Price volatility and return on pig fattening under different price- quantity contract regimes

The goal of this study is to estimate how different price or quantity fixing contracts affectthe value of pig space unit in pig fattening. The value of pig space unit is estimated with astochastic dynamic programming algorithm. The model maximises the value of pig spaceunit by using four decision variables. The input-output ratios are endogenous and theoption to suspend production temporarily is taken into account in the model. The resultssuggests that the smooth functioning of markets in Finland can be promoted by ensuringthat price changes are transmitted smoothly between input and output markets, and thatproducers are compensated for giving up the option to suspend production temporarily inthe event if unfavourable market situation. Instead of fixing only the price of output, thecontract should aim at reducing the risk associated with gross margin.