To do so two dairy farming enterprises
are simulated by use of a computer. This chapter describes the model,
lays down all the assumptionsmade and specifies the levels of the
variables used in the model. In the next chapter the findings are

analysed and the most relevant implications are derived.
On Simulation

The technique used in this analysis is a simulation model. It
is appropriate at this juncture to briefly describe the nature and the
properties of the simulation technique.

There is no consensus among the people who use the term simulation
as to its exact meaning. Naylor pet als. define simulation somewhat
narrowly as "numerical technique for conducting experiments on a digital
computer, which involves certain types of mathematical and logical models
that describe the behaviour of a business or economic system (or some

152

153
components thereof) over extended periods of real time."1 A much
broader concept of simulation is presented by Shubik in whose opinion,
"A simulation of a system or an organism is the operation of a model

or simulator which is a representation of the system or organism."2
The definition that is used throughout this study is formulated as
follows: "Computer simulation is a system analysis tool which uti-
lizes subject matter theory, certain mathematical structures, program—
ming logic and empirical analyses to condense a complex system into a

mathematical formulation duplicating the essence of the real system.3

There appears to be a consensus, however, among research workers
as to what is involved in setting up a simulation model. Simulation,
as a tedhmiique: of analysis, involves setting up a model picturing the
essence of a real situation and then performing experiments on the
model. Each individual simulation run may be conceived as an experi-
ment performed upon a model. A given experiment would thus involve
operating a model after having specified the set of initial conditions,

the set of values of the parameters used by formulating relations

 

1T.H. Naylor, J.L. Balintfy, D.S. Burdick, and Kong Chu,
Computer Simulation Techniques, John Wiley and Sons, Inc., 1966,
p. 3.

2Martin Shdbik, "Simulation of the Industry and the Firm,"
American Economic Review, vol. L, no. 5, December, 1960, p. 909.

 

3Ml-L.Hayenga, T.J. Manetsch, and A.N. Halter, "Computer
Simulation as a Planning Tool in Developing Economies," American
Journal of Agricultural Economics, vol. L, no. 5, December, 1968,
p. 1755.

 

154

speCific to the model and finally the time paths of those variables

treated as exogenous.4
Some of the major advantages of simulation over other research

techniqus have been explored by Orcutt. He argues (1) that simulation

techniques make possible the effective study of models containing “v

large numbers of components, variables and relationships of almost any

desired form, (2) that simulation techniques readily lend themselves

 

to carrying out sensitivity analyses on the model considered, (3) that

‘P‘u-J’n8_I.J_‘i-. '

simulation techniques make it possible to carry out testing at various
levels of aggregation and finally (4) that these techniques enable
operating characteristics to be fitted to various sets of data by

systematic trial-and-error procedures.S Another major advantage 0f

simulation has been pointed out by G.L. Johnson. He argues that

"mathematical simulation and system analysis offer an interdisciplinary

 

4Although it is beyond the scope of this study to go deeply
into technical and methodological problems involved in using simula-
tion it is appropriate to point out that there are several basic
references available to those wishing to gain even a casual acquaint-
anceship with the use of simulation. An uninitiated agricultural
economist may find it convenient to refer to L.L. Manderschied, and
G.L. Nelson, "A Framework for Viewing Simulation," Canadian Journal
of Agricultural Economics, vol. XVII, no. 1, February, 1969, pp. 33-41,
and consult the references presented therein. An individual with
advanced statistical knowledge may in turn find it convenient to read
T.Y. Ling, Introduction to a Statistical Concept of Statics and
Dynamics in Simulation Experiments, paper presented at the Symposium
on the Design of Computer Simulation Experiments Held at Duke Univer-
sity, October 14-16, 1968.

 

 

5G.L. Orcutt, "Simulation of Economic Systems," The American
Economic Review, vol. L, no. 5, 1960, pp. 900-901.

 

155
approach for interrelating the different aspects of complex problems
to see the consequences through time of alternative policies and

programs (as reflected in different initial conditions and parameters)."6

Johnson also holds the opinion that simulation provides thernesearhh
worker with a convenient way of getting around the intractable problem
of reducing many objective functions to a single desirable outcome.

The user of simulation is allowed to specify as many objective functions

 

as he desires as long as they are logically linked to the factors and

relationships conSidered in the model.7

E

The early simulation studies led some researchers to believe

that simulation in general and the results that it yields in particular
generally lack the sharpness of focus obtained by other methods, such as
linear programming. This argument, however, is debatable. Some people
now condider linear programming one among many forms of simulation models.
Recent simulation studies indicate that simulation does not necessarily
lack sharpness of focus when the simulation model is designed correctly.
The fact remains none the less that statisticians and econometricians
tend to conclude that simulation models can produce relative results much

more efficiently than absolute results. .Thus they argue that statistical

 

6G.L. Johnson, Relevant Rural Development Research for West
Africa, paper presented at a Seminar on Research on an Agricultural
Develommaliin East and West Africa, Michigan State University,
June 9-14, 1968, pp. 25-26.

7Other advantages of simulation techniques are described by R.
Suttor, and R.J. Grom, "Computer Models and Simulation," Journal of
Farm Economics, vol. 46, no. 5, December, 1964, p. 1342.

156
inference drawn from simulation is mostly useful for a conditional,
comparative and relative prediction.8

In general,runm:methodological discussions concerning simulation

boil down to the crucial issue of how one should go about validating

his results. The usual procedure is to deaign a model, specify the 7 f1
variables, the relationshipsand the parameters and have the computer

program simulate a situation which is familiar to the researcher, who

can then compare the results with his prior knowledge.9 Another proce-

dure which is now being developed advocates thorough investigation of g

 

 

the statistical properties of probabilistic simulation models. Research
in "simulation statistics" just started in recent years, which partly
explains why it is not yet commonly used. The apparent reluctance on the
part of simulation users towards elaborate statistical validation is thus
understandable since the proponents of the statistical validation
approach have yet to develop statistical tests readily applicable to
simulation models. Therefore, the former validation approach will be

used in this study.

Description of the Model

The model used in this analysis has five major components (Figure

6). These are (l) the unit of analysis constituting the core component

 

8See T.Y. Ling, op. cit., pp. 16-17, for a discussion of the con-
cept of simulation inference and its applicability. It is interesting to
note that some authors have attempted to dispel this criticism by arguing
that simulation is not aimed at long-run predictions and that the objec-
tive of a long-run simulation study it'not forecasting but rather design-
ing strategy for an unpredictable future. See E.P. Holland, and R.W.
Gillespie, Experimentsgon a Simulated Underdeveloped Economy, Cambridge,
Mass., The MIT Press, 1963, p. 209.

9L.V. Manderschied and G.L. Nelson, op. cit., pp. 34-35.

157

 

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158

of the system (a dairy farming enterprise), (2) the environment within
which this unit operates, (3) a set of controllable inputs which are
subject to change in the region as a result of the planners' policy
recommendations, (4) a set of uncontrollable inputs which are subject
to change at the national and/or provincial levels of policy decision-
making but over which the regional authorities have no control, and
finally (5) the outcomes of the system. The direction of influence
between the components is shown by the arrows. The components and

their subcomponents are discussed below.

Components of the System
Environment
The environment is defined to include variables whiCh might
significantly affect other variables in the system but which are not
likely to be significantly affected by the specified outcomes of the
system over the period considered. There is a sharp disagreement among
scholars as to how much emphasis must be laid upon environmental

variables in explaining the process of economic development.10 The

 

10This disagreement is illustrated in the following quotations
from Myrdal and Schultz. In Myrdal's opinion, "To engender and
accelerate development, induced changes in all social conditions and
relations must be assumed to be instrumental or even to play a stra-
tegic role in the cumulative causation of a development process."
G. Myrdal, Asian Drama, Vol. I, Pantheon, New York, 1968, p. 43. In
Schultz's opinion, "Since differences in profitability are a strong
explanatory variable (related to farmers' acceptance of new agricul-
tural factors), it is not necessary to appeal to differences in per-
sonality, education and social environment." T.W. Schultz, Trans-
forminggTraditional Agriculture, Yale University Press, New Heaven
and London, 1965, p. 164.

 

159
point of view adopted in this study is that economic profitability
is necessary but not sufficient for explaining the likely rate accep-
tance of new factors among Eastern Quebec dairy farmers. The analysis
therefore proceeds under the assumption that the relationship between
changes in controllable inputs and changes in the profitability of
dairy farming in the region is important but must be studied within the
context: of the given environment. For instance, the short lengbh of the
growing season must be considered as a.mmjor factor limiting the
range of alternative enterprises feasible for a local dairyman.
There are other less apparent socio-economic and ecological factors
which might also partly explain the rate of acceptance of new dairy
practices among the regional dairy farmers. Aside from the most
apparent ecological limitations faced by the local dairymen which
are taken into account, no attempt is made in this study to quantify
the relationship between environment variables and the other variables

included in the model.

Uncontrollable Inputs

The uncontrollable inputs consist of variables which are subject
to changes mostly as a result of decisions taken by policy decision-
makers at either the provincial or the national levels. Price support
policiea'forkdatfiy products and manufacturing milk subsidies are
hnowm.to aafEECt the profitability of regional dairy farming in
both the short and the long run. It is highly improbable that

these policies will be regionalized in the foreseeable future. Hence

160

the rationale fOr introducing them as constraints in the model.

Controllable Inputs

The controllable inputs include variables which can be changed
by the local dairy farmers or by the authorities responsible for
implementing the regional development plan. They are arbitrarily
divided into publicly controllable variables, privately controllable
variables and mixed variables. The publicly controllable variables
(farm consolidation program, community pasture program and other
programs recommended in the plan) comprise policies which might affect
the total supply and thus the relative prices of agricultural resources
in the region in the near future. The privately controllable group is
intended to include management decisions (feeding practices, dairy stock
replacement practices and other management practices) taken and carried
out by the dairy farm operators themselves. Finally, dairy input and
output prices are classified as mixed variables because they are
generated through the interaction of supply and demand forces, both
of which are affected by current government policies and the local

farmers' decisions.

Core Component

 

The core component of the system is a dairy farming enterprise
which includes dairy related crops. Other agricultural enterprises
which are commonly found on the regional farm operations reporting

dairy enterprises are not considered in the study.11 For this

 

11See p. 40 for information on these enterprises.

161
reason the model cannot be used to answer questions relating to the
problems 6f resource allocation on.a farm between enterprises.
The model can be used, however, to answer questions relating to the
profitability and productivity of resources allocated to either dairy-

related crop enterprises or the dairy farming enterprise itself.

Outcomes

The net cash income accruing to the dairy enterprise is the
determinant of growth of the enterprise in the model. This specific-
ation rests upon the assumption that the operator whose dairy enter-
prise is analysed is striving to increase profits rather than for
other objectives. An example of another objective would be if a
farmer who placed a premium on relatively high average herd production
were attempting to establish a reputation favorable to later sales of
breeding stock. Such cases of other objectives are believed to be
exceptional.

In the model used in this study, the objective function
specifying the expected behavior of the farmer consists in equating
the marginal cost of feed to the marginal value of the product (milk)
for each cow. Feed costs are computed at a level of output most profit-
able fon’each cow. The average yearly production per cow is therefore
obtained. It provides an additional measure of the performance of the
herd over time. For reasons which will be explained later, it was not
possible to estimate the net profit of the dairy enterprise. A gross

margin approach is therefore used in the study. It must be emphasized

162

that the changes in the capital requirements which are estimated

are exclusively due to improvements or increases in herd sizes. The
costs of financing additional equipments and buildings were not estimat-
ed. The rate of return on these investments cannot therefore be obtained

in this study.

The Logic of the Mbdel

The accompanying generalized flow chart shows the steps of the
simulation model (Figure 7). The first computer operation is to read
and store data describing the experiment.) In the next operation, feed
costs are calculated at levels of milk output most profitable for each
cow. Feed quality characteristics of the herd at the start of the
analysis, costs of feeds and other inputs and prices of milk and
inputs are part of the information provided by the surveyed farmers.

The next operations result in computation of net cash income
projections for each replacement heifer. Although this is done by the
same program steps as those mentioned above for computing net cash
income from cows it is shown on the flow chart as separate steps for

simplicity of exposition.

Systemg§pecifications
The specific model upon which this analysis is based is "A Simu-
lation Technique for Making Management Decisions in Dairy Farming,"

by Robert F. Hutton.12 The model itself is fully described by Hutton.

 

12Robert F. Hutton, op. cit.

163

 

START

 

 

 

 

Read and Store data
describinggexperiment

 

 

 

 

i

Compute net cash
income for each cow

1

Determine number and quality of

replacements available this year

Compute net cash income
for each replacement

L

Determine casualty
and old-age culls

L

Compute herd net cash income
and herd average production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Is this last year to
be simulated?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NO YES
Simulate passage of Is this last replication?
year's time
1 ‘ NO YES
Estimate net cash income
next lactation for each cow . Analyse and
l print results
Make improvement ' . l
cullings STOP

 

 

 

 

 

 

 

 

Set up for first year
of next replication?

 

 

1 Source: R.F. Hutton, op. cit., P. 5.

FIGURE 7. Generalized Flow Chart for Simulation Model.

164
Very limited knowledge of computer programming is required for complete
understanding of its logical sequences. This section is directly
adapted from Hutton's report.

The sequences of operations which the model performs are essen-
tially the following. Each dairy cow in a pre-specified herd-- the
specifications having to do with age and annual milk production of each
cow--is submitted to a series of tests. Test one determines, on the
basis of information on length of the lactation period, rations fed,
price of milk and cost of feed, the most profitable level of production
of each cow. The annual production level sought from each cow is that
at which the marginal cost of feed equals the marginal value of the
product (milk). In test two, the probability of a cow having a heifer
calf during the year considered is computed. This is a joint proba-
bility based on the herd's calving rate and the probability of the
calves being female. The program is based on a 50 per cent probability
of each cow dropping a heifer calf. It must be pointed out that, before
a cow is considered a prospect for producing a replacement heifer, she
must pass the test for age and production potential. All heifer calves
from eligible cows are considered eligible for replacements in the
model.13

In the third and final test, each cow in the pre-specified herd

 

13Two measures of production capacity are associated with each
heifer. One measure consists of what the operator would normally expect
a heifer of her parentage to have. The other consists in the actual or
effective production capacity derived by a random selection process.
Actual or effective production capacity is treated in the model as being
that drawn from a population having an average equal to the heifer's
expected production capacity. Variability in the quality within this
population is derived from data characterizing the experiment analysed.

165

is exposed to being culled by reasons of old age, low production, death,
disease or other causes. The probability of loss from each cause,
which is specified in each experiment description, constitutes the basis
according to which each cow is either culled or kept in the herd.
Cows removed by culling are either replaced by heifers previously raised
on own farm (at some specified cost) or by purchased replacements,
depending upon the general strategy followed by the operator. The
heifers with the highest expected productivity available in a given year
are used for replacing culled cows. Any remaining heifers may be used
to replace additional cows in improvement culling and increase herd
size if the experiment provides specifications for the latter objective.

After replacement of culls, net income14 from the dairy herd and
average milk production per cow are computed for each year. Effects
of improvement culling are not reflected until the following year
sequences are simulated.

As we already pointed out, the model can also be used to run
an experiment where all replacements are bought. The production capa-
city of purchased heifers can be specified in either of two ways in
the model. On the one hand, one can use the model to analyse conditions
where all animals available for purchase are expected to have the same

production capacity and therefore the same price, except for age adjust-

 

14Defined according to model user's specifications of costs or
items claiming a share of gross income generated by the dairy enterprise.
The net cash income.conceptis used.in this study.

166
ment. On the other hand, one can use the model to analyse conditions
where replacements can be bought from a market having various quality
classes. In this case, the segment from which a replacement is purchased
is chosen at random with its chance of being selected proportional to
its relative importance in the total population of replacement animals
available for purchase.

The sequences of operations which were previously described are
performed according to certain rules or functional relationships. For
instance, one of the most important set of functional relationships
involved in this model has to do with the determination of feed require-
ments. Its importance stems from the fact that the objective function
specifying the expected behavior of the farm operator consists in
equating the marginal cost of feed to the marginal value of the product
for each cow. In the model feed requirements for dairy cows are com-
puted in four steps. First, the maintenance requirement specified as
a function of weight of the cow is assumed to be 0.8 pound of TDN
(Total Digestible Nutrients) per cow per day. Second, growth require-
ments are allowed for cows in their first and second lactation periods.
This specification is based on the fact that cows of most common breeds
do not reach their full growth potential until their third or fourth
lactation. For cows in their first and second lactation, the assumed
growth requirement is 660 and 300 pounds of TDN, respectively. Third,
TDN requirements for gestation are also a function of weight of the
cow. The dairy allowances for gestation, which are presumably fed

during the last two or three months of gestation, are assumed to range

167
from 5.5 pounds of TDN per day for cows weighing less than 800 pounds
to 7.0 pounds of TDN per day for cows weighing 1,100 pounds or more.
The total herd requirements for gestation are adjusted, in this model,
by the ratio of calves per cow per year. In this analysis an 87 per
cent calf crop is considered. Fourth, TDN allowance for milk production

is estimated according to the following quadratic function;15

Y afB1X+B2X2
where:
Y = TDN per pound of milk,
X = pounds of milk per cow per day,
a = .306 (a predetermined coefficient)

B1 = .00057 (a predetermined coefficient)

B2 3 .0000053 (a predetermined coefficient)

For the sake of brevity other details of the model are not des-
cribed in this study. They are technical steps involving translation

of the model sequences into computer language.16

 

15The reasoning and evidence to support the function as well as
the estimated values of the coefficients are reported by R.S. Adams,
R.F. Hutton, and D.N. Putnam, "Improved Method of Electronically Com-
puting Grain Feeding Requirements for Individual Cows," Journal of Dairy
Science,46: 10174, October, 1963. These requirements vary slightly
from those reported later by J.T. Reid, P.W. Mbore, and M.R. Tyrred,
"Symposium: Re-evaluation of Nutrient Requirements for High Producing
Cows, Energy and Protein Requirement of Milk Productionf' Journal of
.Dairx_§g1gng§, No. 2, February, 1966. For instance, for a cow producing
6,000 pounds of milk in a 300-day lactation, the former function would
set'Y = .32834 whereas the latter function would set Y = .332. It
appears that the slight difference between the two estimates can be
partly attributed to the fact that some characteristics of the cows
studied differ substantially from one group to the other. Reid et
als. point out that, for smaller cows, the TDN requirements would be

168
A um t' t ' im at' d

The system to be described is intended to represent a dairy
enterprise operating within the regional economy of Eastern Quebec.
The core of the system thus consists of certain characteristics of the
dairy enterprise to be simulated. The purpose of this analysis is to
have the dairy enterprise subjected to changing circumstances as
specified by the different economic conditions which the typical regional
dairy farmer might face in the future if some specific sets of policies
were finplemented.

Certain basic assumptions are made at this juncture to limit
the scope of the model. These assumptions are the following:

(1) the net milk price received by the dairy farmer will remain

fixed throughout the period simulated (1969-75) for any

 

greater than those that were estimated in their study. The absence of
similar researcthIdairy herds meeting specifications that would be
comparable to those characterizing the type of cows most commonly found
in Eastern Quebec prevents us from further commenting on the approp-
riateness of either one of these estimates. The Adams group's function
as well as their estimated coefficients are used in this study for the
following reason. The Adams group's function yields TDN allowance
requirements for milk production that are slightly higher than those
generated by using the Reid group's function, and thus more likely to
reflect the true requirements of the small type of cows most frequently
found in the region. Our own estimates of the average milk production
per cow on the farms that we surveyed provide a basis for determining
whether the simulated milk output per cow constitutes a plausible out-
come for the real system under study.

16The reader who is eager to understand this model in its fullest
details should read Hutton's report. Hutton explains the model step
by step by using both narrative statements and a flow chart. The
computer program which corresponds to this model as well as the results
generated in the several computer runs made for this analysis are avail-
able from the author upon request.

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

169
given experiment simulated;
the input prices will remain constant throughout the period
simulated for any given experiment considered;
land will be available to the operator if and when needed
at the price level now prevailing the region;
the cost of purchasing dairy-related crops from neighbor
farmers reflects the true opportunity cost of resources
devoted to their production on the operator's own farm;
the operator of the dairy enterprises which are to be simu-
lated have a certain capital fund to start with;
the cows which will be used as replacements will have general
characteristics which do not significantly differ from those
describing the original herds;
there will be no significant change in either the type or
the quality of feeds fed to dairy cows over the simulation
period for any given experiment;
the level of technology specified for any given experiment
will remain fixed over the simulated period;
the manager has the ability to manage the particular sizes of

operation considered in this analysis.

Assumption (1) automatically excludes the possibility of net

(at the farm) milk price varying from year to year for any given

operator.17 Assumption (2) does not exclude the possibility of temporal

 

17Includes net market price plus net government subsidy.

170

shifts in either the supply functions of or the demand functions for
dairy inputs in the region over the period considered. It corresponds,
however, to predicting that these shifts will be self-compensating in
the sense that all macro equilibrium points, for any given relevant
input market in the region, will lie on a straight line which is
perpendicular to the price axis.

Assumption (3) merely restates one objective of the regional
development plan, which is to insure that most farmers eager to expand
their current acreage will find the land they need at a reaonable
price. A substantial amount of discussions spread throughout the plan-
ning documents indicates that the cost of the services of land for
agricultural purposes might remain fairly stable in the region if the
farmers' retirement policy is successful. It must be pointed out,
however, that the planners' conclusion concerning the future regional
trend in the price of agricultural land is tentative. For this reason,
this assumption is relaxed at a later stage of this analysis in order
to determine how sensitive the output of this model is to changes in
the cost of land.

Assumption (4) asserts that the cost of purchasing hay (or some
other dairy-related crop) in the region at any given time is equal or
almost equal to the real resource costs that its production entails on
any typical dairy farm in the region.18 In other words, the cost of
purchasing hay (or some other dairy-related crop) in the region is

,

treated as a reasonable proxy variable for its total average cost

 

18More specifically, price of purchase minus transportation and
handling costs.

171

of production on any given farm. This assumption allows us to circum-

vent the intractable problem of estimating the costs of production of
dairy-related crops in the region. It must be pointed out that the
use of acquisition price as a proxy for cost of production excludes
the possibility for dairy-related crop enterprises to generate net
returns since all costs, including the cost of capital, are supposedly
included in or at least reflected by the market value.

Assumption (5) is self-explanatory. It is recognized that getting
hold of additional capital funds is often one of the most crucial
problems faced by farm operators. we do not intend, however, to deal
with this problem in this study. It is therefore assumed that the
representative dairy farmer has access to enough capital funds or credit
to finance whatever dairy herd expansion strategy he might wish to follow.

Assumption (6) is compulsory since some of the coefficients (such
as size of cows, and fat content of milk) which need to be included in
the model depend upon the type of dairy breed considered. Relaxing
the assumption of herd homogeneity over time would yield doubtful
results. For this reason, it is assumed that the mixed-bred cows so
commonly found in the region, or other breeds having the same general
characteristics, will continue to prevail in the region in the foreseeable
future.

Assumptions (7) and (8) imply that feeding rations and technologies
of either the dairy enterprise or of dairy-related crop enterprises can
be varied from one simulated experiment to another. Once the conditions

of an experiment are specified, however, these factors will not be

172

allowed to change over the period simulated.

Data Used in Simulated Experiments

Two types of information are required in this analysis. These
are the functional relationships and the initial conditions. The
functional relationships are built into the model itself. They consist
of the relationships among the variables. Most of these relationships
were previously discussed.19 The second type of information is that
which is used to set up appropriate values for the variables when you
begin a particular simulated experiment. This information includes the
following: (1) age and production level of each cow in original herd,
(2) quality of forage normally fed, (3) cost per ton of forage and
concentrate, (4) length of lactation, (5) nonfeed costs per cow, (6)
casualty culling rates, (7) interest rate on capital (8) reservation
use of income, (9) milk price, (10) cost of raising replacements, (11)
price of culls and calves sold, and (12) cost of buying replacements.

Since the model is to be used to answer real world problems, it
is essential not only that the assumptions be realistic but also that
information fed into the computer accurately reflect the real world
situation described. Most of the data which are presented in the
following pages are drawn from the survey that was conducted in the

region in the summer of 1969.20

 

19See pp. 161-165.

20See Appendix A for methodological considerations«on the design
of the survey.

173

Before summarizing the survey results it is necessary td empha-
size the following considerations. First, the data used are limited
to those obtained from farms which milked ten cows or more and whose
herds were entirely made up of mixed-bred cows. Second, those farms which
meet these two requirements are divided into two groups on the basis of the
number of cows that they were milking in July 1969. This is done because
evidence presented in the previous chapter indicated that a number of
important variables such as yearly production per cow might be related
to herd size. Therefore a representative dairy farming enterprise is

synthesized for each group.

Size and Composition of Simulated Herds

The distribution of respondents according to herd sizes is given
in Table 38. One respondent out of two reported dairy herd sizes varying
from 13 to 21 cows and one respondent out of three reported herd sizes
varying from 16 to 18 cows. Slightly less than half of the respondents
reported herd sizes larger than 21 cows. The shape of this distribution
led us to divide the respondents into two groups. Group 1 comprises the
43 farms reporting 20 cows or less whereas Group II includes the 25 farms
reporting 21 cows or more. The average herd size was found to be 18
cows in Group I and 25 cows in Group II. From now on, for the purposes
of the model, we shall refer to the two sizes of farms as farm I and
farm II respectively.

The respondents were asked to classify their milk cows by age

and production in 1968. The answers to this question are used to

174

estimate the percentage distribution by lactation number and annual
milk production of the mixed-bred herds reported by the respondents
(Table 39). From these data the two hypothetical herds are synthesized.
They can be referred to as representative herds since they represent the
average characteristics of cows in the respondents' mixed-bred herds.

It is interesting to note that the average characteristics of
cows differ somewhat from one group to the other. First, the respond-
ents who milked 20 cows or less have more old cows (lactations 6 to 10)
than the respondents who milked 21 cows or more. Second, the yearly
yields of each cow are somewhat less widely spread in the former group
than in the latter. Third, herds in the former group are slightly less

productive, on the average, than in the latter group.21

TABLE 38. Distribution of Herd Sizes on 68 Farms, Eastern Quebec, 1969.

 

Proportion of Farms reporting

 

 

Herd Sizes given herd sizesa

(per cent)

10 to 12 cows 7.3
13 to 15 cows 13.3
16 to 18 cows 30.9
19 to 21 cows 16.1
22 to 24 cows 10.3
25 to 27 cows 11.8
28 to 30 cows 3.0
31 to 33 cows 4.3
34 or more cows 3.0
100.0

 

Source: Eastern Quebec Dairy Farms Survey, 1969.
aThe mean herd size for all 68 respondents is 20 cows.

 

21No statistical tests were carried out to determine whether or
not these differences in herd characteristics from one group to the other
are statistically significant.

175

TABLE 39. Composition of Herds With Respect to Age and Milk Production
per Cow on 43 Small Herds and 25 Large Herds, Eastern Quebec,

 

 

 

 

 

 

 

 

1969.
m r
A. Small Herd Group (20 cows or less)
Annual milk Lactation;B
productiona 1 and 2 '3 to‘5 6 to 8 9 to 10 Total
(pounds) -- per cent --
4,000 1 1
5,000 9 7 3 19
6,000 18 4 8 8 38
7,000 l7 l4 1 32
8,000 5 2 2 9
9,000 1 l
10 ,000 _ __ __ _ _--_
Total 28 34 24 14 100
B. Large Herd Group (21 cows or more)
Annual milk Lactationsd
productionc l and 2 3 to 5 6 to 8 9 and 10 Total
(pounds) -- per cent --
4,000 5 1 6
5,000 6 2 l 1 10
6,000 12 12 2 2 28
7,000 9 10 ll 4 34
8,000 3 4 3 10
9,000 2 2 ‘3 7
10 ,000 _ _§ __2_ _ _5
Total 35 34 21 10 100

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

aMean annual milk production per cow in small herds is 6,320 pounds of
milk per year. .

bMean lactation of cows in small herds is 5.

CMean annual milk production per cow in large herds is 6,700 pounds of
milk per year.

dMean lactation of cows in large herds is 4.

176

It is common knowledge among dairy scientists that the dairy cow
gains and then loses productivity as she grows older. Indexes of how
production normally varies by lactation are available for common breeds of
dairy cows. By combining the information on the characteristics of respond-
ents' cows which is presented in tables 39A and 39B, it is possible to
estimate age conversion factors for this particular mixed-breed (Table 40).
These estimates are comparable to standard age conversion indexes develop-

ed by dairy scientists.22

Other Dairy Herd Characteristics

The respondents were asked the average length of a lactation (in
days or months) in their herds. The average lactation length: was a
little less than nine and one half months (280 days) on farms in group I

and little less than ten months (290 days) in farms in group 11.23
The respondents were also asked to estimate the average body
weight of the mature cows in their herds. The average body weight of

mature cows was 1,050 pounds (standard deviation - 101 pounds) in group I

herds and 1,080 pounds (standard deviation = 85 pounds) in group II herds.

Quantity,g9uality and Price Specifications for Feed

Characteristics of feeds that determine the quality of dairy
rations may vary not only from area to area but also from farm to farm
within the same area. The characteristics of the hay, silage and pas-

ture fed and their relative contribution to the total ration, as well

 

22Age conversion factors for mixed-breeds which are almost iden-~
tical to those estimated herein can be found in J.M. Wing, Dairy Cattle

Management: Principles andepplications, Reinhold Publishing Corporation,
1963, pp. 337-38.

23More specifically, those estimates are 9.3 and 9.7 months respect-
ively. Standard deviations are .74 month for group I and .79 month for
group II.

177

TABLE 40. Factors for Conversion of Records of Milk Production to the
Mature-Equivalent Basis for Mixed-Bred Herds in Eastern

 

 

 

 

Quebec.
===-==-={ 1a..====
Lactation Number Conversion Factor

1 1.25
2 1.15
3 1.07
4 1.02
5 1.00
6 1.00
7 1.00
8 1.03
9 1.06
10 1.10
113 1.15
12a 1.25

 

Source: Eastern Quebec Dairy Farms Surveyed, 1969.

aExtrapolated.

178

as the composition and nutritive value of the concentrates fed determine
the composite quality of a ration. Quality can also be associated with
palatability. A cow will usually eat a larger proportion of a high
quality ration than a poor quality one.

Four feeding rations are considered in this study. It must be
pointed out that these feeding rations may not (and probahb'do not) cover
the full range in feeding practices that are found on Eastern Quebec
dairy farms. The first three feeding levels are directly derived from
the survey results which are summarized in Appendix D. The characteristics
of the four feeding rates for use in the model are specified in Table 41.
The fourth feeding rate which is designated as "hypothetical" is intended
to represent a set of plausible ration specifications on regional farms
where (l) oats would be harvested as silage rather than as grain and
(2) hay would be artificially cured to lower its moisture content after
harvesting. The fourth feedingfration thus differs in composition
from the first three.

Feed prices can be considered as the market value of the feed
or the farm costs of producing it. Under normal environmental con-
ditions, the market value of the feed might be viewed as the upper
limit of feed costs. If feed production costs on a farm were signifi-
cantly greater than its acquisition cost, there would be in» economic
justification for the farmer in producing his own feed. In this study,
the market value concept is used to estimate feed costs.

The respondents were asked how much it costs them tolbuy a ton

of hay in their community. Seven respondents answered $15 to $18,

179

TABLE 41. Specifications for Four Dairy Rations Considered in this Study.

 

 

J ========—

Feeding Rates
Item Low Medium High Hypotheticalg

 

1. Maximum daily

intake:a (lbs. of dry

matter available per

100 lbs. of body

weight.) 2.4 2.6 2.8 2.8
2. Minimum intake of

forageb (lbs. of hay

equivalent per 100

lBs of body weight). 1.0 1.0 1.0 1.0
3. Percent of forage TDN

fed as:C

Hay 85 85 85 50

Silage - - «- 35

Pasture 15 15 15 15

4. Dry matter percent
of fed weightd

Hayd 85 85 85 9o
Silage - - - 30
Pasturee 30 30 30 30
Concentrate mixturef 85 85 85 85

5. TDN percent of feed
(fed weight)

Hay 40 40 40 4O
Silage - - - 15
Pasturee 15 15 15 15
Concentrate mixturef 7o 70 70 7o

 

aThis is intended to represent a maximum total intake of dry matter.
It is highly probable that the actual intake would be less than the quantity
specified herein since losses in handling and storage are not substracted
from feed apparently available. The low, medium and high estimates for
annual feeding rates per cow correspond to the figures appearing on lines
two, three and four of Appendix Table 2.; Note that the lower.limit of each
relevant class interval of grain mixture fed is used to indentify concen-
trate feeding levels. These apparent annual feeding rates per cow are
then converted to apparent quantities of dry matter fed by multiplying
each component of the above rations by their percentage of dry matter content
as specified in item 4 of this table. The results obtained are then
multiplied by .9 to express quantity fed into apparent quantity consumed
(see footnote c of Appendix,Tab1e 2).

180
(Table 41 continued)

These results are finally divided by 3,650 (365 x 10) in order to
convert annual figures per cow into daily figures per hundred pounds
of body weight.

bIt is assumed that the smallest intake of forage that a regional
farmer would feel safe in feeding is one pound of hay equivalent per

100 pounds of body weight per day.

cDerived from respective annual feeding rates specified in footnote
a) adjusted for TDN percentage of specific ration components as described

in item 5 of this table.

dIn view of the relatively high probability of weather's adverse
effect on the quality of hay in Eastern Quebec, the values presented
here are somewhat lower than values reported for medium-quality hay
harvested under ideal conditions. Kind of hay, stage of maturity and
weather conditions during harvest, among other things, are known to
affect its TDN analysis. A large proportion of the seeding used in
Eastern Quebec is a mixture of clover (red and alsike and millet hay).
The values shown here for dry matter and TDN contents may be conservative
compared to average compositions reported by F.B. Merrison (Feeds and
Feeding, 22nd Edition, The Morrison Publishing Co. Ithaca, New York.
1956, p. 1016), but they do represent, in our opinion, a quality range
which may reasonably be expected in Eastern Quebec.

eThe values shown here may be conservative.

fMostly oats fed as grain. The values shown here are conservative
compared to average found in F.B. Morrison (op. cit., p. 1058).

8This specification is intended to represent an improved feeding
practice which would correspond to a shift from oats fed as grain to

oats mainly fed as silage. It has been argued that production of total
digestible nutrients can be substantially increased for oats when they
are harvested as silage rather than as grain (see C.R. Hoglund, and R.0.
Olson, "Research Problems in the Economics of Forage Production and
Utilization", Published in C.R. Hoglund et als., op. cit., p. 78). The
dry matter content and the TDN contents specified for silage are for
oats with molasses added. Again the values shown here may be conserva-
tive. Furthermore, the dry matter content for hay is increased to 90
per cent. This is intended to represent the range of dry matter content
that might be expected by a regional farmer using artificial cool-air
drying for hay.

181
fifty-six answered $20 and five respondents answered $25. The acquisi-
tion price for hay is therefore estimated at $20. It has been argued
that the cost of purchased hay laid down at the barn door may exceed its

market price by more than a fourth.24 In this StUdy, it is assumed that

the cost of purchased hay delivered on the buyer's farm does not exceed
its market price by more than a fourth. It is therefore estimated that
a ton of hay costs about $15 to produce on a typical regional farm at
the present time.25
The respondents were also asked how much they have to pay for

renting one acre of pasture land in their community at the present time.

The average answer is estimated at $3.90 (Standard deviation 3 $0.93).

On the basis of this figure a plausible pasture market value in terms of

utilized hay equivalent is estimated at approximately $6 per ton in the

region.26
It was not possible, for several reasons, to directly estimate the

market value of feed oats in the region. Historically, the price of

a ton of feed oats has usually been 2% to 3 times as much as the price

of a ton of hay in most dairy areas of Canada, under normal weather

conditions. Assuming a three to one ratio for Eastern Quebec the net

 

24G.L. Johnson, and L.S. Hardin, Economics of Forage Evaluation,
Purdue University, Station Bulletin 623, April, 1955, p. 5.

25This seems reasonable in view of the facts that suitable agri-
cultural land sells for about $50 per acre in the region and that the
services of part-time labor normally can be bought at about $1 an hour.

 

 

26The formula used for this conversion is the following:
3.90 X TDN content of hay
normal pasture yield per acre TDN content of pasture

where I normal pasture yield = 1.8 tons per acre and dry matter content
of hay and pasture are 40 and 15 per cent respectively.

182
(at the farm) market value of a ton of oats in the region is about $45
at the present time.27
Most regional dairy farmers are also marginal buyers of protein
supplements. Despite likely differences in both the quality and the
composition of these protein supplements, the range of prices paid
by local farmers appears narrow. Some 34 per cent of the respond-

ents said that they currently pay $80 per ton for purchased concentrates

while 54 per cent of the respondents said they pay $85 per ton.

Specifications for Replacements, Culls and Calves

 

The respondents were asked to determine the quality (in terms
of yearly mature-equivalent production capacity) of replacements they
might reasonably expect if they were to raise them from calves from
their own herds. The results indicate that the average respondent
in group II has slightly higher expectations than the average farmer
in group I (Table 42). The results also indicate that the spread of
quality replacements expected by the average respondent is wider for

group II than for group I. These estimates are consistent with the

 

27Yearly average price for feed oats was $0.92 per bushel (Cana-
dian Wheat Board Price, basis in store Fort Williams - Port Arthur in
1968 or approximately $57.50 per ton). Assuming that the regional dairy
farmers can buy it at this price (delivered to his farm) in his community
--which is plausible in view of the Canadian Feed Freight Assitance Policy
(see pp. 84-85)-- this would imply that transportation and landing costs from
local suppliers to farmers amounts to about $12.50 per ton. These figures
seem realistic. The fact is that most regional farmers produce
their own feed oats, which is consistent with the figures presented
herein.

183

previously specified herd characteristics (Table 39).

An important economic factor which must be considered in the
farmer's decision relative to the replacement of the cows presently
in his herd is the cost of either raising or buying the replacements.
Since it was not possible to obtain relevant information on the costs
of raising heifers in the region, the decision was made to use the market
value of 2 to 3-year old culled cows as a proxy variable for cost of
raising replacements in the region. This figure was obtained by asking
the respondents how much they received last year for the sale of the
2 to 3-year old cows that were culled because their milk production
capacity was considered unsatisfactory. Eleven respondents reported
having sold such animals for an average price of $165.28

Since no information on the apparent production performance of
cows raised on the proposed specialized dairy stock farms is yet avail-
able, there is no alternative but to assume a probability distribution
for the expected quality of these animals. The results of simulated
experiments involving a buying-replacement-strategy are therefore
predicted under the assumption that, out of 100 heifers bought from

the specialized dairy stock raising farms, 25, 50 and 25 might be

 

28Various studies done in the United States indicate that feed and
non-feed costs might respectively account for about 60 to 70 and 40 to
30 per cent of total costs involved in raising dairy heifers to first
lactation. Assuming that a typical heifer is fed 1,300 pounds of
concentrate, 4 tons of hay equivalent and 400 pounds of milk in the
region before reaching her first lactation period, then the feed costs
alone would be approximately $106 whenever feed inputs are valued at their
market price (that is $4.20 per cwt. for milk, $45 per ton for oats and
$15 per ton of bay). The ratio of 106/165 is equal to .64.

184

TABLE 42. Expected Production Capacity of Heifers Raised from Respond-
ents' Own Herds for Farm Groups I and 11, Eastern Quebec.

 

 

 

 

Yearly level of Percentage of replacements expected
production classa to be in specified class
Group I herdsb Group II herdsc
(pounds) (per cent) (per cent)

less than 5,000 6.5 8.0
5,000 - 5,999 26.1 22.0
6,000 - 6,999 32.3 28.8
7,000 - 7,999 29.3 24.8
8,000 - 8,999 5.8 13.2
9,000 - 9,999 - 1.6
10,000 or more - 1.6
100.0 100.0

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

aMature-equivalent has is .

bThe average heifers in this distribution would produce approximately
6,500 pounds of milk per year.

cThe average heifers in this distribution would produce approximately
6,800 pounds of milk per year.

expected to respectively fall within 7,000-7,999, 8,000-8,999 and 9,000-

9,999 mature-equivalent production classes.29 The average annual price

 

29'1‘he range of this hypothetical distribution may look narrow
when compared to the variations in dairy breeding performances re-
ported by the respondents (Table 42). This specification is purposedly
introduced herein to reflect the fact that improved breeding effic-
iency might contribute not only to raise average production capacity
of cows but also to standardize their expected performances. For
instance, it is common knowledge among dairy scientists that the
season of calving has a marked effect on total production of milk
during a lactation. Cows calving in the fall tend to achieve greater
production performances than cows calving in the spring. For this
reason among others, 100 heifers raised on the specialized dairy
stock raising farms (where fall calving will be practiced) and more
likely to achieve comparable production performances than 100 heifers
raised on farms where calving periods might differ to some extent.

185

for purchased replacements falling within this production capacity range

is set at the level suggested by the planners ($250). This price will

alternatively be set at $200 to analyse the impact that a $50-subsidy

per head might have on the profitability of the two synthesized farms.
The final breeding strategy which is considered in this study

consists of using artificial insemination (A.I.) on the two synthesized

farms. Respondents estimated that A.I. services cost $5 per cow in the

region.
It was not possible to obtain relevant information on how much

progeny testing and preferential use of superior sires might reasonably
be expected to raise the merit of commercial dairy cattle in the region.
There are valid reasons to believe that in many countries with advanced

dairying the merit of dairy cattle has been raised by artificial insemi-

nation, but there are few firm calculations to show how much. Esti-

mated milk production differences between artificially and naturally-

sired herdmates vary considerably among the few studies which are

available. Estimates ranging from 90 to 240 pounds of milk per year

are reported by Kucker and Tucker for North Dakota, South Dakota and
Nebraska whereas estimates as high as 500 pounds of milk per year have

been reported concerning the superiority of artificially inseminated
dairy stock in New Zealand.30

‘ 30w.L. Kucker.‘ and W.L. Tucker, The Influence of Artificial
Insemination in the Midwestern States, paper presented at the A.D.S.A.
Meetings, Ithaca, New York, June 27, 1967, p. 5, and 1. Michael Lerner

and H.P. Donald, op. cit., p. 143

186
All experiments considered in this study that involve the use of
artificial insemination as a means of improving the production capacity

of regional dairy herds are simulated under the assumption that, on the

average, heifers from artificially sired cows would be superior to
naturally sired heifers by the equivalent of 200 pounds of milk per

In view of the results presented in the New Zealand study, this

year.

assumption is conservative.31

Other Information on Prices and Herd Characteristics

Net milk prices received by individual producers in the region

vary slightly depending on their seasonal production, their base
k.32 The

quota, the relative prices for fluid and manufacturing mil

effective annual net price can thus be interpreted as an average blend

The average net market price received by the respondents for

price.
the year ending in the spring of 1969 is $3.25 per cwt. (standard

deviation 3 $0.075). The net subsidized price of 3.5 per cent FCM
effectively received by the local producer is thus estimated to be (1)
$3.25 plus $0.99 per cwt. (manufacturing milk subsidy) or $4.24 for

deliveries to quota, and (2) $3.25 minus $0.52 per cwt. (hold back) or

 

31Further discussion of this assumption will be presented in a
section of the following chapter dealing with sensitivity analysis.

3ZSince the great majority of the regional milk producers sell

their milk for manufacturing purposes, the influence of fluid milk
price on the effective level of the blend price prevailing in the

region can be conSidered marginal.

187
$2.73 for deliveries in excess of quota.33In this study, the weighted
blend price (including the subsidy) received by a typical respondent
is set at $4.20 per cwt. for the entire period simulated.34

The average fat content of the milk currently produced

by the respondents is estimated to be 3.6 per cent. This information,

combined with the estimated average length of lactation periods, can

in turn be used to convert the previously specified levels of production

of cows into standardized 4‘7. FCM-305-day lactation annual production

records. Standardization to 47. FCM is required for using Hutton's model.

The conversion to 47. FCM does not need to be performed in this study

since it turns out to be redundant.35

Other price variables which need to be specified in the model are

the prices received from the sale of culled cows and less than two

weeks-old calves. The net price received from the young calves is

estimated to be $15. We also estimate that 87 per cent of the cows

 

33See p. 113 for a brief discussion of the current Canadian

milk pricing policy.

34There are basically two situations in which the total net price
received by a typical regional milk producer might be expected not to
deviate much from $4.20 in the foreseeable future. The first would
correspond to a stable market price, gradual increases in quota allocations
to local producers and subsidies remaining at the current level. The
second instance would correspond to a gradual increase in market price
(in the range: of 3 to 5 per cent a year) with both quota allocations and
manufacturing milk subsidies at the current levels. Other sets of circums-
tances might be expected to generate significant changes in the current total
net: price received by a typical milk producer in the region. What circums-
tances will effectively prevail is a matter of speculation since much
hinges upon the future individual quota allocations and subsidies.
35Gaines' standard formula for converting actual dairy products
records into standard 47. FCM-305-day lactation records happens to yield a
conversion factor very close to l for the fat content percentage and the
lactation lengths estimated in this study. See W.L. Gaines, The Energy
Basis of Measuripg Milk Yields in Dairy Cows, Illinois Agricultural
Experiment Station, Bulletin 308, 1928, for a discussion of his conversion

formula.

188

in the respondents' herd normally drop a living calf during a calendar

The net price received from the sale of cow culled because of

year.
In a real world

her low production record is estimated to be $135.

situation, if a cow fails--that is if she must be removed from the herd

for sickness, physical injury or death--she can either be sold for beef

or removed from the herd because of death. The value of a cow culled
because of death is assumed to be zero in this study. The value of a

cow failing for any other reason is presumed to be $135.

Information on the percentage of cows yearly removed from herds

was directly obtained from the respondents (Table 43). There may be

some valid reasons for arguing that the figures might vary somewhat if
replacements were purchased instead of being raised from respondents'
own herds but relevant information is not available for determining
howmuch.36 It is therefore presumed that culling rates for various
reasons are not likely to differ significantly between replacement

strategies in the foreseeable future.

Additional information was obtained from the respondents concerning

certain managerial practices. For instance, we estimate, on the basis

of the answer to the questionnaire, that the average respondent, a)
requires only one year of production record on a cow before considering
saving her daughter for a replacement but, b) must keep a cow for three

years before forming a definite opinion as to her production capacity.

 

35For instance a dairy scientist might argue that the failure of
an animal in a given lactation is likely to be significantly correlated

with the butterfat level of the animal.

 

pvui:u I".

189
It is also estimated that the average respondent--among those who
intend to increase the size of their herds-- thinks he can add two cows
per year to his current herd size during the nest five years.37 This

figure does not differ by size of herd.

Other Information on Costs
It was not possible to obtain adequate information on investments
and nonfeed costs from the respondents. With regard to investments,
the pre-test on the questionnaire itself led us to believe that many
respondents were unwilling to report values for their land, buildings,
farm machinery and equipment. It was therefore decided to adopt a
gross margin approach. The basic ideas of the gross margin method are
briefly as follows: The costs related to the operation of an agricul-
tural enterprise are put into two groups--variable, or direct cash
costs, which vary with the size of the enterprise or the practices used
and are relatively easy to allocate to enterprises--and the fixed, or
overhead costs, which are relatively constant or fixed, and are often
difficult to allocate to individual enterprises. The total variable
costs of an enterprise can then be subtracted from the total returns to
obtain the gross margin. Thus the gross margin basically represents the

contribution of the enterprise toward covering the fixed costs and

 

37Of the respondents who answered this question, 70 per cent believe
that they can achieve this objective even if they raise all their replace-
men t: s thems elves .

190

TABLE 43. Estimated Percentage of Cows Removed from the Respondents'
Herds for Various Reasons, 68 Respondents, Eastern Quebec.

W

Proportion of Cows Removed for
Reason for Removal Specified Reasons

 

(per cent)

Sickness 3.1
Death 2.7
Low producer and/or too old 16.4
Other reasons __2_._8_
Total culling rate 25.0

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

producing a return for risk and management.38 According to Wright,
"The principal advantages of the gross margin method are that (1) the
effects of different methods of inputs in an enterprise are readily
apparent in the gross margin per acre or per head, and (2) the effects
of changing the acres of crops or number of livestock are clearly
shown by the total farm gross margin (unless there is a Change that

alters fixed costs, which usually can be determined).39

 

38This description of the gross margin approach is borrowed from
K.T. Wright, "Gross Margin Methods of Planning," published in Mich-
igan Farm Managment Handbook, assembled by L.J. Connor, et als,

Agricultural Economics Report No. 35, Michigan State University, East
Lansing, October, 1967, p. 1.

39Idem. , p. 1.

191

The nonfeed variable costs of a dairy enterprise include machinery

operating costs, miscellaneous expenses, electricity, interest and
Labor is often assumed to be a variable

taxes on cows and land costs.
However, it is a common procedure in farm accounting to treat

cost.
the value of labor contributed by the operator and his family as a fixed

cost and the value of labor contributed by hired workers as a variable

This procedure is adopted in this study. The nonfeed variable costs

cost.
per cow are estimated to be $50 per cow.40
The additional specifications necessary for simulating experiments

with the model are related to the technical aspects of the model itself.

An enterprise period in dairying may be defined as the time from the
Hence, for

beginning of a lactation to the beginning of the next.
The analysis is

dairy cows it is essentially equivalent to a year.

intended to cover seven years, that is from 1969 to 1975.41

40The only consistent estimates of costs of dairy farm enterprises

in Quebec are those collected by the Groupes d'Etude en Rentabilité
Recent estimates from this source for dairy farming enter-

Agricola.
prises located in the region of Nicolet are reported by Jacques Brossier,

Décisions de Production et Offre de Lait au Quebec: Analer du Com—
mrtement des Producteurs Laitiers de la Region Agicole de Nicolet et

Prgzisions, Ministére de 1'Agricu1ture et de la Colonisation, Service de
la Production et de 1'Aménagement, Bureau Régional No. 4, Nicolet,
Unpublished Study, Nicolet, Quebec, Canada, December, 1969. He esti-
mated that the average nonfeed variable costs per cow in the region of
Since the costs associated with agricultural land

Nicolet was $58 per cow.
ownerships is smaller in Eastern Quebec than in Nicolet, this figure

cannot be directly used in this study as a proxy variable without being
The adjustment is made according to the following

adjus ted downward.

formula.
D ‘I I (PLN- PLE)S

where:

192

Summary

This chapter described a simulation technique for estimating

future milk production and gross margins of individual farms in Eastern

Quebec under varying conditions. For the purposes of this study, computer

simulation was defined as a system analysis tool which utilizes. subject
matter theory, certain mathematical structures, programming logic, and
empirical analysis to condense a complex system into a mathematical
formulation duplicating the essence of the real system.

Although the model used in this analysis is capable of producing
information on many aspects of a dairy farming enterprise, special
emphasis was laid upon simulating the operation of two representative
regional dairy farms under various feeding and breeding practices. A

certain number of assumptions were thus made in order to restrict the

scope of the analysis. The most crucial assumption was that dairy

input and output prices now prevailing in the region will remain at

their current levels in the foreseeable future. Each experiment to be

performed with the model was set up to determine what increases in

gross margins and milk production per cow may reasonably be expected,

 

I—

difference in land costs per cow between the region of
Nicolet and Eastern Quebec;

interest rate
price of agricultural land used for dairy farming in

D:

I

PL
N Nicolet;
price of agricultural land used for dairy farming in

E Eastern Quebec;
S ='- total acreage under crop per cow.

With PLN ' $9O’ PLE ‘-' $50, S = 3 and I I! 6 per cent,
D is equal to $ 7.20.
41This corresponds to the first planning horizon proposed by the
gional planners, except for the starting year which is considered herein

the current milk year commencing in April, 1969.

PL

 

193

TABLE 44. Summary of Simulated Experiments.

 

 

 

 

 

 

Experiments Description of Practices
IdentifyinggExperiments
Farm I Farm II Feeding Practices Replacement Practices
1 7 - current feeding rates
retained
2 8 - increased feeding rates All replacements raised
without silage on own farm by natural
service;
_a 9 - increased feeding rates
with silage a
1
3 10 - current feeding rates
retained
All replacements raised
4 ll - increased feeding rates on own farm by using
without silage artificial insemination;
-a 12 - increased feeding rates

without silage

5 13 - current feeding rates
retained
All replacements pur-
6 14 - increased feeding rates chased from special-
without silage ized dairy stock raising
farms;
-a 15 - increased feeding rates

without silage

.. .5]

.M‘

 

 

8These experiments are simulated only for farm II. It is thus
implicitly assumed that the current dairy herd size on synthesized farm I
is too small to justify the investments needed for appropriate silage
storing capacity.
over time, by a typical regional dairyman if he were attempting to
increase his dairy herd size at a rate of two cows a year by following

various practices for improving the production capacity of his cows

and/or improving his feeding program. This is a growth objective which

ilfl‘zf‘ul’ I‘ «1

71

-Il-l.-

xv Jr

 

194
was expressed by a large proportion of the respondents who intend to
increase their herd sizes.42

Each experiment is intended to correspond to a plausible course
of action that a regional dairyman might follow if certain combinations
of regional dairy development strategies were implemented. Each experi-
ment to be simulated with the model can therefore be identified by a
combination of dairy feeding and replacement practices. Each combination
of these practices can readily be read from Table 44.

It is now possible to summarize the data specifications for (1) each
experiment considered, and (2) each one of the two synthesized farms
simulated, by determining the input variables which were fed into the
computer in each simulation run (Appendix E). Each synthesized dairy
enterprise was simulated over the seven year period.extending from 1969

to 1975. The results are discussed in the following chapter.

 

42See chapter V, p. 139.

p CHAPTER VII
Micro and Macro Implications

of Alternative Strategies

Criteria for evaluating alternative dairy development strategies are

discussed in this chapter. The simulated micro results are then presented

as one basis upon which to evaluate the relative merit of alternative dairy
development strategies. Sensitivity analysis of changes in key parameters

or input variables is also explored, and attention is concentrated upon the.

strengths and weaknesses of the model. Finally the micro results are dis-

cussed in relation to the use of benefit-cost analysis for appraising

alternative dairy program strategies.

Criteria for Evaluating_Alternative
Regional Dairy Development Strategies

In theory, the consequences of alternative regional dairy development
strategies could be evaluated on the basis of several criteria. To decide
among the available alternatives, the following questions need to be
answered;

1) Which groups of dairy development programs might induce the most

rapid rates of increase in profitability of dairy farming enterpri-
ses in Eastern Quebec? 4

2) Which group of programs has the highest benefit-cost ratio?

3) What is the ranking of the various alternatives in terms of total

employment opportunities in regional agriculture?

4) What effects will alternative strategies have on the milk supply
195

196
and demand balance in Eastern Quebec?
33) What segment of the regional dairy farming industry is likely to
benefit the most from the set of strategies selected?

Since the stated objective of the agricultural development programs
‘proposed by the regional planners is to provide regional farmers with

incentives to "set up profitable farming operations"1, it is necessary to

I“. 31.-gr
o
'r

evaluate the consequences of Some alternative programs with regard to the

first question suggested above. This study is oriented towards that purpose.

The other questions which are raised above are not directly answered

 

in this study. It is thought, however, that they must be considered by 4

the policy decision-makers. For this reason the information generated in

this study is used to raise issues related to those questions. It is hoped

that the seriousness of these issues will encourage other researchers to

explore their implications also.

The Farm Level Results of Alternative Strategies

The consequences of alternative strategies on the two simulated dairy

enterprises are measured by three characteristics in each of the years over

which the various projections are made. These are the dairy herd size, the

net cash income to the herd and the average production per cow in the herd.
In addition, the present value of the discounted net cash income to the herd

for each experiment simulated with the model is estimated. This latter

measure is used for ranking alternative strategies from the farmer's

viewpoint.

 

1Development Plan for the Pilot Region, op. cit., p. 40.

197

It must be emphasized at the outset that the projections of net
cash income over the simulated period are not adjusted for changes in

capital invested in new buildings, facilities and equipment. As pointed

out earlier, it was not possible to obtain relevant information on

anticipated capital needs to allow expansion in herd sizes.

The main objective of the various regional dairy development strategies
considered in this study was to induce more rapid rates of increase in profit-
ability and productivity of dairy farming enterprises than those which

might otherwise be achieved by the regional dairymen. It is necessary.

therefore, to make a comparative evaluation of alternative means for pro-
moting this objective by first examining the plausible performance levels

that representative dairymen might reach without the new programs.

Trend Projections
The first experiments simulated can be interpreted as attempts to

estimate the growth potentials of the two synthesized dairy enterprises

under current conditions. Hence, table 45 presents the output of the

experiments simulated when it is assumed that each farmer (l) raises all
heifers from his own herd for replacements, (2) feeds his cows at current

feeding rates, and (3) attempts to expand his herd size at a rate of two

cows a year.

Farm I

The analysis shows a potential for increasing the number of cows from

18 h11969 to 28 in 1975 while raising replacements on own farm by natural

sendce. ‘Milk production per cow could be increased from 5,774 pounds the

198

first year to 6,254 the seventh year through selective culling. These

estimates are based on feeding “ the low’feéding rate specified earlier

iJI the study. The net cash income of the dairy enterprise would increase
from $1,008 to $1,846 during the same period.due to the increase in the
herd size and the slight gains in milk production per cow. Taking into
account the capital investments which would probably be necessary to
achieve the projected increase in herd size (barn, milking facilities,
equipment for dairy-related crop enterprises) it appears safe to

conclude that the increase in the cost of additional capital funds would
at least offset the increase in net cash income over the simulated period,
leaving very little room for increase in net profitability. This is partly
due to the facts that the average production per cow in the initial herd
was very low and that very limited gains in productivity are possible under
current management practices followed by the operator.

TABLE 45. Projected Outcomes for Farms I and II under Trend Conditions,
(Experiments I and 7).

 

Year Farm I

 

 

 

Farm II
Net Average Herd Net Average Herd
Cash production size cash production size
incomea Aper cow incomea per cow
($) (pounds) (cows) ($) (pounds) (cows)
1969 1,008 5,774 18 2,106 6,775 25
1970 1,253 5,986 19 2,368 6,902 27
1971 1,387 5,942 21 2,737 7,031 29
1972 1,477 6,129 23 2,903 7,122 31
1973 1,544 6,098 24 3,184 7,209 32
1974 1,723 6,075 26 3,272 7,199 34
1975 1,846 6,254 28 3,634 7,390 35

 

8This estimate is not adjusted for replacement of equipment and
adduflonal facilities which might be required on a given farm.

199

Farm II

The simulated results show a potential for increasing the size of the

herd from 25 cows in 1969 to 35 cows in 1975 by raising replacements on own

farm. Pfilk production per cow could be increased from 6,775 pounds the first

year to 7,390 the seventh year. The net cash income of the dairy enterprise

would increase from $2,106 in 1969 to $3,634 in 1975 due to herd expansion

and increases in production per cow. These estimates are based on feeding

the medium quality ration specified earlier in this study. Additional

capital costs related to the projected increase in herd size could not be

measured due to lack of data. If these costs were likely to exceed $200

per year -- that is the equivalent of $2,000 of additional capital invest-
ment per year depreciated at a 10 per cent rate -- net profitability of

this dairy enterprise would not increase.

In these instances, at least, intuitive analysis of the evidence is
relatively easy. The evidence generated by the model indicates that there
is little hope for increases in the profitability of either one of the two

representative dairy enterprises considered in this study by increasing herd

size alone under current management practices. These results help to explain

why so many dairy farmers in Eastern Quebec have found milk production

unprofitable and have liquidated their dairy operations. The simulated

projections are also consistent with recent Quebec experience in other
depressed areas where dairying is an important source of agricultural

income. ”I”

The question which naturally arises at this stage is whether or not

200

the various regional dairy development strategies considered in this study
can induce larger increases in profitability than those which appear likely

if present trends continue.

Projections Under New Program Strategies
The simulated model is used to estimate projected net cash income for
two representative herds under alternative dairy development strategies.
These include policies for promoting herd improvements and changes in feeding

rates. The simulated results for Farm I and Farm II are discussed in the

following pages.
Farm I

Five experiments are simulated for Farm I. Each experiment is identi-
fied by specific replacement and feeding practices. Each of the replacement
practices is appraised by using different qualities of rations as determined

by characteristics of the feed. The results are presented in Table 46 and

discussed hereafter:

Experiment 2: increased feeding only
The purpose of this experiment is to determine the extent to which
the small dairy farmer might increase the profitability of his dairy enter-
prise and the productivity of this cows by expanding herd size and by
increasing the quantity of feeds fed. The estimates are therefore based
on feeding the high ration (without silage) specified earlier in the study.
This simulated experiment shows a potential for increasing the number

of cows from 18 in 1969 to 28 in 1975 by raising replacements through natural

201

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202
service. Milk production per cow could be increased from 6,122 pounds the
first year to 6,627 the seventh year. Net cash income would increase from
$1,391 to $2,563 during the same period. Gains in milk production per cow
appear to be limited by the poor quality of cows in the initial herd and by

the poor quality of feeds fed.

Experiment33 and 4: use of artificial insemination

Using artificial insemination to raise his own heifers for replace-
ment and expansion, the small dairy farmer continuing on current feeding
rates (experiment 3) would increase his herd size from 17 cows in 1969
to 28 in 1975. Annual net cash income and annual milk production per cow
would respectively increase from $976 to $1,970, and from 5,845 to 6,602
pounds during the same period. It is interesting to note that production
per cow in this simulated experiment is no higher than withbut'A.I...
This indicates that low feeding rate is an important limiting factor. The
estimates based on increased feeding rates without silage (experiment 4)
in turn indicate that herd size could be increased from 18 cows in 1969 to
29 cows in 1975. In this instance, annual net cash income and annual milk
production per cow would respectively increase from $1,448 to $3,848, and
from 5,978 to 7,691 during the same period

Results of experiment 3 are a strong testimonial that limited
availability of good-quality feed is one of the most fimportant factors
accounting for the poor performance of some dairy enterprises in the region.

Artificial insemination without increased feeding rates is not likely to

203

have any payoff at all on Farm I. However, artificial insemination with
increased feeding rates might contribute to increase the profitability of
Farm I. The extent to which net profit could be increased would depend upon
the amount of additional investment needed to achieve the herd expansion
projected. Assuming that additional dairy equipment and buildings totalling
$10,000 in new investment would be required to increase herd size from 18
1969 to 28 in 1975, the increase in profit over the seven year span would

be approximately $ 1,400.2

Experiments 5 and 6: all replacements bought

The purpose of these experiments was to determine whether or not the
small dairy farmer might increase the profitability of his dairy enterprise
and the production of his cows by purchasing all his new heifers for
replacement and expansion.

The estimates based on current feeding rates (experiment 5) indicate
that, under such conditions, culled cows would not be replaced. In this
case, low quality forage and other constraints limiting total feeding rates
appear to place an upper limit on the ability of this farmer to fully take
advantage of the higher production capacity of his purchased replacements.

The estimates based on increased feeding rates without silage
(experiment 6) show a potential for increasing herd size with purchased
replacements from 18 in 1969 to 30 in 1975. Annual net cash income and
annual milk production per cow would respectively increase from $1,534 to

$3,087, and from 6,212 to 7,422 pounds during the same period. Again, the

 

2That:ia, $3,848 for net cash income in 1975 minus $1,448 for net cash
income in 1969, minus $1,000 for additional costs of capital, assuming that
additional capital is discounted at a 10 per cent rate.

204

magnitude of the increase in net profits would depend upon the additional
capital costs which dairy herd expansion might entail on individual farms.
Farm II

Eight experiments were simulated for Farm II (Table 47). Each of
the replacement practices were appraised by using different feeding rates.
The maximum feed intake per 100 pounds of body weight is varied from 2.6
pounds of dry matter for current feeding rates to 2.8 for improved feeding
rates with or without silage. The composition of the rations feed with

or without silage was specified earlier in the study.

Experiments 8 and 9: all replacements raised on own farm by natural service
The two series of results simulated under these conditions are quite
similar in many respects. This was expected since only the composition of
the rations fed varies from one simulated experiment to the other. It is
interesting to note, however, that annual net cash income increases from
$2,304 in the first year to $4,080 in the seventh for increased feeding
rates without silage, and from $2,845 to $4,748 for increased feeding rates
with silage during the same period. Since herd size and production per cow
are almost identical in the two simulated runs, the differences in annual
net cash income between the two projections must be attributed to lower costs
of feeding when oats is harvested as silage. Additional information on the
annual capital costs associated with investments in adequate silage storing
capacity for this individual farm would be needed, however, to determine

whether such investments have a high payoff.

205

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206

Experiments 10, 11 and 12: use of artificial insemination

Three series of results were simulated under these conditions namely
one for current feeding rates, one for increased feeding rates without silage
and finally one for increased feeding rates with silage. The estimates based
on current feeding rates (experiment 10) show a potential for increasing herd
size from 25 cows in 1969 to 37 in 1975. However, annual net cash income and
annual production per cow would increase only from $1,938 to $3,420, and from
6,836 to 7,442 pounds of milk during the same period. This again suggests
that low quality forage and other constraints limiting total feeding rates
appear to place an upper limit on the ability of this farmer to improve the
actual production performance of his cows by using artificial insemination.
The estimates based on increased feeding rates with or without silage
(experimentsll and 12) are again quite similar in many respects. Herd size
and herd production per cow are almost identical for each year but annual
net cash income differs from one series to the other. Annual net cash income
would increase from $2,158 in the first year to $4,910 in the seventh year
with increased feeding rates without silage, and from $2,685 to $5,690 with

increased feeding rates with silage during the same period.

Experiments 13, 14 and 15: all replacements bought

Three series of results were simulated under these conditions. The
estimates based on current feeding (experiment 13) show a potential for
increasing herd size from 25 in 1969 to 36 in 1975. Annual net cash income
and milk production per cow respectively increase from $1,992 to $4,069, and

from 6,863 to 8,109 pounds of milk during the same period. The estimates

207

based on increased feeding rates with or without silage (experiments 14
and 15) both indicate that milk production per cow might go up by about
1,400 pounds of milk between 1969 and 1975. However, annual net cash in-
come would increase from $2,191 in the first year to $4,558 in the seventh
year for increased feeding rates without silage, and from $2,681 to $5,120

for increased feeding rates with silage.

The Ranking of Alternative Strategies

To sharpen the comparison of the various strategies from the farmer's
point of view, a computation was made of the present value of each year's
net cash income discounted at some specified rate for each experiment
simulated in the study. This provides a convenient way of indexing the
various monetary streams generated by the model. The model used in this
study is capable of reducing the net cash income, distributed by years,
and the change in capital funds from year to year to a single value for
each experiment. It must be pointed out that the result thereby obtained
isthe discounted cash flow and not the present value of net benefits. This
is due to the fact that the information available allows estimation of
gross margin earned by each dairy enterprise under various experimental
conditions but is not sufficient to permit computation of net profit, that
is gross margin minus fixed costs.

A single interest rate of 6 per cent is used in this study. It must
therefore be pointed out that the ranking of the various alternatives

considered in the study has limited meaning since the ranking may itself

208
be dependant upon the interest rate used.3 It must also be emphasized that
the period over which the outcome is projected is itself too limited to
fully appraise the consequences of each combination of dairy development
strategies especially those having to do with breeding programs. The
preceding remarks should therefore be kept in mind before reaching definite
conclusions as to the relative merit of each alternative.

From the point of view of the farmer operating a dairy enterprise
with characteristics similar to synthesized Farm II, it would appear that
increased feeding rates with silage (experiment 12) is to be favored
(Table 48).

Increased feeding rates with silage would apparently be the most
profitable regardless of whether he chooses to continue to raise all his
replacements on his own farm by natural service, buy all replacements from
specialized stock raising farms or raise all his replacements on his own
farm by using artificial insemination. It is interesting to note that
there are very little differences in the present value of discounted cash
flows for each of the experiments (12, 15 and 9) involving these strategies.
The same remark applies to the next three experiments which all involve in-
creasing feeding rates without silage (experiments 11, 14 and 8). Estimates

of fixed costs associated with silage harvesting and storage facilities

 

3This proposition could be tested by computing the present value of
yearly earnings for each simulation run discounted at various interest rates.
Computed estimates could then be reported for each discount rate specified
and could be used to determine whether or not the ranking of the various
monetary flows depends upon the interest rate considered.

209
would be needed to determine which strategy would have the highest returns
on capital invested.

From the point of view of the farmer operating a dairy enterprise
with characteristics similar to synthesized Farm I, it appears that increasing
feeding rates (without silage) in combination with a strategy of raising
all his replacements on own farm by using artificial insemination (experi—
ment 6) offers the greatest possibilities for making his enterprise more
profitable (Table 48). The other combination of strategies which would
apparently constitute improvements over current practices appear less
attractive. This is especially true for the combination of strategies

involving purchased replacement and current feeding rates (experiment 5).

TABLE 48. Ranking of Simulated Experiments on Basis of Present Value of
Cash Flows Discounted at 6 per cent.

 

 

 

Farm I Farm II

‘ Simulated Present value Simulated Present value

Ranking experi- of discounted experi- of discounted
mentsa cash flow mentsa cash flow
($) ($)

1 6 2,881 12 3,560
2 2 1,921 15 3,516
3 4 1,836 9 3,500
4 3 1,541 11 3,065
5 1 1,442 14 2,990
6 5 1,281 8 2,876
7 10 2,806
8 7 2,728
9 13 2,386

 

aThe practices identifying each experiment are presented in table 44.

210

Effects of Various Strategies on Capital Requirements

The foregoing discussion leads to the conclusion that the combined
effects of improved feeding rations and of artificial insemination might be
the most appropriate course of action to follow in order to increase profitab-
ility of regional dairy farming enterprises.Buying replacements may have
another disavantage as far as capital requirements are concerned.

With small herds buying cows for replacement to increase herd size may
provide a quicker and more profitable means of growth than raising replace-
ments. This may be particularly true for small herds with very low production
cows. The people holding these beliefs, however, often forget to consider
the fact that the practice of buying replacements requires a larger capital
fund than the practice of raising replacements. The results of this analysis
indicate that the buying practice might rapidly deplete the capital stocks of
those regional farmers who follow it systematically (Table 49).4 These
findings point to the serious possibility that many~ regional dairy farmers
may not have access to enough capital funds and outside credit to finance
both an increase in herd size through a buying replacement practice and other
investments which might be needed to operate with larger herds. One of the
major shortcomings of this research consists in the fact that other investment
requirements for the various herd sizes and the various practices considered

in the study are not taken into account. We decided to refrain from making

 

4The market price for purchased replacements appears to be significantly
higher than the cost of raising replacements in the region. One of the reasons
accounting for this difference might be the value of the quotas (needed to
qualify for the subsidies) which are partly capitalized into the price of
replacements.

211
arbitrary charges against gross income for fixed assets since no data were
available on either their salvage values, their worth in present employment
or their replacement costs. It must therefore be pointed out that additional
information would be needed to convert the gross margin figures presented
above, which can correctly be interpreted to represent returns to management,
fixed investment and the operator's labor, into a more sophisticated measure
of net farm income. Assuming that such information could be collected, it
would then be possible to use the basic data provided by this study to
develop an economic appraisal of the alternative dairy development strategies.

TABLE 49. Projected Net Change in Farm Capital Invested in Cows for Various
Simulated Experiments.a

 

 

-—
_t J .1

 

 

 

Simulated Change in farm capital fund
experimentsb for the simulated period (7 years)
Farm I Farm II Farm I Farm II

(dollars) (dollars)
1 7 + 451 + 1,369
2 8 + 941 I 1,624
- 9 + 2,019
3 10 I 1,068 - 897
4 ll - 1,191 - 1,465
- 12 - 486
5 13 + 2,061 + 1,423
6 14 + 7,043 + 1,534
- 15 + 1,877

 

aOnly the capital stock outlays for investments in cattle are included
in this calculation. Depletion of the capital fund is therefore assumed
to occur with investments in cattle and when the gross margin is less than
the amount of money necessary for yearly family expenses.

bSee Table 44 for the practices identifying each experiment.

212
It appears safe to conclude that the interests of the regional dairymen
who intend to further commit themselves to dairy farming might best be served
by promoting artificial insemination as a means of increasing productive
efficiency of dairy cattle and by inducing improvements in the performance
of dairy-related crop enterprises on the farms. The analysis indicates
that improved feeding practices might be a necessary but not sufficient means

for improving the performance of the regional dairy enterprises.

Validity of the Model and Its Results

Since a simulation model is an attempt to represent a real system, it
is desirable to do some sort of checking to see if the analytical procedure
used has reasonably valid representation within the context of the problem
at hand. The most usual procedure for testing the validity of a simulation
model is to have the computer program simulate a situation about which prior
knowledge is available. The necessary degree of correspondence between the
simulated and the known results is then used as a basis for determining
whether or not the model accurately represents the real system under consider-
ation.

The first question which must be raised at this juncture is whether
or not the milk production function assumed in this study can predict current

levels of production associated with the various levels of feeding reported

in the survey.5 A comparison of the results of this study with levels of

production per cow reported by the respondents shows similar results (Table 50).

 

5The assumed production function was discussed on p. 168.

213

TABLE 50. Levels of Milk Production Associated with Various Feeding Rates,
Simulated and Measured in Survey.

 

Feeding rate Estimated average milkgpgoduction per cow in herd
Simulated Survey
Farm I Farm II

 

(pounds of milk)

Lowa 6,160 ----- d 6,130
Mkdiumb ----- d 6,775 6,540
Highc 6,331 6,822 6,630

 

Source: Simulated Projections for year 1969 and results of survey presented
in Appendix D.

aSimulated trend experiment for farm I.
Simulated trend experiment for farm 11.
cSimulated farms I and II under high feeding rates without silage and

current breeding practices.
These feeding rates were not analysed for both farms.

However, since the estimates of feeding rates obtained from the survey were
rather crude, this limited evidence is no guarantee that the function used
was the most appropriate one to choose. The only conclusion which can be
drawn is the following. The input-output relationships expressed in this
function may adequately represent those of regional dairy farming enterprises
within the range of feeding rates considered in the study.

Another means of checking the validity of the model is to determine
whether or not the projected results are consistent with the respondents'

opinions concerning the comparative merit of alternative strategies.6

 

6This test is implicitly based upon the assumption that the people on whose
shoulders the implementation of a chosen strategy is to rest are capable of
making rational decisions and of detecting courses of action with high payoffs.

214

Let it be sufficient to recall that the respondents' expressed preferences

for alternative strategies showed that there was substantial disagreement
among than as to what would constitute the most appropriate course of action
to follow. If the respondents are at all capable of forming a reasonable
opinion concerning the consequences of alternative courses of action, this
would suggest that the range of favorable consequences is likely to be
narrow. The simulated results are consistent with this proposition. For
example, let us consider the various simulated experiments for farm II. On
a discounted cash flow basis for the seven year period, the first ranked
outcome resulted in only $754 more than the seventh ranked outcome (Table 48).7
The results generated by the model support the following generalizations.
There are some limited possibilities for increasing porfitability of reagional
dairy farming enterprises either through increases in herd sizes, improved
production capacity of dairy herds and/or improved feeding rates. The
greatest possibilities appear to be those that would result from artificial
insemination and improved feeding rates. The quality and quantity of feed
fed is shown to be a major importance with respect to production and income
from dairying. Feeding poor rations would apparently result in milk pro-
duction lower than the cows' potential if higher production capacity cows
were introduced in the region without concomitant improvements in feeding

rates. This conclusion is consistent with the respondents' opinion that

 

7This difference would have been smallerztf a higher discounting rate
had been used.

215

more adequate feeding rates is one important means for improving the produc-

tion capacity of their herds (Table 30).

Strengths and Weaknesses of the Model

It is easy to exaggerate the degree of assistance that a simulation
model can offer policy makers. At most, an adequately specified.model can
help him to understand relevant alternatives and key interactions by pro—
viding some estimates of important consequences and the time-span associated
with various courses of action. It may sharpen his intuition and broaden
his basis for judgment, thus helping him make a more rational decision.

But unavoidable value judgments, imprecise knwoledge and uncertainties about
individuals' behavior mean that such a study can do little more than assess
some of the most relevant implications of choosing one alternative over
another.

The purpose of the following discussion is to explore the most apparent
strengths and weaknesses of the model used in this analysis. A related
objective is to suggest how the model could be improved to cover a wider
range of problems.

Strengths of the Model

The simulation model used in this study is capable of projecting the
consequences of following various management practices in dairy farming.

The consequences are described by five characteristics. These are the size
of the herd, the gross margin to the herd, and the average milk production

per cow. In addition to this information, the model can generate results

216
concerning changes in capital stock, the present value of monetary flows, and
culling rates.

The wealth of information provided reflects favorably on this simulation
model. For instance the results simulated in this study indicate that the
strategy of purchasing replacements has a major disadvantage of high capital
cost. This type of information is likely to be useful to the regional plan-
ners. Indeed, promoting the strategy of purchasing replacements to improve
production capacity of regional dairy herds might fail if enough attention
was not devoted to the need for supplying additional credit.

An additional advantage of the model is that it stresses the consider-
able influence of the initial quantity and quality of resources upon the
growth possibilities of the dairy enterprise. It also constitutes a
convenient method for incorporating a wide range of data that can be brought
to bear on the solution of a particular problem.

Finally, the model allows one to analyse the dairy enterprise with
respect to various planning periods, namely a short period analysis in which
feed is the only variable, a medium period in which both feed and herd size
are variable and finally along run analysis in which all factors of production
are variable. It is not certain, however, that the model used is preferable
to other technique such as recursive linear programming for analysing
problems related to growth of dairy enterprises over time. It is thought
none the less that the information produced by the simulation model used
in this study is relevant to the decision—makers' final decision concerning

the choice of a dairy development strategy in Eastern Quebec.

217
Weaknesses of the Model

The first major weakness of the model is that it is restricted to the
analysis of the dairy enterprise and the dairy-related crop enterprises.
Since few regional dairy farms are completly specialized, this model gives
only a partial picture of their resource allocation problems. Most of the
commercial farms in Eastern Quebec are small family-sized businesses producing
two to maybe five kinds of crops, and/or one to three types of livestock
in order to use resources fully in an attempt to equate marginal returns
approximately with marginal factor costs for all entepriseso On such small
farms multiple enterprises may be a necessity, if the operator and his family
expect to live on the returns from such small-size farming. The farmers
who will further commit themselves to dairying will likely have to curtail
a few enterprises in order to expand the dairy enterprise. The model used
in this study does not help determine which enterprises should be curtailed
and what the net increment to total farm revenue is.

Second, the model considers the price of milk as a deterministic vari-
able. The structure of the model could be modified to incorporate a function
of the following type:

Pt ' f (t, Qit)
where Pt 3 net farm price for milk at time t;

t = a given year; and

qi . a dummy variable taking into consideration quantity of milk

t

produced within quota allocation and that in excess of quota

during a given year.

218

The routine which would be needed to incorporate this function into
the computer program might be fairly complex but the gains in accuracy of
the projected results might be worth the additional effort.

Third, land was assumed to be available if and when needed. It may
be argued that the size of the farm with respect to land available for
feed production is an important consideration in the dairy farmer's decisions
concerning size of herd and replacement practices. This is especially true
in Eastern Quebec where land fragmentation is considered a serious problem.
It is particularly difficult to make plausible generalizations on the relation-
ships between herd size and land available for feed production since increases
in yields might prove to be a high priority solution in the region. In
order to put the results obtained in this analysis into a more realistic
perspective, it would be necessary to collect additional information from
the farmers themselves. Such information would serve to determine the
proportion of regional dairymen who (1) need to expand their acreage in
order to increase the size of their dairy herds and to improve their feeding
rates, and (2) might qualify for financial assistance - by way of special
credit and/or limited capital grants - to purchase or lease neighboring
units. This information could be incorporated into the model.

Fourth, the market value of feed was used to estimate feed costs.
Since the market value of feed probably represents the upper limit of feed
costs, there is a serious possibility that the simulated results under-
estimate the profitability of the two enterprises considered. Feed pro-

duction costs are not easily determined, however, especially because of the

219

complexity of allocating joint costs and the problems of estimating fixed
assets used in the production and storage of feed. Until further information
becomes available, this problem cannot be easily avoided.

Fifth, the costs of owning sires were not taken into account in the
simulated experiments involving raising replacements on own farm through
natural service. If the relevant information on such costs were available,
this conceptual weakness could‘beavoidedbw'adding a simple routine to the
computer program which would account for them. However, this conceptual
problem does not affect the consequences generated for the other simulated
situations since artificial insemination and buying replacements practices
eliminate much of the overhead cost of owning sires of milking stock.
Another important weakness, as pointed out earlier, is that annual costs
of new inVestments such as silos and extra harvesting equipment for the oat
silage, are not taken into consideration because of the absence of relevant

information.

Sensitivity Analysis
Sensitivity analysis can be used to analyse the impacts of uncertainty
on likely micro consequences of each dairy development strategy. This
involves using several plausible values for those parameters about which
the analyst is uncertain in an attempt to determine how sensitive the
projected results are to variations in the uncertain parameters.
The purpose of the following discussion is to present some evidence

on the likely consequences of varying a few parameters about which question-

220
able assumptions might have been made in this study and to seek further
information on a few possible program alternatives. The variations considered
are with respect to (1) the price of agricultural land, (2) the price and
quality range of purchased replacements. Other parameters which could

submittedto sensitivity analysis are also discussed.

The Price of Land

The future trend in the price of agricultural land in Eastern Quebec
is an issue over which opinions may diverge. There are about as many reasons
to believe that it might go up as there are reasons to believe that it might
remain stable in the foreseeable future, but very few people seem to think
it might go down as a result of government intervention in the regional
agricultural land market.

The analysis carried so far has been undertaken under the assumption
that the price of agricultural land in the region would remain at current
levels. Suppose, however that increases in the price of regional agricultural
land will occur in the foreseeable future. Suppose further that these in-
creases in the price of regional agricultural land would be accompanied by
significant increases in the costs of hay, oats and pasturage. The conse-
quences resulting from such circumstances can be predicted by the model used
in this study.simply by changing the parameters identifying the costs of
various feed items. A case in point is presented in Table 51. The results
simulated under these conditions indicate that a large increase in the cost

of feed (20 per cent increase assumed) without any increase in the price of

221

TABLE 51. Projected Outcomes for Farm II with Increased Costs of Feed.a

 

W W

 

Estimated Estimated average Estimated

gross margin production per cow herd size
Year in herd

(dollars) (pounds of milk) (number cows)

1969 1,493 6,796 21
1970 1,406 6,925 22
1971 1,434 6,820 23
1972 1,569 6,843 22
1973 1,536 6,574 22
1974 1,367 6,094 22
1975 1,467 5,948 23

 

aSame conditions as for "trend" projections for farm II, expect for cost of
harvested forage per ton of hay equivalent, cost of pasturage per ton and
cost of concentrated mix which were arbitrarily set at $18, $19 and $54
respectively as compared to $15, $16 and $45 in the "trend" experiment.

milk would likely make it unprofitable to further invest in dairying. This

points out a serious possibility that the increased cost of feeds might

contribute to further depress the profitability of many regional dairy

farming enterprises if improved management practices were not adopted.

Price and Quality Range of Purchased Replacements

One of the crucial issues concerning the strategy of promoting specialized
dairy stock rais‘pg farms in Eastern Quebec has to do with the price and
quality range of replacementswhich.could be raised on such farms. It is
generally recognized that quality of dairy animals is a very important factor
determining productive efficiency and rate of profitability of dairy enter-

prises. The quality of dairy animals that a farmer finds desirable to keep

 

I‘.’

 

222
largely depends upon the cost of such animals, among other things.

All situations previously considered in this study that involved the
strategy of buying all replacements from the specialized dairy stock raising
farms were simulated under the assumptions (1) that out of 100 heifers bought
from the specialized dairy stock raising farms, 25, 50 and 25 might be
expected to respectively fall within 7,000-7,999, 8,000-8,999 and 9,000-9,999
mature-equivalent production classes, and (2) that these heifers would sell
for about $ 250. There are a certain number of questions which can be answered
in this study by considering other plausible assumptions.

Suppose the regional planners are convinced that very few regional dairy
farmers might shift to a buying replacement strategy if the cost of purchas-
ing such animals is not subsidized. Suppose further the decision-makers have
reached the decision that a government agency would subsidize the purchase
of such animals in the region so that the net price paid by the regional
dairymen would not exceed $200. It is possible to predict the consequences
of such a policy by changing the value of the variable identifying the cost
of purchased replacements from $250 to $200. Two cases in point are presented
in Table 52. The results generated indicate that die combinations of
strategies involving this policy rank lower than those involving the use of
artificial insemination (Table 48) when each situation is ranked exclusively
in terms of the present value of the discounted cash flow. An interesting
implication of the subsidy, however, is that buying replacements at the
subsidized price would involve a much smaller drain on capital funds than
buying replacements at the market price, thereby leaving more funds to invest

in other facilities required to increase herd size.

223

TABLE 52. Projected Outcomes for Farm I and Farm II with Price of Purchased
Replacements Set at $200 perihead.

m

 

 

 

Farm I Farm II
Average Herd Average Herd
Year Net cash Production size Net cash Production size
income per cow income per cow
($) (pounds) (cows) ($) (pounds) (cows)
1969 1,402 6,157 18 1,968 6,939 25
1970 1,807 6,523 20 2,321 7,293 27
1971 2,100 6,673 22 2,803 7,621 29
1972 2,430 6,854 24 3,207 7,875 31
1973 2,726 6,992 26 3,624 8,077 33
1974 3,176 7,143 28 4,006 8,266 35
1975 3,502 7,267 30 4,398 8,412 37

 

The estimated net change in capital fund is +$5,915 for farm I and-+$517
for farm II. The present value of the discounted cash flow (at 6 per cent
discounting rate) is $2,707 for farm I and $2,864 for farm II. High feeding

rates without silage were assumed in both simulated projections.

The strategy of using a subsidy as an additional incentive for regional
dairymen could be analysed with benefit-cost analysis. However, it must be
pointed out that the total amount of the subsidy would have to be imputed as
a cost for promoting such a program. This cost might be fairly high. For
instance, the simulated results presented in Table 52 imply that farm II would
buy approximately 65 heifers from the specialized dairy stock raising farms
over the seven year period considered. The cost of the subsidy would therefore

be about $3,250 for farm II alone.

224

A possible area of discontent with the regional planners' recommendations
concerning the specialized dairy stock raising farm strategy lies in their
specifications of the quality range of cows which might be produced on such
farms. This issue can be expressed in the following terms. If there are
reasons to believe that this strategy is the most appropriate one to follow
from the community's point of View, why not attempt to get the most out of
it by raising very high quality cows? Suppose for instance (1) that out of
100 heifers bought from the specialized dairy stock raising farms, 25, 50
and 25 might be expected to respectively fall within 8,000-8,999, 9,000-9,999
and 10,000-10,999 mature-equivalent production classes, and (2) that these
heifers would sell for about $300. It is possible to predict the consequences
of such a policy by changing the expected distribution of purchased replace-
ments and the value of the variable identifying the cost of purchased replace-
ments (Table 53).

TABLE 53. Projected Outcomes for Farm II Associated with a Higher Quality
Range of Purchased Replacements.

 

 

Average Present value
Net production Change in of cash flow
cash per cow in Herd capital discounted at
Year income herd size fund 6 per cent
(dollars) (pounds of (number (dollars) (dollars)
milk) of cows)
1969 2,475 6,808 25
1970 2,747 7,175 27
1971 3,192 7,581 29
1972 3,654 7,981 31
1973 4,193 8,263 33
1974 4,745 8,493 34
1975 5,188 8,677 36 -3,405 2,916

 

225

As expected, the results generated indicate that fairly quick improvement
in herd productivity could be achieved under such conditions. However, the
relatively high cost of such animals would impose a heavy drain on the regional
farmer's capital stock.

Further Research Needs

It is not possible to reconsider all the parameters about wich questionable
assumptions might have been made. It is possible, however, to suggest some
key parameters, the values of which might affect the ranking of the alternatives
under consideration.

First, all experiments considered in this study that dealt with the use
of artificial breeding as a means of improving the productive efficiency of
regional dairy herds were simulated under the assumption that, on the average,
heifers from artificial sired cows would be superior to natural sired heifers
by the equivalent of 200 pounds of milk per year. Since this assumption is
conservative, it might be appropriate to reconsider the consequences of
promoting that strategy under a more liberal assumption while taking into
account its cumulative effect over time.

Second, the initial capital fund available was assumed to be $3,000 for
farm I and $4,000 for farm II for all experiments simulated. The projected
outcomes of various situations were not apparently affected by this assumption
but they might have been affected if lower values had been assumed. For this
reason, it would be interesting to consider several values for that parameter.

Third, it was assumed that annual withdrawals of income for family

living expenses were zero. This assumption was made because it allowed

226

the analysis to determine the net change in capital fund ascribable to given

replacement practice.. The scope of this research could be extended by
collecting information on living expenses of regional farm families. The
estimate could then be subtracted from farm net income to determine what
portion of it, if any, is available for reinvestment in the dairy enterprise.
Incorporation of family living expenses in the analysis would probably affect
the consequences of all combinations of strategies involving the buying
replacement practice. Considering a regional dairyman who has very limited
sources of capital, there is a serious possibility that family living expenses
could not even be maintained at current levels if a buying replacement strategy
were pursued because this strategy would impose a heavy drain on his limited
capital funds mostly at first.

Standard Deviations of Prgjected Results.

In addition to making projections over time, the simulation model used
herein can provide measures of the standard deviations of projected outcomes
over time. In order to obtain such measures, however, each simulated experi-
ment must be replicated many times. The fewer times the simulation is
replicated, the shorter the computer's running time and the smaller the
certainty of accurately measuring differences.

Because each cow in the simulated dairy herds is exposed to a probability
culling because of hazards and each cow that calves to an equal probability
of a bull or heifer calf, the computed milk production and income will likely
vary somewhat each time a simulated experiment is replicated. In this analysis,

each simulated experiment was replicated ten times mainly to illustrate how

 

 

 

 

227
the model can be used to measure uncertainties. The results presented in
Table 54 are for simulated farm II under the conditions specified in the table.
The number of times each situation is replicated is probably not sufficient
to derive firm conclusions concerning the variability of consequences implied
by various dairy development strategies at the farm level. The results
indicate, however, that the practice of purchasing replacements might slightly
contribute to reduce yearly income variability in regional dairy farming in
the foreseeable future. Further evidence would be needed, however, to
adequately substantiate this tentative proposition.

TABLE 54. Estimated Variability in Returns and in Average Production per
Cow for Farm II Under Three Experimental Conditions.a

 

 

 

 

Standard deviation in gross Standard deviation in average
margin gproduction
Repla- Repla-
Natural cements Artificial Natural cements Artificial
Year Servicegpurchased insemination Service ,purchased insemination
(dollars) (pounds of milk)
1969 109 134 103 70 95 92
1970 144 193 161 194 199 127
1971 153 222 134 191 157 176
1972 243 185 184 214 106 208
1973 167 204 248 202 115 252
1974 197 120 241 217 98 290
1975 411 186 326 266 111 294

 

8All three experiments were simulated under the assumption of high feeding
rates with silage.

bStandard deviation from mean estimates.

228

Issues in The Economic Appraisal of Alternative Strategies

In order to compare the relative merit of alternative regional dairy
development strategies, it is necessary to consider the strategies from three
points of view, namely those of the farm (considered in this study), the
financing agency and the community as a whole. The difference in each point
of view are discussed by E.M. Ojala in following terms:

The impact of a project on the pattern of farm income and expenditure

and on net farm income is crucial to its success, but it does not

give the whole picture. The financial appraisal goes further. In

the light of the economic changes brought about by the project on

the farms benefiting, it would assess the increase in rates or taxes

that the farmers might be asked to pay as reimbursement to the

financing agency . . . This approach is in turn narrower than the eco-

nomic appraisal, which tries to assess the costs and benefits of the

project in terms of the public interest. Economic appraisal is thus

concerned with opportunity costs as well as direct costs, and benefits

that accrue to the general public revenue as well as the money receipts

of the financing agency. This is therefore the correct approach to apply

in appraising agricultural investment projects financed from the public

funds. The farm and financial appraisals are nevertheless essential,
to provide basic data for the wider analysis.

From the community's point of view, the macro economic problem is that
of maximizing welfare by efficiently allocating scarce resources. Ideally
a community should then choose that course of action which, with the avail-
able resources, maximizes the well-being of the whole community. If possible,
the community should like to ascertain the total amount of this magnitude
under various alternative courses of action. Then it would pick the alter-

native that yielded the most community well-being. This prescription,

 

8E.M. Ojala, "The Programming of Agricultural Development", Published in
Herman M. Southworth and Bruce F. Johnston, Agricultural Develgpment and
Economic Growth, (Ithaca, New York: Cornell University Press), 1967, p. 573.

229

however, helps little more than saying that the community wants the best
course of action. Nobody knows precisely how the well-being of the Eastern
Quebec population is related to the observable or projected outcomes of
various dairy development strategies because the analytical tools and the
relevant data to translate the outcomes into such terms are not available.

In practical problem solving, therefore, researchers choose to look at some
proximate criteria which serve to reflect what might happen to community
well-being under various courses of action. Actual criteria are thus
essentially practicable substitutes for the maximization of whatever a society
would ultimately like to maximize.

Cost-benefit analysis is the only approach to economic appraisal of
public projects that is at all well established. Conceptually cost-benefit
analysis sets out to evaluate alternative courses of public action on the
basis of their effects on national income. As a general rule, an alternative
is said to be economically justified when total assessed benefits exceed

total assessed costs, that is when the benefit-cost ratio is above unity.9

 

9The two main types of criteria used by benefit-cost analysts are (l) the

ratio of the present value of the time-stream of net benefits to the present
value of the time-stream of costs, and (2) the internal rate of return of a
given course of action, which is the discount rate that reduces the present
value of the stream of net benefits to zero, or in other words, that brings
the present value of benefits to equality with the present value of costs.
When the present value procedure is followed, the alternative with the higher
present value is said to be preferable. When the internal rate of return
criterion is applied, any alternative that has a rate of return higher than
that at which the funds can be borrowed is said to be economically justified.

230
The following discussion is intended to show that the data generated
in this study could be used to set up a thorough benefit-cost analysis of
alternative regional dairy development programs. Emphasis is laid upon
the basic problem of aggregation, the problems raised by the evaluation of
labor and the need to explore the problem of redistribution of income. Serious
questions concerning future milk supply and demand balance in Eastern Quebec

are also raised.

Aggregation Issues

A recurrent problem faced by cost-benefit analysts of agricultural
development programs is that of finding out the rate at which farmers are
likely to respond to alternative strategies. It hardly needs to be men-
tioned that direct benefits of any development program are the sum total
of the direct benefits realized on each farm making a positive response.

Evidence presented in this study shows that the regional dairy farmers
with relatively large herds (20 cows or more) would probably respond more
rapidly than others to alternative programs because they would apparently benefit
the most from them. This suggests that a realistic appraisal of the direct
benefits generated by alternative dairy development strategies in Eastern
Quebec might require additional information on potential rate of response
among various classes of regional dairymen.10 This information could in

turn be used to predict the number and the type of dairy farmers who might

 

10The information presented in this study on the likely response of regional
farmers cannot be used for that purpose because of the limited coverage of the
survey.

 

11.-..

231
respond immediately to a specific program if it were implemented, those who
would probably take action in later years and finally those who might make
no positive response at all.

It is of cruCial importance that a realistic View be taken on the
aggregation problem concerning the direct and indirect benefits of various
dairy development programs in Eastern Quebec. This importance stems from
the fact that one strategy would lead to the establishment of specialized
stock raising farms while the other might necessitate the development of
artificial breeding facilities in the region. Promoting either one of
these strategies might not be economically justifiable if there were insuf-
ficient demand from the regional dairymen for these commodities and services.
Otherwise these activities would have to be subsidized, which would add to
the costs of promoting increases in the profitability of dairy farming in
the region. It is suggested, in relation to this issue, that changes in cost
and benefit be compared for different possible scales on which either one of
the above programs might be undertaken.

Benefit-cost analysts of dairy development programs in Eastern Quebec
would also need to investigate the elements of uncertainty which characterize
various relevant strategies. Since most of the potential beneficiaries are
low income people, there may be a considerable fall off in the affected
marginal utility functions within the range of possible benefits distribution
over time. If this were true, there might be valid reasons for either
penalizing high-risk alternatives in the decision process or using a high

discount rate which would automatically deflate the present value of alter-

232
natives the consequences of which might be late to manifest themselves. For
instance, it is possible that some regional dairymen might prefer a buying
replacement practice over the use of artificial insemination because the
former could provide a quicker means of improving the productive efficiency of
their dairy herds than the latter. Such an attitude would reflect a high
value on present gains as compared to future gains.

It is not the purpose of this study to show how a benefit-cost analysis
should be set up for appraising the various alternatives to promote improve-
ments in regional dairy farming. It is thought, however, that the micro
data generated in this study could be used as a basis for determining the
magnitude of the direct benefits which might be generated by various alter-
natives over a.limited period of time. The projections presented could

be easily extended over time to suit the needs of benefitucost analysts.

Problems Related to the Evaluation of Labor

A serious problem in benefit~cost analysis lies in pricing labor in
areas of seasonal unemployment such as Eastern Quebec. For instance, it may
be foreseen that promoting the establishment of private specialized dairy
stock raising farms might contribute more to create jobs in the region than
favoring dairy herd improvements through artificial breeding. In order to
determine the real costs of either strategy, it would be necessary to reckon
with the fact that the wages paid to individuals who might otherwise be
unemployed do not measure the usual definition of cost, which is the value

of these labor services in alternative use. That is shadow prices would

233
have to be used to evaluate the labor value of these individuals.

The issue is complicated by the fact that labor services would probably
have to be bought at a wage rate prescribed by the current minimum wage
laws. Under these circumstances, the wages paid to the hired workers would
partly represent a transfer payment and would probably substitute for cur-
rent public assistance already being provided to such individuals. Under
suCh conditions, it appears that a safe role of thumb in reckoning the
labor costs implied by various publicly sponsored programs to improve dairy
herds in the region would be to count only the prior level of earnings
as the cost of hiring individuals seasonally unemployed. According to such
a rule, the previous level of earnings of such individuals would be used
as the estimated value of their labor services in alternative use or their

contribution to regional income during the periods they were employed.

The Income Distribution Problem
One of the major limitations of benefitocost analysis is that it ranks
public projects in terms only of economic efficiency.11 There is no basis
for assuming that a combination of regional dairy development strategies
which might maximize efficiency in regional dairy farming would also neces-
sarily achieve a high level of income redistribution. Thus planners respon-
sible for developing program strategies intended to serve both purposes

might need to attach relative weights to efficiency and income redistribution.

 

11An interesting discussion on some of the limitations of benefit-cost
analysis can be found in Arthur Maas, "Benefit—Cost Analysis: Its Relevance
to Public Investment Decisions," published in Planning, Programming, Budget-
ing: A Systems Approach to Management, edited by Fremont J. Lyden, and
Ernest G. Miller, (Chicago,Markam Publishing Company), 1968, pp. 221-240.

234

The projected consequences of various program strategies can be used
to illustrate the complexities involved in trying to reconciliate the objec-
tive of economic efficiency with that of income redistribution. Suppose
that public decision makers have decided to promote artificial insemination
in the region and to lend capital funds at low cost to regional dairymen
eager to invest in silage storing facilities. Suppose further that most
of the regional dairymen with relatively large herds (20 cows or more) decide
to take advantage of these programs. Under these conditions, the total
increase in milk supply in the region would probably lead to significant
decreases in the market price for milk. Those who would probably suffer
the most from adverse price effects are the small and inefficient milk pro-
ducers. It might very well happen that such circumstances result in improv-
ing the well-being of some regional dairymen while leading to a deterioration
in the well-being of others. These are consequences that planners must
attempt to predict.

The foregoing discussion should not leave the impression that economic
efficiency is not an important objective in promoting economic development.
Maximizing the level of living in the framework of a group of development
programs means maximizing the impact of a unit of resources used on the
level of well-being generated. This concept implies a rejection of the
practice of taking increase in productivity as the exclusive and final
criterion. It does not mean that the increase in productivity effect should
be forgotten. It means only that it should be put in a broader perspective

as an intermediate but important achievement.

235
A proper system of weights to compare various achievements resulting
from a group of development programs might be one that reflects the national
priorities. This study cannot enter into a discussion of how this could
be done with regard to alternative dairy development strategies in Eastern
Quebec. Let it be sufficient to emphasize that most of major planning
decisions are finally resolved primarily on the basis of intuition and

judgment.

Regional Milk Supply and Demand Balance

One of the crucial issues which remains to be explored has to do with
the plausible effect of the dairy development strategies on the regional
milk supply and demand balance in the foreseeable future. In order to show
how serious this issue might be, let us consider the changes in milk supply
from Farmslfiand II over the simulated period, based on the practices of
artificial insemination and on high feeding rates (Table 55). Estimates
of production potentials from the two synthesized dairy herds based on these
conditions indicate a possibility of increasrng supply by as much as 10
perxnxuzper year. The results indicate that, in 1975, 1,040 dairy enter-
prises with characteristics similar to those projected for Farm II could
supply the same total quantity of milk as that which was produced on all
the regional farms in 1963 (approximately 335 million pounds according to
the planners' estimates). It is important to recall at this juncture that

5,269 regional census farms reported sales of milk in 1966.

236

TABLE 55. Projected Milk Production of Farms I and II.3

 

 

 

 

 

Farm I Farm II
Rate of Rate of
Estimated Increase Estimated Increase
Year Milk Production Per Year Milk Production Per Year
('000 pounds) (percent) ('000 pounds) (percent)
1969 108 174
1970 124 17.8 193 10.9
1971 143 15.3 218 13.0
1972 165 15.4 245 12.4
1973 180 9.1 271 10.6
‘1974 199 10.6 297 9.6
1975 223 12.1 321 8.1

 

 

 

 

 

aBased on high feeding rates and the use of artificial insemination as a
breeding practice.

These results point out the serious needs for a welludocumented milk
demand analysis before any dicision is taken as to what set of strategies
is the most appropriate one to implement. The most appropriate combination
of regional dairy development strategies might not be that which will in-
crease productive efficiency the most but rather that which will increase
productive efficiency at a rate compatible with (1) the existing prospects
for a larger market, and (2) the expected rate of decrease in the number
of regional farms with dairy enterprises.

The results simulated in this study indicate that this issue is one

that should not be treated casually by the policy makers.

237

Summary

Empirical evidence presented in this chapter was used as a basis for
evaluating the comparative merit of alternative dairy development strategies
in Eastern Quebec. The likely consequences of various alternatives considered
on the pattern of farm income were simulated for two representative herds in
Eastern Quebec. Four major characteristics were used to measure these
consequences. They are the net cash income to the dairy herd, the average
milk production per cow, the present value of the discounted cash flows and
the changes in capital stock associated with various dairy stock replacement
practices.

The most pertinent conclusions which can be drawn from the micro analysis
are the following:

1) The major criterion used to rank alternative strategies was the present
value of the discounted cash flows. This criterion ranked the various
policy alternatives in terms of the pay off accruing to the two simu-
lated dairy enterprises. On the basis of this criterion, the estimates
generated for each enterprise indicated that artificial insemination
with improved feeding rates has the highest present value when the cash
flows are discounted at a 6 percent rate. However, simulated results
for the larger enterprise (Farm II) indicated very little differences
between the net present value of the discounted cash flow for this
alternative and those estimated for the practices of either buying
replacements from the specialized stock farms or raising all replace-
ments on own farm by natural service (based on the same feeding rate

as the first ranked strategy). Furthermore, it was found that all

238
simulated experiments involving current feeding practices had the low-

est present value of discounted cash flows.

2) The simulated results were found to be consistent with the respondents'

3)

opinions concerning the most appropriate course of action for them to
follow. The respondents seemed to recognize that they must improve

their feeding practices in order to increase income from dairying but
there was disagreement among them as to what strategy would be the most
appropriate for increasing the inherent production capacity of their
herds. According to the simulated results, the various stock replace-
ment practices considered in this study had about the same present value
of discounted cash flows for any feeding rate analysed but all low

ranked alternatives were identified by current feeding rates.

Additional information generated by the model pointed out the following
interesting aspect of the problem. The strategy of buying replacements
would quickly deplete farmers' capital stock. It might therefore act

as a serious deterrent on the pursuit of that strategy mostly at the start
of the program. If current availability of capital funds and borrowing «"
capacity are at all related to the current levels of profitability of
various regional dairy enterprises, it may be expected that the small dairy

farmers will have the most difficulties to take advantage of that program.

It was argued, however, that the impact of a set of regional dairy

development programs on farm income does not give the whole picture. We

therefore suggested that benefit-cost analysis might be a convenient method

for extending the scope of this research. The results generated in this

239
study, with a limited number of modifications, could be used to evaluate
the total direct benefits of alternative regional strategies for dairying.
Special care would need to be taken, however, in aggregating the simulated
results. Such a study would also need to explore the distribution over
time of both the expected indirect benefits ard the expected costs of imple-
menting each alternative. Such a study could substantially contribute to
sharpen the policy makers' judgment concerning the relatixe merit of alter-
native strategies from the community's point of view. It would take into’

account program administrative feasibility and costs.

Finally, it would be necessary to consider the plausible consequences
of promoting various strategies on the distribution of benefits among the
regional farm families. This would involve an exploration of the effects
of various strategies on changes in total regional milk supply, on price
of milk at the farm level and finally on the possible adverse effects of
price decreases on the farms failing to increase resource productivity.
The simulated results indicated that the regional milk supply and demand
balance might be seriously disturbed by increased supply on farms respond-

ing to the planners' incentives without larger prospects of market expansion.

PART III

General Summary and Policy Implications
CHAPTER VIII

SUMMARY AND CONCLUSIONS

The amount of public funds used for financing regional development
research in Canada increased quite rapidly during the last decade. Yet
the economic returns of individual projects and particular phases of pub-
licly financed programs continues to be questioned by various sources.
This is aside from general criticisms concerning the consistency of various
project investments with respect to broader regional and natiohal objectives.
With this situation in mind, this thesis chose to focus on the regional
development planning research recently conducted in Eastern Quebec. The
scope of the study was further restricted to analysing the consequences
of alternative dairy development strategies on locaI dairy farming enter-
prises. One of the major objectives pursued was to present careful estimates
of the economic results of alternative regional dairy development programs.
The first part of the study dealt with planning issues in the regional
economy of Eastern Quebec, with special emphasis on the agricultural problem
situation. Evidence preSented indicated that dairy farming is the mainstay
of agriculture in the region. It was found that a series of factors com-
bine to create a serious low income problem in the regional activity.
These factors were identified as (1) limited supply of highly productive
resources, (2) lack of growth of effective demand for milk in the region,

(3) limited job opportunities outside of farming in the region itself,

240

 

II IILM'I. IX m. '-‘. .
V
|

241
and (4) poor performance of both the dairy processing industry and the
regional dairy input suppliers which face difficulties of their own in
the area.
The existence and continuance of dairy farming in the region was

explained in terms of low factors costs. The low returns accruing to these

 

factors were shown to be supplemented by government subsidies, especially g
with respect to manufacturing milk. Increases in resource productivity

were therefore singled out as the major possible source of improvement

in the profitability of regional dairy farming. However, since lack of

growth of effective demand will probably continue to be a serious problem ‘”*

for the regional dairy subsector, it was concluded that large quantities

of resources now committed to dairy farming will be forced to shift to
other uses if increases in resources productivity are to be achieved in the
foreseeable future.

From the standpoint of agricultural planning in Eastern Quebec, the
area where existing knowledge most seriously falls short of the need was
shown to be with respect to milk demand projections. It was therefore
suggested that funds devoted to seeking and analysing the relevant infor-
mation on“this issue were crucially needed before any regional development
strategy is implemented.

The second part of the study analysed alternative strategies for increas-
ing profitability and technical efficiency in regional dairy farming. The
three basic strategies analysed were those suggested by the regional plan-
ners, namely (1) specialized dairy stock raising farms for increasing

regional supply of more productive cows, (2) improved feeding practices,

242

and (3) farm consolidation and community pasture programs to facilitate
increases in herd sizes on farms facing serious difficulties in acquiring
additional agricultural land. In addition, two additional alternatives
for increasing regional supply of more productive cows were considered.
They were artificial insemination and specialized dairy stock raising farms
selling heifers at a subsidized price of $200 per head. 3

On the premise that it was appropriate to base aggregate estimates ,
of direct project benefits on estimates of their consequences at the farm

level, this part of the study set out to compare the relative merit of

 

‘l'm am."

alternative dairy development strategies from the farmers' point of view.
This was done in two steps. First, information was presented on local
dairymen's intentions with respect to the alternatives considered in
this study. Second, a simulation model was used to project the changes
in profitability (net cash income from dairying) and productivity (milk
production per cow) of two representative dairy enterprises under various
growth conditions. The estimated parameters were based on primary data from
a survey conducted in three rural communities located within the two major
regional milksheds. These farmers may be regarded as being representative of
the group most likely to successively achieve the growth objectives stated in
the analysis.

The analysis of the respondents' intentions indicated that the regional
dairymen with large herds (20 cows or more) were the most likely to further
commit themselves to dairy farming in the foreseeable future. Most of these

respondents tended to recognize that limited availability of good quality

243
feed was a serious problem confronting the regional dairy farming industry
and that improving feeding practices was one of their major concerns. A
majority of the respondents also expressed the opinion that improving
the production capacity of their dairy herds was one of their major concerns.
There was disagreement among them, however, as to what might be the most
appropriate set of policies to increase supply of more productive cows in
the region. Some said they would prefer artificial insemination, others
seemed to prefer buying their new replacements while the others appeared I

to favor raising all their replacements from their own herds by natural

 

 

service. 2

With regard to the results of the various simulated experiments, those
based on low feeding rates provided a strong testimonial that limited avail-
ability of good quality feed is one of the most important factors account-
ing for the poor performance of some dairy enterprises in the region.

These simulated results indicated that any one of the three dairy stock
improvement programs considered will contribute very little to increase
the productivity and profitability of those farms where poor feeding prac-
tices will persist in the future.

The various experiments simulated under increased feeding rate condi-
tions, to the contrary, showed potentials for increasing productive effi-
ciency and profitability of regional dairy enterprises. The present value
of projected cash flows was then used as a criterion for determining which
dairy stock improvement strategy might have the highest payoff from the
farmer's point of view. On the basis of this criterion, artificial insemi-

nation ranked first for both simulated enterprises, but only by a slight

244
margin over purchased replacements for the larger farm. However, the practice
of buying replacements would apparently require more capital funds than other
herd improvement practices, especially in the initial stages. This might
constitute a major obstacle for the implementation of the stock raising farms
project. Regional dairymen with limited access to capital funds might there-
fore be expected to refrain from following this practice to improve their

dairy herds.

_ 0' J‘P‘N' -4]: “A...“
II

Although the simulation model used was most useful for analysing '

resource allocation decisions for individual fairy farms, results of the

 

analysis can also be extended to provide basic information for macro analy-
sis of alternative strategies. Benefit-cost analysis was suggested in
this study as an appropriate method for determining which alternative has

the highest payoff from the community's point of view.

Policy Implications

Despite the limited coverage of the study, a few policy implications
emerged. For example, the following consequences might be expected if the
policy makers chose to promote the development of specialized dairy stock
raising farms and improvements in feeding practices. On the one hand, the
dairy farmers' demand for credit might increase considerably. If regional
supply of agricultural credit failed to increase, the adoption of this
dairy stock replacement practice might proceed at a very slow pace. On
the other hand, since regional dairymen appear to have strong preferences

for raising their own replacements, additional incentives might be needed

245
to make them shift to a buying replacement practice. These might involve
additional extension personnel and services, and/or subsidies to reduce
the cost of purchasing replacements. Either case would contribute to
increase the costs of the original programs.

If, instead. the policy makers decided to promote the use of artificial
insemination, they would have to consider various alternatives. The tech-
nique of deep freezing of semen might make it possible in practice to supply
the thinly populated area of Eastern Quebec with semen imported from the
other areas of the Province where artificial insemination centers already
exist. However, because of the widely scattered and relatively small herd
sizes, cost of inseminating cows would be high compared to other regions
of Quebec where cows population is concentrated. Even if this alternative
were retained, however, there would still remain a need for improving regional
supply facilities and for training local artificial inseminators. Determining
how large a payoff these programs might have would probably engage agricul-
tural economists for some time.

Further Research Needs

From the standpoint of national efficiency in resource use, adjust-
ments between regions must be made as rapidly as possible when changes
in productivity, supply, or demand contribute to alter the returns on labor
and capital. An important problem worthy of attention by agricultural
planners in the Province of Quebec would be to determine where dairy programs

financed by the tax payers are likely to have the highest payoff. The specific

 

246

goals which are deemed proper and appropriate for the policy decision-makers
to be seeking in Eastern Quebec will somehow have to be selected in the light
of a comprehensive evaluation of national priorities regarding the dairy
farming industry. Without exploring all the ramifications of this proposition,
it is appropriate to suggest that much attention should be given to the
following issues.

First, the main areas of Canada with advanced dairying tend to rely

more and more on corn as a feed input. Apparently, this adjustment is taking

 

place because it may reduce the costs of producing milk, depending on
relative costs. The question then arises whether the decision-makers should
devote public funds to promoting increased supply of corn rather than to
help dairy farmers in marginal areas such as Eastern Quebec where this crop
cannot be produced. There is no simple answer to this question but the
issue itself is worthy of attention by agricultural planners in Canada.
Second, with policy emphasis on rationalization of the Canadian dairy
industry at the farm level and on price stabilization of dairy products
on the domestic market, the question arises whether supply restrictions
through withdrawal of quotas from small producers will have significant
adverse effects on marginal dairy areas. Different situations might result,
depending upon the government's objectives concerning the regional distri-
bution of quotas. There is a serious possibility that disincentives due
to quota restrictions might offset the incentives created by regional dairy
development programs in Eastern Quebec. Further researchrnust be brought

to bear in this issue.

247

Third, there is a need to investigate the likely consequences of collective
bargaining on the future performance of the regional dairy subsector. There
are reasons to believe that the regional dairy processing industry might be
capable of reducing its costs of production through plant consolidation.
But there are also reasons to believe that the regional dairymen will seek
price increasesfbr their milk in the foreseeable future. These changes in g
the organization of the regional dairy subsector will probably have important
consequences for the distribution of the rewards of increased productivity

among the various participants.

 

Fourth, there is a crucial need for investigating the likely effects
of various regional dairy development strategies on the regional milk supply
and demand balance. The results of this study indicate that the expanding
farms could increase their milk supply at a rate of about 10 percent per
year during the next seven years. The question as to whether or not this
consequence is likely to create a serious disequilibrium situation in the
regional dairy farming industry must be answered before any strategy is
implemented.

Fifth, there is a real need for a benefit-cost analysis of alternat ve
dairy development strategies in Eastern Quebec. The farm net cash incomes
projected in this study would prove useful but further research based on these
estimates would need to incorporate changes in capital requirements on indi-
vidual farms.

In conclusion, results of this study could be extended to provide

basic information for benefit-cost analysis of alternative regional dairy

248
development strategies. Such an ambituous task could not be undertaken
in this study but it is hoped that other research workers will. It might be
a measure of the success of our effort if, indeed, it encouraged other
researchers to undertake that task. The findings presented in this study
might then contribute to sharpen policy makers' judgment concerning the

consequences of alternative courses of action.

' .. —us"t-;m=_-.-fl

 

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Appendices

254

APPENDIX A

METHODOLOGICAL CONSIDERATIONS ON SURVEY DESIGN

The population for which the survey was designed consisted of
dairy farmers of Eastern Quebec who (1) milked 10 cows or more between
June 23rd and July 26th 1969, and (2) whose farms were located within
the two major regional milksheds. According to the 1966 Canadian
Census of Agriculture, some 72,000 out of a total of 87,000 cows
reported in the region were milked on farms located within the boundaries
of these two milksheds.

A two-stage sampling method was used in designing the survey.
Since no lists of dairy farmers with the number of cows milked were
available, the number of farms having the characteristics mentioned
above was unknown. Given this limitation, the only feasible alternative
was to proceed on a community basis.

The first step consisted in choosing the communities to be surveyed.
This choice was made according to the following rules. First it was
required that a rural community comprise 100 farms or more (not necessarily
dairy farms). Second, it was required that at least 60 per cent of the
farm operations in a given community be commercial farms (1966 Census
definition).1 Third, the communities which were not eliminated according
to the first two criteria were required not to have contiguous geographical
boundaries. Under the third criterion, preference between contiguous com-
munities was given to the one having the highest percentage ratio of
commercial farms to all farms.

The 1966 Canadian Agricultural Census data were used in choosing
the communities surveyed.2 Out of 19 communities which satisfied the
first requirement, 11 were eliminated on the basis of the second
requirement. Finally, of the remaining 8 communities 7 were found to
form two distinct nuclei made up of contiguous municipalities. On the
basis of the third requirement, three communities were retained. They
were: St-Benoit-Joseph-Labre (Matapédia County), Ste-Cécile-du-Bic
(Rimouski County) and St-Arséne (Riviére-du—Loup County).

It must be pointed out that the choice of the communities
was not made at random. Since this choice could not be made at random,
the rules of selection mentioned above were imposed in order to obtain
a very high probability that the dairy farmers located there were
milking 10 cows or more. It was presumed that the proportion of
commercial farms to all farms in a given community might reflect the
presence of relatively large dairy farms. This presumption was
substantiated by the survey results. As a matter of fact, 76 out of
the 78 dairy farmers who answered the questionnaire reported milking
10 cows or more at the time the field survey was conducted.

 

1See p. 64 for this definition.

21966 Census of Canada Agriculture, Special Bulletin, Number and
area of Census-Farms and Commercial Farms for Counties and Census
Subdivisions, Catalogue No. 96-632.

255

In the second step, a list of dairy farmers reporting sales
of milk in 1968 was obtained for each one of the three communities.
The list included the names and addresses of 179 dairy farmers.
A sample of 100 was drawn at random from the lists. Out of the
100 farmers who were visited for an interview, 78 accepted to
answer the questionnaire.

Some methodological limitations must be ascribed to the
procedure according to which the communities were selected. It is
thought that statistical inferences can be drawn from the survey
which can be applied to the total population. These inferences,
however, might entail slight biases in the estimation of some
population parameters. The magnitude of the biases cannot be
estimated because of lack of data. The direction of the biases
is likely to be positive for some important variables considered
in this study. For instance, it may be suspected that the average
production of dairy herds reported on the surveyed farms is slightly
higher than that of all dairy farms with 10 cows or more in the two
milksheds. The prices of inputs (especially land) might also be
slightly higher for the average surveyed farm than for the average
population farm.

Financial restraints on the survey were especially responsible
for limiting the number of communities surveyed. Since there were
at most 2,600 relatively large (10 cows or more) dairy farms in the
two milksheds, the ratio of sample size to total population was
0.03.

hi ’L‘Lw

>jn

 

APPENDIX B

256

FACTORS AFFECTING YIELDS OF DAIRY COWS

Suppose that the level of production of a cow in a given period
to can be expressed as the dependent variable in the following

functional relationship:

Qto ' f (Qto , Qto_1 , Cto

where,

9 Cto-j’ Ito a EtO 2 Bk : Bm )

Qto - production (lbs. of milk) of a cow in period to;
qt - quantity of feed fed to the cow in period to;

Ct:_j - composition of rations fed in periods to-j;
where j a l, 2, ....., r and to-j>’03
Ito - index of inherited factors of the cow identifiable in period t0
Eto g index of environmental factors affecting the production of the
cow at time to;
Bk - breed of cow, where k = 1, 2, ---,P;
Bm - breeding practice followed, where m a l, 2,...,s.

This functional relationship states that the production of a cow
during a period to may depend upon (1) the quantity and the composition
of rations fed during period to, (2) the quantity and the composition
of rations fed in periods preceding to, (3) the inheritance factors
peculiar to the type of cow, (4) the environmental factors (weather,
housing and milking arrangements, handling of cow by farmer, number of
milking daily, and other factors) believed to affect the yields of cows,
(5) the breed of cows considered, and (6) the breeding practices

followed.

Since neither the functional form nor the parameters of this
relationship can be specified because of absence of data on most of
these variables, we propose an alternative method for comparing the
production capacity of dairy cows in Eastern Quebec with that of dairy
The effects of the levels of feeding
(qto and of the composition of rations (Ct ) can be neutralized -- at

2 partially -- by choosing a period to guch that qt

cows in other parts of Canada.

leas

significantly diverge from region to region.
Canadian Census of Agriculture data allow one to compare the daily milk
production per cow (as of July lrst of that year) on a countywise basis.
Since most cows in Quebec and Ontario are on pasture at that time of the
year, it might reasonably expected that feed ration levels and
composition do not diverge too much from cow to cow, from farm to farm,
and from region to region. To the extent that this presumption is valid,
Appendix'rable 1 indicates that dairy cows in Eastern Quebec are
relatively less productive than those found in other regions of Quebec,
which in turn appear to be relatively less productive than those found

in Ontario.

and to-i) 0;

8 quantity of feed fed to the cow in periods to-i’
Where1II, 2, 00.0.,n
Ct - composition of the ration fed in period to;

and Cto do not
For instagce, the 1966

3

257

Assuming that the influence of qt and Ct are neutralized by this
method of comparison, low levels of coas'yielgs in Eastern Quebec would
have to be attributed to some of or all of the following causes;
predominance of low producing dairy breeds, poor management practices
and/or difficult environment for dairying. Unfortunately, the importance
of these factors cannot be isolated due to the absence of data. It
appears safe to conclude that a typical dairy farmer in Eastern Quebec
milks cows of lower production capacity than the average dairyman in
Quebec and Ontario, while recognizing that our estimates of these
differences may not be particularly accurate. The major bias involved in
using this method has to do with the differences in quality of roughage
from farm to farm and from region to region. The production capacity of
. Easteanuebec dairyicows might be significantly underestimated in

Appendix Table 1 if it happened that they are fed rather low quality
roughage in comparison to other regions.

APPENDIX TABLE 1. Daily Production per Cow in Quebec, Ontario
and by County of Eastern Quebec, July lrst, 1966.

Daily production
Area per cow

 

(pounds of milk)
a) Counties of Eastern Quebec

Bonaventure 27.17
Gaspe-East 26.01
Gaspe-West 27.47
Matane 24.04
Matapédia 26.96
Rimouski 26.70
Riviére-du-Loup 26.90
Témiscouata 26.78

b) Province of Quebec
All counties 30.55
c) Province of Ontario

All counties 35.53

 

Source: 1966 Census of Agriculture, Ottawa, Canada, Catalogue no. 96-606.

4.

258

APPENDIX C

QUESTIONNAIRE

NUMERO , NOM

Combien de vaches trayez-vous actuellement? No.

 

De quelle race(s) sont ces vaches? (1) Jersey; No.
(2) Ayrshire; No.
(3) Guernsay; No.
(4) Autres; No.
(5) Spécifiez
la race:

 

 

 

 

 

Considérant chacune de vos vaches individuellement, pourriez-vous
indiquer combien de ces vaches sont dans les classes d'age suivantes
et combien de livres de lait ces vaches ont produites approximati-
vement au cours de l'année 1968?

 

 

 

 

 

 

 

 

 

Nombre de vaches dans Production annuelle
Classe d'age cheque classe d'age (19681de ces vaches
2 a 4 ans (1) (5)
5 a 7 ans (2) (6)
8 a 10 ans (3) (7)
10 ans et plus (4) (8)

 

 

Durant combien de jours ou de mois par année trayez-vous ces vaches
en moyenne?
(1) jours on (2) mois

Quel est ordinairement 1e pourcentage de gras dans le lait que ces
vaches produisent?
%

Quel est le poids de vos vaches qui ont entre 6 et 8 ans?

lbs.

 

Combien aviez-vous de vaches dans votre troupeau il y a un an?

No.

 

Au cours de l'année derniére, avez-vous vendu des vaches que vous
ne vouliez plus traire parce qu'elles ne produisaient pas assez de
lait? (1) oui ~ (2) non
Si oui, pourriez-vous indiquer 1e poids approximatif de ces
vaches que vous avez vendues ainsi que leur age et le prix
“net que vous avez regu pour chacune d'elles?
Vache no. Age Poids Prix

 

I-l-‘th-I

 

IA‘IIII. I'll-El I Jill: II‘

 

10.

11.

12.

13.

14.

15.

259

Au cours de l'année derniére, avez-vous vendu des génisses que
vous avez élevées?

(l) oui (2) non
si oui, pourriez-vous indiquer 1e poids approximatif de ces génisses,
ainsi que leur age et la prix net que vous avez regu pour chacune
d'elles?

 

 

 

 

 

 

Génisse No. Age Poids Prix
1
2 ______ _____ ______
3 ______ ______ ______
4 _____ ._____ _____
5

 

 

 

Avez-vous vendu des jeunes veaux (moins de 2 semaines) au cours de
1'année derniére?

(1) oui (2) non
si oui, a quel prix avez-vous vendu ces jeunes veaux?(3) $

 

 

Combien de vos vaches ont donné naissance a un veau vivant 1'année
derniére?
(1) No. de (2) au total

 

Avez-vous l'intention d'augmenter la taille de votre troupeau laitier
au cours des 5 prochaines années?
(1) oui (2) non

31 non, qu'allez-vous faire? (3) traire le meme nombre de vaches

(4) vendre votre ferme . . . . . .

(5) réduire le nombre de vaches
si oui, combien de vaches par année croyez-vous étre capable d'ajouter
a votre troupeau au cours des 5 prochaines années?

(6) No.
(Si la réponse est non a la question 12, passez immédiatement
a la question 15).

 

 

Si vous avez l'intention d'augmenter 1a taille de votre troupeau
laitier, de quelle fagon entendez-vous procéder?
(1) Elever toutes vos nouvelles vaches vous-méme?
(2) Acheter toutes vos nouvelles vaches?
(3) Elever et acheter vos nouvelles vaches?

 

 

 

Si vous avez l'intention d'acheter toutes ou seulement quelques-unes
de vos nouvelles vaches au cours des 5 prochaines années, combien
en achéteriez-vous si ces vaches produisaient 8,000 livres de lait
et se vendaient aux prix suivants?

(1) $250

(2) $200

(3) $100

Combien devriez-vous payer actuellement si vous vouliez acheter
une tonne de foin dans votre localité?
$ par tonne

 

II. l'..ll II 11

16.

17.

18.

19.

20.

21.

22.

23.

24.

260

Combien devriez-vous payer actuellement pour louer un acre de
paturage dans votre localité?

$

par acre

 

Considérant chacun des items suivants, pourriezavous indiquer
combien vous en avez présentement ainsi que leur valeur
approximative?

(1)
(3)
(5)
(7)
(9)
(11)
(13)
(15)
(17)
(19)
(21)
(23)
(25)
(27)

Quel type d'étable avez-vous présentement?

Items
acres en paturage;
acres en foin;
acres en mais;
tracteur(s);
trayeuse(s) électrique (s);
séparateur (s);
charrue(s) a tracteur;
semoir(s);
batteuse(s);
lieuse(s);
étable (s) avec équipement;
camionnette(s) et camion(s);
silo(s);
sécheuse(s) a foin;

221211;
(2) __
(4) __
(6) __
(8) __
(10)
(12)
(14)

__ (16)______

(18)
(20)
(22)
(24)
(26)
(28)

(1) étab1e(s) avec stalles;
(2) étab1e(s) sans stalles;

Si vous songiez a augmenter 1a taille de votre troupeau de 10
vaches (10 vaches de plus) au cours des 5 prochaines années,
combien de capital pensez-vous que vous devriez investir sur

votre ferme, excluant 1e coat des vaches?

 

Combien de tonnes de foin par acre récoltez-vous sur votre ferme
au cours d'une année normale?

tonnes

 

Combien de coupes de foin obtenez=vous sur votre ferme au cours
d°une année normale?

coupes

 

Quel est le cofit moyen ou 1e prix (si vous 1'achetez) d'une tonne
de moulées concentrées avec lesquelles vous nourrissez vos vaches?

par tonne

Durant combien d'années devez-vous observer 1e niveau de production
de lait d'une vache avant de décider de garder sa génisse pour la
production de lait?

’années

 

Parmi les critéres suivants, 1equel utilisez-vous le plus souvent

pour décider de garder une génisse produite par une de vos vaches?
(1) 1a vache qui a eu cette génisse donne au moins 300

livres de lait de plus que vos autres vaches, par année

(2) la vache ayant cette génisse donne un peu plus de lait

(entre 0 et 300 livres de p1us)que vos autres vaches

(3) 1a vache ayant cette génisse donne a peu prés 1a meme

quantité de lait que vos autres bonnes vaches

25.

26.

27.

28.

29.

30.

31.

261

Jusqu'a quel age devez-vous garder une vache avant de vous faire
une opinion definitive sur sa qualité?
années

 

Avez-vous un ou des boeuf(s)(ou taureau) que vous utilisez pour
la reproduction?

(l) oui (2) non
si oui, étez-vous satisfait de la qualité de ce ou ces boeufs
que vous utilisez pour la reproduction?

(3) oui (4) non

 

 

Si vous n'avez pas vos ou votre propre(s) boeuf(s) pour la repro-
duction, louez-vous les services d'un boeuf appartenant a quel-
qu'un d'autre?

(1) oui (2) non
si oui, combien devez-vous payer a chaque fois que vous en louez

un?
(3) $

 

 

Avez-vous l'intention d'améliorer la qualité de votre troupeau
laitier durant les 5 prochaines années?

(l) oui (2) non
si oui, lesquelles des méthodes suivantes avez-vous l'intention
d'employer?

(3) améliorer la qualité des boeufs de reproduction;

(4) donner seulement plus de foin;

(5) donner seulement plus de moulées concentrées;

(6) donner plus de foin et de moulées;

(7) acheter des génisses de meilleure qualité;

(8) produire vous-meme des génisses de meilleure
qualité;

 

Avez-vous déja eu recours a l'insémination artificielle pour
fertiliser vos vaches dans le passé?

(1) oui (2) non
si oui, combien vous en a-t-il cofité par vache? (3) $

Si l'insémination cofitait moins cher, seriez-vous prét a utiliser
cette méthode pour améliorer la qualité de votre troupeau?

(1) 0U1.________ (2) non _________
si oui, quel prix seriez-vous prét a payer par vache fertilisée?
(3) $

 

Combien de livres de lait pensez-vous que vos propres génisses
donneront a leur maturité (7 a 10 ans)? Par exemple, si vous
considérez 10 de vos génisses, combien d'entre elles, a votre
avis, pourraient se situer dans les classes suivantes de pro-
duction annuelle?

(l) moins de 5,000 livres de lait

(2) 5,000 a 5,999 "

(3) 6,000 a 6,999 "

(4) 7,000 a 7,999 "

(5) 8,000 a 8,999 "

(6) 9,000 a 9,999 "

(7) 10,000 et plus "

32.

33.

34.

35.

262

Quel prix recevez-vous présentement pour la vente de 100
livres de lait?
$

 

Combien devez-vous payer présentement dans votre localité pour
acheter une génisse qui porte son premier veau?

 

Combien de vaches avez-vous retirées de votre troupeau l'année

derniére pour les raisons suivantes?
(l) maladie
(2) mortalité
(3) ne produit pas assez
(4) autres raisons

 

 

 

Pourriez-vous indiquer, approximativement, combien des aliments
suivants tout votre troupeau laitier a consommés au cours de
l'année derniére?

(1) foin: tonnes

(2) paturage: nombre de vaches par acre;

(3) ensilage; tonnes;

(4) moulées concentrées; tonnes.

263
APPENDIX D
SUMMARY OF SURVEY RESULTS ON FEEDING RATES
APPENDIX TABLE 2. Annual Forage and Grain Fed, and Milk Production

per Cow: Dairy Herds of Mixed Breeds, Eastern
Quebec, 1969-8

 

 

Quantity Number Forage fedE Milk production per cow
of grains of farms Standard Standard.
fed in group Mean deviation Mean deviation
(pounds) (tons) (tons) (pounds) (pounds)
0 -1,499 19 6.0e 1.45 6.130 710
1,500-1,999 15 6.3e 0.87 6.340 920
2,000-2,499 19 6.56 0.79 6.540 830
2,500 or more 15 6.7e 0.86 6.630 1,040

 

Source: Eastern Quebec Dairy Farms Survey, 1969.

aThese estimates were obtained through the following steps. First, the
quantities of hay and grain mixtures the respondents reported to have

fed their dairy herds in 1968 were divided by the number of dairy cows

in their herds at the end of that year. This computation was carried

out only for dairy farms reporting mixed-bred herds of 10 cows or

more (68 respondents). The estimated quantifies of grains fed per farm
pa:cow were then used to classify the respondents in the grain categories
specified in the left hand-side column of the above table. Second, the
quantities of hay apparently fed per cow per farm were added up for all
farms classified in a specific grain feeding rate category and divided
by the number of farms in this category. The result might be conveniently
labelled the mean quantity of hay fed annually. In this step, each mean
quantity of hay fed annually was increased by 1.8 tons of pasture per

cow to obtain the mean quantities of forage fed which appear in the table
above. In other words, it was assumed that all cows in each respondent's
herd have access to the equivalent of one acre of pasture-land yielding
about 1.8 tons of eatable forage per acre. It was also assumed that the
respondents do not harvest significant quantities of oats as silage. The
same steps were followed to compute the quantities of milk produced per
cow in 1968.

bThe composition of grain mixtures reported by the respondents does not
differ much from farm to farm. The mixtures are largely based on

locally grown oats fed as grains.

CIt is common knowledge among dairy scientists that the quality and/or

264

palatibility of forage fed determine, to a significant extent,

the percentage of a forage ration that a cow will effectively
consume. With the exception of alfalfa which is sporadically grown
in Eastern Quebec (Alfalfa and alfalfa mixtures accounted for less
than 5 per cent of the total regional cropland devoted to the
production of hay in the region in 1966), it appears that the types
of hay grown in the region range from poor hay (relatively small
proportion of legumes) to medium quality hay rather than from
medium-quality hay to excellent hay (large proportion of legumes
harvested at an early bloom stage). For several reasons, it was not
possible to obtain accurate estimates of the percentage of forage
rations fed which are effectively consumed by these herds. Crude
estimates obtained by multiplying the mean quantities of forage fed
annually per farm per cow (third column of table) by .9 might come
close to describe actual forage feeding rates.

dThe relatively high standard deviations of these estimates clearly
indicate that there are substantial variations in feeding rates
and milk yields from farm to farm.

eThe fact that both the grain feeding and the forage feeding

rates are shown to increase simultaneously does not imply that
these estimates are inconsistent. Apparently, two factors have
contributed to this rather unorthodox result. First, it was found
that the lowest grain-fed category (O-l,499) includes a large
proportion of respondents with small herds and/or with no apparent
interests in further investing in dairying whereas the uppermost
grain-fed category (2,500 or more) mostly included respondents with
relatively large herds and/or with expressed interests in further
committing themselves to dairying. Second, farmers with low dairy
feeding rates tended to raise more animal units (other than dairy
cows) per dairy cow than dairy farmers with high feeding rates.

 

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1

265

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APPENDIX F

SUMMARY OF PROJECTED
OUTCOMES FOR FARMS I AND II

APPENDIX TABLE 4. Projected Outcomes for Farm I Under Alternative
Program Strategies

 

Simulated Experimentsa

 

 

 

 

 

Estimated
Outcomes Year 2 3 l 4 5 6
-- (dollars)

Net cash

income

per year 1969 1,391 976 1,448 1,271 1,534
1970 1,672 1,005 1,728 1,345 1,570
1971 1,854 1,197 2,043 1,273 1,856
1972 2,100 1,409 2,469 1,209 2,230
1973 2,207 1,599 2,955 1,069 2,430
1974 2,347 1,672 3,326 966 2,809
1975 2,563 1,970 3,848 846 3,087

Average -- (pounds of milk)

production

per cow

per year 1969 6,122 5,845 5,978 6,331 6,212
1970 6,261 5,991 6,190 6,407 6,597
1971 6,355 6,187 6,494 6,425 6,804
1972 6,502 6,289 6,885 6,082 6,996
1973 6,466 6,363 7,202 5,660 7,191
1974 6,536 6,435 7,390 5,267 7,332
1975 6,627 6,602 7,691 4,267 7,422

-- (number of cows in herd) --

Herd size 1969 18 17 18 15 18
1970 20 19 20 14 20
1971 22 21 22 13 22
1972 23 23 24 12 24
1973 24 24 25 11 26
1974 26 26 27 11 28
1975 28 28 29 10 30

aSee p. 193 foradescription of practices identifying experiments.

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