Three essays on farmer business strategies

This dissertation is composed of three essays that analyze farmer business strategies. The first explores the bargaining problem inherent in agricultural businesses with ownership shared by farmers, who supply capital and input, and investors, who supply only capital. This type of shared ownership is becoming increasingly prevalent as farmers invest in costly value-added enterprises but face significant capital constraints. I use a Nash-Zeuthen-Harsanyi framework to derive an optimal profit distribution rule between farmers and investors. I reject the null hypothesis of symmetric bargaining power using a unique data set from a traditional agricultural cooperative that has issued preferred stocks. The analysis suggests conditions that will allow farmers to retain higher bargaining power, and thus control, over such organizations as well as other conditions that might prevent some partnerships from being formed.;The second and third essays evaluate the possibility that milk handlers, the firms that purchase milk from farmers, exert market power. The second essay shows that when competition among handlers increases, farmers benefit by receiving higher price premiums for their milk. The theoretical findings are tested empirically by analyzing the determinants of farmer price premiums in the U.S. using data from the 2004 ARMS. The use of actual data in the definition of such premiums is a methodological improvement because former studies used price data that differ from what farmers actually receive. The empirical results support the premise that farmers obtain larger premiums when there is greater competition, but only when the handlers produce dairy products instead of bottling fluid milk, which is a high regulated activity. The third essay models the interaction between farmers and milk handlers in terms of a simple theoretical bargaining model of milk pricing at the farm level. It shows that changes in the farmer-handler relationship might also be determinant of the fact that retailer milk price trends do not always reflect those at the farmer level. This model is specified and estimated empirically for dairy farmers and their milk handlers in the U.S. I reject the null hypothesis of symmetric and constant farmer bargaining power using data from the 2004 ARMS.