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CHOICESThe magazine of food, farm, and resource issues

4th Quarter 2006 • 21(4) CHOICES

A publication of theAmerican AgriculturalEconomics Association

4th Quarter 2006 • 21(4)

©1999–2006 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the AmericanAgricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org.

Table of Contents4th Quarter 2006—Volume 21, Number 4

A Statement from the Editors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .205Washington Scene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Coordinated by Joe L. Outlaw, Co-Editor, Choices

ArticlesTheme: Resources and the Environment

Setting the Stage for the Next Farm Bill: No Easy Choices(James Richardson, Guest Editor)

Domestic Farm Policy for 2007: Forces for Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .209 Stephanie Mercier and Vince SmithWhat Happens if You Try to Run Current Farm Programs on a Tighter Budget? . . . . . . . . . . . . . . . . . . . . .215 Patrick Westhoff and Scott BrownThe Evolution of the Rationale for Government Involvement in Agriculture . . . . . . . . . . . . . . . . . . . . . . . 221 Joe Outlaw and Otto Doering

Theme: Resources and the Environment

Fresh Produce Marketing: Critical Trends and Issues(Ramu Govindasamy and Suzanne Thornsbury, Guest Editors)

Overview: Fresh Produce Marketing: Critical Trends and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Ramu Govindasamy and Suzanne Thornsbury, Guest Editors Direct Marketing of Fresh Produce: Understanding Consumer Purchasing Decisions . . . . . . . . . . . . . . 229 Jennifer Keeling Bond, Dawn Thilmany, and Craig A. Bond Ethnic Produce Marketing in the Mid-Atlantic States: Consumer Shopping Patterns and Willingness-to-

Pay Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 Ramu Govindasamy, Aparna Nemana, Venkata Puduri, and Kim Pappas Traceability: Formulation and Implementation of an Economic Efficient System in the Fruit and

Vegetable Industry . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 Greg Fonsah Preventive Health Maintenance Information Brought to You by Your Local Fruit & Nut Producers . . . 249 Hoy Carman Fresh Produce Intermediaries in Away-from-Home Food Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 Suzanne Thornsbury, Roger Hinson, Lourdes Martinez, and Dixie Watts Reaves

CHOICES 4th Quarter 2006 • 21(4)

A Marketing Systems Approach to Removing Distribution Barriers Confronting Small-Volume Fruit and Vegetable Growers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259Charles R. Hall, John Brooker, David Eastwood, James Epperson, Ed Estes, and Tim Woods

Grab Bag

Reducing Obesity: What Americans Can Learn from the Japanese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265Benjamin Senauer and Masahiko Gemma

Winners and Losers: Formula versus Competitive Funding of Agricultural Research . . . . . . . . . . . . . . . . 269Wallace E. Huffman, George Norton, Greg Traxler, George Frisvold, and Jeremy Foltz

Coming Attractions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .275Immigration and U.S. Agriculture / Ximing Wu, Guest Editor Export-Led Food Quality / Bruce A. Babcock and Helen H. Jensen, Guest Editors


4th Quarter 2006 • 21(4) CHOICES 205


4th Quarter 2006 • 21(4)


A Statement from the EditorsWelcome to our tenth issue ofChoices (Q4 2006).

In this issue of Choices, we offertwo collections of papers. One themecovers the topic of setting the stage forthe next farm bill, by updating thejustification for farm programs, revie-wing policy issues likely to affectthe 2007 Farm Bill, projectingthe effects of continuing the 2002 Farm Bill with less spending, and examining new program options based onland stewardship programs. The other theme addresses changes in fresh produce marketing and smallfarms'/firms' response strategies inorder to remain competitive, profit-able, and economically viable in this changing market. This issue also con-tains articles on obesity lessons from Japan and on formula versus grant-based funding for agricultural research.

Look for future issues where we plan coverage on Immigrationand U.S. Agriculture, Export-LedFood Quality, Animal Identifica-tion, and Returns to Research and Extension. See our thematic cov-erage page at www.choicesmagazine.-org for a complete list and plannedschedule. In light of the AAEA Board's decision regarding Choices' fundingand the uncertainty as to whether ano-ther funding source will allow cont-inuation, the editors will no longer accept new thematic proposals. Ourschedule is full through June 2007when our editorship ends. Proposals

Editorial Staff

EditorsOral Capps, Jr., Bruce A. McCarl (Coordinating Editor), Rodolfo M. Nayga, Jr., Joe L. Outlaw, John B. Penson, Jr., Texas A&M University

Associate EditorLinda Crenwelge, Texas A&M University

Editorial BoardRichard Adams, Oregon State UniversityWalt Armbruster, Farm FoundationJulie Caswell, University of MassachusettsRalph Christy, Cornell UniversityKeith Collins, Chief Economist, USDARoberta Cook, University of California-DavisAllen Featherstone, Kansas State UniversityAllan Gray, Purdue UniversityHal Harris, Clemson UniversityCraig Jagger, US House Committee on AgricultureCarol A. Jones, Economic Research Service-USDAMaureen Kilkenny, University of NevadaJoost Pennings, University of IllinoisLarry Sanders, Oklahoma State University Brent Sohngen, Ohio State UniversityRobert L. Thompson, University of IllinoisSteven Turner, Mississippi State

Choices is the outreach vehicle of the American Agricultural Economics Associ-ation (AAEA) and is designed to provide current coverage regarding economic implications of food, farm, resource, or rural community issues directed toward a broad audience. Choices publishes thematic-oriented groupings of papers and individual papers. The broad themes we will repeatedly visit in Choices are agriculture and trade, resources and the environment, consumers and markets, and agribusiness and finance. Submitted manuscripts are subject to peer review for publication consideration.

Choices is published at the end of each quarter of the year by the American Agricultural Economics Association. Visit our web site at http://www.choices-magazine.org.

Editorial CommunicationsPotential manuscripts, thematic proposals, and comments can be submitted through http://www.choicesmagazine.org/submissions.htm or directly emailed to the editors at [email protected]. Editorial communications can be sent to [email protected].

206 CHOICES 4th Quarter 2006 • 21(4)

currently in process will be movedthrough to publication. This policywill continue unless funding condi-tions change. Grab bag submissions

will continue to be processed until allissues through June 2007 are full andwe still have room. We encourageyou to submit single articles for the

“Grab Bag” section of Choices. Forsubmission requirements, see http://www.choicesmagazine.org/submis-sions.htm.




4th Quarter 2006 • 21(4)


Washington Scene Coordinated by Joe L. Outlaw, Co-Editor, Choices

As we begin 2007, the landscape in Washington haschanged dramatically. The November elections have“flipped” the Congress in terms of the party in control.The 110th Congress will convene with the Democrats hav-ing more than a 30-seat advantage in the House of Repre-sentatives and a 1-seat advantage in the Senate.

The last few days of the Republican-led 109th Con-gress were busy with a late night session that saw a numberof bills completed prior to adjourning. A number of popu-lar expiring tax breaks were extended, including a deduc-tion for college tuition, a deduction for state and localsales taxes in states without income taxes, and the corpo-rate-tax credit for research. However, at least one thingthat did not happen – failure to pass the majority ofappropriations bills that fund the government was left forthe new Congress to handle. Only two appropriations billswere completed before Congress adjourned. IncomingDemocratic appropriations committee leadership haveindicated that they will pass a continuing resolution(referred to in Washington as a CR), when the current CRexpires February 15th, that will fund the government atlast year’s levels to cover the remainder of the fiscal yearthrough September 30th.

Other than funding the government, one of the earlypriorities for the Democratic-controlled 110th Congresswill be an attempt at an ethics overhaul. Many point to theoften used Democratic election slogan of the “RepublicanCulture of Corruption” (along with the Iraq War) as theprimary reasons for the outcome of the November elec-tions. These types of statements have been made beforewith little or no change – regardless of who is in control ofCongress. So what is expected to happen? There is goingto be an attempt to sever the ties between lawmakers andlobbyists. There have also been hints at restricting the use

of corporate jets and tightening the rules on gifts andtravel by lobbyists. There will also be an attempt to pro-vide more transparency for Congressional earmarks byrequiring the sponsor’s name to appear next to the projectin the appropriations bill.

Farm BillThe next farm bill will be written in a new political settingwith less money available for programs. The March 2007CBO Baseline (with adjustments, if any, from the budgetresolution) will be used to score the 2007 Farm Bill. Atthis point, it appears that commodity prices are projectedto be sufficiently high and that there will be less moneybeing spent on current programs, which leaves less moneyfor the new farm bill. Like most committee chairmen, thewish lists of the incoming House and Senate AgriculturalCommittee leadership each expand current programs(CSP and energy) or enact new ones (permanent disasterassistance) – both of which will require more money. Thatcalls into question what has to be cut to fund the new pri-orities. Farm bill discussions are expected to begin in ear-nest by the spring, but most observers are waiting to seehow much money will be in the baseline.

Doha RoundAt this time last year, the Doha Round was in a seriousstage as far as needing progress. Currently, talks have beensuspended with only a few countries trying to get theround moving forward again. The Doha Round isn’t dead,but there really isn’t much time left to get an agreementprior to Trade Promotion Authority (TPA) expiring forPresident Bush in July 2007. There has been some talkabout extending TPA if an agreement appears eminent.




4th Quarter 2006 • 21(4)


Domestic Farm Policy for 2007: Forces for Changeby Stephanie Mercier and Vince Smith

JEL Classification: Q18

The fundamental political rationale of U.S. farm policy,to support and stabilize the incomes of family farmers, hasbeen embodied in farm bills since the early 1930s. U.S.agriculture has changed dramatically since the GreatDepression in ways that matter from the perspective ofpolicy makers. In the 1930s, farm household incomes andwealth were lower on average than nonfarm householdincomes and wealth. In 2006, that situation has reversed.In the 1930s, the average farm size was much smaller thanin 2006, both in land area and value of sales. The types ofproducts being produced were also far less diverse. In the1930s, more than 75% of all farms raised commodity pro-gram crops such as corn and wheat. Today, only about aquarter of all farms grow such crops. In the 1930s, agricul-tural resource policy was focused on enhancing farmlandproductivity. In 2006, preserving natural resourceattributes of that farmland is also a major policy concern.

These changes in structure and focus have created sub-stantive policy issues. Some ideas, such as imposing tighterlimitations on government payments to individual farmsand proposals to target assistance more towards lowincome households, have been sources of controversy forseveral decades. Other issues, such as expanding the scopeof government support to be provided to other commodi-ties, including fruits and vegetables and livestock, are rela-tively new concerns. All are in play in the context of cur-rent debate over the likely shape of the 2007 Farm Bill. Inaddition, since 1994, U.S. farm policy has been con-strained to some degree by the U.S. Government’s com-mitments under the Uruguay Round Agreement on Agri-culture (URAA), as implemented through the WorldTrade Organization (WTO). Further, funding for farmprograms, and therefore the scope and structure of thoseprograms, are contingent on the status of the federal bud-

get during the period in which a new farm bill is debated.The next farm bill is also likely to reflect broader societalinterests, with particular attention paid to the environ-mental and energy impact of farm policy.

Budget IssuesWhen legislators have been faced with substantial federalbudget deficits, as in the 1990s, many farm programs havebeen cut back or eliminated. In contrast, the 2002 FarmBill was developed in a brief era of budget surpluses whenfunding was much less constrained. The March 2001 bud-get baseline released by the Congressional Budget Office(CBO) projected a $5.7 trillion budget surplus in the fed-eral budget over the period 2002-2011. In this environ-ment, farm state members of Congress were able to obtain$73.5 billion of additional funding for the 2002 Farm Bill.The August 2006 CBO baseline assessment paints a verydifferent picture, projecting a ten-year cumulative deficitof $1.8 trillion.

Moreover, this official or ‘status quo’ CBO baselineprojection does not account for the potential extension ofexpiring tax cuts after 2010, changes in the AlternativeMinimum Tax to reduce its adverse tax impacts on mid-dle-class Americans, and the cost of a continuing militaryrole in Afghanistan and Iraq. A separate CBO analysis,which accounted for these impacts, results in annual bud-get deficits averaging more than $500 billion over the nextten years. In addition, the increase in the national debtimplied by these deficits will raise federal debt serviceinterest costs. In this fiscal environment, framers of thenext farm bill are likely to have to work with no more thancurrent baseline funding, and conceivably less (Figure 1).

Under the budget resolution for fiscal 2006, the Houseand Senate Agriculture Committees were required to cut


spending by $3 billion over fiveyears, along with similar cutsrequired for other CongressionalCommittees. For agriculture, thelargest cuts were in commodity andconservation programs and agricul-tural research funding. For reconcili-ation, CBO projected that spendingfor all mandatory farm programs(including food stamps) over the five-year period 2006-2010 would be$278 billion. Since the effort to makecuts in the fiscal 2006 budget wassuccessful, Congress is more likely torepeat the exercise in the future, fur-ther reducing funding for the 2007Farm Bill.

The Farm Security and RuralInvestment Act of 2002 consisted often separate titles. These includedcommodity and conservation pro-grams, trade (including food aid),nutrition, farm credit, rural develop-ment, agricultural research, forestry,renewable energy, and miscellaneousissues. Under the August 2006 CBObaseline, spending on farm bill pro-grams (other than nutrition pro-grams) is expected to be about $195billion over the ten-year periodbeginning in 2008.1 Proposals fornew programs or modifications tocurrent programs in the 2007 FarmBill will likely have to fit within thebaseline funding level to be projectedby CBO in March 2007.

Changing DemographicsFarm bills are not written in a vac-uum. Although farmers and ruralcommunities are the direct beneficia-ries of farm programs, the interests of

other groups also matter in the cur-rent political environment. In theU.S. House of Representatives, agri-cultural interests are not the forcethey once were. Every decade, seatsare reallocated to states on the basisof new Census population estimatesand Congressional District reappor-tioned by state legislatures. Over thelast 50 years, the regions in whichagriculture is economically importanthave shrunk significantly. An analysisby USDA’s Economic Research Ser-vice (ERS) shows changes in farm-ing-dependent counties between1950 and 2000.2 In 1950, farming-dependent counties were located innearly every state. By 2000, thesecounties had dwindled in numberand had become concentrated in abelt 1-2 states wide stretching fromeastern Montana to the Texas pan-handle.

The political implications of thisdemographic shift are important.

Data from the 2002 Census of Agri-culture indicate that among all Con-gressional District (representing anaverage of 646,000 residents), fewerthan half contain more than 1,500farmers. Thus, only a minority ofmembers in Congress have substan-tial farm-based constituencies thatare committed to maintaining fund-ing for federal farm programs. More-over, the proportion of families in theUnited States directly involved infarming has become very small,about 2% of the population. MostAmericans have no, or only distant,connections with agriculture as asource of income and a way of life.

Many members of the generalpublic who do hold opinions on U.S.farm policy base their views on infor-mation from the mass media, whichis often critical of the distribution offarm program funds. For example, in2001, data on farm program pay-ment recipients disseminated by theEnvironmental Working Groupsparked public interest and debateabout whether wealthy farmers withlarge operations should receive sub-stantial annual government pay-

1. The current CBO baseline runs for 2007-2016. The $195 billion fig-ure extrapolates spending trends for 2017, the last year of a ten-year baseline for a 2007 Farm Bill, excluding food stamp spending.

2. ERS defines farming-dependent counties as those with at least 15% of income from farming.

Figure 1. U.S. budget projections, 2007-2016.Source: CBO budget baseline, August 2006.

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ments. An amendment to sharplylimit payments was added to the Sen-ate version of the 2002 Farm Bill, butdropped from the final legislation atthe insistence of conferees from theHouse Agriculture Committee. Thisissue has already resurfaced in discus-sions about the 2007 Farm Bill, butfaces opposition from commoditygroups, especially rice and cottonproducers in California and theSouth, which include most recipientsof large payments because of thestructure of their farms.

The Evolving Structure of Political Interest Groups

The politics of agricultural pol-icy have generally become more com-plicated over the past two decades.Arguably, the major commodity pol-icy elements of the 1985 Farm Billwere framed to address the concernsof feed grains, cotton, rice, soybean,sugar, wool and mohair and wheatproducers along with environmentalinterest groups concerned about con-servation. Among livestock produc-ers, dairy operators with a price sup-port program to preserve wereprobably the most active participantsin the policy process. Players in thecurrent debate over the future offarm programs are more numerous.In the last Farm Bill, along with theproducers of traditional programcommodities and sugar and dairy,growers of minor oil seeds and pulsecrops sought and acquired loan ratesfor their crops. They too have a stakein maintaining loan rate programs ornegotiating other means of support ifloan rate benefits were to be reduced. In addition, producers of fruitsand vegetables have become activelyengaged in the 2007 policy debate.This is partly because of the increasedimportance of the federal crop insur-ance program as a source of subsidies

and risk management for these com-modities. Beef cattle producers alsohave recently become involved incrop insurance debates as new poli-cies covering grazing land and live-stock price risks have been intro-duced.

Advocates for low income house-hold programs such as food stampsand school lunches and breakfasts arealso participants in farm bill debates,although child nutrition programsare usually handled in separate legis-lation. Further, in addition to envi-ronmental interest groups, advocatesfor renewable energy production arenow active advocates for certain farmbill programs. Given the recent sharpincreases in oil prices and the result-ing expansion of interest in renew-able fuels, lobbyists for the ethanoland biodiesel industries may be effec-tive voices in the writing of the nextfarm bill. These groups seek energy-related incentives or mandates aimedat increasing domestic demand formajor commodities such as corn andoilseeds and reducing exportable sur-pluses. Energy programs that increasedomestic consumption of grains mayalso be viewed benignly by othercountries and could therefore reso-nate with legislators.

Other groups without a directstake in agriculture are also seeking tobe heard in the policy process.Humanitarian groups such as OxfamAmerica are raising questions aboutthe adverse impact of U.S. farm pro-grams on farmers in developingcountries. Some conservative or liber-tarian groups, such as the Cato Insti-tute and Heritage Foundation, assertthat farm programs represent corpo-rate welfare and should be ended.

Inertia is also an important factorin policy formation. Gary Beckerpointed out that major policy shiftstend to occur only when the eco-nomic and political benefits of

change outweigh the costs. Theincreased income flow from farmlandresulting from most U.S. commoditypolicies has led to an increase in thevalue of U.S. farmland over time.Ending some of these programs orreducing the subsidies they providewill inevitably lower land values, withconcomitant impacts on farm wealth.By some estimates, for example,abandoning loan rate programs anddirect payments could reduce pricesfor agricultural land in several statesby 20% or more. Farm interestgroups are deeply concerned aboutsuch effects, and policy makers,therefore, have to be conscious of theimpacts of proposed policy changeson land prices in evaluating the 2007Farm Bill.

Implications of the WTO Agreements for the 2007 Farm BillFor the first time, under the terms ofthe 1994 URAA, agricultural policiesthat affect trade were to be subject toan agreed set of international rules.The URAA also introduced new andbinding procedures to resolve dis-putes between member countriesover whether specific trade policieswere consistent with WTO obliga-tions. Previously, individual membercountries had been able to block theimplementation of panel findings.

In September 2002, the govern-ment of Brazil filed a landmark caseagainst the U.S. Government’s cottonsupport programs, the first in whichone country claimed that anothercountry’s domestic support pro-grams were incompatible with thatcountry’s WTO obligations. Severalimportant elements of Brazil’s claimswere supported by a WTO panel’srulings in August 2004 and were sub-sequently upheld by the WTO appel-late body in March 2005. The WTO


panel found that the United Stateshad forfeited protection under thepeace clause of the URAA by spend-ing more each year on domestic sup-port for cotton between 1999 and2002 than in 1992, the benchmarkyear.3 Further, U.S. price-related sup-port programs had depressed pricesin the world cotton market. TheWTO panel therefore determinedthat the U.S. government must mod-ify or eliminate those programs. Thepanel also found that the Step 2 cot-ton program and U.S. export creditguarantees were export subsidy pro-grams, and should be modified oreliminated.

In response, the U.S. Govern-ment took some steps to bring therelevant programs into compliance.USDA modified the operation of theexport credit program by issuing newregulations, basing fees that countriesmust pay on the risk of nonrepay-ment of loans made under the pro-gram. The Step 2 cotton programwas terminated August 1, 2006,Congress having let the programcomplete the 2005 marketing year.

The WTO panel report offeredno further guidance on U.S. compli-ance. However, Congress may alsoneed to make changes to domesticprice-related programs, chiefly themarketing assistance loan and coun-tercyclical payments (CCPs), to com-ply with the panel’s findings. In addi-tion, current limits on the use of landfor the production of fruits and vege-tables associated with the direct pay-

ment program may have to be modi-fied. Within policy circles, Congressis expected to incorporate anychanges it deems necessary into the2007 Farm Bill and, for reasons ofpolitical balance, will likely makesimilar changes to programs for allcrops, not just cotton.

Since November 2001, WTOmember countries have also beenengaged in agricultural negotiationsin the Doha Round, aimed at furtherreductions in domestic support,improved market access, and elimina-tion of export subsidy programs, inaddition to reforms in trade in ser-vices and market access for manufac-tured goods. However, in July 2006negotiations appeared to collapse,mainly over gaping differencesbetween the United States and othercountries such as India and the Euro-pean Union with respect to agricul-tural provisions, and negotiationswere formally suspended. There iswidespread agreement that TradePromotion Authority (TPA) for thePresident is a necessary prerequisitefor any new WTO agreement toinsulate legislation to implement theagreement from Congressionalamendments. Current TPA legisla-tion expires July 1, 2007, and there isno guarantee it will be renewedbeyond that date. Thus, the DohaRound of WTO negotiations mayhave very few implications for the2007 Farm Bill. However, some farmgroups are advocating an extension ofthe 2002 Farm Bill for a few yearsuntil the Doha Round can be com-pleted. Under those circumstances,the 2007 Farm Bill could have a veryshort lifetime, and significant policychange could come in response to adelayed Doha Round Agreement.

U.S. negotiators did submit asubstantive proposal to the WTO onagricultural reform in October 2005,whereby the United States would

reduce the ceiling for its trade-dis-torting domestic programs from$19.1 billion annually under theURAA by 60%, to a maximum of$7.6 billion annually. Had the U.S.proposal been adopted, the U.S.Government would have obligateditself to make changes in many of theprograms that make up the farmsafety net. Congress could respond tosuch constraints in three ways: 1)simply cut program spending, 2)transfer a portion of spending intodirect payments while maintaining areduced farm safety net within thenew caps, or 3) undertake a funda-mental shift from price-related sup-port to decoupled, ‘green box’ pro-grams, including those which addressbroader societal objectives such asconservation and rural development.Whether these policy reform propos-als will now receive much attentionin the 2007 Farm Bill debate is muchless clear, although budgetary pres-sures may be an important drivingforce for some changes in these areas.

In the current policy mix, theU.S. Government provides a portionof support to farmers through greenbox programs that are deemed to beminimally trade-distorting, includingdirect payments and conservationpayments. Other U.S. green boxprograms support development ofinfrastructure or improved economicopportunities through rural develop-ment initiatives and agriculturalresearch programs. To compensatefor potential reductions in price-related subsidies resulting from theBrazil cotton case or a resuscitatedDoha Round, the United Statescould choose to expand funding forthese programs, while phasing out orsubstantially reducing domestic sub-sidies provided by the marketing loanand countercyclical payments pro-grams. Concerns have been raisedabout the use of decoupled direct

3. The peace clause is contained in Article XIII of the URAA, and exempted countries from actions against their domestic agricultural policies under other Agreements if support remained below the level provided in 1992. It expired in 2004.


payments by some farm groups.These groups have argued that a sub-stantial proportion of all direct pay-ments accrue to ‘absentee’ land own-ers who are not involved in farming.Second, such payments drive up landvalues and land rents. Finally, becausedirect payments are not linked toproduction–the very characteristicthat makes them tenable under cur-rent WTO rules–many legislatorsand the general public could perceivethem to be analogous to welfarechecks. This perspective, some farmgroups suggest, could make directpayments vulnerable to Congres-sional reduction in periods of fiscalconstraint.

Other Free Trade AgreementsWhile the Bush Administration hasundertaken the negotiation of 11 freetrade agreements (FTAs)–six in forceand five still underway–no FTA hasdirectly obligated the U.S. Govern-ment to make changes in domesticfarm programs. In fact, U.S. tradenegotiators have steadfastly resistedsuch commitments, reserving domes-tic policy issues for multilateral nego-tiations within the WTO. However,providing increases in market accessfor FTA partners for products thatare protected by the use of tariff-ratequotas incrementally reduces theeffectiveness of U.S. price supportprograms for commodities such assugar and dairy. These indirect effectsled the U.S. sugar industry to unsuc-cessfully oppose the Central Ameri-can FTA in 2005, fearing a long-termdegradation in their support system ifmore market access is provided infuture FTAs.

ConclusionsThe 2007 Farm Bill will be devel-oped in a very different political envi-ronment than the 2002 Farm Bill. In

2002, Congress and the Administra-tion were enjoying the flexibility inpolicy making provided by substan-tial federal budget surpluses. The2007 Farm Bill will be developed inthe context of official federal budgetdeficits on the order of $300 billionper year, or about 2% of currentGross Domestic Product. Past budgetproposals indicate the Administra-tion is willing to support some reduc-tion in funding for agricultural com-modity programs; this perspectiveresonates with many members ofCongress.

Federal budgetary constraints arealso being reinforced by some recentdevelopments with respect to theobligations of the United Statesunder its WTO commitments. Spe-cifically, the recent WTO DisputeResolution determination in the Bra-zil cotton case, that several elementsof U.S. cotton programs violate U.S.commitments under the 1994 Uru-guay Round Agreement, raises simi-lar questions about U.S. programs forother commodities such as corn, oil-seeds, and wheat. Price supports andthe level of funding for subsidiesderived from marketing loan pro-grams and CCPs have all beenbrought into question. The Brazilcase findings have even raised ques-tions about the validity of direct pay-ments to producers of program com-modities under the WTO. The U.S.responses to the Brazil Cotton Casefindings, including actions alreadytaken and those that may yet occur,and the U.S. WTO proposal in 2005to cut amber box payments by 60%,reflect both the domestic budgetaryand WTO-related pressures forchanges in the structure and fundingof farm programs.

Other pressures may also comeinto play. Domestic agricultural com-modity groups may resist changes inthe funding and structure of farm

programs that adversely affect farmincomes, farm household wealth, andfarmland values. Changes in farmprograms that fail to largely maintainthe benefits currently accruing to theagricultural sector would be resistedby most farm groups. Within theagricultural sector, however, abroader array of interest groups islikely to be involved in the policyprocess because livestock producersand growers of fruits and vegetablesnow have a more direct stake in arange of federal programs, includingconservation, crop insurance, tradepromotion, and agricultural research.Environmental and wildlife groupswill also seek to maintain and expandconservation programs that improveenvironmental amenities in ruralareas. In the face of recent spikes inenergy prices, a wide range of groupsseeking to reduce reliance onimported petroleum may seek addi-tional incentives or research fundingfor processing agricultural commodi-ties or new dedicated energy cropsinto biofuels.

This mix of budgetary concerns,political commitments under theWTO, and the broadening of issuesto be encompassed in agriculturalpolicy raise an intriguing possibility.While funding for agricultural com-modity programs is almost certainlynot going to be expanded and mostlikely will be somewhat reduced, thepotential for substantial changes inthe structure of U.S. farm programsgenuinely exists. Major changescould be made to the marketing assis-tance loan programs and other pro-grams that are linked to domesticproduction. However, farm statemembers of Congress will be reluc-tant to approve substantial reduc-tions in funding for programs thatsupport farm incomes. Therefore,major reductions in existing pro-grams are likely to be offset by expan-


sions of other existing programs orintroduction of new programs thatfall into the WTO green box cate-gory of agricultural support pro-grams. The results of all of these fac-tors, some of them with pressuresmoving in opposite directions, couldmake for a very lively 2007 Farm Billdebate.

For Further Information:Just, R., & Miranowski, J. (1993).

Understanding farmland price

changes. American Journal of Agricultural Economics, 75, 156-68.

Westcott, P., Young, C.E., & Price, J.M. (2002). The 2002 Farm Act: Provisions and implications for commodity markets. Economic Research Service, U.S. Dept. of Agriculture, Agricultural Information Bulletin No. 778, Washington, D.C.

Stephanie Mercier (Stephanie_ [email protected]) is ChiefEconomist, Democratic Staff of theSenate Committee on Agriculture,Nutrition, and Forestry, Washing-ton, DC. Vince Smith([email protected]) is Professor,Dept. of Agricultural Economics andEconomics, Montana State Univer-sity. Bozeman, MT. Seniority isshared equally between authors.




4th Quarter 2006 • 21(4)


What Happens if You Try to Run Current Farm Programs on a Tighter Budget?by Pat Westhoff and Scott Brown

JEL Classification: Q11, Q18

Congress gave the committees writing the 2002 FarmBill permission to increase farm program spending by bil-lions of dollars per year. The committees writing the nextfarm bill are unlikely to have the same luxury.

Since the beginning of the 2002 Farm Bill debate, thefederal budget has gone from surplus to deficit. In early2006, Congress passed a deficit reduction bill that reducedestimated U.S. Department of Agriculture spending by$2.7 billion over the next five years. Unless the budget pic-ture significantly improves, Congress could face pressureto make further cuts in spending on farm and other pro-grams.

Trade agreements are also a factor in writing futurefarm legislation. Under existing World Trade Organization(WTO) rules, Brazil successfully challenged particularaspects of U.S. cotton programs. In the Doha Round ofWTO negotiations, there was general agreement that cer-tain types of producer support should face tighter limits.Those talks were suspended in 2006, in part because of adispute over just how tight the limits on domestic supportshould be.

Current Farm Programs with Less MoneyBudgetary and WTO considerations are certain to beimportant in the next farm bill debate, but it is too early topredict the precise shape of new legislation. Congresscould examine a wide variety of options, including someradical departures from current programs. The one optionCongress seems almost certain to consider is a simpleextension of current farm programs, perhaps with minorchanges required to address budgetary or WTO concerns.

What might such a “status quo minus” approach meanfor U.S. agriculture? We examine three policy options toreduce government farm program spending:

1. a 22.2% reduction in direct payments (DPs), 2. a 47.1% reduction in countercyclical payments

(CCPs), and 3. a 38.0% reduction in marketing loan benefits

(MLBs—loan deficiency payments and marketingloan gains.

Assuming that changes are implemented effective with thecrop harvested in 2008, we estimate that each of theseoptions would reduce government farm program spendingby a total of $5 billion over fiscal years 2008-2012.

Baselines and Analysis ApproachThe point of comparison for the analysis is the 10-yearstochastic baseline prepared by the Food and AgriculturalPolicy Research Institute (FAPRI) based on informationavailable in January 2006 (FAPRI, 2006a). The stochasticbaseline is a set of 500 possible outcomes for U.S. agricul-tural commodity markets. These outcomes share the com-mon assumption that current farm policies remain inplace, but make different assumptions about the weatherand other factors affecting supply and demand.

DPs are fixed and total $5.3 billion per year. In con-trast, CCPs and MLBs depend on market prices—thelower the market price, the greater the payments. Based onFarm Service Agency reports, FAPRI estimates that annualCCPs averaged $2.9 billion, and MLBs averaged $3.5 bil-lion over the 2002-2005 period.

The stochastic baseline projects modest increases inprices for most major crops that reduce average spendingon CCPs and MLBs. For example, average corn prices inthe stochastic baseline rise from less than $2.00 per bushelin the 2005/06 marketing year to over $2.40 per bushel by2010/11. Across the 500 baseline outcomes for the 2008-2012 crop years, baseline CCPs average $2.7 billion per


year, and MLBs average $2.5 billionper year. In many of the stochasticoutcomes, prices are high enoughthat there are no MLBs or CCPs; inother outcomes, low prices result invery large payments.

Some suggest that rapid growthin production of ethanol is likely toresult in strong growth in prices forcorn and other commodities. Ashort-term baseline update, preparedin July 2006 (FAPRI 2006b), pro-jected higher prices than in the sto-chastic baseline used for this analysis.All else equal, higher average marketprices would reduce estimated CCPsand MLBs—and would suggest thatlarger proportional cuts would berequired to achieve a certain level ofbudgetary savings relative to the base-line.

One way to achieve the assumedreductions in payments would be tomake appropriate adjustments to tar-get prices, loan rates, and direct pay-ment rates. Instead, this analysisassumes that those measures remainunchanged at 2002 Farm Bill levels,but that USDA would be instructedto withhold a proportion of eachpayment otherwise due to produc-ers. This approach could raise imple-mentation issues ignored in the anal-ysis. For example, producers couldchoose to forfeit on commodity loansif marketing loan benefits are insuffi-cient to compensate producers formarket prices below the loan rate.

Government Spending by CommodityBy design, each of the three optionswould reduce average governmentfarm program spending by $5 billionover a five-year period (fiscal years2008-2012). In each scenario, theproportional cut in a particular typeof payment is the same across allcommodities. As shown in Table 1,

however, the impacts on governmentspending on each commodity differgreatly across the options.

In the case of direct payments,the results are fairly simple. Cornaccounts for approximately 40% oftotal direct payments in the baseline.Reducing direct payments has onlyvery limited effects on market prices,countercyclical payments, and mar-keting loan benefits. Corn, there-fore, accounts for about 40% of theoverall estimated savings, or about $2billion over the five-year period.Wheat cost savings exceed $1 billionover the same period, with soybeans,rice, cotton, and all the other pro-gram crops sharing the remaining $2billion in cuts.

The picture is more complicatedin the scenarios that cut countercycli-cal payments and marketing loanbenefits. First, the baseline level ofspending on each commodity is sen-sitive to market price projections.Second, changes in CCPs and MLBshave larger effects on commodityproduction and prices than changesin DPs. For example, if reducedMLBs result in acreage shifting out ofcotton and into wheat, the resultingchanges in prices will affect MLBsand CCPs for both commodities.

The three scenarios have very dif-ferent impacts on spending for par-

ticular commodities. Consistent withdifferences in baseline spending,wheat outlays are far more sensitiveto proportional cuts in DPs than tothe corresponding reductions inCCPs and MLBs. Cotton spending isparticularly affected by cuts in CCPs,and soybean spending is mostaffected by changes in MLBs. Forboth corn and rice, proportional cutsin DPs have slightly larger averageimpacts than proportional cuts inother payments.

Producer ReturnsReducing government paymentsreduces estimated per-acre returns(Table 2). For corn, a 22.2% reduc-tion in DPs would reduce annualgovernment payments per base acreof corn by more than $5. Changes indirect payments have only minimaleffects on corn production andprices, so the market value of cornproduction, CCPs, and MLBs are alllargely unaffected. For a producerwith one acre of corn base for everyacre of corn harvested, annual per-acre income would be reduced by alittle over $5 per acre.

Limiting CCPs and MLBs wouldhave no effect on payments if pricesare high, but could have very largeimpacts if prices are low. If CCPs are

Table 1. Impacts on government outlay.

Cut Direct Payments

Cut Counter-Cyclical Payments

Cut Marketing Loan Benefits

(billion dollars, 2008-2012 total)

Corn -2.00 -1.68 -1.24

Wheat -1.08 -0.44 -0.11

Soybeans -0.58 -0.36 -1.38

Upland cotton -0.58 -1.92 -1.40

Rice -0.40 -0.22 -0.37

All other -0.36 -0.38 -0.52

Total outlays -5.00 -5.00 -5.00


reduced by 47.1%, annual cornCCPs are reduced by approximately$5 per corn base acre, averagingacross the 500 stochastic outcomes.The reduction in CCPs would causea slight reduction in corn productionand increase in corn prices, and thesechanges would result in a very slightincrease in the value of corn produc-tion and an even smaller reduction inloan program benefits. The net effectof these changes is to leave averagecorn producer returns down relativeto the baseline by slightly under $5per harvested base acre.

Reducing MLBs by 38.0%reduces corn MLBs and has modesteffects on the market value of cornproduction and CCPs. Overall, corn

producer returns decline relative tothe baseline by a little over $3 perharvested base acre. Note that theseproducer return estimates for cornare consistent with the estimates ofgovernment spending—reducingDPs has the largest effect on cornproducers, followed closely by reduc-tions in CCPs, with reductions inMLBs having the smallest effects.

The patterns for other crops arealso consistent with the governmentexpenditure results. For soybeans,restrictions on MLBs have the largestnet effects on producer income,while limitations on DPs are of great-est importance to wheat producerincome, and reductions in CCPshave the largest impacts on cotton

producer income. In all cases,changes in the market value of pro-duction are small relative to thechanges in government payments.

An important note of caution isin order: for sake of simplicity, thereported calculations of per-acrereturns assume producers have onebase acre of the commodity in ques-tion for every acre they harvest. Thisis not the norm. For the country as awhole, base acreage for wheat, corn,and upland cotton exceeds harvestedarea, while the reverse is true for soy-beans. On particular farms, theremay be little or no correlationbetween the current crop mix and thebase acreage used to determine DPsand CCPs.

Market ImpactsReducing government payments hasimportant impacts on producerincome, but has only modest impactson crop production and prices (Table3). Market effects are especially smallwhen DPs are reduced. DPs do notrequire production of any particularcrop, or even of any crop at all, andthe payments are unaffected bychanges in market prices. One minorrestriction is that DPs are not avail-able if base acreage is used to producefruits, vegetables, or dry beans. Econ-omists differ in their estimates of justhow much such largely “decoupled”payments affect production choices,but most would agree that any pro-duction effects of such payments arelikely to be smaller, on a dollar-for-dollar basis, than effects of paymentsthat are more closely tied to produc-tion or prices.

Reducing CCPs has only slightlylarger impacts on production andprices. Like DPs, CCPs are not tiedto production of particular crops oreven of any crop at all. However,CCPs are affected by changes in mar-

Table 2. Impacts on producer returns.

Cut Direct Payments

Cut Counter-cyclical Payments


(dollars/acre, 2008-2012 average)

Corn

Market value 0.18 0.39 0.17

Payments -5.49 -5.05 -3.59

Sum -5.31 -4.66 -3.41

Soybeans


Payments -2.63 -1.96 -4.74

Sum -2.48 -1.95 -4.32

Wheat

Market value 0.13 0.14 -0.12

Payments -3.42 -1.35 -0.46

Sum -3.29 -1.22 -0.58

Upland cotton


Payments -7.65 -30.29 -20.61

Sum -7.58 -28.51 -16.81

Notes: Market value and loan benefits are reported per harvested acre. Direct and countercyclical pay-ments are reported per base acre. Total payments and the sum of payments and market value are reported per harvested base acre. For individual producers and the country as a whole, base area and har-vested area differ significantly.


ket prices—within certain ranges,lower season-average prices translateinto larger CCPs. As a result, CCPsmay play a price insurance role notplayed by DPs, and thus might beexpected to have slightly largerimpacts on production. Only in thecase of cotton (the crop most depen-dent on CCPs) does estimated acre-age change as much as 1% whenCCPs are reduced by 47.1%.

MLBs, in contrast, are only avail-able on actual production. Becauseproducers have to harvest the crop toget MLBs, it seems reasonable toexpect that changes in MLBs wouldhave larger impacts on crop produc-tion patterns than changes in DPs orCCPs. When MLBs are reduced,estimated acreage declines for cropsmost dependent on MLBs in thebaseline—cotton and soybeans—butactually increases slightly for wheat,the major crop least dependent onMLBs in the baseline. Note that eventhough cotton producers are moredependent on CCPs than MLBs,estimated effects of reductions inMLBs on cotton acreage are largerthan the estimated effects of reduc-tions in CCPs.

Even in the case of reducedMLBs, the main effect of reducedpayments is to encourage producersto shift production from one crop toanother, rather than to reduce theoverall amount of land used for cropproduction. Total acreage devoted toproduction of 12 major crops onlydeclines by a little over 0.1% whenMLBs are reduced by 38.0%.

Net Farm IncomePolicy changes that reduce govern-ment spending by $5.0 billion overfiscal years 2008-2012 are estimatedto reduce net farm income by $3.3billion to $3.9 billion over calendaryears 2008-2012 (Table 4).

As discussed, the three options toreduce government spending haveonly small impacts on crop produc-tion and prices, so it should not besurprising that crop and livestockreceipts are largely unaffected. Whatmay be surprising is that the reportedchanges in government payments sig-nificantly exceed the $5 billionchange in government outlays. Thisoccurs primarily because of differ-ences between the fiscal years used tomeasure farm program spending andthe calendar years used to report netfarm income. Payments madebetween October 1 and December31, 2012 would affect net farmincome for calendar years 2008-2012, but not farm program spend-ing for fiscal years 2008-2012, aperiod which ends on September 30,

2012. This seemingly arcane pointmay be more important than itseems, as budgetary rules requireCongress to stay within spendinglimits over a specified period of fiscalyears, not calendar years.

Reductions in payments do nothave a dollar-for-dollar effect on netfarm income. Smaller governmentpayments reduce the value to produc-ers of rented farmland, so over timeone would expect rental payments tononoperator landlords to adjust. Inother words, at least part of theimpact of lower government pay-ments is absorbed by landlords.Other production expenses alsodecline in response to lower pay-ments.

Table 3. Impacts on acreage and prices.

Cut Direct Payments



(2008-2012 average)

Corn

Acreage -0.01% -0.07% -0.02%

Prices 0.05% 0.11% 0.05%

Soybeans

Acreage -0.03% 0.04% -0.08%

Prices 0.06% 0.00% 0.18%

Wheat

Acreage -0.13% -0.10% 0.27%

Prices 0.08% 0.09% -0.08%

Upland cotton

Acreage -0.04% -1.00% -2.18%

Prices 0.01% 0.38% 0.82%

12 crops*

Acreage -0.06% -0.11% -0.12%

*Corn, soybeans, wheat, upland cotton, rice, sorghum, barley, oats, sunflowers, peanuts, sugar beets, and sugarcane.


WTO ConsiderationsWTO considerations could also haveimportant impacts on the design ofnew farm legislation. In response to aWTO ruling on a case brought byBrazil, the United States has alreadyeliminated a program subsidizing theuse of U.S. cotton and modified itsexport credit program. Brazil hasargued that further changes in otherU.S. farm programs are also requiredby existing WTO rules.

Before negotiations for a newWTO agreement were suspended,the United States tabled a proposal inOctober 2005 that would place lim-its on certain types of producer sup-port programs. The U.S. proposalwould have reduced the allowed levelof “amber box” support from $19.1billion per year to $7.6 billion peryear. Based on past U.S. reports tothe WTO and discussions with U.S.officials, we assume that U.S. amberbox support would include govern-ment spending on the marketingloan program for grains, oilseed, andcotton, as well as the imputed valueto producers of the dairy and sugar

price support programs (these valuesare set by a formula tied to currentsupport prices and past world prices,and generally far exceed actual bud-getary expenditures on the dairy andsugar programs).

Whether the United States wouldhave to make changes in farm pro-grams to comply with its proposedlimits on amber support is a matterof contention. If market prices arehigh, marketing loan expendituresare low, and it is conceivable thattotal U.S. amber box support couldfall below the proposed limit with nochanges in current policies. However,low prices could translate into largemarketing loan benefits that wouldcause measured levels of U.S. amberbox support to balloon.

In 53% of the stochastic out-comes for 2012, the baseline level ofU.S. amber box support wouldexceed the proposed $7.6 billionlimit. Reducing DPs or CCPs wouldhave only minimal impacts on thisproportion. Reducing marketingloan benefits by 38%, however,would reduce the proportion of out-

comes exceeding the U.S.-proposedlimit to 37%. One reason the pro-portion does not decline even moresharply is that imputed support fromthe dairy and sugar programs makesup a very large share (approximately$6.4 billion) of the total, and theassumed policy changes would haveno effect on that estimate.

The U.S. proposal would alsoredefine “blue box” support toinclude CCPs, and limit such sup-port to $4.8 billion per year. In 11%of the baseline stochastic outcomesfor 2012, CCPs would exceed thisproposed limit. Reducing DPs orMLBs would have little or no impacton this proportion, but reducingCCPs by 47.1% would eliminate anypossibility of exceeding the proposedcap on blue box support.

If the U.S. proposal wereadopted, there could be pressure toplace limits on MLBs and CCPs andto make changes in the sugar anddairy price support programs. Onepractical question could be how onegoes about deciding what probabilityof exceeding support limits is accept-able? If policies would result in sup-port exceeding proposed limits 37%(or 20% or 10% or 5%) of the timegiven normal variation in marketprices, is that sufficient, or are furtherreductions in support levels neces-sary?

Other countries have soughtdeeper cuts in U.S. supports than inthe October 2005 U.S. proposal. Ifthe negotiations resume, there islikely to be continued pressure on theUnited States to put in place strictlimits on producer support measures.MLBs and CCPs are especially likelyto be under close scrutiny, and evenin the case of DPs, some policychanges may be needed to ensurethat payments qualify for the “greenbox” designation that would makethem exempt from limits.

Table 4. Impacts on net farm income.

Cut Direct Payments



(billion dollars, 2008-2012 totals)

Crop receipts 0.04 -0.06 -0.19

Livestock receipts 0.02 0.03 0.07

Gov't payments -5.33 -5.68 -5.11

Sum of above -5.27 -5.70 -5.24

Rental payments -1.44 -1.42 -1.29

Other expenses -0.36 -0.58 -0.90

Total expenses -1.80 -2.00 -2.19

All other net income -0.17 -0.16 -0.23

Net farm income -3.64 -3.86 -3.27


Other ScenariosThe discussion here has focused onsimple modifications to current farmprograms. The last two farm billshave made significant shifts in policy,and it is very possible that the nextfarm bill may also result in a changein direction.

WTO concerns may encourage atleast some consideration of alterna-tive policy directions. The variabilityin spending on marketing loan andCCP programs complicates efforts tostay within the types of limits onamber and blue box subsidies thathave been proposed. Our results sug-gest, for example, that with a scaled-back version of current policies, theaverage level of support provided toproducers would have to be wellbelow the proposed limits in order tomake sure that the limits are notexceeded when prices are lower thananticipated. Likewise, some mightexamine the sugar and dairy pro-grams to see if there might be a wayto provide a similar level of supportto producers without such a large

charge in terms of amber box supportmeasures.

Purely domestic concerns couldalso encourage examination of otherpolicy options. For example, somehave suggested examining policiesthat make payments tied to producerrevenue shortfalls rather than to mar-ket prices. Other groups importantin the farm bill debate—rangingfrom environmental groups to bio-fuel advocates to budget hawks—arealso likely to recommend other pol-icy options. While many options willbe considered, current programs arelikely to serve as a benchmark, andbudgetary and WTO concerns arelikely to receive considerable atten-tion in choosing among the alterna-tives.

For More InformationFood and Agricultural Policy

Research Institute (FAPRI). (2006a). FAPRI 2006 U.S. Baseline Briefing Book (FAPRI-UMC Report #01-06). Columbia, MO: University of

Missouri Food and Agricultural Policy Research Institute. Available online: http://www.fapri.missouri.edu/outreach/publications/2006/FAPRI_UMC_Report_1_06.pdf

Food and Agricultural Policy Research Institute (FAPRI). (2006b). FAPRI July 2006 Baseline Update for U.S. Agricultural Markets (FAPRI-UMC Report #12-06). Columbia, MO: University of Missouri Food and Agricultural Policy Research Institute. Available online: http://www.fapri.missouri.edu/outreach/publications/2006/FAPRI_UMC_Report_12_06.pdf.

Pat Westhoff ([email protected]) is Research Associate Pro-fessor and Scott Brown([email protected]) is ResearchAssistant Professor, Department ofAgricultural Economics, University ofMissouri, Columbia, MO.

http://www.fapri.missouri.edu/outreach/publications/2006/FAPRI_UMC_Report_12_06.pdf

http://www.fapri.missouri.edu/outreach/publications/2006/FAPRI_UMC_Report_12_06.pdf

mailto:westhoffp@missouri.

mailto:[email protected]




4th Quarter 2006 • 21(4)


The Evolution of the Rationale for Government Involvement in Agricultureby Otto Doering and Joe L. Outlaw

JEL Classification Codes: Q18, Q10

Before change can be introduced successfully, we have toknow why we are where we are today. This is as true of pol-icy as it is of individual behavior. There are a number ofsuggestions for substantial change in our agricultural pol-icy. Few address up front the issue of whether governmentshould be involved in agriculture. Thinking about the evo-lution of today’s policy may encourage us to dig a littledeeper into our objectives for agricultural policy and askwhether we are attempting to reach these most effectively.

BackgroundThe Jeffersonian notion of agricultural fundamentalismwas more a rationale for a kind of democratic societyrather than a rationale for government involvement inagriculture. This prescribed the maintenance of a popula-tion of yeoman farmers who would be the backbone ofdemocracy as small, independent-propertied individuals.The Louisiana Purchase extended the opportunity for theexpansion (geographically and in numbers) of this citi-zenry, while shutting out the British and the Spanish. Gov-ernment’s involvement in agriculture for the first hundredyears was largely land policy (Northwest Territories Actand Lewis & Clark expedition, for example) to create aproperty survey and rights system and settle the centralexpanse of the country and the land west of the Missis-sippi. The creation of the extensive public domainthrough expansion also involved moving these lands intoprivate hands through veterans’ programs and homesteadacts.

Government also helped create infrastructure – themost notable early example being the Erie Canal, whichopened up the middle of the country to export markets inEurope and set the future for New York as the commercialcenter of the nation. Agricultural interests agitated for

public infrastructure that would ease the transport ofgoods to market. Later came support for railroads, andultimately the regulation of rail rates to prevent monopolycharges for transport of agricultural inputs and commodi-ties.

In the 1860s, the Department of Agriculture wasestablished and both the Homestead Act and the MorrillAct were passed. All three were critical to the developmentof agriculture and all three brought benefits to the farmer,providing resources and infrastructure, but not proscribingproduction. The rationale for these actions was one ofhelping agriculture prosper and with it the economicdevelopment of the country. Monetary policy and tradealso became key issues for agriculture.

One early major role of the Department of Agriculturehad been seed distribution. However, under Secretary ofAgriculture, Wilson (in the early 1900s), the Departmentbecame a scientific establishment capable of leading agri-cultural research. The early 1900s were a golden age foragriculture. From the Civil War, agriculture had sufferedthrough both the nation’s business cycles and the extensionof agricultural lands and production that constantly drovedown prices. In the early 1900s, the frontier closed andindustrialization and immigrant population growth surgedand increased net demand for agricultural commodities. Itis no accident that farmers chose 1909 to 1914 as the basefor parity.

Yet, rural agriculture was still disadvantaged relative tourban industry. Teddy Roosevelt’s Country Life Commis-sion (1908) looked into the deficiencies of agriculture andcountry life and the means by which they might be reme-died. From this report came rural free mail delivery, theSmith Lever Act and the state experiment stations, andimprovements in rural health and education. Whatever


the rationale, the tradition of govern-ment involvement in agriculture wasstill indirect, helping stimulate settle-ment, defining boundaries and prop-erty rights, building transportationand infrastructure, and improvingcommunications, technology, andeducation. It was not until the greatagricultural collapse after the FirstWorld War that government, with arationale born of prolonged depres-sion, began to enter directly intoagricultural markets, production, andthe livelihood of farmers.

Agricultural prices broke aroundthe world in the summer of 1920.This was a quick end to the bubble ofland prices and input costs that hadbeen occurring since the First WorldWar. A national agricultural confer-ence assembled in 1923 that calledfor economic equality for agriculture(a fair share of the national income)and adjustment of farm productionto demand. From 1923 on, farmgroups lobbied for governmentaction to relieve rural distress. TheMcNary-Haugen Bill became thecentral vehicle for a policy to helpagriculture. This policy would allo-cate a reduced portion of the crop todomestic demand and raise domesticprices, while the “surplus” would goto the export market. Now govern-ment is seen in a price and supplydetermining role. The AgriculturalMarketing Act of 1929 put the gov-ernment in the role of influencingmarkets with a Federal Farm Boardadministering a revolving fund of500 million dollars to loan to cooper-atives to store and withhold com-modities. This proved to be futile(Benedict, 1953).

By 1933, the exchange value offarm products to industrial goodswas 50% of the pre-war average(Davis, 1940, p. 313). The casheconomy in rural areas had ground toa halt. When the Roosevelt Adminis-

tration came to Washington, therewas fear that there would be revolu-tion in the countryside if somethingwere not done.

The New Deal prescribed a newrole for government involving directintervention into markets and indi-vidual production decisions by farm-ers. Much of the discussion of theperiod was about raising rural stan-dards of living to be more compara-ble to urban standards. This was dif-ferent from the earlier concept ofpurchasing parity based on the 1909-1914 relative industrial and agricul-tural costs and prices.

Chester Davis, in the 1940 Agri-cultural Yearbook, set forth a broadview of the range of governmentactions that affected agriculture incontrast to the narrow view that onlyFarm Bills affected the sector

“A nation’s agricultural pol-icy is not set forth in a singlelaw, or even in a system oflaws dealing directly withcurrent farm problems. It isexpressed in a complexity oflaws and attitudes which, inthe importance of theirinfluence on agriculture,shade off from direct mea-sures like the AgriculturalAdjustment Act through thealmost infinite fields of taxa-tion, tariffs, internationaltrade, and labor, money,credit, and banking policy”(Davis, p. 325).

Today we can add environmentalpolicy, food safety, and more. Thesethings now set the larger environ-ment for agriculture, and like PaulVolker’s decision to stop inflation inthe early 1980s, can be the overridinggovernment influence on the sector.

Where does this leave us? Thebroadening of interests and policyimpacts works both ways. Policiesthat are not thought of as agricultural

can have a determining impact onagriculture. In addition, what arethought of as agricultural policies(the “Farm Bill”) can exert stronginfluence on areas beyond the narrowscope of agriculture. As such, thesebroad aspects become part of the fab-ric of what happens in agricultureand beyond.

Reviewing the LegislationA review of the preambles to 14major pieces of agricultural legisla-tion from 1933 to 2002 (generallythose we now refer to as Farm Bills)provides another characterization ofthe evolution of the rationale for gov-ernment involvement agriculture.These broadly defined categories ofgoals – both explicitly stated and/orimplicitly implied reflecting pro-grammatic intent as determined bythe authors – are portrayed in Figure1. Generally, the goals (as indicatedin Figure 1) are the perceived prob-lems that the programs provided forin the legislation attempted to allevi-ate. A few broad conclusions can bemade from reviewing the goals. First,many of the goals have been consis-tently addressed over time. Second,there have been very few recentchanges in direction other than mak-ing agricultural programs moreresponsive to market forces and pro-moting agriculture as an alternativesource of energy.

Asking Questions about the RationaleThere has only been one attempt inrecent decades to determine somenational rationale for agriculturalpolicy. In 1994, the staff of the Sen-ate Committee on Agriculture,Nutrition and Forestry prepared forSenator Richard Lugar a set of ques-tions on prospective farm policy thatwere circulated around the country


(Schertz & Doering, 1999). Ques-tions were asked about commodity,conservation, export, nutrition, andrural development programs. A sum-mary of these indicates that theattempt was made to ask the ques-tion, why do we have the farm policywe do? (i.e., what is the rationale, andare the programs effective in terms ofwhat they purport to do?) Theanswers the committee received rela-tive to the request were very broadand at least to some degree reflectiveof the conditions in agriculture at thetime. The answers would certainlyhave been much different if the ques-tion had been asked at the height ofthe record prices in 1995 or at thevery low prices realized less than twoyears later.

The Broad Response to Rationale for Involvement in AgricultureIf one were asked 20 years ago, whatis the rationale for U.S. Governmentinvolvement in agriculture, aresponse might have been to increasefarm incomes to the levels of urbanincomes. Admitting the complicationof off-farm income, this objective hasbeen achieved. In addition, “farmers”

have more accumulated wealth thantheir urban cousins, usually in theform of land.

Another response might be a stra-tegic one, i.e., that the nation needsto be self- sufficient in food. Withoutgovernment involvement, wouldthere still be an abundant food sup-ply, would agricultural exports drop,and would less acres be cultivated?Few seem to be concerned that notenough food would be grown fordomestic consumption. However,government involvement of somesort might be justified if food self-sufficiency were a national concern(in spite of the fact we wish othercountries to do otherwise so we canincrease our exports to them).

There is a strong rationale forgovernment involvement in agricul-ture to reduce risk from naturalcauses – drought and flood. Weaccomplish this partially throughsubsidized crop insurance and par-tially through ad hoc disaster pay-ments. There is a rationale forinvolvement and we are doing it,though probably less cost effectivelythan we might.

One broad rationale for govern-ment involvement under the “reduc-

ing risk” heading is the desire to havea stable industry over time. Invest-ments in machinery, buildings, andhuman capital are relatively large inU.S. agriculture. It would be costly tothe sector and to the public, throughhigher food prices, if there werecycles of capitalization and de-capi-talization of these assets over time.This is different from decreases inland values, which the producer (orlandowner) bears directly (decreaseswhich farm groups fight to prevent).The banking community also has alarge stake in this rationale, especiallyduring times when loans have beenbased on asset values rather than onthe ability to repay, as in the farmfinancial crisis of the late 1980s.

Price stability is another leg of the“reducing risk” rationale. Traditionalfarm programs after the 1930s used a“price stability” rationale to boostfarm incomes by setting loan ratesand later target prices above long-term average prices (contrary to Wal-lace’s “ever-normal granary” con-cept). Fred Waugh’s concern with theuse of price stability as a vehicle forincreasing farm incomes and theensuing treasury exposure led him towrite an article attempting to show

Figure 1. Agricultural policy goals: 1933-present.Sources: Flinchbaugh and Knutson (2004); The National Agricultural Law Center (2007).


that price stability was not alwaysbest for the consumer (Waugh,1994). The protection from risk,whether through price supports,direct payments, or insurance, fornatural disasters involves a number ofrationales for government involve-ment depending upon where one’sinterests are – helping beginningfarmers, ensuring an inexpensivefood supply, keeping farmers on theland, etc. Most have some credenceas being in the national interest.

In some ways, agricultural policyand the rationale for it is becomingmore closely tied to conservation ofthe land and the sustainability ofagriculture than ever before. Whileconservation during the dust bowlsof the 1930s was a rationale thatcould stand alone, it also became thevehicle for moving cash into ruralareas to meet income needs throughpayments to farmers for adoptingconserving practices and setting landaside. Today, conservation is a strongindependent rationale for agriculturalpolicy. The 1985 Farm Bill’s crosscompliance provision was to enforcebasic national conservation stan-dards on those farmers wishing toobtain the risk and income protec-tion of commodity programs. Thecompliance standards have beenreduced and enforcement has provedunpopular so this device has lessimpact. However, we see that thenewer programs for conservation onworking lands, EQIP, CSP, etc.,reflect a public concern that conser-vation be a primary rationale for gov-ernment involvement in agriculture.Programs like the ConservationReserve Program have brought newsupportive constituencies to agricul-tural conservation – in this casesportsmen and others interested inwildlife habitat, as well as improvedwater quality.

Nutrition programs are out of theinner circle of what is consideredessential to government’s involve-ment in agriculture. If these pro-grams are to remain within theDepartment of Agriculture, they mayhave to become more closely linkedto the traditional agricultural pro-grams – if for no other reason thantheir political importance to theseprograms. The photos in most Con-gressional offices show the Congress-man involved in the school lunchprogram, not in production agricul-ture. Food safety is in the same polit-ical situation. While nutrition andfood safety largely stand on theirown, other efforts, like exportenhancement and trade liberaliza-tion, are intended to increase and/orstabilize the incomes of farmers.

While rural development andthings like the FMHA programsremain part of government’s involve-ment, they have not been of majorimportance since the Great Society.Given the current availability ofcredit from a variety of sources, thereis less argument that a governmentcredit role is as essential as it was inthe 1930s. For example, Farmer Machas not played the role that was envi-sioned for it and does not appear tobe a least cost way to provide a func-tion that may not be essential forgovernment today.

ConclusionThe rationale for governmentinvolvement in agriculture hasevolved from indirect involvement inthe early years of the United Statesand income parity and the creditavailability of the 1930s. Currently,the central remaining issues are riskreduction and the public’s willingnessto continue to provide income trans-fers and other assistance to this sectorbased on its strategic importance or

uniqueness. Senator Lugar’s ques-tions focused on whether govern-ment needed to continue to beinvolved, and what the most costeffective way to be involved would beif that is required. Few today ask ifgovernment involvement is needed,what the rationale is for the involve-ment, and then what the best way isto provide support. This may changeas agriculture becomes viewed as aproducer of biofuels and other bio-products in competition with foodand at a potentially higher cost to theenvironment from more intensiveand/or extensive production.

For More InformationBenedict, M.R., (1953). Farm policies

of the United States, 1790-1950. New York: Twentieth Century Fund.

Davis, C.C. (1940). The development of agricultural policy since the end of the World War. Farmers in a Changing World; The Yearbook of Agriculture, 1940, p. 325. Washington: Government Printing Office.

Schertz, L., & Doering, O. (1999). The Making of the 1996 Farm Act, Appendix 1. Ames, IA: Iowa State University Press.

Waugh, F. (August 1944). Does the consumer benefit from price instability? The Quarterly Journal of Economics, 58, 602-614.

Otto Doering ([email protected])is Professor of Agricultural Econom-ics and Public Policy Specialist,Department of Ag Economics, Pur-due University, West Lafayette, IN.Joe Outlaw (joutlaw@tamu .edu) isProfessor, Extension Economist, andCo-Director of the Agriculture andFood Policy Center, Department ofAgricultural Economics, Texas A&MUniversity, College Station, TX.




4th Quarter 2006 • 21(4)


Theme Overview: Fresh Produce Marketing: Critical Trends and Issuesby Ramu Govindasamy and Suzanne Thornsbury, Guest Editors

Recent TrendsThe fresh produce market has experienced significantchange, driven in large part by increased consumerdemand and sophistication and corresponding adaptationsby streamlined supply chains. These changes are accompa-nied by consolidation of retailers, an expansion of productofferings and movement towards year-round supply,increases in imports, and shifts in marketing efforts.

Increasing Consumer DemandThe national per capita consumption of fresh fruits andvegetables has risen at an increasing rate, up a total of 15%between 1987 and 2000 (283 lbs. in 1987 to 326 lbs. in2000). Since 1987, the variety of fresh produce itemsoffered by retailers has doubled (173 items in 1987 to 345items in 1997) and branded items share of produce saleshas more than doubled (7% in 1987 to 19% in 1997).Fresh-cut and packaged salad sales have risen even moresubstantially (1% in 1987 to 15% in 1997). These growthtrends reflect increasing consumer demand for variety,quality, and convenience. There has also been an approxi-mate three-fold increase in the share of sales by producewholesalers to the foodservice channel over the same timeperiod (8% in 1987 to 21% in 1997), reflecting the rise infood dollars spent in the foodservice/restaurant sector(approaching half of U.S. consumers’ total food dollars).This rising proportion of foodservice/restaurant sales isanother reflection of consumer desire for convenience andvalue-added products.

Improved Cost Efficiencies and Streamlined Supply ChainIn 1997, $71 billion worth of fresh fruit and vegetableswere sold to U.S. consumers. The dollars moving throughspecialized produce wholesalers have increased signifi-cantly, but there has been a decline in the share of produce

wholesaler sales to food retailers (and an increase in theshare of foodservice) over the same time period. This is inresponse to the growing demand for specialized and value-added products in a market where traditional outlets,requiring large volumes and year-round supplies, arebeginning to bypass traditional wholesalers altogether andincrease volume of direct purchases.

Large supermarket retailers continue to strive for lowerlabor and capital costs, product differentiation, andimproved consumer services in order to remain profitablein an increasingly competitive environment. Mass mer-chandise and warehouse club stores are rapidly expandingand capturing a significant percentage of retail food sales.As a result, there has been a trend toward consolidation oflarge retailers and distributors to reduce costs and stream-

Articles in this Theme:Direct Marketing of Fresh Produce: Understanding

Consumer Purchasing Decisions . . . . . . . . . . . . . . . . . . . . 229

Ethnic Produce Marketing in the Mid-Atlantic States: Consumer Shopping Patterns and Willingness-to-Pay Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

Traceability: Formulation and Implementation of an Economic Efficient System in the Fruit and Vegetable Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243

Preventative Health Maintenance Information Brought to You by Your Local Fruit and Nut Producers . . . . . . . . . . . 249

Fresh Produce Intermediaries in Away-From-Home Food Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

A Marketing Systems Approach to Removing Distribution Barriers Confronting Small-Volume Fruit and Vegetable Growers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259


line and improve supply-chain man-agement practices. Innovations inprocurement and distribution of pro-duce, such as inventory mechaniza-tion, direct delivery by suppliers, useof specialty wholesalers, and fixedcontracts with suppliers, help toreduce costs and increase efficiencies.

Future NeedsAlthough there are certainly somelarge players that exist in producemarkets (i.e., Dole, Del Monte, etc.),many small firms remain active, par-ticularly in the fresh produce arena.Many small farmers exist in thisarena, struggling to profitably co-exist with their large-volume compet-itors. Profitability and, in turn, farmviability has been particularly chal-lenging to many growers competingin this era of supercenters and ware-house retailers, firms striving to cutcosts starting at the farm gate.

In the 21st century, success incommercial production and sales bysmall farmers and retail firms willlikely depend on their ability to focuson high-value, specialty crops tar-geted at specific niche markets. Smallfarmers and retailers of fresh producewill need to become adept at identi-fying such market niche opportuni-ties and successfully differentiatingtheir products. This will enable themto achieve market penetration andincrease share (without the substan-tial costs typically required to domi-nate the market), uniquely positiontheir products in the eyes of the con-sumer, optimize product mix, andestablish early brand loyalty (eitherby private labeling or early-to-marketefforts) to ensure their economic sur-vival.

The focus of this theme inChoices is on changes in fresh pro-duce marketing and small farm/firmresponse strategies in order to remain

competitive, profitable, and econom-ically viable in this changing market.The literature that follows includessix manuscripts which address rele-vant marketing issues (i.e., demand,regulatory/health, and distributionconcerns) and provide appropriateresponse strategies.

Consumer DemandBond et al. analyze results from a2006 national consumer survey thatcollected data on fresh produce pur-chasing habits, with a particularemphasis on those consumers whopurchase directly from producers.Direct marketing is integral to theprosperity of most small fruit andvegetable farms. In order to enhancethe profitability of these enterprises,it is important to understand the tar-geted consumers, the role of extrinsicand intrinsic attributes in purchasedecisions, and how willingness-to-pay may be affected. The focus ofthis paper is on consumer response tofresh produce marketing claims.Highlighted are consumers’ buyinghabits such as expenditures, shoppinglocales, frequency of purchases, prior-ities with respect to the productattributes, and response to variousmarketing claims about fresh pro-duce. Differences in consumerresponse and willingness to pay a pre-mium are analyzed with respect toquestions on product and processattributes including the importanceof color, taste, production location,production process (organic vs. con-ventional), and varying nutritionalproperties.

Govindasamy et al. examine thedemographics and marketing of eth-nic produce in the Mid-AtlanticStates. Continued land develop-ment, rising production costs, andincreased competition from low-costsuppliers from outside of the region

are creating new challenges for tradi-tional agriculture in the NortheastUnited States. Farmers in the areaoperate on a relatively small land basewith high production costs, makingit particularly difficult for viable pro-duction of crops, which require sub-stantial acreage in order to breakeven. This study was initiated to helpfarmers in this area to identify, size,and seize market niche opportunitiesfor agricultural crops that can belocally grown and was based on datacollection and results analysis froman ethnic consumer survey. This sur-vey included ethnic consumers ofthree different Asian ethnicities (Chi-nese, Indian, and Korean) in theMid-Atlantic States to understandtheir socio-demographic characteris-tics, shopping patterns, preferencesand related practices, and ethnic pro-duce purchases. Findings indicateincreased market profitability will beattained by helping retailers andgrowers exploit the comparativeadvantages associated with proximityto large, dense, high income popula-tion concentrations. The study docu-ments the available opportunities forMid-Atlantic farmers to grow ethniccrops from a market demand per-spective by: (1) assessing ethnic con-sumer shopping patterns, 2) analyz-ing consumer willingness-to-pay forethnic produce, and 3) suggestingproducts for potential local produc-tion.

Regulation and Health ConcernsFonsah examines economically effi-cient strategies of formulating andimplementing traceability regulationsin the fruit and vegetable industryutilizing empirical techniquesadopted worldwide by some Multi-national Fresh Fruit and VegetableCorporations. Traceability andCountry of Origin Labeling (COOL)


have been at the forefront of thoseregulations affecting the U.S. freshproduce supply chain and are twoareas where the wholesale sector isproviding increased services. Con-cerns about adoption of traceabilityregulations have centered on the costof implementation, which mayincrease the financial burden togrowers. Other studies have shownthat the cost of implementation isbased on the breath, depth, precision,objective of the system, and subse-quent advantage perceived by theimplementing firm. The specificobjectives of this paper are: (1) toprovide producers or horticulturalfarm firms with a practical standardoperation procedure (SOP) on howto set up traceability systems, and (2)to provide producers with an alterna-tive on how to economically and effi-ciently collect accurate traceabilityrecord-keeping data.

Carman documents the efforts ofsome firms to capture benefits fromtargeting sales to growing demandsfor the health benefits of specificfresh produce products. For example,there is a significant market segmentin the Unites States that is concernedwith following a diet that will reducethe incidence of two importantsources of mortality, cancer and heartdisease. Another segment focuses onthe relationship between diet andweight. Fruit, vegetable, and nut pro-ducers are attempting to “capture”these market segments by fundingresearch on the health attributes oftheir particular products and thendisseminating the results of thisfocused research through commod-

ity promotional programs. Thispaper illustrates such a strategy bydocumenting health research pro-grams conducted by four Californiacommodity organizations anddescribing the utilization of researchresults in demand expansion pro-grams.

Wholesale and DistributionThornsbury et al. examine the role offresh produce intermediaries in away-from-home food markets. This sectorof the supply chain is comprised ofbusiness operations which in generaldo not transform a specific freshproduct, but rather provide servicesrelated to the sale of this product. Incontrast to the food retail/grocerysector, many establishments in thefoodservice industry remain small-and medium-sized businesses, wherepurchasing is handled by local buyersor chefs. Still, chain restaurants havehigh volume requirements and needconsistency in products across timeand outlets. The dichotomy in sizeamong away-from-home food outletsprovides opportunities for a greaternumber of intermediaries to be activein the supply chain when comparedwith retail food sales. Results illus-trate that changes in fresh producedistribution and management havecreated new forms of commercialrelationships between suppliers andwholesalers. In some cases, thesechanges represent valuable opportu-nities for business, beyond thedemand for additional marketing ser-vices from suppliers.

Hall et al. compare produce mar-ket development activities in Geor-gia, Kentucky, North Carolina, andTennessee, where the prevalence ofsmall farms and growing seasons arecomparable across all four states. Partof the difficulty confronting smalleroperations relates to market access.Increasingly, fruit and vegetablegrowers with good entrepreneurialskills have established on-farm out-lets or created niche markets withlocal independent wholesalers orretailers. Small-volume growers tendto have limited marketing personneland post-harvest handling equip-ment, rely more on direct outlets,and sell to final retail consumers,whereas large-scale growers utilizevolume-oriented outlets that encom-pass more involved and specializedmarketing activities. Different stateshave pursued different types of mar-ket development to assist small grow-ers and have achieved differentdegrees of success. This article sum-marizes the results from a systematicanalysis of market development strat-egies in four states. Kentucky andTennessee have tended to rely onlocal initiatives, more independentsite selection, and smaller volumeoutlet activities, such as retail-onlyfarmers’ markets or only assembly/packing operations at specific sites.Georgia and North Carolina havetended to develop highly coordinatedmarketing channels that includeregional facilities with activities thatrange from farmers’ markets towholesaling and brokering at thesame site.




4th Quarter 2006 • 21(4)


Direct Marketing of Fresh Produce: Understanding Consumer Purchasing Decisionsby Jennifer Keeling Bond, Dawn Thilmany, and Craig A. Bond


Direct marketing via farmers’ markets, roadside stands,community supported agriculture (CSA) programs, andother outlets, is integral to the prosperity of many smallfruit and vegetable farms.1 Through direct marketing, pro-ducers are able to establish a closer relationship with con-sumers, avoid expenses associated with using a broker orwholesaler, and increase their profits (USDA-AMS,2002a). Moreover, direct marketing may be one of themost effective marketing system strategies to addressemerging demand for more local food systems (Pirog,2004).

Evidence of direct marketing’s popularity among pro-ducers can be found in the growth of the number of farm-ers’ markets countrywide. The United States Departmentof Agriculture reported that between 1994 and 2006, thenumber of U.S. farmers’ markets more than doubled toover 3,700, and the value of U.S. agricultural productsdirectly sold increased thirty-seven percent from $592 mil-lion to $812 million (USDA-AMS, 2002b). Furthermore,the 2002 USDA Ag Census found that the number offarmers using direct marketing channels grew from110,639 in 1997 to 116,733 in 2002, while the averagevalue of direct marketing per farm rose from $5,349 to$6,958 over the same time period.

American consumption trends may be contributing togrowth in produce-related direct marketing channels.

According to the 2004 USDA Vegetables and Melons Sit-uation and Outlook, U.S. per capita consumption of freshvegetables and melons increased by 52.6% between 1979and 2004. Increased demand may have consumers seekingout new sources, including direct marketing channels, tosatisfy their desire for fresh produce. Furthermore, a signif-icant number of consumers have expressed a willingness topay a premium for environmentally friendly (e.g., organic)and locally produced products, both of which are commonofferings at many farmers markets and CSA programs(Wimberley et al., 2003).

In addition to farmers’ markets, producers may chooseto develop their own marketing enterprises, including“pick-your-own” farms and on-farm produce stands, as away to capture consumers who may drive by or be seekingan on-farm experience. Other programs, like the afore-mentioned CSAs, allow producers to spread productionrisk over a number of shareholders by selling shares of thefarm production prior to the growing season. As such,direct marketing strategies may play a role in supportingthe financial prosperity of small- and medium-sized farms.

This article contributes to the understanding of directproduce marketing by reporting some key results from anational survey that collected data on consumers’ freshproduce purchasing habits, with a particular emphasis onthose consumers who purchase directly from producers. Inparticular, we discuss the differences in motivations whenselecting fresh produce purchase locations, and compareattribute preferences between direct purchasers and con-sumers who do not use these channels. With this analysis,we compare how consumers who buy directly from pro-

1. CSAs are subscription agriculture programs that allow consumers to purchase shares of a farm’s production in exchange for a weekly allotment of fresh produce during the harvest season.


ducers differ from other consumersin terms of fresh produce purchasinghabits and which attributes are mostvalued by different consumer groups.

The Consumer SurveyConsumer data concerning purchas-ing habits, production practice, andproduct attributes were collectedfrom a national online survey con-ducted in May 2006. A total of 3,170members of the National FamilyOpinion Organization’s online sur-vey database were solicited to take thesurvey, with 1,549 returned (aresponse rate of 48.86%). The sam-ple is representative of the UnitedStates population in terms of income,household size, and the percent ofhouseholds with children living athome (USDC Bureau of the Census,2000); however, Hispanics are under-represented as is the case in manyconsumer surveys. The fact that ourrespondents are predominantlyfemale is similar to findings in severalcontemporary food and grocery-ori-ented surveys which determined thatfemales are most likely to be the pri-mary grocery shoppers in a house-hold.2 Primary grocery shoppers wereasked about their general food andfresh produce purchase location pref-erences, including primary, second-ary, and seasonal sources, in additionto those not frequented over the lasttwelve months. Respondents werealso asked to rate how important var-ious motivations were to them whenselecting where they purchased pro-duce and an additional questionasked how important numerous pro-duction practices and productattributes were to consumers whenmaking purchase decisions.

Consumer Grocery and Fresh Produce Shopping BehaviorSurvey respondents were asked toidentify where they preferred to pur-chase food in general and fresh pro-duce in particular. Figures 1 and 2indicate the breakdown of consum-ers’ preferred primary food and freshproduce purchase locations, respec-tively. Unsurprisingly, for food ingeneral, the majority of respondents(76%) prefer to make primary pur-chases at the supermarket andanother 19% prefer supercenters(e.g., Costco, Sam’s Club). Health-

food stores are preferred by just 2%of the group, while direct from pro-ducer venues and specialty stores arethe preferred primary food purchaselocations for only 3% of the surveypopulation. The findings are consis-tent with expectations that supermar-kets are the preferred food purchaselocation for the majority of shoppers,while other outlets comprise aminority.

Restricting attention to sources offresh produce (Figure 2), the percent-age of consumers who prefer super-markets as their primary source

2. The primary grocery shopper was asked to respond to this survey.

Figure 2. Fresh produce primary purchase location preference, n=1549.

Figure 1. General food primary purchase location preference, n=1549.

76%

2%

19%

1%1%

1%

Supermarket Healthfood Store

Supercenter Farmers' Mkt

Direct from Producer Specialty

56%

2%10%

25%

5% 2%





declines to 56%. Thus, it appearsthat, through product offerings orlocational attributes, alternative out-lets provide features that make thema relatively more appealing venue forproduce purchases over general foodpurchases. The share associated withfarmers’ markets and direct from pro-ducer channels constitutes a collec-tive 30% of respondents, while just10% prefer to purchase fresh produce

primarily from supercenters and 2%prefer to purchase fresh produce pri-marily from specialty and healthfoodstores.

Consumers were also asked toindicate their preferences for second-ary sources of fresh produce (Figure3).3 While 22% of the sample had nopreferred secondary source of freshproduce, 52% indicated supermar-kets or supercenters as a complement

to their primary source, and 15%selected farmers’ markets or direct-from-producer channels. Relative toprimary produce sources, this sam-ple expresses greater diversity in con-sumers’ secondary purchase locationpreferences. This may be a functionof consumers’ willingness to “shoparound” or make a special trip forspecific items, such as ethnic vegeta-bles like kohlrabi or organic herbsthat may not be available at their pri-mary produce or general food pur-chase location.

Just as supplies of local producein most areas of the country are likelyto be seasonal in nature, many farm-ers’ markets and some direct fromproducer channels are accessible onlyduring certain times of the year(USDA-AMS, 2002a). To captureseasonal preferences, we asked con-sumers to indicate which locationsthey preferred to use as a source ofseasonal fresh produce, as well asthose sources that were not used inthe past twelve months (Figure 4).4

About 30% of respondents indicateda preference for farmers’ markets as aseasonal source of produce, followedby about 22% who preferred super-centers. Specialty stores (17.6%),direct from producer channels(16.1%), healthfood stores (15%),and supermarkets (8.3%) follow inorder of preference. Just 22.7% and2%, respectively, indicated they didnot purchase fresh produce at farm-

3. Primary and secondary source cate-gories were both mutually exclusive; in other words, only one primary and one secondary source was iden-tified per respondent.

4. Seasonal sources and those not used in the past twelve months were not mutually exclusive; in other words, respondents chose all categories that applied.

Figure 3. Fresh produce secondary purchase location preference, n=1549.

Figure 4. Fresh produce: Seasonal source or not source percentage.

8%

57%

30%

59%

18%

31%

22%15% 16%

61%

2%

23%

0%

10%20%

30%40%

50%60%

70%

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rmar

ket

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odSt

ore

Sup

erce

nter

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ers'

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ct fr

omPr

oduc

er

Spec

ialty

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ent o

f sam

ple

Seasonal source Not a source

29%

8%

23%12%

3%

3%

22%




No Sec. Choice


ers’ markets and supermarkets overthe past year. These results are consis-tent with the observation that super-markets are popular primary and sec-ondary sources of produce on a year-round basis, while many farmers’markets are subject to seasonaldemand and supply. For example, a2002 USDA-AMS study of farmers’markets found that just 13% wereopen year-round, while markets thatwere not open all year operated foran average of 18 weeks. Nevertheless,the fact that 3 out of 4 respondentsevidently shopped at a farmers’ mar-ket in the past year suggests at leastsome valuable differentiation on thepart of this market channel, and pro-vides some evidence that exploitationof direct channels may help small-and medium-sized producers reachspecialized niche markets. It shouldbe emphasized that consumersexpressed preferences as opposed toactual purchase locations; hence, it isnot certain how correlated thesestated preferences are with revealedbehavior. However, the contrast inthe survey results suggests that con-sumers value different attributeswhen selecting a primary generalfood source as opposed to a primaryproduce source, and that there is het-erogeneity between primary, second-

ary, and seasonal fresh produce pur-chase locations as well.

The heterogeneity of sources ledus to organize consumers into threegroups in order to analyze motiva-tions and produce attributes. Thefirst group, Direct Primary, preferredto make primary fresh produce pur-chases via consumer direct channels(either at farmers’ markets or directfrom producers), and representsabout 30% of the sample. The sec-ond group, Direct Occasionally, pre-ferred to use direct channels as asource of secondary or seasonal freshproduce, but not as a primary source,and includes approximately 50% ofthe sample. The final group, DirectNever, did not utilize direct sourcesover the prior twelve months, andaccounts for approximately 20% ofsurvey respondents. These marketsegments are used in the subsequentanalysis.

Consumer Fresh Produce Attribute Preferences and Purchase Location MotivationsTo better understand consumers’motivations for selecting fresh pro-duce purchase locations and prefer-ences for product-specific features,respondents were asked to evaluate

the relative importance of a series oflocation-specific attributes and threecategories of product-specificattributes, including productionpractice, intrinsic properties, andvalue/package/convenience. Tables 1through 4 summarize the mean moti-vation and attribute rankings andtests for statistical differences inmeans across the three groups of con-sumers using a scale of 1 (Not Impor-tant) to 5 (Extremely Important).Information from this analysis maybe used to inform production prac-tice and varietal selection decisions,as well as produce-specific marketingefforts of direct marketers.

Purchase Location MotivationsTable 1 summarizes the importanceof various motivations for choosingwhere to shop for fresh produce,which may aid producers and loca-tion managers in better marketingtheir venues as a whole to specificconsumer groups. Overall, rankingsare quite similar, with all groups indi-cating that superior products, safety,and prices were top concerns. Rela-tive to other groups, however, DirectPrimary consumers tended to rankvariety available and support for localproducers higher than otherattributes, while Direct Never con-

Table 1. Motivations.

GroupVariety

AvailSuperior Product Safety

Support Local Convenience Aesthetics

Recommen-dation Prices

Social Interaction

Group 1 3.86 4.35 4.17 3.55 3.45 2.76 2.54 3.72 1.88

Direct Primary (0.89) (0.79) (0.94) (1.16) (1.05) (1.16) (1.09) (1.02) (1.08)

bc bc bc bc bc c bc

Group 2: 3.74 4.05 4.00 3.10 3.61 2.83 2.47 3.77 1.72

Direct Occasionally (0.90) (0.91) (0.98) (1.10) (1.00) (1.12) (1.08) (0.97) (1.01)

a ac a ac ac c a

Group 3: 3.68 3.88 3.92 2.67 3.75 2.90 2.32 3.85 1.68

Direct Never (0.93) (0.96) (1.05) (1.19) (0.99) (1.12) (1.10) (1.04) (0.98)

a ab a ab ab ab a

Statistical tests on mean: a=statistically different from group 1; b=statistically different from group 2; c=statistically different from group 3 @ 5%. Standard errors are in parentheses.


sumers tended to discount this latterfactor in favor of convenience. Rec-ommendations of friends and familyand social interaction were ranked asthe least important motivational fac-tors for each group.

Although the rank attributes weresimilar across groups, there are somesubtle differences. For example,Direct Primaries tended to value aconnection to local production andtheir fellow consumers to a greaterdegree than the other groups, whilethose that did not frequent directchannels tended to value conve-nience, aesthetics, and price(attributes more associated withsupermarkets) more than the othergroups. Furthermore, the DirectOccasional group seemed moreclosely aligned with Direct Nevers,with five of nine attribute ratings notsignificantly different from eachother. As such, it appears that a mar-keting strategy that highlights prod-uct quality and safety, in conjunctionwith lowering transactions costs toenhance convenience, may help togrow the market share of direct mar-keting channels.

Production Practice AttributesTable 2 reports the mean productionpractice attribute ratings by con-sumer group. Pesticide-free produc-tion was the most importantattribute across all three buyergroups, though Direct Primary pur-chasers valued the attribute statisti-cally more than Direct Occasionalsand Direct Nevers. Locally grown isthe next most important attribute toDirect Primary purchasers, whilecountry of origin labeling is rankedsecond for the other buyer groups(perhaps as a proxy for safety con-cerns). Although Direct Occasionalsuse direct marketing channels thatare likely to supply much locallygrown produce, it is interesting tonote that this feature is less impor-tant than country of origin.

Given recent growth in availabil-ity of organic produce, it is somewhatsurprising to find that this produc-tion practice attribute ranked sixthout of seven across all groups (Kre-men, Greene, & Hanson, 2004). Nostatistical difference was foundbetween Direct Occasional and Nev-ers’ mean value on the organicattribute, which is somewhat unex-pected given that Direct Occasionalsare likely to encounter relatively

more organic vendors. It thus appearsthat this group patronizes direct mar-keting channels for reasons otherthan access to organic produce, and isconsistent with a 2004 finding byPirog that found “locally grown byfamily farmers” was a more compel-ling claim than the bundled “locallygrown and organic” claim.

Intrinsic AttributesTable 3 reports the mean importanceplaced on produce-specific intrinsicattributes. All buyer groups rankedfirmness and texture most highly;however, there is heterogeneity in theimportance rankings assigned to theremaining product attributes, partic-ularly between Direct Primaries andthe two other buyer categories. Nota-bly, Direct Primary consumersranked freshness second, followed bycolor and visual appeal. The freshnessattribute is a point of differentiationassociated with produce available atfarmers’ markets (Brown, 2002).Freshness was less important toDirect Occasionals and Nevers whovalue color and visual appeal rela-tively more. In general, these twogroups ranked attributes that can beassessed visually relatively more thanDirect Primaries who tended to value

Table 2. Production practice attribute importance.

Group Organic Pest Free Traceability Country of Origin Locally GrownRelationship w/ Producer

Group 1 2.58 3.53 2.80 3.18 3.36 2.18

Direct Primary (1.21) (1.20) (1.24) (1.22) (1.15) (1.10)

bc bc bc bc bc bc

Group 2: 2.25 3.20 2.35 2.85 2.77 1.88

Direct Occasionally (1.14) (1.17) (1.10) (1.22) (1.05) (0.96)

a ac ac ac ac ac

Group 3: 2.14 2.96 2.17 2.52 2.34 1.74

Direct Never (1.19) (1.24) (1.16) (1.24) (1.10) (0.96)

a ab ab ab ab ab

Statistical tests on mean: a=statistically different from group 1; b=statistically different from group 2; c=statistically different from group 3 @ 5%.Standard errors are in parentheses.


health-related attributes such asfreshness, vitamin, nutrient and car-bohydrate content more highly.These findings indicate that produc-ers may be able to further appeal toconsumers in the Direct Primary cat-egory by offering nutritionally supe-rior cultivars and marketing thehealth aspects of their produce. Toreach out to consumers in otherbuyer categories, direct marketersmay do well to prominently displayattractive and colorful produce ofhigh quality.

Value/Package/Convenience AttributesTable 4 reports the importance ofvalue, packaging, and convenienceattributes to alternative consumergroups. These attributes exhibitedthe greatest homogeneity acrossgroups, with few of the means statis-tically different from each other.Only the mean for convenient prepa-ration was statistically differentbetween Direct Primary and DirectNevers, with the latter placing moreimportance on convenient prepara-tion of fresh produce (such as pre-washed and pre-cut products). Asproduce offerings at farmers’ marketsand other direct channels are lesslikely than those at supermarkets tobe processed, it is not surprising that

Direct Primary purchasers wouldplace less importance on conve-nience. Overall, the greatest impor-tance is placed on value, followed byconvenience of preparation, and typeof package. Despite the Kaufman etal. (2000) finding that shares ofbranded produce have been on therise in recent years, brand name offresh produce ranks as the leastimportant attribute among ourrespondents.

Advice for Fresh Produce Direct MarketersIn general, we find that consumerswho purchase direct from producers

are similar to other consumers in thatthey tend to place a high value onfirmness and texture, freshness andtaste, safety, and value for the pro-duce dollar. This is interesting in thatit tells us that supporters of local foodsystems still have high expectationsfor product quality, even if otherattributes also enter into their pur-chase decisions. In terms of choosingwhere to shop, these direct purchas-ers feel that having a wide variety ofsuperior and safe produce as well assupporting local producers is impor-tant, but tend to rank convenience,aesthetics, and competitive prices rel-atively lower than consumers who donot express a preference for producer

Table 3. Intrinsic attribute importance.

Group VitaminsOther

Nutrients Firm & Text ColorVisual

Appeal Taste Carbs Freshness

Group 1 3.58 3.42 4.11 3.80 3.71 3.26 2.67 3.95

Direct Primary (1.04) (1.09) (0.83) (0.90) (0.91) (1.18) (1.25) (0.98)

bc bc bc bc b bc bc bc

Group 2: 3.27 3.12 3.89 3.62 3.60 3.08 2.46 3.46

Direct Occasionally (1.01) (1.04) (0.90) (0.94) (0.95) (1.17) (1.15) (1.04)

ac ac ac a a ac a ac

Group 3: 3.03 2.93 3.75 3.54 3.61 2.88 2.35 3.20

Direct Never (1.12) (1.14) (0.92) (0.97) (0.99) (1.23) (1.17) (1.16)

ab ab ab a ab a ab

Statistical tests on mean: a=statistically different from group 1; b=statistically different from group 2; c=statistically different from group 3 @ 5%.Standard errors in parentheses.

Table 4. Value/Package/Convenience attribute importance.

Group BrandConvenient

Prep Package Value

Group 1 2.27 2.53 2.49 3.99

Direct Primary (1.09) (1.11) (1.14) (0.88)

c

Group 2: 2.22 2.65 2.51 3.91

Direct Occasionally (0.99) (1.08) (1.10) (0.90)

Group 3: 2.24 2.70 2.43 3.94

Direct Never (1.07) (1.08) (1.06) (0.94)

a

Statistical tests on mean: a=statistically different from group 1; b=statistically different from group 2; c=statistically different from group 3 @ 5%.Standard errors are in parentheses.


direct purchases. This informationmay assist small- to medium-sizedfarmers determine the dimensionsthat may be important when pro-moting their products.

If producers wish to increasepatronization by consumers with astrong preference for purchasingthrough direct market channels, pro-duce could be differentiated withmarketing materials that highlightvitamin content, nutritional proper-ties, traceability, pesticide-free, andlocally grown claims. To better targetthis market segment, an opportunityalso exists for direct sellers to differ-entiate their produce through choiceof production practice and cultivar tobetter satisfy the preferences of theirconsumers for superior, nutritionallyenhanced produce that is pest freeand locally grown. On the otherhand, if producers wish to grow theirmarket share by appealing to con-sumers who only occasionally preferto patronize direct market channels,promotion should emphasize safety,country of origin, variety, and visualappeal of produce offerings. In com-bination with attractive displays thatshowcase colorful varieties of highquality produce, direct marketersmay also consider capitalizing on thissegment’s stronger demand for con-venience by offering semi-processedproduce, such as cleaned and roastedchilies and pre-washed salad mixes.

AcknowledgementsThis study was funded by the USDANRI Small and Midsize Farms NRIprogram administered by theCSREES, with matching supportfrom the Colorado Ag ExperimentStation and CSU Specialty CropsProgram funded by the ColoradoDepartment of Agriculture.

For More InformationBrown, A. (2002). Farmers’ market

research 1940-2000: An inven-tory and review. American Journal of Alternative Agriculture, 17(4), 167-176.

Kaufman, P., Handy, C., McLaugh-lin, E., Park, J., & Green, G. (2000). Understanding the dynamics of produce markets: Consumption and consolidation growth, AIB-758, Economic Research Service, Washington, DC.

Kremen, Amy, Greene, C., & Han-son, J. (2004). Organic Pro-duce, Price Premiums, and eco-Labeling in U.S. Farmers’ Mar-kets. U.S. Department of Agri-culture, Economic Research Service. Outlook Report No. VGS-301-01, Washington, DC.

Pirog, R. (2004). Ecolabel Value Assessment Phase II: Consumer Perceptions of Local Foods. Iowa State University Leopold Center. Available online: http://www.leopold.iastate.edu/pubs/staff/files/050504_ecolabels2.pdf.

United States Department of Agri-culture National Agricultural Sta-tistics Service (USDA-NASS). (2002). 2002 Census for agricul-ture. Available online: http://www.nass.usda.gov/Census_of_Agriculture/index.asp.

United States Department of Agri-culture Agricultural Marketing Service (USDA-AMS). (2002a). U.S. farmers’ markets 2000: A study of emerging trends. Avail-able online: http://www.ams.usda.gov/tmd/MSB/PDFpubList/FarmMark.pdf.

United States Department of Agri-culture Agricultural Marketing Service (USDA-AMS). (2002b). The National Organic Program, organic food standards and labels: The facts. Available online: http://www.ams.usda.gov/nop/Con-sumers/brochure.html.

United States Department of Agri-culture Economic Research Ser-vice (USDA-ERS). (2004). Vegetables and melons situation and outlook yearbook. Available online: http://www.ers.usda.gov/Publications/VGS/Jul04/VGS2004.pdf.

United States Department of Com-merce (USDC) Bureau of the Census. (2000). 2000 Census profiles for United States. Avail-able online: http://factfinder.cen-sus.gov/.

Wimberley, R.C., Vander Mey, B.J., Wells, B.L., Ejimaker, G.D., Bailey, C., Burmeister, L.L., et al. (2003). Food from our changing world: The global-ization of food and how Ameri-cans feel about it. Available online: http://sasw.chass.ncsu.edu/global-food/foodglobal.html.

Jennifer Keeling Bond ([email protected]) is Assistant Profes-sor, Department of Agricultural andResource Economics, Colorado StateUniversity, Fort Collins, CO. DawnThilmany is Professor, Department ofAgricultural and Resource Economics,Colorado State University, Fort Col-lins, CO. Craig A. Bond is AssistantProfessor, Department of Agriculturaland Resource Economics, ColoradoState University, Fort Collins, CO.




4th Quarter 2006 • 21(4)


Ethnic Produce Marketing in the Mid-Atlantic States: Consumer Shopping Patterns and Willingness-to-Pay Analysisby Ramu Govindasamy, Aparna Nemana, Venkata Puduri, and Kim Pappas

JEL Classification: C41, Q13

Access and proximity to large nearby population concen-trations, high population density in general, and high percapita income have traditionally been competitive advan-tages for commercial farmers in the Mid-Atlantic statesand larger Northeast region. However, as population inthis already densely populated area has increased, so hasland development, causing the commercial growers in thearea to operate on a relatively small land base with highproduction costs. Encroachment on farmland, coupledwith the challenge to maintain profitability, make it partic-ularly difficult for viable production of larger-scale agro-nomic crops that require substantial acreage in order tobreakeven. In addition, modern produce distribution prac-tices are allowing commodity products from distant areas,with lower production costs, to be shipped into the North-east region’s population centers. In response to these newchallenges and to remain profitable, many farmers in theregion have been shifting production and adopting meth-ods to grow higher value horticultural and specialty crops.Such crops are usually targeted toward a specific, smallconsumer base or market niche that is particularly inter-ested in and highly values the inherent uniqueness of thecrop. Therefore, this study seeks to identify the localdemand for ethnic produce, assess ethnic consumer shop-ping patterns, analyze consumer willingness to pay for theethnic produce, and suggest products for potential localproduction. The research area is fresh Asian ethnic fruitsand vegetables, and in particular those preferred by Chi-nese, Indians, and Koreans. The perishable nature of suchcrops, combined with the local growth trends in theseAsian segments, will well position farmers in the region

who grow such crops to exploit the comparative advan-tages associated with marketplace proximity.

Identify Ethnic Market Niches (Who?)The study targets Asian consumers as an ethnic marketniche opportunity, chosen for their prevalence and signifi-cant growth in the United States, and even more notablegrowth in the Northeast. The significant Asian populationproportions and recent growth trends in the Northeast areconsistent with Asian representation and trends at anational level (U.S. Census, 2000; 4.0% and 3.6% Asianpopulation in the Northeast and United States, respec-tively, with growth over U.S. Census 1990 at 60% and48%, respectively, for the Northeast and United States).Correspondingly, the Northeast’s absolute populationgrowth of Asians exceeds that of any other race category,contributing significantly to the overall population growthfor this region. Another consideration for selection, andfor which the Asian group stands out at a national level, isthe purchasing power for each ethnic population segment.With median household income as the selection criteria,Asians far exceed the national totals for all races combined,as well as Whites, Blacks, and Hispanics, and have consis-tently done so since before 1990 (Current Population Sur-vey, 2000, 2004).

Assess and Address Ethnic Market Demand (Research Approach)The research approach entailed the use of a mail-adminis-tered written survey that was sent to and completed by the


(self-identified) principal groceryshopper for each household. Prior tosurvey administration, a panel ofexperts was formed to provide input,offer suggestions, and ultimatelyreview the three ethnic group selec-tions and varieties of fruits and vege-tables included in the questionnairefor each Asian group. Upon comple-tion of the crop selection and surveydesign process, the questionnaireswere mailed to samples of Chinese,Asian Indian, and Korean residences(presumed households per address, asidentified by leads purchased viaInfoUSA.com) throughout New Jer-sey, New York, and Pennsylvania.Specifically, sample targets were iden-tified based on 2000 Census popula-tions for Chinese, Asian Indians, andKoreans in the three Mid-Atlanticstates (NJ, NY, PA). A sample size of1,800 surveys was statistically deter-mined, with 600 surveys for each ofthe three groups. Further sample sizerequirements were established, basedupon ethnic group by state, in accor-dance with a stratified random sam-pling method. A total of 447 useablesurveys were returned. A roughly25% response rate was realized andwas fairly consistent across groups.The usable surveys by group were152 from Chinese, 135 from Indians,and 160 from Koreans, with overallresponse rates of 25%, 23%, and27%, respectively. The correspond-ing results for each ethnic group(irrespective of state) yields a marginof error of approximately 8% inorder to achieve the desired 95%confidence interval.

Respondents were separated intotwo groups; consumers and noncon-sumers (more than 90% and less than10%, respectively, in each of thethree ethnicities), based on a sur-veyed criteria of having purchasedethnic (Chinese, Indian, or Korean)produce in the past year. Both

groups were questioned for socio-demographic information. Only theconsumer group was questioned as totheir specific produce expendituresand shopping patterns and prefer-ences. Despite the variation in surveyusability by question (not every ques-tion applied to each respondent; notall questions were completed for eachsurvey), a margin of error of less than9% is maintained throughout thestudy.

1. Prioritize Potential Production Crops for Local Entry (What?)The respondents’ average weeklyexpenditures for total fresh fruits andvegetables, whether traditional U.S.or ethnic produce, is $45.48 (allrespondents, consumers and non-ethnic produce consumers; rangingfrom $38.60 for Koreans to $54.06for Chinese respondents, with$43.53 for Indians being relativelyclose to the average for all threegroups). Specific produce expendi-tures for respondents that purchasedethnic produce within the past year(ethnic produce “consumers”) werealso documented. Expenditure datawas collected for thirteen ethnic pro-duce items for each respective ethnicgroup. The crops of interest wereselected based upon their potentialfor production in the Mid-Atlanticstates and larger Northeast region,with specific consideration for thegrowing cycle of specialty crops andtheir conduciveness to the climaticpatterns in the area. The top five eth-nic produce items purchased in eachgroup, ranked in descending order onthe basis of average weekly respon-dent expenditure are as follows (withthe corresponding expenditures inparentheses); for Chinese, FlowerChinese Cabbage ($3.18), EdibleSnow Peas ($2.68), Chinese Kale($2.66), Bitter Gourd ($2.65), andOriental Eggplant ($2.36); for Indi-

ans, Bitter Gourd ($3.14), Okra($2.95), Yam ($2.95), MustardLeaves ($2.73), and Black EyedBeans ($2.69); and for Koreans,White Nectarine ($3.76), Fuji Apple($3.39), Korean Cabbage ($2.58),Korean Cucumber ($2.39), andGreen Onions ($2.32). The individ-ual respondent expenditures for eachitem were calculated based on thecorresponding quantity purchasedand price paid for each, in an attemptto prioritize and target individualethnic crops with the highest marketpotential in the Mid-Atlantic area.

2. Understand Shopping Patterns of Respondents (When? Where?)

i) Shopping Frequency . The shoppingpatterns of respondents included theresponses of ethnic consumers whoidentified themselves as having pur-chased ethnic (Chinese, Indian, orKorean) produce in the past year(Figure 1). Just under half of theseethnic produce consumers shop oncea week (ranging from 41% to 48%by ethnicity). Another roughly 40%shop either more than once a week oronce every two weeks. Fewer than20% in each group shop once amonth or less. However, there is vari-ation across the groups, as the Chi-nese typically shop slightly more fre-quently than their Indian and Koreancounterparts; 36% of Chinese shopmore than once a week compared to15% of each of the Indian andKorean groups in this category.

ii) Multi-Store Shopping and Establish-ments Frequented. Consumerresponses indicated that approxi-mately three-quarters of those pur-chasing ethnic produce shop at morethan one food store for their ethnicproduce (Figure 2). Not surprisingly,as seemingly correlated with morefrequent store visits, slightly more


Chinese consumers shop multiplestores than Indians or Koreans. Toascertain which establishments con-sumers shop at for ethnic produce,respondents were asked to indicate alltypes of establishments from which

they purchase ethnic produce duringthe peak season or “summer” months(as not all types are available at non-peak times of year). Each respondentwas provided a list of five types ofestablishments, as well as an “other”

category. They were then asked toindicate all that apply. More thanthree-quarters of the consumers ineach group indicated that they pur-chase from ethnic stores. Althoughall three ethnic groups display high“brand loyalty,” there is notable varia-tion across the sample groups as theethnic store shoppers range from77% of Korean consumers, com-pared to 90% of Chinese, and a stag-gering 97% of Indian consumers.Approximately 40% of the consum-ers surveyed indicate that they pur-chase ethnic produce at retail super-markets (with relatively littlevariation across groups, ranging from35% to 44%). Between 10% and23% of consumers surveyed indicatethat they make purchases at farmers’markets, with Indians at the highextreme and Chinese and Koreans ator close to the bottom of that range.

iii) Proximity to Market. One factor thatmay affect consumer shopping pat-terns is each consumer’s ability toshop, based upon store availability(or lack thereof ). To assess storeavailability, the consumers purchas-ing ethnic produce were asked toindicate how close the nearest ethnicstore is to them (Figure 3). Theresults reveal that more than half(53%-68%) of the consumers in eachsample group has access to an ethnicmarket within 10 miles. Another20% or so have a market within 10-20 miles, while fewer than 25% donot have an ethnic store within 20miles. The Korean consumers sam-pled appear to have fewer storeswithin a 10-mile radius, relative tothe Chinese and Indians sampled. Ahigher percentage of Koreans, relativeto Chinese and Indian consumers,indicated that the nearest store isgreater than 20 miles away.

0%

10%

20%

30%

40%

50%

60%

More thanonce aweek

Once aweek

Once intwo weeks

Once amonth

Less thanonce amonth

Overall Chinese Indians Koreans

Figure 1. 2005 ethnic consumer survey: Shopping frequency of ethnic

respondents.

0% 20% 40% 60% 80% 100%

Ethnic fruit/vegstores

Retailsupermarkets

Farmers’ market

Roadsidestands

Farmhouse

Other


Figure 2. 2005 ethnic consumer survey: Establishments frequented for eth-nic produce.


3. Determine Willingness-to-Pay Ethnic Produce Premiums (How?)The modeling section of the studyexamined the consumer profiles ofrespondents who purchase ethnicproduce to ascertain whether rela-tionships exist between their percep-tions, practices, and socio-demo-graphics and their willingness to pay(WTP) a premium over traditionalAmerican produce for ethnic produce(Figure 4). Roughly half of therespondents from each ethnic groupindicated they would be willing topay a premium for ethnic produce.The respondents were questioned asto their willingness to pay premiumsin increments of 5%, up to 20% (1-5%, 6-10%, 11-15%, 16-20%), ormore. Roughly 25% indicated a will-ingness to pay a premium of up to5%, and an additional 14% indicateda willingness to pay premiums of upto 10%. The results in subsequentcategories were significantly lowerand varied slightly by ethnicity (12%or less, with most categories withinethnic groups having 5% or less). Assuch, the categories that capturedrespondents’ willing to pay premiumsof more than 10% are determined tobe more discriminating for the pur-pose of identifying and targeting eth-nic consumer groups, and a criterionfor WTP modeling is establishedaccordingly.

A WTP variable is modeledagainst relevant consumer ‘belief ’and related practice variables, demo-graphic variables (age, gender, num-ber of adults in the household, edu-cation, income, number of years inthe United States), and fixed effectsfor the states and ethnicities (dummyvariables). The ‘belief ’ variablesreflect consumers’ opinions and per-ceptions (for example; ‘availability’ isan important/very important factorin shopping for ethnic produce, and

‘prices’ of products from ethnic mar-kets are better than American pro-duce). Related practice variablesinclude consumers’ approximatespending on all produce (traditionaland ethnic), whether or not they reg-ularly read advertisement brochures,and whether they have a garden athome.

Results derived from the modelindicate that consumers in house-holds earning greater than $60Kseem 9% less willing to pay a pre-mium of more than 10% comparedto consumers in lower incomegroups, despite the counter-intuitivenature of this response, given thatproduce purchases represent a rela-

0%

10%

20%

30%

40%

50%

60%

70%

80%

0-10 miles 10-20 miles Above 20miles

No suchstore


Figure 3. 2005 ethnic consumer survey: Proximity of ethnic market to

respondents.

0%

10%

20%

30%

40%

50%

60%

I will notpay

more

1%-5%more

6%-10%more

11%-15%

more

16%-20%

more

Morethan20%


Figure 4. 2005 ethnic consumer survey: Willingness to pay a premium forethnic produce.


tively small portion of total expendi-tures for high income consumers.However, it is plausible that, due totheir higher income, they have moreluxury-type food alternatives avail-able to them (such as eating out)than their lower-earning counterpartswho view ethnic produce as more ofa staple in their diet. Females are13% more likely to pay a premium ofmore than 10% for ethnic producethan male shoppers.

In addition, ethnicity and state ofresidency appear to play a significantrole in consumers’ willingness to paya premium. For example, Koreansand Chinese are 16% and 13%,respectively, less likely to be willing topay a premium than Indians. Fur-ther, consumers in New York andNew Jersey are 9% and 7%, respec-tively, more likely to be willing to paya premium than those in Pennsylva-nia. As a result of these predictions, itwould be most beneficial to growersand retailers to place premiums ofgreater than 10% on ethnic producepurchased by consumers earning lessthan $60,000 annual income,females, Indians, and New York/NewJersey residents.

4. Combine Consumer Profiles and Predictive Modeling to Exploit Local Ethnic Market Opportunities (Why?)This study assessed the survey resultsof 447 respondents of three differentAsian ethnicities (Chinese, Indian,and Korean) in the three Mid-Atlan-tic states to identify the local demandfor ethnic produce, suggest crops forpotential local production, assess eth-nic consumer shopping patterns, andanalyze consumer willingness to payfor ethnic produce. The surveyresults reveal that a vast majority(more than 90%) of respondents in

each of the three ethnic groups pur-chased ethnic produce within thepast year. Further, more than half ofthe consumers in each group shoponce a week or more frequently forethnic produce. Three-quarters shopat more than one food store for thesepurchases. More than three-quartersof those purchasing ethnic producehave access to an ethnic market(store) within 20 miles. The results ofthe study’s “Willingness-to-Pay”model suggest that premiums for eth-nic produce in excess of 10% overtraditional American produce shouldbe limited to consumers earning lessthan $60,000 annual income,females, Indians, and New Jersey/New York residents. These results canbe used by public policy makers,retailers, and commercial growers ineach state to identify and addressniche market opportunities in theethnic produce sector.

For More Information Current Population Survey, 2004.

2004 Annual Social and Economic Supplement. U.S. Census Bureau, United States Department of Commerce. Washington, D.C.

Current Population Survey, 2000. Median Household Income by Race and Hispanic Origin: 1967-1999. U.S. Census Bureau, United States Department of Commerce. Washington, D.C.

Mangan, F. (2002). Producing and Marketing Vegetable Crops for Ethnic Markets. UMass Vegetable Notes, 13(1), 1-6. Available online: http://www.worldcrops.org//documents/vegnotes_jan_02.pdf.

Tubene, S. (2002). Agricultural & Demographic Changes in the

Mid-Atlantic Region Implications for Ethnic and Specialty Produce. University of Maryland Fact Sheet 793.

Available online: http://www.agnr.umd.edu/MCE/Publications/Publication.cfm?ID=542.

U.S. Census. (2000). United States Department of Commerce. Washington, DC.

U.S. Census. (1990). United States Department of Commerce. Washington, D.C.

AcknowledgmentsThis research was supported by agrant provided to the Department ofAgricultural, Food and ResourceEconomics (DAFRE) at Rutgers bythe U.S. Department of Agriculture(USDA) – Agricultural MarketingService (AMS) and New JerseyDepartment of Agriculture (NJDA),grant agreement #12-25-G-0398.The opinions expressed in the articleare those of the authors and do notnecessarily reflect official positions orpolicies of the USDA, NJDA,DAFRE, or Rutgers University.

Ramu Govindasamy is Associate Pro-fessor, Department of Agricultural,Food and Resource Economics, andAssociate Director, Food Policy Insti-tute, Rutgers, the State University ofNew Jersey, New Brunswick, NJ.Aparna Nemana is a graduate stu-dent, Department of Agricultural,Food and Resource Economics(DAFRE) at Rutgers, the State Uni-versity of New Jersey, New Brun-swick, NJ. Venkata Puduri is a PostDoctoral Associate, also with DAFREat Rutgers. Kim Pappas is ProjectCoordinator, also with DAFRE atRutgers.




4th Quarter 2006 • 21(4)


Traceability: Formulation and Implementation of an Economic Efficient System in the Fruit and Vegetable Industryby Esendugue Greg Fonsah


Traceability is a “record keeping system designed to trackthe flow of product or product attributes through the pro-duction process or supply chain” (Golan et al., 2004; Fon-sah, 2005a). The globalization of world trade, the NorthAmerican Free Trade Agreement (NAFTA), food safety inthe fresh produce industry, and political and commercialrealities have put the traceability regulation on the radarscreen. Canada, which is now the number one tradingpartner of fruit and vegetables from the United States, hasbecome an advocate of traceability, which means that theUnited States fruit and vegetable industry has no choicebut to comply if they must export fresh produce to Can-ada (PMA, 2005; GS1, 2006; Fonsah, 2003a,b; Huang,2004).

This study is aimed at developing economic efficientstrategies of formulating and implementing traceabilityregulations in the fruit and vegetable industry. It utilizestechniques adopted by some multinational fresh fruit andvegetable corporations the world over. The specific objec-tives are (1) to provide fruit and vegetable producers with apractical standard operation procedure (SOP) on how toset up traceability systems, and (2) to provide producerswith an alternative on how to economically and efficientlycollect and handle traceability records.

How Can Traceability be Formulated in a Farm Firm?The formulation phase of an integrated traceability pro-cess in a farm firm is a function of the following factors:(a) the food safety and quality management system, (b)identification of risk and opportunities involved in theoperation, (c) identifying strengths and weaknesses of theorganization, (d) aspiration and values of the stakeholders/

owner of the organization, and (e) recognition of the non-economic factors to society. Management plays a vital rolein both the formulation and implementation phases oftraceability regulations adoption in a farm firm. A well-formulated strategy can still fail if not well managed. Onthe other hand, good governance can transform an inferiorformulated strategy to success (Fonsah, 2003b).

Is the Implementation of Traceability Possible in a Horticultural Farm Firm?Anecdotal experience shows that an effective implementa-tion of an inferior strategic formulation can provide suc-cessful result. On the other hand, the ineffective imple-mentation of even a superior or well-orchestrated strategicformulation can lead to failure (Fonsah, 2003b). That sim-ply means that, although the formulation of a traceabilityprogram is important, the implementation is of utmostimportance. The best place to start is with the organiza-tional structure and relationship (see Figure 1).

Although the participation of each department on theorganizational chart in Figure 1 is crucial, the most impor-tant person to implement and follow up the traceabilityadoption in a farm firm is the operation manager (OM),since he/she is expected to be adept with all the operationsin the project. Figure 1 can be adjusted to reflect the struc-ture of any small-, medium- or large-sized horticulturalfarm producing fruit and/or vegetables. A large farm inthis study is defined as greater than 5,000 acres, while amedium-sized farm is from 1,001–5,000 acres. A smallfarm in this study is defined as less than 1,000 acres.


What are the Functions of the Operation Manager in Implementing Traceability? First, records of the day-to-day oper-ations of the farm firm from plantingto packaging must be kept in writing.This record keeping process onlyrequires the operation manager toreallocate his/her work schedule toaccommodate time for compilingrecords. A ledger or a notebook isrequired in the case of a small-sizedfarm firm or a computer in the caseof a large- or medium-sized farm.Some corporate and multinationalfresh fruit and vegetable companiesaround the world have adopted theledger system because of its costeffectiveness (Fonsah & Chidebelu,1995). The advantages of the ledgerare as follows: (1) All supervisorsmust read and sign the ledger prior togoing to the field; (2) Any unclear orwell-defined instruction must beclarified prior to carrying out theoperation. The clarification can bedone either by radio, telephone, orthe fastest means of communicationavailable; (3) When the ledger is full,the beginning and ending date is

labeled on it and filed for future ref-erence; (4) If any field operation iswrongly implemented, it is easy totrace where the communicationbreakdown occurred; and (5) It ischeaper to use a ledger than a com-puter, especially in the case of smallfarmers who in most cases lack com-puter proficiency and do not evenwant to be bothered with it. It is rec-ommended that the records be keptfor at least five years.

What Techniques Can We Use for Traceability Data Collection/Record keeping?The rule of thumb is to have a sur-veyor demarcate the farm into parcelsor plots and draw it into a map. Agood map should have the followinginformation: (1) parcel numbers; (2)acreage per parcel; (3) all primaryand secondary roads; (4) all ponds orrivers; (5) irrigation system main andsecondary lines, if applicable; (6)drainage system, if applicable; (7)bridges, if applicable; (8) offices,packing house, physical plant, or anybuilding infrastructure; (9) cableways

network, if applicable; and (10) nurs-ery, if applicable. Mapping is a com-mon practice.

How Do We Obtain Traceability Information from Field Operations Using a Map? A staff person can be designated toenter these instructions in the ledgerfor the supervisors to read and imple-ment. These instructions must bewritten at least one day prior to exe-cution to give the supervisors enoughtime to read, collect, and arrange forall the logistical needs to successfullycarry out the recommended opera-tions. In the case of a large- ormedium-sized farm, the physicalplant or field operation supervisor ora combination of technical peoplewill be the ones to implement theseinstructions. For example, the follow-ing is some pertinent information tobe entered in the ledger during theplanting of bell pepper: (1) date; (2)state manual or mechanical planting,plot, or parcel number, (3) plantingpattern (for example double or singlerolls); (4) crew number and names of

Figure 1. Organizational chart for implementing traceability in a large- and/or medium-sized farm operation.


crew members; (5) seed number andcompany from which it is bought;(6) origin of seed and date purchased;and (7) color plot or parcel where theplanting operation took place. Enterthe same information for all the plotsor parcels planted and use differentcolors for different planting dates. Itis suggested here that the same infor-mation must be entered for all plotsor parcels planted such as weed con-trol, fertilization application, irriga-tion, insect, pest and disease control,harvesting, handling, and sanitation,respectively.

How Can Packing House Information be Collected for Traceability?Each packed box must be legiblycoded prior to leaving the packingstation with a simple stamp code.The coded number should containthe following information: (1) datethe box was packed; (2) packer’snumber – optional; (3) packing sta-tion number if the company has

many; (3) packing line number –optional; (4) harvested date; (5) har-vested plot number; and (6) har-vested crew number and names. Ifthe crop is field packed, the packerwill stamp each box immediatelyafter the operation. The stamps aresmall and self-inked.

Tracking Traceability Back to the Farm with All the Information GatheredAssuming there is an outbreak of dis-ease on bell pepper shipped to asupermarket in Montreal, how do wetrace it back to the farm? In Figure 2,simple steps to follow are presented,assuming the produce goes through atwo-level distribution channel: (1)The customers report to the retailchain manager of company ABCsupermarket in Montreal, Canada;(2) The manager complains to thewholesaler at the Ontario Food Mar-ket Terminal; (3) The wholesalerrequests the box number and con-signment date from company ABC

manager in Montreal; and (4) TheOntario Food Market Terminal man-ager sends the number to the horti-cultural farm firm manager where thepepper was cultivated; (5) On receiv-ing the box packing code, the man-ager or his associate immediatelydetermines the date on which the boxwas packed and by which packer; and(6) The manager opens the ledger onthe packing date and retrieves the fol-lowing on packaging, harvesting, fer-tility application, irrigation, weed,pest and disease control, land prepa-ration, cultivar, and source of theseed that was planted. All of theseoperations can take less than 30 min-utes. Strategic management deci-sions can then be made in a timelymanner to minimize further costsincurred because of the disease out-break.

Cost of Implementing TraceabilityThe economic efficient initial cost offormulating and implementing trace-

Figure 2. Traceability in a two-level distribution channel for horticultural crops.


ability in a small, medium, or large-farm firm producing bell pepper inGeorgia is estimated at $25.98 peracre, respectively (Table 1). This isthe cost which the grower will incurfor purchasing a personalized rubberstamp with the packer’s code num-ber. Although one stamp is capable of

producing thousands of impressions,this study assumed that at least twopackers will be needed to pack 1,500boxes of bell pepper per acre to beeconomically efficient, irrespective ofwhether the fresh produce waspacked at the packing shed or in thefield. The initial cost will eventually

reduce as only a self-inking replace-ment pad which cost from $4-$7 willbe needed after the ink runs out.

The field operation or pre-har-vesting variable cost, harvesting,packing, and fixed costs were derivedfrom an enterprise bell pepper bud-get (Fonsah, Escalante, & Byrd,2005c). It was assumed that two tem-perature recorders was needed percontainer worth $64, and since 1,500boxes of pepper can fill 1.64 contain-ers, a total of four recorders worth$128.00 would be required. How-ever, this is a common practicewhether traceability is adopted ornot. Further, the cost of polyethylenepallet covers needed for tracing co-mingled produce in the same con-tainer was $27.52. This is also a com-mon shipping and/or refrigeratedcontainer transportation SOP. Differ-ent color polyethylene pallet coverscan be used for each consignment.One roll that can cover 88 palletscosts $77.50. The cost of a ledger wasnot included because any notebookwill suffice and it is part of the officestationery.

Is Traceability Possible During Transportation?During transportation, any kind ofrecording device that would provideaccurate documentation in differenttime and temperature ranges couldbe used to track any fluctuation intemperature that would affect thequality of the fresh produce. Thereare so many inexpensive ones, such asthe cox recorder or a disposable striptemperature chart recorder. The priceranges from $10 to $450 per unitand it is recommended to have atleast two in a container, one at theback and one at the front. This is astandard procedure in the fresh fruitand vegetable business irrespective ofwhether traceability is implemented

Table 1. Economic efficient cost of implementing traceability per acre in a farm firm producing bell pepper in Georgia, 2006.

Medium/Large Firm

Medium/Large Firm Small Firm Small Firm

Operations No Traceability With

Traceability No

TraceabilityWith

Traceability

($) ($) ($) ($)

1. Field Operations $2,725.00 $2,725.00 $2,725.00 $2,725.00

- Includes all pre-harvest

variable cost components

such as plants, fertility,

insecticides, fungicides,

nematicides, herbicides,

plastic, drip tapes.

2. Harvesting Operations

- Picking & hauling $1,275.00 $1,275.00 $1,275.00 $1,275.00

3. Packing Shed Operations

- Container/boxes/crates $1,125.00 $1,125.00 $1,125.00 $1,125.00

- Grading and packing $1,650.00 $1,650.00 $1,650.00 $1,650.00

- Marketing $1,275.00 $1,275.00 $1,275.00 $1,275.00

- Stamps with code number $25.98 $25.98

4. Transportation

- Temperature recorder (2) $128.00 $128.00 $128.00 $128.00

- Mixed cargo $27.52 $27.52 $27.52 $27.52

5. Fixed Costs

- Machinery $56.27 $56.27 $56.27 $56.27

- Irrigation $220.65 $220.65 $220.65 $220.65

- Land $129.53 $129.53 $129.53 $129.53

- Overhead and management $408.75 $408.75 $408.75 $408.75

Total Budgeted Cost $9,020.72 $9,046.70 $9,020.72 $9,046.70

Total Cost of Traceability 0.00 25.98 0.00 25.98


or not. A grower, small, medium, orlarge, who is yet to adopt this tech-nology, is taking a great risk. Thereare more sophisticated data loggingsoftware that can be installed in thecomputer to monitor all containerscarrying fresh produce to various des-tinations around the world right inthe office. Although these are moreexpensive, they are better for well-established larger growers and theprice becomes cheaper in the longrun. In this study, 4 disposable striptemperature chart recorders were uti-lized for the price of $32 each, whichis equivalent to a 1.64 container offresh pepper and to 1,500 boxes peracre.

Is Traceability Possible if There are Mixed Produce in the Same Container?In the case of co-mingling of pro-duce, one of the most economic effi-cient ways to trace them is by using adifferent colored pallet strap for eachcategory of produce. Another tech-nique is to use different color covers.Some of the commonly used ones arethe polyethylene and insulated palletcovers, respectively.

How Can One Use Rubber Stamp for Traceability?A rubber stamp is an efficientmethod to trace who and when theproduce was packed, and possiblywhere, in the case of multiple pack-ing stations. Although any shape ofrubber stamp will do, for quality andcosmetic appearance purposes, around self-inking stamp will suffice.One of these is capable of producingthousands of repetitive impressionswithout re-inking and better still, thestamp can be re-inked. The stamp issmall, light, portable, and convenientto carry. Furthermore, you can cus-tomize it and the prices range from

$12.99 to $23.99 each. Assuming1,500 boxes of bell pepper per acre, 2stamps at $12.99 each should suffice.

Discussion NotesIn the first section, information onhow traceability can be formulatedwas provided. Secondly, informationon the implementation strategy wasdiscussed. Thirdly, the functions ofthe operation manager in imple-menting traceability were elaborated.Then the techniques on how to col-lect traceability data and/or record-keeping were provided. Next, themethods of obtaining traceabilityinformation from field operationsusing a map were vividly discussed.In section six, the strategies utilizedto collect packing house traceabilityinformation were provided. Sectionseven provided information on track-ing traceability back to the farm inthe case of a disease outbreak. Thecost of formulating and implement-ing traceability using our economicefficient model was discussed in sec-tion eight. Section nine providedinformation on how traceabilitycould be adopted during transporta-tion of fresh produce. Section tendiscussed the implementation oftraceability when fresh produce areco-mingled. Finally, the use of rubberstamps in the adoption of traceabilitywas elaborated.

For More InformationFonsah, E.G. (2003a). The impact of

NAFTA on U.S. fruits and vegetables industry. The Georgia Economic Issues Newsletter, 19(3), 5.

Fonsah, E.G (2003b). Integrated quality control management strategies in banana production, packaging and marketing. Journal of Food Distribution Research, 34(1), 99-106.

Fonsah, E.G., & Chidebelu, S.A.N.D. (1995). Economics of banana production and marketing in the tropics: A case study of Cameroon. London: Minerva Press Publishers.

Fonsah, E.G. (2005a). Traceability, country of origin and ISO 9000. In Proceedings of the 2005 Southeast Regional Vegetable Conference, Savannah International Trade & Convention Center (pp. 43-49). Savannah, Georgia.

Fonsah, E.G. (2005b). Traceability in the U.S. food industry. Georgia Fruit & Vegetable Growers News, 10(4),12-13.

Fonsah, E.G., Escalante, C., & Byrd, M. (2005c). Economic analysis of pepper production, marketing and management in Georgia. College of Agricultural and Environmental Sciences, Cooperative Extension Service, University of Georgia, Department of Agricultural and Applied Economics, AGECON-05-106 (October).

Golan, E., Krissoff, B., Kuchler, F., Calvin, L., Nelson, K., & Price, G. (2004). Traceability in the U.S. food supply: Economic theory and industry studies. United States Department of Agriculture/Economic Research Service, AER-830.

Huang, S.W. (2004). Global trade patterns in fruits and vegetables. United States Department of Agriculture/Economic Research Service Outlook, Agriculture and Trade report number WRS-04-06.

Produce Marketing Association/Canadian Produce Marketing Association (PMA). (2005). Fresh produce traceability: A guide to implementation. Available online: http://


www.pma.com/Template.cfm?Section=Standards2&CONTENTID=7399&TEMPLATE=/ContentManagement/ContentDisplay.cfm.

Randall, R.C. (1995). Randall’s practical guide to ISO 9000:

Implementation, registration and beyong. New York, Addison-Wesley Publishing Company.

The Global Traceability Standard (GS1). (2006). Supporting visibility, quality and safety in the supply chain. Available online: http://www.gs1.org/docs/

traceability/GS1_tracebility_brochure.pdf.

Esendugue Greg Fonsah ([email protected]) is Assistant Professor,Department of Agricultural andApplied Economics, University ofGeorgia, Tifton, GA.




4th Quarter 2006 • 21(4)


Preventive Health Maintenance Information Brought to You by Your Local Fruit and Nut Producersby Hoy F. Carman

JEL Classification: I12, Q13

When we were children, our mothers told us that “eatingan apple a day keeps the doctor away,” that “carrots con-tribute to good eyesight,” and we saw “Popeye” gain amaz-ing strength from consuming cans of spinach. This wasreinforced by please “eat your vegetables; they are good foryou,” but we also remember that food and vitamins thatwere good for us often did not taste very good! Regardless,these appeals were effective. Spinach growers credited Pop-eye with a 33% increase in U.S. spinach consumption–and saving the spinach industry in the 1930s (King Fea-tures, 2006).

Fast forward to the 21st century. Now many consum-ers have moved past accepting generalities and want toknow the dietary and health contributions of specific foodproducts. There is a significant and growing market seg-ment that is concerned with consuming a diet that willreduce the incidence of important sources of mortality,including obesity, cancer, heart disease, and diabetes.These same health issues are a public policy priority, andgovernment provides general diet recommendations toimprove public health. Many commodity groups, lookingfor a “New Popeye” to spur their product demand, believein the “special beneficial attributes” of their products, butare faced with U.S. Food and Drug Administration (FDA)requirements that product and health claims be factuallycorrect. Several have moved to fund diet and healthresearch designed to discover and document relevant spe-cial product attributes. This article describes the diet andhealth research efforts of the Almond Board of California,the California Avocado Commission, the CaliforniaStrawberry Commission, and the California Walnut Com-mission.

Developing Health-Oriented Research and Promotion ProgramsProducer-funded research by California’s marketing ordersand commissions has traditionally focused on productionproblems and, to a much lesser extent, marketing issues.At the same time, generic promotion programs were basedon messages about the origin, taste, and appearance of thefruit, vegetable, and nut products. Public relations activi-ties included news releases about product availability, newrecipes, articles on choosing, storing and preparing theproducts, and other newsworthy events. References tohealth attributes of commodities were based on U.S. Gov-ernment diet recommendations such as the “Food Pyra-mid” or references to vitamin or nutrient content. TheCalifornia Walnut Commission (CWC) was one of thefirst mandated marketing programs to fund health andnutrition research in 1992, when it decided to counter dietrecommendations urging consumers to reduce or con-strain consumption of nuts because of their high oil con-tent. The Almond Board of California (ABC), the Califor-nia Avocado Commission (CAC), and the CaliforniaStrawberry Commission (CSC) initiated funding forhealth and nutrition research in 1995, 1997, and 2003,respectively. A review of budgets for the five-year period2000/01 to 2004/05 indicates that these four organiza-tions spent a total of over $8.1 million on health andnutrition research.

Health and Nutrition Research Expenditures and TopicsAnnual health and nutrition research expenditures for thefour commodity groups recently totaled over $2.77 mil-


lion, ranging from 2.5 to 7.0% oftotal annual budgets (Table 1). Notethat health and nutrition research hastended to be an addition to tradi-tional production and marketingresearch rather than a substitute. Thesame four groups spent about $3.8million on production research dur-ing the 2004/05 crop year.

Health and nutrition researchtopics pursued by the four commod-ity groups have similarities as well asdifferences (Table 1). Each commod-ity group has or is seeking evidenceon the value of consuming theirproduct on reducing the risk of heartdisease. Each of the four commoditygroups has evidence that productcomponents may lower the risk ofcertain cancers and each of the com-modities contains antioxidants thatare known to slow the aging processand protect against heart disease andvarious forms of cancer. Almonds,avocados, and walnuts can be a com-ponent of a diet to control weightgain, and each can be part of a dietfor managing and controlling diabe-tes. Following is a short summary ofresearch interests for each commod-ity.

WalnutsInitial studies funded by the CWCconcentrated on the relationshipsbetween walnut consumption andthe risk of coronary heart disease andwalnut consumption and cholesterollevels. Focusing on relationshipsbetween walnut consumption andheart health, the CWC funded acombination of epidemiological andclinical studies conducted by leadinguniversities in the United States,France, New Zealand, Spain, Nor-way, and Japan and published inmedical, nutrition, and scientificjournals. These studies indicate thatwalnuts reduce LDL cholesterol andheart disease risk, the fatty acids in

walnuts improve the function ofarteries, walnuts reduce cell adhesionmolecules and enhance the circula-tory system, and that omega-3 fattyacids in walnuts reduce inflammationin arteries. More recent studies indi-cate that melatonin in walnuts pro-tects against cancer and heart disease,omega-3s reduce blood pressure,arterial inflammation, the stickinessof platelets and have antidepressant-like effects, walnuts can help inweight management, that consump-tion of walnuts are protective forpeople with type 2 diabetes, and thatthe form of vitamin E found in wal-nuts might halt the growth of pros-tate and lung cancer cells. Walnutshave high concentrations of antioxi-dants, which help the body ward offcancer, heart disease, and diabetes, aswell as arthritis, osteoporosis, andAlzheimer’s disease. The ScientificResearch Update for Health Profes-sionals, posted on the CWC website,includes results for 23 professionalstudies published between 1992 and2005.

The CWC used their researchresults to secure an FDA qualifiedhealth claim for walnuts on July 15,2003 that was separate from the

health claim for other nuts. The finalwording for the claim, issued inMarch 2004, states: “Supportive butnot conclusive research shows thateating 1.5 ounces per day of walnutsas part of a diet low in saturated fatand cholesterol may reduce the riskof heart disease. See nutrition infor-mation for fat content.”

AlmondsThe ABC initiated nutrition researchin 1995 with studies on cardiovascu-lar disease, decreased cancer risk, glu-cose metabolism, and analysis of thenutrient content of almonds. Thenumber of research projectsexpanded to 12 in 1997-1998, andgained an international flavor withABC-funded studies at the Univer-sity of Toronto Medical School andat Beijing Medical University. Themost important outcome of thenutrition research program foralmond industry promotion wassecuring the FDA qualified healthclaim for almonds on July 15, 2003that states: “Scientific evidence sug-gests but does not prove that eating1.5 ounces per day of almonds as partof a diet low in saturated fat and cho-lesterol may reduce the risk of heart

Table 1. Health and nutrition research expenditures and areas of interest mentioned by four California commodity groups.

Expenditures, 2004/05

Commodity

Almonds Avocados Strawberries Walnuts

Amount $1,200,000 $444,754 $605,000 $525,260

Percent of Total Budget 5.0 2.5 7.0 6.8

Research Area

Cardiovascular Disease X X X X

Weight & Obesity X X X

Cancer Prevention X X X X

Diabetes X X X

Antioxidants X X X X

Aging X X X X

Prostate Health X

Bone Health X


disease.” Shortly after approval of theFDA health claim, an article pub-lished in the Journal of the AmericanMedical Association on a study knownas the Portfolio Eating Plan, foundthat eating a diet high in heart-healthy foods, including almonds, isas effective in managing cholesterolas taking a starting dose of lovastatin,a cholesterol-lowering statin drug(Jenkins et al., 2003).

The ABC has ongoing researchrelationships with more than 20 sci-entific organizations and universitiesaround the world. Cardiovascularresearch has the largest research bud-get (24%), followed by research onthe composition of almonds (20%),research on antioxidants (19%), can-cer research (14%), and research onweight (3%) (www.almondsa-rein.com). Research projects on top-ics in the above areas include foodallergies, Vitamin E, the chemicalcomposition of almond skins, coloncancer, cholesterol levels and reduc-tion, the effect of almonds on glyce-mic control and insulin response, andthe effects of almond consumptionon appetite, energy and weight. TheABC website lists references for 46publications reporting nutritionalcharacteristics and research results onpotential health benefits of consum-ing almonds.

AvocadosIn 1997, the CAC made a strategicdecision to proactively communicatethe health and nutritional benefits ofavocados through their public rela-tions and outreach programs and tofund nutritional research. Researchfocused initially on a detailed analysisof the composition and nutrient con-tent of avocados, including fattyacids, vitamins, and minerals. Recentemphasis has shifted to quantifyingand qualifying various phytochemi-cals (i.e. pytosterols, carotenoids, glu-

tathione), as well as their health ben-efits and effects on disease processes.The CAC communicates the resultsof ongoing research to health andnutrition professionals in publica-tions and on their website. For exam-ple, three of the seven short articles inthe Summer/Fall 2006 issue of Cali-fornia Avocado Healthy Times arebased on recent research publica-tions (See CAC website: www.avac-ado.org/healthy_living/healthcare_professionals.php).

StrawberriesThe California Strawberry Commis-sion’s health and nutrition researchand promotion programs are achange in strategy stemming fromchanging industry structure. Prior to2003, the CSC jointly promotedCalifornia strawberries with majorretailers. This strategy began to con-flict with large shippers who wereestablishing their own brands andalso sponsoring joint promotionswith retailers. In a major strategicchange in 2003, the CSC establisheda health and nutrition research pro-gram and shifted its marketingemphasis to consumer-oriented pro-motion based on the health benefitsof consuming fresh strawberries. TheCSC introduced a new promotioncampaign, the “Red Edge” campaign,that targets health and nutrition pro-fessionals, the consumer, and trademedia through trade events, andmedia materials that communicatefindings from CSC-sponsoredresearch on the health benefits ofconsuming fresh strawberries. Intheir recent request for proposals, theCSC states: “The primary goal of theCalifornia Strawberry Commissionnutrition research program is todevelop the scientific basis for a qual-ified health claim in chronic diseaseprevention. Improved understandingof the bioactive components of

strawberries, bioavailability, andmechanism of action are consider-ations. Priority areas are cardiovascu-lar health, cancer prevention, cogni-tive function, and obesity.” The CSCaccepts proposals for up to threeyears of research funding. The CSCwebsite has references and links tonine research papers related to theirresearch program.

Health and Nutrition PromotionThe promotion strategy used forhealth and nutrition varies by com-modity. Public relations programshave proven to be very effective fordissemination of health and nutritionresearch results and are used by eachof the four commodity groups. Basedon laboratory testing of advertisingthemes, the California Walnut Com-mission (CWC) concluded that themessage on the health benefits ofwalnuts is best communicatedthrough a third party such as a maga-zine, newspaper, doctor, nutritionist,or other credible source. The adver-tising emphasis has been on quality,taste, and uses for walnuts in mealpreparation, with public relationsused for the health and nutritionmessage. The CAC also focuses onthe use of public relations to dissemi-nate the health and nutritional mes-sage for avocados rather than usingpaid advertising and promotion. TheCAC’s public relations program,emphasizing health and nutritionalbenefits associated with avocado con-sumption, has garnered the attentionof news organizations and has beenwidely disseminated with a modestexpenditure of funds. In addition,most consumers place much morecredibility on a news story abouthealth and nutrition benefits of con-suming a product than they do onadvertising with the same message.


The Almond Board of California(ABC) began disseminating resultsfrom their nutrition studies throughtheir public relations program during1997-1998. The 1998 AlmondAlmanac noted that expenditures of$761,000 on public relations gainedexposure that would have cost over$1.72 million using traditionaladvertising and promotion. During1998-1999, public relations expendi-tures increased to $1 million, but theadvertising value equivalency ofexposures related to health benefits ofconsuming almonds increased to $7million (Almond Almanac, 1999).The health message was extended toABC advertising in Japan during1998-1999 and to Europe in 2000-2001.

With FDA approval of a qualifiedhealth claim for almonds on July 15,2003 and a “partnering” agreementwith the American Heart Associa-tion (AHA) that permits use of theAHA logo in almond advertising, theABC focused on a health message inmost of its advertising and promo-tion. The copy for one 2004 maga-zine advertisement, for example,reads “California Almonds; Admiredby Great Chefs & Prominent Cardi-ologists Alike” (Almond Almanac,2004). Note that 2003-2004 adver-tising and public relations expendi-tures based on the health and nutri-tion message accounted for abouttwo-thirds of the ABC budget ($16million).

Success Encourages ImitationMarketing program innovationsimprove the competitive position ofcommodity groups. Health andnutrition research for almonds, avo-cados, strawberries, and walnuts,funded by the respective marketing

programs, has reported results thatdocument the value of consumingeach product. These results are ofinterest to health conscience consum-ers and are widely circulated throughunpaid newspaper and magazine arti-cles, diet recommendations by healthprofessionals, and recommendationsby health organizations such as theAmerican Heart Association and theAmerican Diabetes Association. Thevalue of media space devoted tohealth and nutrition aspects of thesefour products is a large multiple ofthe public relations budgets. In addi-tion, news stories for these commodi-ties are more believable than advertis-ing to many consumers.

There is anecdotal evidence onthe value of health and nutritionresearch, but empirical studies of theimpact of research results on productdemand are not available. For exam-ple, the CWC firmly believes thatMcDonald’s May 2005 decision toadd a fruit and walnut salad to itsmenu in its 13,700 U.S. restaurantswas due to the availability of researchon the health and nutritional benefitsof walnuts. The positive impact ofcommodity group advertising andpromotion on demand has been doc-umented for many products, but theeffects of a health and nutrition mes-sage versus alternatives have not (Kai-ser, Alston, Crespi, & Sexton, 2005).Never-the-less, the perceived successof health and nutrition research pro-grams for increasing product demandis encouraging other commoditygroups to undertake similar healthand nutrition research.

For More InformationAlmond Board of California,

Modesto, CA. Almond Almanac. (2004). Latest issue available

online: http://www.almondboard.com/.

California Avocado Commission Website. (2006). Available online: http://www.avacado.org/healthy_living/healthcare_professionals.php.

California Strawberry Commission Website. (2006). Available online: http://calstrawberry.com/health/rhprofessionals.asp.

California Walnut Commission Website (2005). Scientific research update for health professionals. Available online: http://www.walnuts.org/health/han_science_news.asp.

Jenkins, D.J., Kendall, C.W., Marchie, A., Faulkner, D., Wong, J.M.,.deSouza, R, et al. (2003). Effects of a dietary portfolio of cholesterol-lowering foods vs lovastatin on serum lipids and c-reactive protein. Journal of the American Medical Association, 290, 502-510.

Kaiser, H.M., Alston, J.M., Crespi, J.M., & Sexton, R.J. (2005). The economics of commodity promotion programs: Lessons from California. New York: Peter Lang Publishing, Inc.

King Features. (2006). Popeye. Available online: http://www.kingfeatures.com/features/comics/popeye/about.htm.

Hoy F. Carman ([email protected]) is Professor,Department of Agricultural &Resource Economics, University ofCalifornia, Davis (UC-Davis), CA,and is a member of the GianniniFoundation of Agricultural Econom-ics.




4th Quarter 2006 • 21(4)


Fresh Produce Intermediaries: Impacts of Change in Away-from-Home Food Markets and Trade Practices by Suzanne Thornsbury, Roger Hinson, Lourdes Martinez, and Dixie Watts Reaves

JEL Classification: L14, L20, L81

The markets and channels that supply fresh produce areamong the most dynamic in the food system. Fresh fruitsand vegetables, as a group, benefit from trends in con-sumer preferences. A stream of evidence from the scientificcommunity confirms the health benefits of fresh producein a world of concerns about health issues. Convenience isessential to many time-starved consumers, encouragingproduct development and advances in packaging. Most, ifnot all, fresh produce items are available year-round, andthe variety of products has continued to grow. Consump-tion is dramatically affected by safety issues, as illustratedby the recent illnesses from E. Coli on spinach. Continu-ing consolidation at retail affects supply chain relation-ships, as efficiencies in that area are thought to be a sus-tainable competitive advantage. Another dynamic is theemergence of large distributors serving the retail groceryand foodservice segments, placing additional pressure onsmall- and mid-size companies in the areas of marketaccess and supply chain efficiencies.

Food away from home, or the foodservice sector, repre-sents an increasing share of food purchases in the UnitedStates. Expenditures on meals eaten outside the homeincreased dramatically over the last six decades (Figure 1).Rising incomes, changing demographics (smaller house-holds, busier lives), and other factors have encouragedconsumers to expect conveniences from food providers. Inthis article, we address the food away-from-home segmentof the produce industry and the impacts of changes onwholesalers and other intermediary businesses that servethe segment, with implications for firms across the size

spectrum. The implications of changing trade practices arealso highlighted.

Wholesale and distribution businesses are intermediatestage operations that provide services related to productsale. Historically, a ‘wholesaler’ operated from a warehouseoften in central markets, and usually received and soldgoods. A much greater variety of services and functionsnow characterize this sector.1 We use the inclusive term“intermediary” to describe agents who (i) take title toproduct, such as wholesale merchants, distributors,

0%10%20%30%40%50%60%70%80%90%

100%

1955 1965 1975 1985 1995 2005

away-from-home at home

Figure 1. Food away-from-home share increases in theUnited States.Source: USDA 2006.

mailto:&


import/export merchants, and salesbranches; (ii) charge a fee but do nottake title, such as brokers and com-mission merchants; and (iii) provideservices such as sorting, packaging,and labeling. Also, there is a commondistinction between broadline whole-salers, who sell a wide variety of prod-ucts, and specialty wholesalers, whodeal with a limited product line, suchas fresh produce or dairy products. Interms of distribution of sales in 2002,the four-firm concentration ratio for

general line grocery merchant whole-salers was 40%, compared to justunder 10% for fresh fruit and vegeta-ble merchant wholesalers (U.S.Department of Commerce, 2005).Since large retail grocers are self-dis-tributors, they are not included inthis analysis.

Intermediaries in Food ServiceNot only has the proportion of away-from-home food sales grown in theUnited States, but there have beenimportant shifts among outletswithin this broad category (Figure 2).Away-from-home foods normallyinclude restaurant sales (eating anddrinking places; hotels and motels),take-away (or ready-to-eat) foodssuch as prepared food from countersat grocery stores, and institutionalfoodservice, including schools, mili-

tary, and retirement institutions. Theremaining away-from-home foodsales are provided by recreationplaces, bars, and vending machines.Historically, food away-from-homesales of produce were lower whencompared with sales of other foodproducts. This is no longer true. Per-osio et al. (2003) estimated thatapproximately 45% of fresh produceis sold through foodservice channels.

The largest sector of away-from-home food sales remains eating anddrinking places, which can be furtheranalyzed by type of outlet. In 2002,sales through full-service and fastfood restaurants were almost 80% ofthe total dollars spent on away-from-home foods (Stewart et al., 2004).Share of sales in fast-food restaurantsgrew steadily from 29% in the 1980sto 38% in the mid-1990s. The sharefor full service restaurants declined

1. Due to the diversity and number of services provided by intermediar-ies, consistent definition and cate-gorization of firms is difficult. See U.S. Department of Commerce (2005); Harris et al. (2002); and McLaughlin, Park, and Perosio (1997).

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

mill

ion

dolla

rs

Eating and drinking places Hotels and motels Retail stores, direct selling

Recreational places Schools and colleges All other

Figure 2. Total expenditures on food away-from-home by type of outlet, 1990-2005.Source USDA, 2006


over the same period, from 42% to38%. Consumer spending in both ofthese outlets is projected to increasebetween 2000 and 2020, by 18% atfull-service restaurants and by six per-cent at fast-food restaurants. Evenwithin these two categories there areimportant distinctions such as the“fast-casual” segment, an importantarea of fast-food growth (Perosio,McLaughlin, & Cuellar, 2003).Unlike full-service restaurants, fast-casual outlets offer an atmospheretargeted primarily to adults and oftenfeature fresh, high-quality ingredi-ents, including produce.

Chain restaurants (fast-food orupscale establishments) have multipleoutlets and often have wide geo-graphic reach. These firms demandhigh volumes and require consis-tency, portion control, and otherproduct characteristics across timeand outlets. This is the dominantmarket for broadliners, who reportedthat about 95% of their sales weremade to these buyers (Perosio,McLaughlin, & Cuellar, 2003). Inaddition to food, broadliners maysupply equipment, packaging, uni-forms, and other items to foodservicecustomers.

In contrast to large chain restau-rants and the documented concentra-tion of the food retail/grocery seg-ment, most establishments in thefoodservice industry remain small-ormedium-sized. These businessesinclude local fast-food, fast-casual,up-scale fine dining, and hotel food-service, where purchasing is handledby local buyers or chefs. A cross-sec-tion of these outlets is prevalent in allgeographic regions, a patternexpected to continue in the foresee-able future. Small foodservice estab-lishments often demand smaller vol-umes of a range of fresh produce,with a product mix that may varyacross seasons. They are important

and active customers for produceintermediaries. In a study thatincluded both small- and mid-sizedbroadliners and produce wholesalers,differentiation strategies emphasizedhigh levels of service and productquality, strong specialty productavailability, freshness, and daily (orvery frequent) service (Hinson,Sinoha, & Reaves, 2006)

The dichotomy in size amongfoodservice outlets provides opportu-nities for a greater number of inter-mediaries to be active in the supplychain when compared with retailfood sales. While growth and addi-tional volume in the overall marketare one opportunity, changes in thevenue, where the food dollar is spent,represent valuable opportunities forproduce suppliers.

Trade Practices and Enabling TechnologiesTrade practices are the services pro-vided and the overall structure oftransactions between intermediaries,their customers, and their suppliers.Evolving trade practices includeincreased emphasis on product char-acteristics, chain management, andcommitment-based relationshipssuch as strategic alliances. Successfulintermediaries (both small and largefirms) have been able to adapt andadopt new trade practices to servedifferent fresh produce customers,including those in away-from-homefood markets. Understanding evolv-ing trade practices and their enablingtechnologies is fundamental forintermediaries who want to gain ormaintain market share, or to re-posi-tion themselves, within the away-from-home market.

Trade practices based on consumerconcerns. Fresh produce intermediar-ies are aware of the growing concernabout health and safety. These con-

cerns include farm-based and han-dler-based issues such as the use of‘good agricultural practices’ to reducemicrobial contamination and pesti-cide residue risks, validation of claimssuch as organic, and other credenceattributes. Preferences regarding ori-gin can be important. Some consum-ers feel that locally produced fruitsand vegetables are fresher and thatstatements such as ‘organic’ are morecredible from local farmers. The pos-sibility of regulation to require abilityto trace a product to its origin hasalready established traceability as achannel requirement in many cases.Intermediaries often supply theseassurances through third-party certi-fication that all parties in the chain,including themselves, are followingthe rules. Compared with 2000,increased buyer demand for third-party certification and traceabilitywere reported in 2005, with furtherincreases expected by 2010 (Martinez& Thornsbury, 2006). Intermediar-ies may meet special requests applica-ble to packaging and organic/envi-ronmentally friendly products inmultiple ways, including coordina-tion with their suppliers to makeproduct or service adjustments (Hin-son, Sinoha, & Reaves, 2006).

Trade practices based on servicerequirements. For the large number ofsmall- and mid-size foodservice out-lets, produce intermediaries provideextensive services to customers.Examples include the willingness tobreak cases to assemble the mix ofproducts and sizes ordered, deliveryof less-than-truck-load quantities,and the ability to adjust orders onshort notice. Although some largeintermediaries that supply large food-service establishments (for example,Sysco and Gordon Food Service) alsoservice these small firms, many smallfoodservice establishments remain


highly reliant on local intermediaries.

Trade practices – the personal rela-tionship. Although the use of con-tracts has increased particularlyamong the larger firms, personal rela-tionships with both suppliers andcustomers remain a cornerstone ofexchange in foodservice. Manysmaller suppliers maintain a very tra-ditional personal contact approach.Results from a 2005 survey indi-cated that 31% of fresh produceintermediaries had maintained com-mercial relationships with their pri-mary suppliers for six to ten years,while 12% had worked with theirprimary supplier more than 20 years.Long-term relationships are also pre-dominant in intermediary relation-ships with customers. Over one-thirdof survey respondents indicated hav-ing worked with the same customersfor more than six years (Martinez &Thornsbury, 2006).

Enabling technologies and innova-tions. Enabling technologies have thepotential to increase efficiency acrossthe supply chain and include theinternet as a platform, hardware fordata sources, and intellectual prop-erty software. For example, sharing ofbar-code and radio frequency identi-fication (RFID) scanner data pro-vides information within firms andacross firm boundaries to providebetter customer service levels. Theycan facilitate efficient replenishmentand category management. Studiesreport that produce wholesalersbelieve inventory management willbe increasingly important. Producedistributors used electronic datainterchange (EDI) and cross-dock-ing technologies more than theirbroadline competitors, but lagged incontinuous replenishment and auto-mated purchase orders (Perosio,McLaughlin, & Cuellar, 2003). Rat-ings by small- and mid-size busi-

nesses indicated that partnershipsand e-commerce would increase inimportance, while lower-rankedissues were pallet bar-coding, RFID,returnable containers, and flowthrough/cross docking (Hinson,Sinoha, & Reaves, 2006).

In addition to electronic technol-ogy, long-term partnerships, alli-ances, and software-based propertyare knowledge-based innovationsthat enhance coordination. As anexample, Collaborative PlanningForecasting and Replenishment(CPFR) allows firms to coordinatesupply chains through sharing ofretail-level demand forecasts, whichare developed iteratively using a web-based procedure. When forecastsconverge to pre-agreed limits, theybecome the order and the basis forproduction and replenishment plans(Fleidner, 2003).

While this level of technologyand application may be less commonamong smaller intermediaries, cus-tomer and consumer demands are lit-tle different from those expected oftheir larger competitors. Gaining thebenefits of these technologiesrequires both the acquisition cost ofthe technology and the learningcurve associated with implementa-tion. Benefits arise from widespreadadoption. While large intermediariescan more easily absorb these costs,small- and mid-size companies are ata disadvantage. Outsourcing to third-party logistics providers is an increas-ingly important model that helpssmaller firms acquire the benefits oftechnology. Development costs arespread across many customers by thethird-party provider, and each inter-mediary is then able to provide ser-vices that in many ways mimic thoseoffered by large firms.

Outlook for Fresh Produce IntermediariesDemands from consumers are driv-ing subtle and overt changes in freshproduce supply chain requirementsand the firms that serve these mar-kets. The dichotomy between largechain restaurants and the manysmaller consumer outlets active in theaway-from-home food market hasprovided opportunities for multiplesuccess strategies among fresh pro-duce intermediaries. All intermediar-ies continue to adapt their offeringsto meet the needs of a marketplaceincreasingly driven by dollars spenton away-from-home foods and evolv-ing trade practices. Large broadlinecompanies generally target chain res-taurants and more frequently usepartnerships and alliances. They pur-sue growth goals through existingaccounts, increasing market sharethrough acquisitions, and enteringsmaller markets. More typical freshproduce intermediaries are small- andmid-size businesses with many smallaccounts. They compete by provid-ing high service levels on itemsimportant to their customers, such assmall order sizes, special deliveries,procurement of products appropri-ate to the customer base, and promo-tion, technology, and other customersupport. As a part of chain manage-ment, electronic and software-enabling technologies including EDI,barcodes, RFID, and internet plat-forms have become the standard.Many smaller suppliers, however,maintain a very traditional personalcontact approach.

For More InformationFleidner, G. (2003). CPFR: An

emerging supply chain tool. Industrial Management and Data Systems, 103(1), 14-21.


Harris, J. M., Kaufman, P., Martinez, S., & Price, C. (2002). The U.S. Food Marketing System, 2002 (AER 811). United States Department of Agriculture Economic Research Service. Available online: http://www.ers.usda.gov/publications/aer811/aer811d.pdf.

Hinson, R., Sinoha, R., & Reaves, D. (2006). Industry concentration impacts on business strategies used by small produce wholesalers. Selected paper, presented at the Southern Agricultural Economics Association annual meeting, Orlando, FL. Available online: http://www.aces.edu/%7Ehkinnuca/JAAE/.

Martinez, L., & Thornsbury, S. (2006). U.S. Fresh Produce Wholesale Sector Trade Practices: Initial Survey Results. Agricultural Economics Report No. 626, Department of Agricultural Economics, Michigan State University.

McLaughlin, E., Park, K., & Perosio, D. (1997). Fresh Track 1997:

Marketing and Performance Benchmarks for the Fresh Produce Industry. Ithaca, NY: Food Industry Management, Cornell University Produce Marketing Association.

Perosio, D., McLaughlin, E., & Cuellar, S. (2003). FreshTrackTM

2003. A Menu of Opportunity: Produce in the Foodservice Industry. Ithaca, NY: Food Industry Management, Cornell University Produce Marketing Association.

Stewart, H., Blisard, N., Bhuyan, S., & Nayga, R.M., Jr. (2004). The demand for food away from home: Full-service or fast food? (AER 829) United States Department of Agriculture Economic Research Service. Available online: http://www.ers.usda.gov/publications/aer829/aer829.pdf.

United States Department of Agriculture Economic Research Service. (2006). Food CPI, prices and expenditures: Food away from home. Available online: http://

www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/

United States Department of Commerce, U.S. Census Bureau. (2005). Establishment and firm size: 2002 (Including Legal Form of Organization) (EC02-42SS) 2002 Economic Census Wholesale Trade Subject Series. Available online: http://www.census.gov/prod/ec02/ec0242sssz.pdf.

Suzanne Thornsbury ([email protected]) is Assistant Professor,Department of Agricultural Econom-ics, Michigan State University, EastLansing, MI. Roger Hinson ([email protected]) is Professor,Department of Agricultural Econom-ics and Agribusiness, Louisiana StateUniversity, Baton Rouge, LA. Lour-des Martinez ([email protected])is Research Specialist, Department ofAgricultural Economics, MichiganState University, East Lansing, MI.Dixie Watts Reaves ([email protected]) isAssociate Professor, Department ofAgricultural and Applied Economics,Virginia Tech, Blacksburg, VA.




4th Quarter 2006 • 21(4)


A Marketing Systems Approach to Removing Distribution Barriers Confronting Small-Volume Fruit and Vegetable Growersby Charles Hall, John Brooker, David Eastwood, James Epperson, Ed Estes, and Tim Woods

JEL Classification: L11, L25

Fruit and vegetable growers have always faced dynamic,rapidly changing markets because of underlying factorssuch as consumer tastes and preferences, weather patterns,regulatory legislation, insect/disease infestations, produc-tion costs, and marketing logistics. In addition, evidencesuggests that significant changes in market structure areoccurring in the fresh fruit and vegetable industry in thatthe flow of produce from farm to consumer follows a dif-ferent path than it once did. Rather than making heavyuse of the wholesale terminal markets, retailers (large onesin particular) are purchasing a larger portion of fruits andvegetables directly from shippers. Farms and supermarketsalike are expanding, while it appears that the wholesalersector is decreasing in size. Alternative forms of pricing,such as rebates, slotting fees, and other kinds of allow-ances, are becoming more common. Some industrysources suggest that mergers at the retail level are drivingmany of these changes.

In light of these structural changes occurring in theproduce industry, fruit and vegetable growers find them-selves in a continual cost-price squeeze as the downwardpressures on price (resulting from the increased purchasingpower associated with fewer produce buyers) forces grow-ers to increase their volumes in an attempt to minimizeper-unit production and marketing costs. Today’s producetransactions are very different from the traditional empha-sis/focus on f.o.b. commodity-oriented pricing, with grow-ers competing for shelf space through “ad” pricing.Instead, growers must offer value-added services and prod-

uct traits demanded by produce buyers, such as: (1) grow-ing varieties that have been specifically designed/developedfor taste and nutritional qualities; (2) using cooling tech-nologies in the field, packing shed, and during transport toreduce product temperatures, enhance quality, andincrease shelf life; (3) offering on-time and just-in-timedelivery schedules, sometimes involving multiple deliveriesper week; (4) customizing palletizing, packaging, andproduct labeling requirements; (5) tracking and traceabil-ity from the field to the site of sale; (6) producing in amanner that is “safe,” that is, free from microbial and pes-ticide contamination; (7) developing fresh produce con-tracts, sometimes on a multiple-year basis; and (8) offeringa year-round supply of diverse produce items.

Although these services do tend to act as a means forgrowers to differentiate themselves from the competition,they also increase costs dramatically, further eroding prof-its, especially for small and mid-sized fruit and vegetablegrowers. Volume and per-unit costs are inversely corre-lated, so unless sufficient volumes can be produced and/ormarketed by the grower (or grower organizations) in somevertically coordinated fashion to reduce per-unit costs, thechances of long-term survival are much lower for indepen-dent smaller-volume growers.

In the midst of these structural changes, facilitating theroles of key produce industry participants is more involvedand crucial than with other crops or livestock, particularlybecause of the seasonality of fruit and vegetable produc-tion, the perishable nature of these products, and the con-


stantly shifting supply from produceregions. Historically, Extension Ser-vices, Experiment Stations, and stateDepartments of Agriculture havebeen actively involved in the market-ing of fruits and vegetables. Produc-tion-related research has been con-ducted over several decades regardingbest management practices associatedwith fruits and vegetables. Researchin agricultural economics has focusedon the costs and returns of growing,packing, and processing operations;market windows; and competitiveposition studies. The CooperativeExtension Service has provided edu-cational programs and assistance infacilitating market development. Sev-eral types of marketing support havealso been provided by state Depart-ments of Agriculture. Notably, sev-eral Southern states have providedcoordinated development of publicmarketing facilities and marketingactivities. The extent of their involve-ment seems to be positively corre-lated with the growth of fruit andvegetable production in their respec-tive states. But none of the extantresearch viewed produce marketdevelopment from a small versuslarger grower perspective and theways these operations contributed tothe development of market infra-structure and channels from the farmgate to the consumer.

Georgia and North Carolina rankamong the top ten U.S. states inincome obtained from fruit and vege-table production. The USDA ranksGeorgia as third in the United Statesin harvested fresh vegetable acreageand fifth in value. North Carolinaranks first in the United States inproduction of sweetpotatoes, flue-cured tobacco, and turkeys raised,while the state’s growers are rankedamong the leading five states incucumbers for pickle production,bell peppers, strawberries, blueber-

ries, and snap beans. In Georgia andNorth Carolina, harvested fruit andvegetable acreage usually exceeds300,000 acres annually, with sweet-potatoes, watermelons, sweet corn,tomatoes, and sweet onions identi-fied as important sources of horticul-tural income. In Kentucky and Ten-nessee, fruit and vegetable sales arerelatively small sources of total farmincome for most growers, and there-fore only limited information is avail-able about horticultural growers. Sur-veys indicated that, on average, about10,000 acres of fruits and vegetableswere grown in Kentucky annually.The Tennessee fruit and vegetableindustry is somewhat larger thanKentucky’s, but it is probable thatTennessee growers collectively farmfewer than 60,000 acres of fruits andvegetables each year.

This paper reports on a recentassessment of the comparative pro-duce market development activitiesin the states of Georgia, Kentucky,North Carolina, and Tennesseebecause of commonalities such as theprevalence of small farms, the reli-ance on tobacco as a cash crop, andthe comparable growing seasons in allfour states. Each state has historicallyhad a large number of small-volumegrowers, but production in Kentuckyand Tennessee has not kept pace withthe other two states. To examine thereasons for this discrepant perfor-mance, separate surveys were con-ducted of Extension Services,Departments of Agriculture, growers,and produce marketing agents andmarket managers.

ExtensionCounty agents with horticulturalresponsibilities were personally inter-viewed in each state about produce-related programs, professional train-ing and development activities, and

the need for additional support[respondents n = 19 KY; 20 NC; 14GA; 12 TN]. Extension agents wereasked to indicate the relative impor-tance of produce-related informationand services being demanded bygrowers. Overall, there was a fairamount of agreement among thestates with respect to the relativepositions of the service areas. Pestcontrol was most frequentlyrequested in all three states. Soil tests,market development, and variety rec-ommendations comprised a group ofinformation requests that had com-parable overall scores after pest con-trol. The county agents in all fourstates indicated they had offered pro-grams in establishing or managingfarmers' markets; pesticide certifica-tion; market pricing; and meetings,short courses, or conferences. NorthCarolina and Georgia had providedassistance in all the areas listed. Nei-ther Kentucky nor Tennessee haddeveloped programs in agritourism,direct sales to schools and restau-rants, or marketing weather-damagedproduce. Unlike their North Caro-lina and Georgia counterparts, Ken-tucky respondents had not providedinformation on packaging or vegeta-ble field days and Tennessee respon-dents had not conducted educa-tional tours of other productionregions.

All four states have implementedcomparable staffing strategies. How-ever, the divergence in the numberand size of produce operations hasresulted in quite different numbers ofExtension agents with produceresponsibilities. In those counties inwhich there is sufficient activity,there are horticultural Extensionagents. Staffing levels in Kentuckyand Tennessee were several timeslower than those for Georgia andNorth Carolina. The latter pair ofstates also had industry-oriented


training programs for new hires thatreflected demand in counties whereproduce production was high. NorthCarolina had horticultural agents inevery county. The simultaneityencountered here was that fewer andsmaller produce operations led tolower demand for Extension pro-grams with respect to not only staff-ing, but also in terms of production,post-harvest handling, and marketingsupport.

GrowersProduce growers in each of the stateswere also surveyed [respondents n =385 KY; 87 NC; 198 TN]. Kentuckyand Tennessee farmers tended tohave smaller operations in terms ofacreage, produce sales, and farmincome than the typical Georgia andNorth Carolina counterparts. Grow-ers were asked to estimate the per-centages of their sales that wentthrough each of the possible marketoutlets. The weighted averages bystate for each type of outlet were cal-culated, and both Tennessee andKentucky had significantly higherconcentrations of direct market salesthan Georgia and North Carolina.Tennessee's largest outlet share was"wholesalers," while North Carolinawas almost evenly split between"direct to retailers" and "wholesalers"and had the highest average for"direct to retail store." The share forTennessee's "wholesalers" was largerthan the other two states, and Ken-tucky had the largest share ofweighted sales going to “co-ops."Notable among the percentages is the"shipper-packer" share for NorthCarolina, which was 17.4% versusless than 1% for Kentucky and Ten-nessee.

The extent of North Carolinaand Georgia’s produce activity vis-à-vis Kentucky and Tennessee, was

consistent with the produce-relatedbehaviors of the typical growers inthe states' samples. The percentagesof each state’s grower respondentsindicating interest in expanding theiroperations were 58% for Kentucky,69% for North Carolina, and 53%for Tennessee. Respondents weregiven a list of 14 factors that couldlimit expansion and were asked toindicate the extent to which theywere limiting. The rankings of theaverage scores were similar acrossstates, with “labor availability, marketoutlets, and prices received” beingthe three highest factors stated, and“equipment, transportation, andcredit availability” the lowest. NorthCarolina growers tended to indicatethat “prices received, market outlets,and cooling” were limiting, which isconsistent with these growers havinggreater interaction with the commer-cial distribution system. Tennesseegrowers were more likely to haveindicated “disease control” was aproblem.

In general, the level of groweractivity in North Carolina and Geor-gia greatly exceeds that found in Ken-tucky and Tennessee. North Carolinaand Georgia growers have created“critical mass” in terms of volumesand interest in marketing, comparedto Kentucky and Tennessee. Forexample, when asked to indicate theorganizations or people they wouldconsult with about marketing a newcrop, the states had similar propor-tions of growers who stated theywould first ask “other growers,”closely followed by “Extension.” Theonly exception was “the co-op,” forwhich Kentucky and North Carolinawere more likely than Tennesseegrowers to use as a market informa-tion source.

Produce Marketing AgentsWe interviewed representatives from“marketing agent” firms, defined asthat subset of wholesalers who con-ducted the bulk of their transactionsin the four-state area and were inbusiness primarily to buy and resellfruits, vegetables, and melons[respondents n = 10 KY; 19 NC; 9GA; 35 TN]. The number of theseintermediaries that operate in therespective states is one importantindicator/measure of the extent ofmarket development in each state.Secondary references (e.g., the RedBook and Blue Book) indicate thatGeorgia and North Carolina haveconsiderably more marketing agentsthan Kentucky or Tennessee, whichis reflective of the greater orientationtoward the commercial produce-mar-keting systems in those states. Impor-tant functions that these intermediar-ies provide include buying in bulkquantities from growers, grading andrepacking, fresh/canned/frozen pro-cessing, refrigerated storage, and salesand transport to independent gro-cers, institutions (e.g., hospitals,schools, etc.), restaurants, supermar-ket warehouses or retail sites, andother distributors. The ability ofsmall independent growers to forgerelationships with these agents ismore limited in Kentucky and Ten-nessee. That is, the lower frequencyof larger growers in these two stateslowers the likelihood that smallergrowers have had the opportunity towork with marketing agents. And, asnoted in the next section, the scopeof the activities at public markets inKentucky and Tennessee exacerbatesthe problem.

Public Market ManagersTo be included in the survey, thesemarkets had to have a manager, beopen for the entire harvest season,


have permanent buildings, and havereceived public financial support.Kentucky had no such market. Geor-gia had six, and North Carolina andTennessee both had five of these mar-kets. Managers of each of these mar-kets were interviewed. All three stateswith public farmers’ markets receivedsome level of public financial supportto cover operating costs, utilities,and/or capital expenditures, so nonewere completely self-supporting.Georgia was the only state in whichutilities were subsidized. North Caro-lina markets received their supportfrom the state. Georgia and Tennes-see also obtained financial assistancefrom cities, counties, and develop-ment districts. Only one market (inGeorgia) had received federal funds.Funding is a critical issue, however,and the success of the markets withrespect to fostering the developmentof the produce industry from thefarm through the retail levels variedby state. The results of these inter-views revealed the importance of theinherent simultaneity associated withmarket development, and the synergyassociated with having a variety ofmarketing activities occur at central-ized locations.

Kentucky and Tennessee are simi-lar in that there are no public outletsfor produce marketing other thanretail. Hence, there is little incentivefor growers to provide adequate sup-ply to attract stakeholders who areinvolved in other market channelactivities, such as brokering, whole-saling, and repacking. On the otherhand, Georgia and North Carolinahave created facilities that encom-pass a range of produce-marketingactivities, including retail. In addi-tion, these markets have successfullyencouraged complementary enter-prises, such as food distribution andinstitutional suppliers (e.g., forschool systems), to locate in close

proximity to these state markets. Thevariety of marketing activitiesencourages production because grow-ers have alternative outlets availableat centralized locations. Similarly,wholesalers, brokers, and repackersoperating independently have theretail markets as backups to fill unex-pected orders. Furthermore, retailvendors often look to the wholesaleside of the market to fill in productshortages. This tends to offset theseasonal aspects of the retail activity,increase the range (diversity) of prod-ucts offered at the market, and accen-tuate the appearance and perceptionof being a professionally run market.The breadth and scale of operationstend to be self-sustaining. Thewholesale side of these public mar-kets is successful in generating salesdollars and volume, while the retailside is successful in generating aware-ness and public support for the mar-kets.

State Departments of AgricultureWithin each state Department ofAgriculture, people responsible forfruit and vegetable marketing wereinterviewed. Georgia and NorthCarolina indicated the greatest num-bers of their respective department’sstaff are assigned to fruit and vegeta-ble marketing with 20 and 15 mar-keting specialists, respectively (notincluding market managers or assis-tant managers). Interestingly, severalof North Carolina’s Department ofAgriculture staff are former Exten-sion agents. Kentucky and Tennesseehad considerably fewer personnelassigned to produce marketing withsix and one staff persons, respectively.

In Georgia and North Carolina,a number of publicly funded farmers'market facilities were built. The state

of North Carolina built five publicfarmers' markets, while Georgia con-structed 16 publicly funded commu-nity markets. Conversely, the statesof Tennessee and Kentucky did notbuild a single farmers' market facilityusing state appropriations, althoughseveral city and county governmentsin Tennessee did construct commu-nity markets that serviced local pro-duce and specialty crop growers.

Marketing services from Depart-ments of Agriculture typicallyincluded fruit and vegetable directo-ries of growers, packers, wholesalers,or brokers (several were also on-lineInternet-based directories); state-focused generic promotional pro-grams; trade show hosting and pro-motions; export promotions andreverse trade missions; farm-to-school programs where produce issold and distributed to local schoolsystems; and sponsorship of statefarmers’ markets and/or marketingcenters.

The types of financial supportoffered to fruit and vegetable growersby the respective departments dif-fered between North Carolina/Geor-gia and their Kentucky/Tennesseecounterparts. Georgia and NorthCarolina provided funding for adver-tising, promotion, and market devel-opment grants; salaries of marketmanagers (North Carolina even pro-vided salary funds for market work-ers); subsidies to pay for the utilitiesof state farmers’ market facilities; andorganic third-party certification.Kentucky and Tennessee only pro-vided grants for advertising andorganic certification. Both NorthCarolina and Georgia reported anincrease in funding over the last fiveyears.

Publicly sponsored (throughDepartments of Agriculture) producemarkets also play a key role in marketdevelopment. Managers of all the


public produce markets (for whichthere were permanent buildings andutilities on the sites) were surveyedduring 2001 to obtain a snapshot ofthe types of market channel activitiespresent in each of the four states.Kentucky had no such markets in2001, although there were seasonaltailgate community markets in thestate. There were six, five, and fivefarmers’ markets in Georgia, NorthCarolina, and Tennessee, respectively,that were included in the public mar-ket manager survey. Wide disparitiesin the scale of operations werepresent within the Georgia andNorth Carolina markets. With theexception of one market in Tennesseethat only focused on assembly/pack-ing/shipping, all of the markets hadretailing activity.

This suggested that Tennesseeand Kentucky producers had fewermarketing options and assistanceavailable to them than did eitherNorth Carolina or Georgia growers.Marketing assistance was critical formany Kentucky and Tennessee farm-ers, because most farms (about 91%in Tennessee and 88% in Kentucky)reported total annual sales of lessthan $50,000 in 2000. In Georgiaand North Carolina, a majority offarms also reported total annual salesless than $50,000, but a large per-centage (25%) of firms reported salesgreater than $50,000. Thus, the aver-age sales figures in Georgia andNorth Carolina were much higher. Inaddition, the steady-to-decliningdemand reported by many Tennes-see and Kentucky growers was indirect contrast to the positive salesgrowth reported by other growers,especially Georgia and North Caro-lina growers.

Simultaneity and Produce Market DevelopmentThe disparity in the development ofthe produce industries among thestates studied is only partially relatedto grower behaviors. Results of thesurveys of the four other stakeholdergroups indicate they have importantroles in overcoming the simultaneitybarriers in market development. Ingeneral, the level of activity in NorthCarolina and Georgia has exceededthat found in Kentucky and Tennes-see.

Differences have been identifiedfor the breadth and variety of pro-grams and in the number of peopleinvolved with produce marketingactivities. With respect to publicfarmers’ markets, the states differwidely in terms of the financial sup-port and the types of facilities inoperation. For example, Tennesseedoes not provide any operating assis-tance for them, whereas North Caro-lina does. The types of facilities alsovary. The Tennessee and Kentuckymarkets generally provide limited ser-vices. North Carolina and Georgiaaccommodate brokers and wholesal-ers at several of its locations, whichalso have cooling and repacking capa-bilities. The number of brokers andwholesalers operating in each statevaries. Both Kentucky and Tennes-see have fewer of these stakeholdersversus North Carolina and Georgia.Extension programs with producemarketing emphasis are quite differ-ent. The latter has many more pro-grams to assist growers in marketingtheir crops, including activities tobring buyers and growers together.The Tennessee Department of Agri-culture has one full-time producemarketing position, while NorthCarolina has nearly thirty.

Taken together, the surveys pointto the need for critical masses to be

present in order for development toproceed. A sufficient number of largegrowers, who may also be shippers, isneeded to attract buyers at the first-handler level. Just building facilitiesis insufficient as critical masses ofbuyers and sellers need to cometogether with products that are insufficient volumes, over sufficienttime periods, and with the propertiesthat buyers want. Then, smalleroperations have outlets for their pro-duction beyond direct outlets, suchas roadside stands and farmers’ mar-kets. Extension and state Depart-ments of Agriculture need to have thepersonnel and programs in place toassist in produce marketing decisionmaking and in bringing buyers andgrowers together. Public marketswith facilities to attract brokers,wholesalers, and repackers could helpfacilitate development.

For More InformationEastwood, D., Hall, C., Brooker, J.,

Estes, E., Woods, T., Epperson, J., & Stegelin, F. (2004). A Marketing Systems Approach to Removing Distribution Barriers Confronting Small-Volume Fruit and Vegetable Growers. Southern Cooperative Series Bulletin #403, ISBN 1-58161-403-9. Available online: http://web.utk.edu/%7Ebrooke00/RESEARCH/covers222.html.

Kaufman, P.R., Handy, C.R., McLaughlin, E.W., Park, K., & Green, B.M. (2000). Understanding the Dynamics of Produce Markets and Market Channels. USDA/ERS Agricultural Information Bulletin 758, Washington, DC. Available online: http://www.ers.usda.gov/publications/aib758/.

U. S. Department of Agriculture. (1999). 1997 Census of

http://web.utk.edu/%7Ebrooke00/RESEARCH/covers222.html



http://www.ers.usda.gov/publications/aib758/

http://www.ers.usda.gov/publications/aib758/


Agriculture. Washington, DC: GPO. Available online: http://www.nass.usda.gov/Census_of_Agriculture/1997/index.asp.

U. S. Department of Agriculture. (2004). 2002 Census of Agriculture. Washington, DC: GPO. Available online: http://www.nass.usda.gov/Census_of_Agriculture/index.asp.

Charles Hall ([email protected]) isProfessor, Department of AgriculturalEconomics, University of Tennessee,Knoxville, TN. John Brooker([email protected]) is Professor,Department of Agricultural Econom-ics, University of Tennessee, Knox-ville, TN. David Eastwood ([email protected]) is ProfessorEmeritus, Department of Agricul-tural Economics, University of Ten-nessee, Knoxville, TN. James Epper-son ([email protected]) is

Professor, Department of Agricultural& Applied Economics, University ofGeorgia, Athens, GA. Ed Estes([email protected]) is Professor,Department of Agricultural andResource Economics, North CarolinaState University, Raleigh, NC. TimWoods ([email protected]) is Pro-fessor, Department of AgriculturalEconomics, University of Kentucky,Lexington, KY.

http://www.nass.usda.gov/Census_of_Agriculture/1997/index.asp



http://www.nass.usda.gov/Census_of_Agriculture/index.asp













4th Quarter 2006 • 21(4)


Reducing Obesity: What Americans Can Learn from the Japaneseby Benjamin Senauer and Masahiko Gemma

JEL Classification: D12, I11

Japan has one of the lower rates of obesity, although it isincreasing as virtually everywhere, and the United Stateshas one of the highest rates of obesity in the world. Only3.6% of Japanese age 15 and over had a Body Mass Index(BMI) over 30 in 2002, which is the international stan-dard and is determined by dividing a person’s weight inkilograms by their height in meters squared (Ministry ofHealth, Labor, and Welfare, Japan, 2002; WHO, 2006).In contrast, 32.0% of Americans age 20 and over wereobese, and a total of 66% were either overweight (BMIover 25) or obese in 2003-04; some two-thirds of the adultpopulation (NCHS, 2006). Because the distribution ofbody fat affects health risks and Asians tend to have moreabdominal fat at lower BMI levels, the Japanese govern-ment uses a BMI over 25 to define obesity. For Japaneseage 20 and over, the same age group as for the U.S., 25.6%had a BMI over 25, which is still lower than the U.S. rate.Much can be learned about how to reduce obesity in theUnited States if we can explain why the rate is so muchlower in Japan.

Being obese and overweight is associated with anincreased risk of many chronic diseases and prematuredeath, plus significant increases in health care costs(WHO, 2006). Viewed at its simplest, a person gainsweight when their caloric intake exceeds the caloriesexpended through basic metabolism and physical activity.The average person in Japan both eats less and is morephysically active than the typical American.

Food Consumption, Prices, and Dietary TraditionsThe average daily intake of Japanese over one year old was1,930 calories in 2002, whereas Americans ages 1-85 con-sumed 2,168 calories on average in 2001-02 (Ministry ofHealth, Labor, and Welfare, Japan, 2002; NCHS, 2006).

The typical adult in Japan is smaller in stature than theaverage American, thus obviously needing fewer calories.However, this factor explains only a modest portion of thedifference of over 200 daily calories. Moreover, the averagedaily fat consumption in Japan was 54.4 grams, comparedto 80.6 grams in the United States.

Food balance sheets, also referred to as food supplyand utilization data, can be used to compare the per capitaavailability of calories back to 1960 in the two countries.The quantities of food available at retail are derived byapplying conversion factors, which account for losses inprocessing and distribution, to the estimated supply ofeach agricultural commodity, such as potatoes. The nutri-ents across all food categories are aggregated to determinethe nutrients available for consumption. The calories avail-able rose only slightly in Japan between 1960 and 2003,from 2,291 to 2,558 (Ministry of Agriculture, Forestry,and Fisheries, Japan, 2005). Over the same period, theU.S. per capita availability of calories increased from 3,100in 1960 to a rather astounding 3,900 in 2003 (ERS,USDA, 2006). While the increase from 1960 to 2003 wasonly 267 calories per capita in Japan, in the United Statesit was 800 calories per person. As expected, these figuresare higher than actual caloric intake, which was providedin the previous paragraph. However, this data does suggestthe sheer abundance of food, especially calorie dense food,Americans have available and, hence, are tempted by. Areflection of this is the “supersizing” of serving portions,with many Americans losing any sense of what a normalserving size should be.

Expenditures and PricesAs is obvious to anyone who visits Japan, food is consider-ably more expensive than in the United States. As a share


of total consumer expenditures, theaverage Japanese household spent23.2% on food in 2003, 19.6% forfood consumed at home, and 3.6%for food away from home (Ministryof General Affairs, 2005). In compar-ison, the average American house-hold devoted only 13.1% of theirtotal expenditures to food, 7.7% forfood at home and 5.4% for foodaway from home in 2003 (Bureau ofLabor Statistics, 2005). Per capitaincome is almost as high in Japan asin the United States, so this differ-ence can not be explained simply bythe decline in the budget share spenton food as incomes rise. The Japa-nese spent 84.5% of their total foodexpenditures for food at home, whileAmericans spent only 58.8%.Dietary content can be better con-trolled when preparing food at homethan eating away from home.

A comparison of prices in 1999found the overall price of food to be49% higher in Tokyo than in NewYork City (Ministry of GeneralAffairs, 1999). The authors made asimple comparison of prices in April2006 in a grocery store in Tokyo anda supermarket in St. Paul, Minnesota.For a loaf of white bread, a carton ofeggs, a pint of Haagen-Das ice cream,and five kilograms of medium-qual-ity rice, the Tokyo prices were morethan double those in Minnesota.Japan has long been criticized for itsprotectionist rice policy, which causesthe domestic price to be far higherthan the world market price of rice.The food supply chain is far less effi-cient in Japan, with more layers thanin the United States, where intensivecompetition and information tech-nology has substantially reduced dis-tribution costs. However, given theirhigh level of income, food prices havea limited effect on the Japanese levelof caloric intake. A comparison of therelative prices of more healthy foods,

such as fruits and vegetables, andother foods, such as fats and sugar, inthe two countries would be an inter-esting topic, but is beyond the scopeof this paper.

Dietary Traditions:The traditional diet in Japan is builtaround a base of rice and othergrains, with plentiful consumption ofvegetables and fruits, and also fish,but relatively little animal fat, meatand sweets. In Japan, the presenta-tion of the food is very important,and particular attention is given tothe colors and textures. There is anold Japanese saying, “we eat with oureyes." Portions are much smaller atJapanese restaurants or in home-pre-pared meals than is typical in theUnited States. An elegant diningexperience might consist of dozens ofsmall dishes, some no more than afew bites. The meal is meant to bebeautiful, as well as delicious. Fruit isusually served at the end, rather thana rich dessert. Traditionally in eating,the Japanese have applied the con-cept of “enryo” (restraint) (Samuels,2005). Although more Western foodsare being eaten, traditional food cus-toms are still quite strong in Japan.

On a recent visit to a daycarefacility in Tokyo by the authors, thecareful attention to the nutritionalquality of the food provided wasimpressive. A sample lunch is placedunder a glass cover for all the parentsto see as they pick their children upat the end of the day. A newsletterprovides the meal plan to the parentsin advance and suggests foods toserve at home to nutritionally com-plement those provided at the day-care. In addition, unlike in mostAmerican schools, students aretaught even at an early age to appre-ciate and respect food. The studentsmust wash their hands before eatingand are expected to use good table

manners. They sit at low tables withsmall chairs and are served their traysindividually. Before eating, theythank the farmers who grew the foodand those who prepared it.

Physical Activity and the Cost of InactivityAnother explanation for the muchlower rate of obesity is that the Japa-nese are more physically active thanAmericans. However, this is notbecause they go to the gym or engagein planned physically activities morethan Americans. Only 29.7% of Jap-anese age 20 and older reported theyengaged in regular physical exerciseactivities in 2002 (Ministry ofHealth, 2002). In 2003, 46.0% ofAmericans 18 and over said theyengaged in a moderate level of physi-cal activity for 30 minutes or more atleast five times per week, or a vigor-ous level for 20 minutes or more atleast three times a week (U.S. CensusBureau, 2006). However, these fig-ures may be inflated since they areself-reported.

WalkingThe major difference is that Japanesewalk much more in their daily livesthan Americans. Walking is a simple,but effective form of exercise inwhich everyone except the disabledcan engage. The average person inJapan, 15 years old and above,walked 7,421 steps per day in 2002,about 3 ¾ miles at 2,000 steps permile (Ministry of Health, 2002).Men walked an average of 7,573steps and women 7,140. A recentnationally representative survey ofAmericans on walking by Harris Sur-vey found that men walked an aver-age of 5,940 steps and women 5,276(Hill, 2006). Pedometers were pro-vided to participants in both surveysthat counted their steps. The average


length of a step for the Japanese maybe less than for the average American,who is taller, but only modestly so.

The Japanese walk an average ofabout 2,000 steps more per day thanAmericans, which burns about 100additional calories (Shape Up Amer-ica, 2006). The reason they walkmore is they rely far less on automo-biles and far more on mass transit toget around. The use of public trans-portation usually entails walking,since it does not take you from thedoor of your home to that of yourworkplace or other destination.Americans who commute to work intheir cars or drive to go shoppingmay simply drive from their garageand then park only a few hundredfeet or less from their workplace orthe shopping mall, doing whateverthey can to minimize any walking.Moreover, in crowded Japanese cities,the easiest way to get somewherenearby is to simply walk.

Costs of Automobile Use and Public TransportationThere is an economic explanationunderlying this disparity in walkingbetween Japan and the United States.The cost of owning and operating anautomobile is much higher in Japan,whereas the cost of using publictransportation is lower. The Japaneseco-author of this article owned a carwhen he lived in the United Statesfor several years, but he does not ownone in Tokyo because it is too expen-sive.

In terms of the costs of operatinga car, the price of gasoline in Japan isabout double that in the UnitedStates. In addition, the ownershipand operation of a car is particularlyexpensive in Japan because of highautomobile taxes and registrationfees, mandatory bi-annual inspec-tions, and high parking fees in largecities (Japan-Guide.com, 2006).

Anyone who lives in a large city anddoes not have a parking space fortheir vehicle must pay a parking fee,which is approximately $300 permonth in Tokyo, some $3,600 annu-ally. In densely-populated metropoli-tan areas, where a majority of the Jap-anese live, driving your own car isinconvenient. Major Japanese citiesare not designed for commutingfrom outlying areas or travelingwithin the city by car. Unlike in theUnited States, cities do not haveextensive networks of freeways andexpressways or even many broad bou-levards. In addition, most Americancities have lots of underground and/or above ground parking structures;Japanese cities do not. On the otherhand, major Japanese cities havesome of the best mass transit net-works in the world.

From the economists’ viewpoint,the time costs are much lower to usepublic transportation than an auto-mobile in Japan. Unlike the UnitedStates, where many companies subsi-dize driving by providing parking fortheir employees or paying for theirparking costs, in Japan, many busi-nesses pay for their employees’ com-muting costs using public transporta-tion (Japan-Guide.com, 2006).

Lessons for the United States The lower obesity rate in Japanreflects deep structural differencesbetween the two nations. This study,therefore, highlights how challeng-ing reducing the incidence of obesitywill be in the United States. How-ever, this comparison does suggestsome possible approaches to address-ing the problem of obesity. Policiesthat raise the cost of driving in theUnited States and make other formsof transportation more convenient,would increase walking in our every-day lives. The recent sharp increase in

the price of gasoline is encouragingsome Americans to switch from driv-ing to mass transit (Peterson, 2006).

In most cities, mass transit andother alternatives to driving, such aswalking and biking, have sufferedfrom under-investment for decades.One of the factors keeping people intheir cars is the inconvenience ofpublic transportation, the high timecosts, because of poor service.Encouragingly, a number of cities areexpanding and improving their masstransit systems. There are fundamen-tal contrasts between the two coun-tries that limit the feasibility of masstransit in many areas of the UnitedStates. Although 79% of Americanslive in urban areas, public transporta-tion will never be a viable alternativefor many, in part because of the com-plex daily travel patterns of numer-ous people (U.S. Census Bureau,2006).

Therefore, other efforts must bemade to make exercising more conve-nient, especially walking. More fundscould be put into walking and bikepathways. Walking in many areasneeds to be made safer from dangersposed by traffic or crime. Manysprawling U.S. suburbs do not evenhave sidewalks for walking alongbusy streets. Employers could give anextra half hour at lunch time toemployees who used the time to walkor otherwise exercise. Companies andother institutions could provide on-site exercise facilities or subsidize ath-letic club memberships for theirworkers, which could pay off byreducing health insurance expenses.There are several programs, includingAmerica on the Move and 10,000Steps, that provide blueprints toencourage walking for individualsand communities.

Changing Americans’ dietaryhabits will be difficult. Very hightaxes have been imposed on cigarettes


and other tobacco products toimprove the public’s health. How-ever, eating is not like smoking. Eat-ing is both an absolute necessity andintrinsically healthy, whereas tobaccohas unquestionably been shown topose serious health risks. Some haveproposed a tax on soft drinks andhigh sugar foods, which have a highcaloric content and lack other nutri-ents (Squire, 2006). However, a taxon foods for the purpose of reducingobesity would be viewed by manyAmericans as interfering with thefreedom of choice that is seen as theright of adult consumers. A subsidythat lowered the price of fruits andvegetables, encouraging their con-sumption, might be consideredthough. A major effort needs to belaunched by the government, withthe help of the food industry, to edu-cate Americans on what normal serv-ing sizes should be for various foods.Our nation’s schools can help startchanging young Americans’ attitudestowards food from a predominantfocus on convenience and quantity.

The key lessons from Japan arethat Americans need to eat less, giv-ing more attention to the quality offood and less to the quantity, and getmore exercise, particularly by addingmore walking to their daily lives.

For More InformationBureau of Labor Statistics (BLS),

U.S. Department of Labor. (2005). Consumer Expenditures in

2004, News Release. Washington, D.C., November 29.

Economic Research Service, U.S. Dept. of Agriculture (ERS, USDA) (2005). U.S. Food Supply: Nutrients and other Components, per capita per day, Washington, D.C.

Hill, J. O. (2006). Director, Center for Human Nutrition, University of Colorado Health Sciences Center, Denver, personal communication, April, 11, 2006.

Japan-Guide.com. (2006). Travel to Japan: Buying and owning a car. Available online: www.japan-guide.com/e/e2022.html.

Ministry of Agriculture, Forestry, and Fisheries, Japan. (2005). Food Balance Sheets: PerCapita Nutrient Availability, Tokyo.

Ministry of General Affairs, Japan. (1999). Price Comparison of Japan and Other Countries, Tokyo.

Ministry of General Affairs, Japan. (2005). Household Expenditure Report, Tokyo.

Ministry of Health, Labor, and Welfare, Japan. (2002). The National Nutrition Survey in Japan, 2002, Tokyo.

National Center for Health Statistics (NCHS). (2006). Centers for Disease Control and Prevention, Department of Health and Human Services. National Health and Nutrition Examination Survey, 1999-2006 survey content.

Available online: www.cdc.gov/nchs/nhanes.htm.

Peterson, D. (2006). Gas prices get suburban bus riders in gear. Star Tribune, (newspaper), Minneapolis, MN, May 21, p. A1.

Samuels, D. (2005). Is a Japanese diet the key to slimming down? The Boston Globe, November 21, 2005. Available online: www.boston.com/ae/food/articles/2005.

Shape Up America (2006). 10, 000 Steps Program. Available online: www.shapeup.org.

Squire, N. (2006). Overweight people outnumber world’s hungry. The New York Sun, (newspaper) August 15, 2006. Available online: www.nysun.com/aticle/37905.

U.S. Census Bureau. (2006). Statistical Abstract of the United States, Washington, D.C.

World Health Organization (WHO). (2006). Obesity and Overweight, Geneva. Availableonline: www.who.int/dietphysicalactivity/publications/facts/obesity/en/.

Benjamin Senauer ([email protected]) is Professor, Applied Eco-nomics and Co-Director of The FoodIndustry Center, University of Min-nesota, St. Paul, MN. MasahikoGemma ([email protected]) is Pro-fessor, School of Social Sciences,Waseda University, Tokyo, Japan.




4th Quarter 2006 • 21(4)


Winners and Losers: Formula versus Competitive Funding of Agricultural Researchby Wallace E. Huffman, George Norton, Greg Traxler, George Frisvold, and Jeremy Foltz

JEL Classification: O3, O4, Q16

State Agricultural Experiment Stations (SAESs) wereestablished with federal formula funding by the Hatch Actof 1887. In 1955, the Hatch Act was amended and a num-ber of subsequent formula funding programs were consoli-dated under the USDA Cooperative States Research Ser-vice (CSRS), which today is known as the CooperativeResearch, Education and Extension Service (CSREES).Currently, all of the Hatch funds and a small amount ofother formula funds go to SAESs. In 1977, CSRS estab-lished its first competitive research grant program. How-ever, this program remained quite small until 1990, whenit was re-named the National Research Initiative (NRI)Competitive Grants Program with a much larger fundingauthorization. Currently, the SAESs account for 60% ofU.S. public agricultural research, with 7% of SAESs fund-ing obtained from Hatch funds and 2.3% from NRIGrant funds (Huffman & Evenson, 2006b, pp. 107, 117-118). Hence, the SAES system has become relatively diver-sified in its funding sources after starting with only Hatchfunding.

The characteristics of these funding sources are quitedifferent from a SAES perspective.• Formula funds are allocated among the states by a leg-

islated formula, the choices of projects and scientists tosupport are made locally, oversight is local, and fund-ing is recurring.

• Grant or NRI funds are allocated to proposals submit-ted to programs with identified priority areas; only asmall share of submitted proposals are usually funded;the process consumes many resources relative to grantfunds awarded, and there is no guarantee of success orcontinuation of funding after the initial grant period.

The composition of these funds has changed substantiallyover time. From 1980 to 2003, the USDA-administeredfederal formula funds declined by 57% or $124 million(2,000 dollars; Huffman & Evenson, 2006a). Over thistime period, NRI appropriations increased by $120 mil-lion, but less than 40% of NRI funds go to the SAESs.The remainder goes to non-SAES units, especially those innon-land grant universities. Hence, CSREES funding ofSAESs has fallen dramatically over the past 25 years. Otherchanges in SAESs’ funding have also occurred since 1980.They include an 88% increase in grants and contractsfrom non-USDA federal agencies, a 51% increase in con-tract, grant, and cooperative agreement funding fromUSDA agencies other than CSREES, and a 100% increasein Congressional earmarks or special grants for research.

Prospects are that the funding composition will con-tinue to change. In the Fiscal 2007 Budget of the UnitedStates, President George W. Bush proposed further reduc-tions and eventually elimination of federal formula fund-ing for agricultural research, while replacing these fundswith a new competitive grants program for State Agricul-tural Experiment Stations with perhaps a regional focus.The proposal seems likely to be rejected by Congress, butnew proposals to redirect federal formula funds seemslikely to resurface in the future. This raises questions ofwho wins and who loses from such a policy change.

This article examines who wins and loses from achange in the composition of federal funding. We explorethe implications by examining• Differences in who sets the research agenda, • Implications for priorities in long- and short-term

research,


• Capacity to respond to localneeds,

• Cost efficiency of distributingfunds,

• Distributional effects across thestates and regions,

• Payoff to society, and • Sustainability of future funding.

Who sets the research agenda? A major issue across alternativeresearch funding mechanisms is whosets the research agenda. With federalformula funds, the research agenda isset by the states, either by the scien-tists, the SAES directors, or a combi-nation of the two. With a nationalcompetitive grant program, theresearch agenda is set by CSREES,which uses input from the NationalAgricultural Research, Extension,Education, and Economics(NAREEE) Advisory Board andother advisory groups (Board onAgriculture and Natural Resources,2001, pp. 86-89). The currentCSREES grant agenda tends to take anational perspective, but is also sub-ject to political influence from vari-ous lobbying groups, as well as fadsin research and public administra-tion. Because crop and livestock pro-duction is sensitive to local andregional geo-climatic and economicconditions, many important agricul-tural research problems are local orregional and not national in nature.If formula funds are eliminated ordramatically reduced, SAES direc-tors in small heterogeneous statesmight find it difficult to undertakesufficient local agricultural researchto meet local needs. Research andextension faculty would spend agreater proportion of their state-funded time writing proposals forfederal grants and conductingresearch on grants based on Federalpriorities, with a smaller share oftheir time addressing state-level

research needs. Some experiment sta-tions would also risk losing matchingstate funds, the amounts of which aretied to the amount of federal formulafunds to be received. Hence, there ismore at stake than just federal for-mula funds for agricultural research.Therefore, the influence of national,and perhaps regional, research inter-ests would likely increase at theexpense of the influence of localfarmers, consumers, and agri-busi-ness firms.

How would changes affect the willingness of scientists to undertake longer-term research objectives?Federal formula and state fundingprovide secure funding to scientistsacross a broad set of disciplinesrelated to agriculture for undertakingprojects that require sustained multi-year efforts before major objectivesand large payoffs can be obtained.Examples of research that tookdecades to complete, but that gener-ated very high payoffs, include thediscovery of hybrid corn (Huffman& Evenson, 2006b, pp. 159-161)and of tillage systems that conservesoil and provide outstanding cropyields.

Uncertainty about when and ifscientists will obtain competitivegrant funding, coupled with typicallyshorter- run priorities in grant fund-ing, reduces opportunities for long-term pursuits and shifts researchefforts toward shorter-term projectswith more predictable outcomes(Huffman & Just, 2000). A largerfederal competitive grants programmight have the advantage of leverag-ing state and federal formula SAESfunding to focus on medium-termnational needs. This focus, however,comes at the cost of reduced oppor-tunities for long-term research. Also,for some states a significant reductionin formula funds might erode their

overall capacity to undertake agricul-tural research. This would mean clos-ing campus and outlying researchfacilities and research farms. Underthe proposed changes in science pol-icy, SAESs would lose flexibility topurse long-term agricultural researchobjectives, while agricultural researchwith medium-term national or possi-bly regional objectives would gain.

Would changes affect the capacity of states to meet local and regional needs or to respond quickly to crises? Examples of research efforts generat-ing high-payoffs for locally-impor-tant crops include developing• cultivation methods and new

varieties of wild rice in Minne-sota,

• blueberry cultivars withimproved taste and yield inMaine, Michigan, and Vermont,

• wastewater management researchin Maryland and North Carolina,and

• improved procedures for combat-ing a new wheat rust in Kansas.

These types of projects are disadvan-taged when research funds are allo-cated by national or regional compet-itive grant programs, either becausethese programs are cumbersome andtime-consuming to organize, orbecause they cater to national orregional, and not local, researchneeds. Also, once scientists have beenawarded a large, multi-year competi-tive grant to undertake a particularline of research, their effort is“locked-in,” and they are unable toredirect their efforts to important,new, and emerging local and regionalissues. Hence, local research interestswould lose and national researchinterests would gain.


What is the relative cost of distributing the two types of funding? Compared to external competitivegrants programs, formula fundinghas low administrative costs. Federalformula funds are distributed to thestates by a fixed formula: part is allo-cated equally to all states, part is allo-cated to states according to theirshare of the farm and rural popula-tions, and part is allocated for multi-state research (Huffman & Evenson,2006b, pp. 23-25). Allocation ofthese funds to individual researchprojects and scientists is under thecontrol of the local SAES administra-tion and is subject to local, but mini-mal national political pressure. His-torically, SAES Directors have builtties to local clientele groups to helpprioritize state research needs andhave then integrated this informationwith the research capacity of theirlocal scientists to allocate the totalresearch budget. SAES administra-tors have generally required a smallamount of proposal writing and eval-uating, preferring that their scientistsdedicate their efforts to conductingresearch and publishing discoveries.These administrators have a varietyof tools for setting incentives for sci-entists, including repeat contractingand annual evaluations for salaryincrements.

In contrast, competitive pro-grams significantly increase theamount of scientists’ time allocatedto proposal writing, assisting withpeer review of research proposals, andpeer-panel decisions on which pro-posals to fund. In fact, a new layer ofCSREES bureaucracy has been addedto coordinate and administer theNRI and other national competitivegrant programs. Costs imposed onscientists of competitive grantresearch are not funded by the NRIor by most other external competitive

grant programs. At the current NRIresearch proposal funding rates of 5-12%, large amounts of resources arebeing consumed per dollar ofresearch grant funding reaching sci-entists from this program (Huffman& Just, 1999a). In addition, whilefederal formula research funds do notpay indirect costs to recipient institu-tions, the NRI permits indirect costsequal to 25% of project direct costs.

Additionally, the Bush Adminis-tration’s grant program proposal sug-gests full funding of indirect costs,which would raise the current indi-rect cost rate on the NRI to an esti-mated 45-55% of direct project costsand use this higher indirect cost rateon the new grant program for theSAES.1 Although land grant univer-sities vary in how they use the reve-nue from indirect costs, it is commonfor central administration to take50% or more of these funds and forthe remainder to be split between thecollege and department of the recipi-ent principal investigators. It isunusual for the principal investiga-tor(s) of an externally funded projectto receive part of the revenue fromindirect costs. Indirect costs are pri-marily an accounting concept andnot an economic concept, and a uni-versity’s indirect cost rate for federalgrants is a negotiated rate betweenthe institution and the Office ofManagement and Budget (May &Sarson, 1999).Hence, the new Bushpolicy would significantly increasethe amount of scientists’ efforts allo-cated to proposal writing and evalu-

ating and the share of CSREESresearch funds allocated to universityindirect costs.2 Central universityadministrators would in general win,but the SAES system would in gen-eral be losers. If non-land grant uni-versities were eligible for newCSREES grant funds, then scientistsand administrators outside the SAESsystem would be gainers at theexpense of the SAES system. In fact,unless the pool of competitive grantfunds is increased dramatically, theactual funds reaching SAES scien-tists will decrease.

Which states would be likely to gain or lose? Competitive grant funding tends tofavor institutions that have a largeresearch infrastructure supportingresearch proposal writing and admin-istration. In 1990, all but 11 SAESunits received more than 90% oftheir CSRS-administered funds fromfederal formula funds and just 10%from competitive grants. Experi-ment Stations with larger shares fromcompetitive grants included Massa-chusetts, New York, Florida, Michi-gan, Wisconsin, Arizona, California,and Oregon. In 2004 these samestates, plus Maryland, Rhode Island,Kansas, Iowa, Illinois, Indiana, andTexas, were the leaders. The statesthat remain heavily dependent onformula funds are the ones likely tobe the most disadvantaged by a shifttoward increased funding throughcompetitive grant programs. Theyare New Hampshire, New Jersey, W.Virginia, Georgia, Louisiana, Minne-

1. Indirect cost revenue goes to pay for university administration, research facilities (infrastructure), and utili-ties to laboratories, which are not easily attributable to individual projects, and hence not permitted under project direct costs.

2. It is a data-intensive and time-con-suming process for universities to document and defend their request for an indirect cost rate to the Office of Management and Budget (May & Sarson, 1999).


sota, Mississippi, Tennessee, SouthDakota, Alaska, and Hawaii. Theother 24 states would be small losers.See figure 1. In general, states wherethe SAES is part of a mid- to large-size land grant university outside ofthe South-Southeast would be win-ners and others would be losers,including states with a small agricul-tural sector. If the new grant programwere regional in nature, this wouldprovide a more equitable distributionof the research funds across regions,but it would sacrifice much of thepotential gains from high scholar-ship.

Would society gain or lose? Under the Hatch Act, federal for-mula funds are allocated for researchacross problems in agriculture, mar-keting, forestry, home economics,and rural and community develop-ment, which are researched from theperspective of several disciplines.

Washington administrators some-times suggest that this is too broad—topics or disciplines— or not ade-quately targeted on importantnational issues, reducing its overallimpact. In addition, a claim is some-times made that this research is notsubject to rigorous research meth-ods, and that projects are reviewedinfrequently. But scientists workingon these projects must publish inscholarly outlets in order to prosperprofessionally. Thus, the expectationsset by their colleagues and universityadministrators are a critical factoraffecting scientists’ efforts in researchand other activities. As evidence thatpublic agricultural research is pro-ductive, Huffman and Evenson(2006a) found that the social rate ofreturn to public agricultural researchremains high—about a 50% real rateof return. However, they also foundthat shifting federal formula to com-petitive grant programs would lower

its impact and rate of return. In arelated study, Huffman and Evenson(2006b, pp. 276-278) found thatfrom this type of fund reallocationonly California, Oregon, and Wis-consin would likely benefit fromincreased research productivity, whilethe other 45 contiguous states wouldlikely see a decline in productivity.Hence, a case can be made forincreasing federal formula funding.

The production process for scien-tific discoveries contains uncertainty.Scientific efforts result in a contin-uum of output from no discovery toa revolutionary discovery. Further-more, unanticipated discoveriessometimes occur. Hence, the socialpayoff or value of any researchproject is initially unknown. Theuncertainty to stakeholders in scien-tific discovery can be reduced byresearch administrators choosing toundertake a portfolio of diverseprojects with diverse incentives for

Figure 1. States likely to gain or lose from a CSREES increase of competitive grant funding and decrease in formula fund-ing.


discovery (Huffman & Just, 2000).This implies that more than expectedreturns are at issue. With a variety ofresearch funding mechanisms, suchas federal formula and competitivefunding, it is possible for some scien-tists to be working with strong incen-tives for discovery and others withweaker incentives. Simultaneously,some can work on long-term goalsand yet others on short-term or inter-mediate goals. Hence, a case can bemade for larger competitive grantfunding for selective national or per-haps regional priorities. Moreover, adiversified portfolio of projects andfunding mechanisms decreases soci-ety’s discovery risk.3

How would changes affect the sustainability of research funding? If fewer dollars were allocated acrossthe land grant system for formulafunding, for example by eliminatingformula funds to small SAESs, thosedollars could be used to increase theresearch funds available for competi-tive grant programs. In this scenario,the country might not “need” morethan 20 Colleges of Agriculture andSAESs, and perhaps could get bywith even fewer. However, dramati-cally reducing the number of statesreceiving federal agricultural researchfunds would greatly change the polit-ical economy of federal agriculturalresearch funding. One prospect isthat, over time, the currently strongCongressional support for formulafunds would wither under a competi-tive grant program, and totalCSREES appropriations for competi-tively funded agricultural researchwould decline. State matching funds

would also decline. Another possibil-ity is that the excluded land grantuniversities would pursue Congres-sionally earmarked research funds or“special grants” on a grander scale(National Research Council, 2003,pp. 71-72; Huffman & Evenson,2006b, pp. 116-117; Law & Tonon,2006). Hence, a few states would winin the short run, but all might lose inthe long run. There are also strongimplications for complementary uni-versity instruction and public out-reach (extension) programs of alter-ing the nature of the complementaryresearch support from formula funds.

ConclusionsSome will win and some will losewith changes in the size and relativeamount of CSREES-administeredformula and competitive grant fund-ing for agricultural research. We con-clude that a further reduction orelimination of federal formula fund-ing of agricultural research will sig-nificantly impact • Future research priorities and the

research agenda,• The composition of short- versus

long-term research,• The mix of national versus local

needs research,• The transactions costs of under-

taking research,• The distribution of research

funds across the states,• The distribution of research ben-

efits across states, • The rate of return that society

earns from its research invest-ments,

• The discovery risk faced by soci-ety, and

• The sustainability of futureresearch funding.

Although recent research has shownthat the social rate of return to publicagricultural research would decline as

the competitive grant share rises, webelieve that the very considerablerisks associated with future discover-ies in agricultural research will bebest diversified by maintaining aportfolio of CSREES administeredformula and competitive grantsfunding in the future. Moreover, acase can be made for continuing andpossibly increasing federal formulafunding because of their high payoffand at the same time expanding com-petitive grant funding to addressselective high priority national orperhaps regional needs.

For More InformationCooperative Research, Education

and Extension Service. (CSREES). (2005). Doing business with CSREES. April 19. Available online: http://www.csrees.usda.gov/busilenss/awards/formula/hatch.html.

Huffman, W.E., & Fretz, T. (2004). Formula for auccess: The value of federal formula funds to the U.S. agricultural and food system. Iowa Agriculture and Home Economics Experiment Station, Ames, IA.

Huffman, W.E., & Evenson, R.E. (2006a). Do formula or competitive grant funds have greater impact on state agricultural productivity? American Journal of Agricultural Economics 88, 783-798.

Huffman, W.E., & Evenson, R.E. (2006b). Science for agriculture: A long-term perspective. 2nd Edition. Ames, IA: Blackwell Publishing.

Huffman, W.E., & Just, R.E. (1999a). Agricultural research: Benefits and beneficiaries of alternative funding mechanisms. Review of Agricultural Economics 21, 2-18.

3. The analogy to wealth manage-ment based on a criteria containing expected return and risk trade-offs is intended.


Huffman, W.E., & Just, R.E. (1999b). The organization of agricultural research in western developed countries.” Agricultural Economics 21, 1-18.

Huffman, W.E., & Just, R.E. (2000). Setting efficient incentives for agricultural search: Lessons from principal-agent theory. American Journal of Agricultural Economics 82, 828-841.

Law, M.C., & Tonon, J.M. (2006). The strange budgetary politics of agricultural research earmarks. Public Budgeting and Finance 26,1-21.

May, R.M, & Sarson, S.C. (1999). Revealing the hidden costs of research. Nature 398, April 8, 457-459.

National Research Council. (2003). Frontiers in agricultural research:

Food, health, environment, and communities. Committee on Opportunities in Agriculture.. Washington, D.C.: The National Academies Press.

U.S. Department of Agriculture, Current Research Information System (various issues). National Summary CSREES Administered Funding, 1980, 1990, 2003, 2004. Available online: http://cris.csrees.usda.gov/.

Wallace E. Huffman is C.F. CurtissDistinguished Professor of Agricultureand Professor of Economics, IowaState University, Ames, IA. GeorgeNorton is Professor, Applied Econom-ics, Virginia Polytechnic University,Blacksburg, VA. Greg Traxler is Pro-fessor, Agricultural Economics,Auburn University, Auburn, AL.George Frisvold is Professor, Agricul-

tural and Resource Economics, Uni-versity of Arizona, Tucson, AZ. Jer-emy Foltz is Associate Professor,Applied Economics, University ofWisconsin-Madison, Madison, WI.The authors are a Task Force ofNC1034, a North Central Multi-State Research Committee. We thankThe Council on Food, Agriculturaland Resource Economics (C-FARE)for encouraging us to undertake thispiece and to Tom Fretz, TamaraWagester, and Editor Bruce McCarlfor their helpful comments. We thankthe members of NC1034 who pro-vided information to us on the alloca-tion of revenues from indirect costrecovery on federal grants for theirrespective universities.




4th Quarter 2006 • 21(4)


Coming Attractions Agriculture and Trade

Immigration and U.S. Agriculture

Ximing Wu, Guest Editor

Immigrant workers are important to U.S. agriculture. Thefour articles in this set explore the impacts of immigrantworkers, legal or illegal, on various aspects of U.S. agricul-ture, along with rural labor markets. A number of policyimplications are also covered.

Agriculture and Trade

Export-Led Food Quality

Bruce A. Babcock and Helen H. Jensen, Guest

Editors

Countries, both developing and developed, are using dif-ferent public policies and private-sector initiatives toencourage export-enhancing changes in food productionsystems. Examples show how public policies in developingcountries encourage private-sector production and pro-cessing systems to meet international standards for foodsafety and quality, while in developed countries, private-sector initiatives can increase the value of exports throughproduct differentiation.

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