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Analysis of New Challenges and Opportunities for California Mandated Marketing Programs


California's mandated marketing programs face new challenges and opportunities as agricultural markets evolve. Today's consumers increasingly demand that the food products they consume satisfy a broad range of product characteristics. In addition to traditional characteristics such as taste, appearance, brand appeal, food safety, and healthfulness, today's food products are differentiated based upon characteristics of their production process (e.g., usage of chemicals, biotechnology, sustainability, location, or confinement conditions of animals), treatment of farm labor, or "fairness" of their marketing arrangements, and implications of production and consumption of the product for the environment. Farms and food marketing firms have become increasingly diverse and differentiated as they seek to respond to opportunities and challenges created in these rapidly changing food markets. We will analyze the roles of mandatory marketing programs in this evolving market environment. Traditional justifications for such programs are based upon the premise that products are fundamentally similar and efforts to improve market conditions through advertising and production research will be subject to free riding. <P>We propose conceptual and empirical research to (i) investigate how generic advertising and promotion programs should be managed in a market environment where firms attempt to differentiate their products, and (ii) how to measure the effectiveness of advertising and promotion programs in these modern market settings. Many of the attributes that differentiate firms and products in today's markets cannot be discerned by consumers either ex ante through search, or ex post through consumption. Rather, they represent credence attributes that must be certified to the consumer in a manner that is credible before rational consumers will pay for the attributes. <P>Providing such certification represents a new opportunity for mandatory marketing programs. We will conduct economic modeling and case-study analysis to examine the potential for mandatory marketing programs to perform certification functions for credence attributes and how the performance of such activities should be organized Mandatory marketing program are controlled by producers and handlers subject to government oversight. Traditional voting and control mechanisms are, however, called into question when farmers and marketers that operate under the program's auspices are increasingly heterogeneous. What are the implications of firm heterogeneity for program governance are changes in voting procedures and organization of boards of directors needed We propose to conduct conceptual and case-study research to address these questions.

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Non-Technical Summary:<br/>
California's mandatory marketing programs face new challenges and opportunities in today's rapidly changing agriculture wherein firms and products are differentiated based upon an increasingly wide range of attributes of products and their production processes. Traditional functions performed by marketing programs may need to be adapted to be effective in this environment. New opportunities present themselves. This project will investigate the economic role of California's mandatory marketing programs in differentiated agricultural product markets using a variety of conceptual and empirical methodologies.
Our methods will involve conceptual economic modeling, econometric analysis, case study investigations, and simulations. We will study generic advertising and promotion programs in differentiated product markets using both "address" models of vertical and horizontal differentiation and "nonaddress" models such as the Chamberlin and Dixit-Stiglitz models. The models must be sufficiently flexible to allow advertising and promotion to affect overall demand in the market and also influence the demand facing individual differentiated sellers. Effectiveness of existing advertising and promotion programs will be studied using actual program data and econometric methods. We will advance the state of the art by developing econometric methods to test impacts of advertising and promotion programs on prices and demands for differentiated-products. Certification of product credence attributes can also be studied using models of vertical differentiation. In the absence of certification products are not differentiated and the equilibrium involves pooling, whereas successful certification creates product differentiation and a separating equilibrium. California programs are on the cutting edge of product certification. We will conduct case studies of these programs, such as the Leafy Green Marketing Agreement, to examine their effectiveness and to derive lessons for other programs. Voting and program governance will be investigated conceptually using models of voting and public choice and empirically using econometric analyses and case-studies.
2012/01 TO 2012/12<br/>
OUTPUTS: Work was performed on several studies of mandated marketing programs that entail demand enhancements from promotion or post-farm productivity enhancements, or both. A cooperative project with USDA-ERS personnel was conducted on international comparison and assessment of institutional arrangements for financing and managing public agricultural research, with particular emphasis on the use of "check-off" based funding in Australia and Uruguay. A study was undertaken of check-off funded promotion of mushrooms in Tasmania, Australia. Work was undertaken on evaluation of the impact of check-off funded promotion of California table grapes. Conceptual and methodological studies of mandatory marketing programs were also conducted, including (i) a study on sources of institutional failure and underinvestment in levy-funded programs, (ii) an analysis of minimum quality standards implemented by marketing programs that also directly or indirectly control production, and (iii) an investigation into whether quality standards are set too high under mandatory programs from a societal welfare perspective. Findings were communicated in a range of public meetings and conferences and in some formal publications (see attached list). Feasibility of mandatory marketing programs for aquaculture was also investigated and reported at industry forums in the Southeast. Comparative analysis using the California experience was applied to questions of programs for aquaculture industry marketing. Output of this analysis was that, among various authorizing programs available for aquaculture industries, a federal marketing order program would probably be most effective. PARTICIPANTS: The work conducted under this project involves studies of check-off funded programs and their consequences, conducted jointly with colleagues at, California Polytechnic and State University, San Luis Obispo, US FDA, USDA-ERS, UC Davis, , and the University of Saskatchewan. Colleagues who worked on this project during the reporting period include Richard Gray and Murray Fulton (University of Saskatchewan), Jennifer James (Cal Poly, San Luis Obispo), Joanna Parks (US FDA), John Crespi (Kansas State University). TARGET AUDIENCES: Target audiences include professional staff, university extension, and members of boards of directors guiding mandatory marketing programs. This target audience has benefitted from understanding the effectiveness of extant industry programs and from learning about the potential for enhancing success of mandatory programs and avoiding pitfalls that may inhibit success of such programs. These lessons are derived from both domestic and international comparisons. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
IMPACT: Reports on the impacts and effectiveness of mandatory marketing programs were communicated to industry and professional audiences through a variety of media. Knowledge regarding the success of these programs has contributed to them being renewed by vote of the producers operating under these programs. Results regarding effectiveness of specific promotional media (e.g., radio, in-store displays, magazine advertisements) has enabled industries to fine-tune their messages to achieve maximum impact from expenditures. Results have also been used to support industry plebiscites over the continuation of the programs and related contexts. Leaders in the U.S. catfish industry are now actively exploring the approval process to establish a federal marketing order.

Sexton, Richard; Alston, Julian M
University of California - Davis
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