Do Cows Have Negative Returns? The Evidence Revisited

40 Pages Posted: 11 Oct 2014

See all articles by Esther Gehrke

Esther Gehrke

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE)

Michael Grimm

Erasmus University Rotterdam; University of Passau; IZA; DIW Berlin

Abstract

This paper addresses the apparent paradox between widespread support of cattle farming by agricultural policy interventions and negative returns to cattle as stressed in recent works. Using a representative panel dataset for Andhra Pradesh, a state in the south of India, we examine average and marginal returns to cattle. One variant of our identification strategy builds on instrumental variable estimation, where the exposure to the National Rural Employment Guarantee Act (NREGA) is used as an instrument for investment in cattle. We find average returns in the order of -2% at the mean, but they vary across the cattle value distribution between negative 35% (in the lowest quintile) and positive 5% (in the highest). In contrast, marginal returns are positive over the entire distribution and, on average, as high as 13% annually. Both, average and marginal returns vary considerably not only across scale, but also across cattle breed and individual animal value. Our results suggest that cattle farming is associated with sizable non-convexities in the production technology and that substantial economies of scale as well a high upfront expenses of acquiring high productivity animals might trap poorer households in low-productivity asset levels.

Keywords: livestock, profits, investment, India

JEL Classification: D24, O12, Q12

Suggested Citation

Gehrke, Esther and Grimm, Michael, Do Cows Have Negative Returns? The Evidence Revisited. IZA Discussion Paper No. 8525. Available at SSRN: https://ssrn.com/abstract=2508580

Esther Gehrke (Contact Author)

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE) ( email )

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Michael Grimm

Erasmus University Rotterdam ( email )

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University of Passau ( email )

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