Search

Presentation ID 15668

Recent research suggests that agricultural export market development programs effectively communicate the distinguishing features of U.S. products to overseas buyers. These programs increase agricultural exports and producer welfare and typically have positive net effects on the economy as measured by changes in GDP and employment.

A two-step model with sample selection is applied to panel data of U.S. households to estimate at-home demand for fluid milk and cheese, incorporating advertising expenditures. The model consistently accounts for sample-selection bias, unobserved household heterogeneity, and temporal correlation. Generic advertising programs for fluid milk and cheese were effective at increasing conditional purchase quantities, with very little effect on the probability of purchase. In contrast to aggregate studies, the long-run generic advertising elasticities for cheese were larger than for those of fluid milk. Advertising response varied considerably across sub-product classes, while branded advertising expenditures were largely insignificant.

The largest portion of dairy and milk checkoff funds is spent on generic fluid milk advertising. These funds are distributed among four distinct media outlets-television, radio, print, and outdoor. Spending too little on one media outlet or too much on another constitutes a missed opportunity to garner higher returns. Using 1984-93 data, this study compares historical advertising expenditures in each media outlet to the advertising expenditure decision of an optimal control model. Results show profits would have increased if funds had been reallocated from television to radio, print, and outdoor media outlets.

We study consumer preferences for socially-responsible certified coffee based on alternative ways to distribute the price premium of the product. We use Becker, DeGroot, and Marschak (BDM) auctions in an experimental setting to elicit consumer willingness to pay for two socially-responsible certified coffee systems: the existing Fair Trade and a hypothetical certification called Sustainable Trade. These certification schemes differ in the way the price premium is given to producers. In the Fair Trade certifications growers receive a cash transfer whereas in the Sustainable Trade certification a portion of the premium is allocated to a social project in the grower’s community. We segment consumers as donors and non-donors and show that individuals who donate have strong preferences for certification systems that support social projects relative no non-donors. We also find that consumer attitudes toward donating have a strong effect on their willingness to pay for certified coffee. This effect is higher for consumers that donate a higher part of their income to charities.

Farm-to-hospital (FTH) programs can potentially improve the economy of local communities and preserve the environment. Research on adoption of farm-to-hospital (FTH) programs is extremely limited in the agricultural and applied economics literature. Using data from our 2012 regional FTH program survey of hospital food-service directors in the Northeastern United States and from the U.S. Department of Agriculture, this study estimates a logit model to determine factors that influence a hospital’s decision to adopt an FTH program. The empirical results indicate that specific hospital characteristics and agricultural factors significantly influence a hospital’s decision to adopt., Prepublication copy

We investigate consumer response to various types of advertising for fruits and vegetables—a food category which health officials uniformly agree is significantly underconsumed in the United States. Using an adult, non-student subject pool of participants in the experiment, consumers’ response to different broad-based (not used currently in the United States) and commodity-specific (widely used in the United States) advertising campaigns for various fruits and vegetables is empirically measured. We show that broad-based advertising effects far exceed those of the commodity-specific advertising and discuss the implications of the effective fruit and vegetable advertising programs on caloric intake and obesity management policies.

Generic promotion and advertising activities have traditionally been used to promote individual agricultural commodities. However, there is renewed interest in implementing a mandatory ―broad-based‖ promotion program for all fruits and vegetables, and this idea is highly controversial among those in the horticultural industry. Here we use data from an experiment that introduces subjects to various promotional efforts for fruits and vegetables to estimate the direct and indirect effects of advertising. Econometric results indicate that commodity-specific promotional efforts may be less effective at increasing demand for fruits and vegetables than earlier studies have suggested, yet such campaigns do appear to have a significant clockwise rotational effect on the demand for fruits and vegetables. Broad-based advertising does have a direct effect on the demand for fruits and vegetables, and after controlling for various demographic differences between treatments our results show that average willingness-to-pay for fruits and vegetables was 41% higher among subjects in the broad-based group compared to the control group.

In understanding decreases in demand after exposure to media-induced food scares, aggregate data are almost exclusively presented without taking into consideration potential confounding variables. However, a better approach may be to use an experimental design coupled with targeting homogeneous willingness-to-pay (WTP) subgroups based on similarities in behavioral, psychological, and demographic characteristics of those who are most vulnerable to food scare information. This is accomplished through experimental economics and an analysis strategy called a classification and regression tree (CART). A stigma framework—which guides conceptual understanding of effects of media-induced food scares—suggests controlling contextual variables to better approximate ceteris paribus. To this end, we conducted an experiment that exposed people to information about mad cow disease and then asked them to bid their willingness-to-pay for an actual hamburger. The CART found distinct homogeneous WTP subgroups of individuals that could be used by government and industry professionals to create interventions to reduce potential consumer concern and producer losses.

We utilize the outbreak surveillance data from the Centers for Disease Control and Prevention (CDC) to examine whether consumer demand is impacted by the outbreak of food-borne disease. An additional person sickened due to the ingestion of tainted cheese products at home is found to decrease per capita milk demand in New York State by 0.13 percent (or 0.07 pound), while milk and ice cream-borne disease outbreaks, occurring at home or in public places, are found to have no impact on fluid milk demand. Our results imply the existence of word-of-mouth effects, which cannot be tested by the popular information/media index approach used to measure food-borne disease outbreaks. We also find that a 7 percent increase in generic advertising expenditures or a 10 percent increase in expenditures on non-advertising marketing activities can offset the negative influence of one ill person in cheese-borne disease outbreaks at home, while holding other demand factors constant.

The material contained herein is supplementary to the article named in the title and published in the American Journal of Agricultural Economics.

A fixed-effects panel data demand model for five New York State markets is estimated to determine the differential impacts of generic fluid milk advertising by media type. Empirical results indicate that among the four media outlets, television advertising has the largest impact on per capita demand, followed by radio, outdoor, and print. Based on the estimated media-specific elasticities, media reallocation of advertising expenditures suggests that milk sales could increase significantly. The results indicate that cooperative media plan strategies developed between the New York regional advertising program and the national advertising programs would achieve the greatest benefits.

While per capita fluid milk consumption has been declining for decades in the United States, generic fluid milk marketing activities sponsored by fluid milk processors and dairy farmers have helped mitigate some of this decline. We estimate that these marketing efforts have had a positive and statistically significant impact on per capita fluid milk consumption. Specifically, over the 11-year period 1995 through 2005, we estimate that a one-percent increase in generic fluid milk marketing expenditures resulted in a 0.051 percent increase in per capita fluid milk consumption when holding all other demand factors constant. What about the impact on total consumption of fluid milk? From 2001 through 2005, generic fluid milk marketing activities increased fluid milk commercial disappearance by 22.5 billion pounds in total or 4.5 billion pounds per year. Put differently, had there not been generic fluid milk marketing conducted by the two national programs, fluid milk consumption would have been 8.2 percent less than it actually was over this time period. Hence, the bottom line is that the combined efforts of dairy farmers and fluid milk processors to market fluid milk have had a positive and statistically significant impact by partially mitigating declines in fluid milk consumption. In terms of the total dairy demand analysis, the average generic dairy marketing elasticity for the period 1990 through 2005 was 0.074; i.e., a one-percent increase in expenditures for these marketing activities would increase per capita dairy demand by 0.074 percent. Thus, the total marketing effort by dairy farmers and milk processors has had a positive and statistically significant impact on dairy consumption. We calculated a benefit-cost ratio (BCR) for the Dairy Program for the period 2000 through 2005. The benefits of the Dairy Program were calculated as the change in dairy farmers’ net revenue due to demand enhancement from all marketing activities under the Dairy Program. The costs of the Dairy Program were calculated as the difference in total assessment revenues before and after the national program was enacted. The results show that the average BCR for the Dairy Program was 4.33. This means that each dollar invested in generic dairy marketing by dairy farmers would return $4.33, on average, in net revenue to farmers. To make allowances for the error inherent in any statistical estimation, a 95-percent confidence interval was calculated for the average BCR. The confidence interval provides a lower and an upper bound for the average BCR. One can be “confident” that the true average BCR lies within these bounds 95 percent of the time. The estimated lower and upper bounds for the average BCR were 3.70 and 4.95, respectively. This confidence interval demonstrates that one could be 95 percent confident that the true average BCR lies between 3.70 and 4.95. This confidence interval give credence to our finding that the benefits of the Dairy Program’s marketing activities have been considerably greater than the cost of the program.

While per capita fluid milk consumption has been declining for decades in the United States, generic fluid milk marketing activities sponsored by fluid milk processors and dairy farmers have helped mitigate some of this decline. We estimate that these marketing efforts have had a positive and statistically significant impact on per capita fluid milk consumption. Specifically, over the 11-year period 1995 through 2005, we estimate that a one-percent increase in generic fluid milk marketing expenditures resulted in a 0.051 percent increase in per capita fluid milk consumption when holding all other demand factors constant. What about the impact on total consumption of fluid milk? From 2001 through 2005, generic fluid milk marketing activities increased fluid milk commercial disappearance by 22.5 billion pounds in total or 4.5 billion pounds per year. Put differently, had there not been generic fluid milk marketing conducted by the two national programs, fluid milk consumption would have been 8.2 percent less than it actually was over this time period. Hence, the bottom line is that the combined efforts of dairy farmers and fluid milk processors to market fluid milk have had a positive and statistically significant impact by partially mitigating declines in fluid milk consumption. In terms of the total dairy demand analysis, the average generic dairy marketing elasticity for the period 1990 through 2005 was 0.074; i.e., a one-percent increase in expenditures for these marketing activities would increase per capita dairy demand by 0.074 percent. Thus, the total marketing effort by dairy farmers and milk processors has had a positive and statistically significant impact on dairy consumption. We calculated a benefit-cost ratio (BCR) for the Dairy Program for the period 2000 through 2005. The benefits of the Dairy Program were calculated as the change in dairy farmers’ net revenue due to demand enhancement from all marketing activities under the Dairy Program. The costs of the Dairy Program were calculated as the difference in total assessment revenues before and after the national program was enacted. The results show that the average BCR for the Dairy Program was 4.33. This means that each dollar invested in generic dairy marketing by dairy farmers would return $4.33, on average, in net revenue to farmers. To make allowances for the error inherent in any statistical estimation, a 95-percent confidence interval was calculated for the average BCR. The confidence interval provides a lower and an upper bound for the average BCR. One can be “confident” that the true average BCR lies within these bounds 95 percent of the time. The estimated lower and upper bounds for the average BCR were 3.70 and 4.95, respectively. This confidence interval demonstrates that one could be 95 percent confident that the true average BCR lies between 3.70 and 4.95. This confidence interval give credence to our finding that the benefits of the Dairy Program’s marketing activities have been considerably greater than the cost of the program.

The mandatory nature of generic advertising funding remains a contentious issue. Theoretically and in laboratory environments, a provision point mechanism with a money-back guarantee offers an attractive voluntary alternative to the standard voluntary contribution mechanisms, yet in practice, few examples of multiple-round provision point mechanisms exist. A practical concern with applying these mechanisms is that even a slight shortfall in contributions relative to the designated funding threshold in one period would engender an irreversible shutdown of administrative capacity with negative consequences for subsequent periods. This paper uses experimental economics to test new two-threshold provision point mechanisms in the context of check-off programs for funding commodity marketing programs that would separately fund the minimum administrative capacity and the more costly full marketing program. In these mechanisms, even if a funding shortfall occurs for the full marketing program, the low threshold can maintain the administrative capacity and retain the option for future funding of advertising. We demonstrate that providing such "option assurance" does not lead to a decrease in overall contributions and, in some settings, can increase producer surplus.

Given the uncertain legal status of generic advertising programs for agricultural commodities, alternative voluntary funding institutions are investigated hat could provide a high level of benefits to producers. This experimental study simulates key economic and psychological factors that affect producer contributions to generic advertising. The results suggests that producer referendum play a critical role in increasing contributions and that producer surplus is maximized by a Provision Point Mechanism instituted by producer referendum with thresholds ranging from 68% to 90%, and expected funding from 47% to 77% of the time, depending on the level of advertising effectiveness.

Annual seasonal advertising expenditure allocations were estimated for the national generic advertising programs for fluid milk and cheese with the use of price and advertising elasticities of demand that varied over time. Significant variation in optimal allocations existed both across products and over time, emphasizing the importance of obtaining accurate seasonal forecasts that incorporate changes in market conditions to plan future spending allocations. In the absence of such information, allocating annual budgets equally across quarters still produced positive producer welfare gains on average relative to historical spending that were not statistically different from those realized under the optimal spending strategy.

Many commodities have programs assessing producers for generic advertising. Ads such as "Got Milk?" and the "Incredible Edible Egg" are a public good for producers. Most of these programs originally used the Voluntary Contribution Mechanism, but have now become mandatory because of free-riding. This research simulates both the economic and psychological details of the egg industry in experiments that produce strikingly realistic results. Because mandatory programs have recently been declared unconstitutional, we also the test the Provision Point Mechanism and show that observed low levels of free-riding for both mechanisms are the result of status quo bias.

High increases in media advertising costs have caused a shift away from generic advertising to other promotional activities. A relatively new retail-level promotional activity is the Dairy Case Management Program aimed at improving the management, appearance, and operation of the dairy case. An evaluation of the Northwestern Hudson Valley Market program demonstrated increases in sales volume for both supermarkets/mass merchants and convenience/drug stores. However, the value of volume gains compared with program costs indicates a cost recovery time of over two years. Therefore, program success depends on the implementation of a long-run strategy with continual evaluation.

This paper exploits a unique opportunity to test parallelism between the field and laboratory for the Voluntary Contribution Mechanism (VCM). Most commodities in the United States have checkoff programs assessing producers for generic advertising and promotion, a public good for producers. Examples include: Got Milk? and the Incredible Edible Egg. Originally, participation in many of these programs used the VCM and the freeriding observed follows a similar pattern to that seen in the laboratory by experimental economists. For example, a substantial amount of historical information is available for the egg industry's generic advertising program. We simulate both the economic and psychological details of this industry in a parallelism experiment. The results over eleven rounds of the VCM conducted in the laboratory are strikingly similar to the real-world results for the American Egg Board's program from 1977 to 1988. We also replicate the positive vote in favor of a mandatory program to replace the VCM that occurred in 1988. All commodity checkoff programs today are mandatory. Yet the constitutionality of mandatory checkoff programs has recently been challenged on the grounds that mandatory programs violate individual producer's free speech rights under the First Amendment. In light of this legal uncertainty, this paper explores the feasibility of using a voluntary provision point mechanism (PPM) which closely follows the institutional design of the VCM and mandatory programs used by the egg industry. Our results suggest that although the PPM performs better than the VCM, both mechanisms in this institutional setting yield far higher levels of contributions than those obtained in prior research. Thus, the research next explores why the levels of giving observed for generic advertising are higher than traditionally observed in the lab. Our results suggest that the institutional design employed by the American Egg Board and others where assessments were collected first and then having producers request refunds afterwards, established a social norm, or reference point, which leads to higher levels of contributions through status quo bias. This bias appears to increase contributions in both the VCM and PPM. However, this effect decreases over rounds as contributions still appear to converge to the Nash equilibrium of zero contributions in the case of the VCM and to the particular Nash equilibrium of just covering costs of the provision point in the PPM.

By endogenizing unit value and coupon redemption, we estimate U.S. household cheese purchase, quality choice, and coupon redemption equations simultaneously. Zero purchases and missing values are taken into account in the model to correct for the selectivity bias. The correlations among the three equations are found to be significant. Empirical findings show that high quality choice significantly decreases cheese purchases, while cheese coupon usage significantly increases purchases. We find that higher income households select higher quality cheese, while larger households choose lower quality cheese. Frequent coupon redeemers are found to purchase lower quality cheese. For coupon redemption, we find that African American households redeem less while Asian households redeem more comparing to the Caucasian households.

In this paper, a two-equation sample selection model is used to estimate a household demand function for salmon incorporating domestic generic advertising. The twoequation estimation procedure, based on purchase and unit value equations, allows us to handle heavily censored panel data for salmon purchases by Norwegian households and the quality effects simultaneously. Unit values of the aggregated salmon commodity calculated from the observed expenditures and quantities are hypothesized to represent the average quality of the purchased commodity. Advertising effects on both purchases and unit values are investigated. The model also allows us to separate the effects of conditional purchases and purchase probabilities. Results indicate that most (78%) of the advertising effect is through the change of non-purchase occasions to purchase occasions, and that generic salmon advertising induces Norwegian households to spend more money on salmon. However, advertising causes households to select more expensive products rather than increasing their purchased quantities.

Previous constant-parameter demand models have estimated generic advertising elasticities for cheese to be below that for fluid milk. We relax this assumption, allowing for generic advertising response to vary over time. Cheese advertising elasticities were found below fluid milk up until the mid-1990s; average elasticities since have been similar.

Previous constant-parameter demand models have estimated generic advertising elasticities for cheese to be below that for fluid milk. We relax this assumption, allowing for generic advertising response to vary over time. Cheese advertising elasticities were found below fluid milk up until the mid-1990s; average elasticities since have been similar. A benefit-cost ratio of the farmer-funded generic advertising program was estimated at $6.26:1 over the period of 1999-2001, indicating that generic advertising for fluid milk and cheese continues to be a viable and worthwhile program for milk producers

A two-step sample selection model is used to estimate household demand equations for fluid milk and cheese products incorporating national generic advertising. This approach allows us to disentangle the incidence of the advertising effect on the probability of purchase and changes in the level of consumption. Generic advertising for fluid milk had a predominantly intensive effect on athome fluid milk demand, implying that advertising was relatively more effective at increasing the consumption of current consumers. Conversely, the at-home cheese demand response to generic cheese advertising was almost exclusively extensive, with virtually the entire increase in quantity demanded due to an increase in the household’s probability of purchase.

Consistent two-step censored estimation is applied to household demand equations for disaggregated milk and cheese products. The long-run advertising elasticity for total milk was positive, largely due to low fat milk; however the elasticity for cheese was not significant, and only shredded cheese had a positive, significant response.

The purpose of this study was to analyze the impacts of generic milk and cheese advertising on dairy markets. The results indicated that generic milk and cheese advertising by dairy farmers and fluid milk processors had major market impacts for the dairy industry. The main conclusion of the study is that farmers and processors are receiving a high return on their investment in generic dairy advertising. The impacts of advertising tend to be more profound in increasing price than quantity, which is due to the inelastic nature of demand for milk and cheese. These estimated impacts need to be compared with the other options producers and processors have for marketing their product (e.g., non-advertising promotion, research, new product development, etc.) in order to determine the optimality of the current investment of advertising. Consequently, these results should be viewed as a first step in the evaluation process.

This study presents a theoretical and empirical analysis of the distribution of generic advertising benefits across individual producers. We develop a closed-economy partial equilibrium model that allows for the presence of producer heterogeneity in supply response. Analytical results indicate that producers having less elastic supply response capture more benefits per dollar expended than producers with more elastic supply response. The extent of unequal distribution depends on parameters characterizing industries. The inequality may not be a significant problem for some industries, especially where the firm-level supply elasticities are not substantially different among producers, but it may be an important issue when industries have substantial differences in firm-level supply elasticities and firm sizes, and experience large demand shifts due to advertising programs

An analysis of 102 survey responses from generic commodity promotion organizations was completed. Details regarding objectives, export promotion, funding sources, program evaluation, and the allocation of expenditures for promotion organizations were evaluated. We estimate that the organizations included in this analysis control 70 to 80 percent of the total generic commodity promotion expenditures in the U.S. Since generic commodity promotion organizations play a significant roll in promoting and marketing many commodities, analyses of these organizations should continue to provide potential benchmarking and summarizing information so that they can operate efficiently and effectively

This report examines the responsiveness of fluid milk sales to milk advertising in the New York City, Albany, Syracuse, Rochester, and Buffalo markets. Fluid milk demand equations for New York City, Albany, Syracuse, Rochester, and Buffalo were estimated with monthly data from 1986-2000, which included generic milk advertising expenditures Generic milk advertising had a positive impact on milk sales in all markets, and was statistically significant in three out of the five markets. The model was then simulated to determine the impact of the New York state portion of advertising expenditures on producer milk prices and returns. A benefit-cost ratio was also computed for each market, and the weighted average for New York state was equal to 2.12 indicating that every dollar invested into New York state generic milk advertising returned $2.12 back in extra Class I revenue to farmers.

It is possible to obtain robust estimates of structural parameters using observational data, but it is difficult to do so. Necessary, but not sufficient, conditions are to adopt a modeling philosophy and to undertake a comprehensive evaluation of the results. Using a general-to-specific modeling philosophy, we obtained stable estimates of the long-run advertising elasticity for fluid milk. This result contrasts with an earlier, published model which did not provide stable estimates as new data points became available. It is difficult, however, to apply the general-to-specific modeling approach because it requires the researcher to specify an initial general model. But analysts are unlikely to agree on this initial model, and if this is true, then the "generality" of the model is in question. Moreover, it is a fact that the quality of the available data is sometimes insufficient to obtain the desired stable estimates.

This article develops a varying-parameter advertising model which specifies advertising parameters as a function of variables representing advertising strategies and market environments to explain the varying nature of the advertising responses. Unlike prior models, this model allows researchers to examine the sources of change in advertising effectiveness over time. The model is applied to the New York City fluid milk market for the period from January 1986 through June 1995. Results indicate that advertising strategies and market environments play important roles in determining advertising effectiveness. Particularly, demographic factors were more important than economic factors. The results also suggest that when a market is in an unfavorable or unsaturated condition, advertising generally becomes more important and effective.

In this study, we examine the distributional effects of research versus consumer promotion. A few years ago, a notable article by Wohlgenant (AlAE 75, 1993) investigated this issue and concluded that producers would benefit more from research on farm-level production than from research on marketing services and promotion. His findings have drawn important policy implications for the allocation of checkoff funds, especially for those producer groups (e.g., dairy, beef, and pork) who spend a large share of their funds on consumer promotion. We challenge his conclusions. We contend that his findings are confined to a special case, the parallel shift in demand and supply. To verify our claim, we reexamined his findings with an alternative case, a pivotal shift, and found that consumer promotions benefitted producers more than research activities. Our new findings indicate that the relative profitability of research versus promotion is highly sensitive to the assumption of the nature of shifts in demand and supply.

The dominant trend in U.S. non-alcoholic consumption over the past two decades has been a steady increase in soft-drink consumption, largely at the expense of milk and coffee and tea consumption. Our analysis suggests that the primary factors affecting this is that the price, advertising, and demographic elasticities estimated from the Rotterdam model are much smaller than the adjusted trend coefficients and the expenditure elasticities.

The dominant pattern in U.S. non-alcoholic drink: consumption over the past 25 years has been a steady increase in per capita soft-drink: consumption, largely at the expense of coffee (and to a lesser extent) milk consumption. Our findings suggest that the major factor governing this pattern is structural change. Specifically, trend was found to be statistically significant in three of the four equations estimated in the Rotterdam system. Moreover, the estimated trend-related changes in per capita consumption (-1.0 percent per year for milk, 2. 1 percent for soft drinks, and 3.7 percent for coffee and tea) leave at most 28 percent ofthe observed quantity variation for 1990-1994 to be accounted for by changes in relative prices, income, and advertising. Advertising effects are statistically significant, but modest. The question ofwhether milk advertising is profitable when demand interrelationships are taken into account must await additional research.

Evaluating the Milk Advertising Dollar

This article examines whether the assumption of perfect competition in the U.S. dairy industry biases the findings of economic impacts of generic dairy advertising. An imperfect competition model based on an approach similar to that of Appelbaum is developed and used to evaluate generic milk advertising. The results are compared with a perfect competition model. The findings indicate positive price and quantity impacts due to generic advertising. The differences in magnitude of impacts between the two models are small, suggesting that the assumption of perfect competition for U.S. dairy models is plausible.

This article examines two major generic fluid milk advertising campaigns in New York City during the 1986-92 period. Estimates from a time-varying parameter model show that the evolution of the impact of generic advertising on fluid milk sales over each campaign followed a bell-shaped pattern. Results also show that the first campaign was effective for twice as long as the second campaign and that it has a higher peak and higher average advertising elasticity. These findings may reflect long-term generic milk advertising wearout in the New York City market.