Promotion Research and Evaluation
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Newsletter--Volume 1, Number 1
John Lenz
In 1987, the first national beef promotion and information program was initiated. Federal legislation authorizes a promotion assessment of $1 per head; half of the total assessment is used to underwrite the national generic promotion program for U.S. beef.
In a recent publication entitled “Economic Returns from the Beef Checkoff: A Continued Evaluation of Its Impact,” Dr. Ronald W. Ward, professor of Food and Resource Economics, University of Florida at Gainesville, reports the latest findings from his ongoing evaluation research on the beef program. Ward’s research attempts to measure the total impact of the beef checkoff on the U.S. beef market while recognizing that the impact of one or more specific program elements may differ from conclusions drawn about the total program.
Between 1979 and 1993, beef disappearance declined by nearly 17 percent. Over this same period, poultry disappearance increased by 82 percent, pork disappearance was virtually unchanged, and the relative prices of beef, poultry, and pork were nearly constant.
Among the factors Ward includes in his model are: product characteristics, the price of beef, demand for competing products, consumer income, consumer attitudes, and information. The model groups these factors and considers three general types of impacts on beef demand: the relationship between beef prices and beef supplies, the relationship between beef prices and other factors affecting beef demand, and the impact of the beef checkoff on beef demand. Beef demand was estimated at the live weight and boxed beef levels; these levels represent the exchange between beef producers and beef processors, and the exchange between beef processors and beef retailers. The checkoff components of the models were specified to allow the impacts of promotions to be evaluated separately from the impacts of information programs.
Ward used his estimated checkoff model to examine how the checkoff program affected beef prices in two specific periods: the first quarter of 1991 through the second quarter of 1992, and the third quarter of 1992 through the second quarter of 1993. During the 1991-92 period, considerable seasonal reallocation of expenditures took place, as did a reduction in expenditures. During the 1992-93 period, expenditures were increased and varied less seasonally, and a new advertising agency was hired. Using a base level of $1.6 million in promotional expenditures per quarter (a level consistent with the promotion effort prior to the implementation of the national program), Ward estimated that the national checkoff program resulted in a $1.12 per hundredweight increase in average live weight prices during the 1991-92 period, and a $1.81 per hundredweight increase in average live weight prices during the 1992-93 period. For the period from the inception of the national program in the first quarter of 1987 through the second quarter of 1993 (the most recent quarter for which he had data), Ward estimated that the average rate of return to the national checkoff program, at the live weight level, was $5.40 per dollar invested in the program. While this rate of return is impressive, Ward notes that relative to the total beef industry, the returns are quite modest.
Among the demand-influencing factors Ward included in his models were an index of consumer health concerns and a measure of longer-term trends in beef consumption. In his analysis, he discovered that in the early 1990s, consumer concerns about cholesterol, fats and preservatives have been lessening, and that the beef industry has benefited from the lessening of these concerns. A longer-term shift in consumption away from red meats has been the primary factor responsible for decreasing disappearance of beef.
To put the impacts of the beef checkoff in perspective, Ward estimated the impact of selected variables on the quarterly fluctuation in beef prices. As the pie chart shows, in the overall scheme of factors influencing cattle prices, the checkoff program is relatively small. However, it is the only marketing tool that is under the direct control of cattle producers.
Among the generalizations Ward makes about the checkoff are: Promotion and information programs funded by the beef checkoff generated $3.3 billion in additional industry revenues that would not have existed in the absence of the checkoff. These revenue gains represent a 2.2% increase over the $164 billion in industry revenues calculated without the checkoff.
Although beef demand declined throughout the last decade, the checkoff program offset part of the decline in real prices, between 3 and 4%, depending on the quarter.
The model includes a direct measure of consumer concerns about fats, cholesterol, and preservatives. In the last several quarters, consumers’ expressed concerns about these health variables have declined and the beef industry has benefitted from the change.
While the checkoff program has proven successful, it still accounts for less than 5% of the total variation in cattle prices over the period studied.
For more information contact Dr. Ronald W. Ward, Department of Food and Resource Economics, University of Florida, Gainesville, Florida 32611.
Manager's Viewpoint
John L. Huston, President
National Live Stock & Meat BoardCHECKOFF EVALUATION
Evaluation is essential to any successful commodity and market development organization. A formalized process for evaluation can be a staff manager’s best friend.
I believe good evaluation starts when a project proposal is made to the checkoff board or the appropriate governance committee. The proposal should always include realistic, obtainable objectives. That’s the beginning of any productive evaluation.
BASIC EVALUATION —COUNTING
There are several levels of evaluation. Basic evaluation is counting--number in target audience reached, point-of-purchase posters installed, literature distributed, school kits placed, etc. We say basic evaluation because it quantifies the success or lack of success of getting the materials and message to the right audience. For smaller programs this is adequate evaluation because it would cost more than justified to pursue additional measurements.
LEVEL TWO EVALUATION —ATTITUDES-BEHAVIOR-DEMAND
The next level must assess performance against changes in perception of product, and changes in actual purchasing of product, or in the case of intermediary targets, changes in their behavior toward the product which influences consumers’ purchasing behavior.
The beef industry engages independent research firms to assess changes in consumer attitudes on key demand drivers such as convenience, ease of preparation, price/value, and nutritional value. We also have established a landmark monthly tracking study to determine beef’s, and its competition’s, volume and price dynamics at retail to give us demand information on each cut in the case.
KEY EVALUATION — RETURN ON INVESTMENT
In recent years, the beef industry has worked with Dr. Ron Ward, University of Florida, to develop and econometric model to estimate the return of beef promotion dollars invested by the industry. In other words, level three is the ultimate evaluation because it goes to the basic mission of any commodity marketing organization--to estimate dollar returns. Dr. Ward’s work has shown a $5.40 return on every beef checkoff dollar invested nationally in promotion and public relations.
HOW PUBLIC IS TOO PUBLIC
Now to the question of commodity organizations sharing promotion and advertising data--perhaps in one common data bank available to everyone. This raises the question of confidentiality. With commodity boards being quasi-public institutions, I don’t believe our marketing data will ever be as confidential as that of a private company. On the other hand, I believe producers who finance commodity marketing boards have a right to expect that their data not be readily available to their competition.
In conclusion, I am an enthusiastic supporter of program evaluation and I think we need to continually seek better and better ways to measure commodity programs’ impacts on demand. I also believe that commodity groups should work together to enhance their abilities in areas such as evaluation. Nevertheless, I am still unsure as to “how public is too public” if we pool our marketing data into a common research data base.
Director's Corner
Olan D. ForkerThe National Institute for Commodity Promotion Research and Evaluation (NICPRE) exists because of the interest of a great number of people in better understanding the economics of the generic promotion efforts that checkoff funds support. In 1985, representatives from academia, government and industry met to discuss methods of evaluating the economic impact of generic advertising and promotion programs. The discussions at that meeting provided the impetus for the formation of a national research committee on commodity promotion, NEC-63, made up of a broad mix of interested parties from academia, government agencies, and the promotion industry. NEC-63 has met twice annually since then to discuss current promotion research, foster discussions on improving the quality of research, and support dialogue on the economics of commodity promotion. NEC-63 has been very effective in achieving its objectives.
NICPRE is a product of deliberations that took place over the past decade. NICPRE’s current principal source of support is a USDA Special Grant. Sufficient Funds have already been appropriated to support NICPRE operations through September 30, 1996. The funds support research activities at Cornell University, where the Institute is housed as a part of the Cornell University Program on Commodity Promotion Research, and at eight other institutions: Auburn University, the University of California Davis, the University of Florida, Iowa State University, New Mexico State University, Oklahoma State University, Texas A&M University, and Washington State University.
Building on NEC-63's accomplishments, NICPRE’s purpose is to enhance overall understanding of economic and policy issues associated with commodity promotion programs. Through sponsored research and compilations of related research reports, NICPRE serves as a centralized source of and clearinghouse for knowledge and information about commodity promotion economics. In addition to performing and sponsoring research of general interest, NICPRE will also conduct research in collaboration with specific commodity promotion organizations and sponsor conferences and other educational programs.
NATIONAL BEEF PROGRAM CHALLENGED
Wayne R. Watkinson
Peter F. ButcherA suit challenging the constitutionality of the Beef Promotion Act and Order (BPAO) was filed August 2, 1994, in the United States District Court in Kansas. Goetz v. United States of America, Civ. Action No. 94-1299-FGT.
The judge handling the case recently issued a temporary restraining order prohibiting the USDA from further enforcement of the BPAO against Goetz. The U.S. Department of Justice is representing the Secretary of Agriculture in this action.
On October 29,1993, USDA instituted proceedings against Goetz to collect unpaid assessments which he was required to make pursuant to the BPAO. Goetz subsequently refused to produce documents at the request of the administrative law judge, and instead filed his action in federal court challenging the validity of the BPAO.
Goetz states in his Complaint that he has “no desire, wish or duty” to associate with the Secretary of Agriculture, the Cattlemen’s Beef Board, the Operating Committee, and state Beef Council, or anyone else acting under authority of or in accordance with the BPAO, in any matters related to the Act and Order. He further states he has “no desire, wish or duty” to participate in, financially support, or be involved with any advertising or promotional efforts undertaken by those entities in connection with the BPAO.
Although his Complaint arises out of his own dispute with the USDA over his refusal to make required payments, Goetz’ case is intended as a broader challenge to the BPAO, and its imposition of assessments on cattle producers. The Complaint is styled as a proposed class action, which would proceed on behalf of “all persons subject to the Beef Promotion Act, including all persons who now are or have ever been required to pay a non-refundable assessment under the Beef Promotion Act and all ‘collecting persons’ as defined in the Beef Promotion Act.” The Complaint alleges that the central question which is common to the entire class is whether or not the BPAO violates constitutional rights of free speech, free association and freedom of belief, equal protection, and the prohibition against government “taking” of private property without just compensation.
The Complaint requests the Court to declare the BPAO unconstitutional, to prohibit further collecting or spending of assessment funds collected pursuant to the BPAO, and to order a refund of all assessments previously collected. This case is another in a recent series of legal challenges to commodity-support legislation which imposes assessments upon segments of the agricultural industry.
For example, in 1989 the Third Circuit decided U.S. v. Frame, 885 F.2d 1119 (3rd Cir. 1989), in which it rejected a cattle producer’s challenge to the constitutionality of assessments imposed by the BPAO. Goetz argues that his case presents a different challenge from the one brought by Frame, because his assessments are mandatory whereas the assessments challenged by Frame were refundable, and therefore voluntary. To the extent that the Frame decision may have already laid to rest the arguments raised by Goetz, he argues that issues in that decision were “very close” and merit revisiting.
In brief, Goetz argues first that the BPAO exceeds Congress’ power to regulate interstate commerce under the Constitution, and that Congress has improperly given the USDA the power to impose a tax on cattle and beef producers. Goetz next argues that the BPAO unfairly discriminates against beef producers and importers by requiring them to subsidize the entire beef industry, in violation of the Fifth Amendment’s “equal protection” clause.
Goetz asserts that the assessments imposed under the BPAO also violate the Fifth Amendment by taking private property to benefit other members of the beef industry, without providing just compensation. Goetz also argues that the BPAO violates the right to free speech, free association and freedom of belief, guaranteed by the First Amendment. Goetz alleges that the mandatory assessments force him to participate in speech with which he strongly disagrees, and force him to participate in a government created “trade association” in violation of his right not to engage in particular speech, association, or beliefs.
Goetz, a member of the beef industry, is also concerned that “promotion of beef and beef products is ideologically offensive to groups which espouse vegetarianism for religious or moral reasons and the health effects of eating substantial quantities of beef is still a matter of some controversy.”
On March 28, 1995, the Court granted a Petition to Intervene in the case, which Goetz had opposed. Leave to intervene as Defendants in the case was granted to four cattle producers, two of whom allege they have sold cattle to Goetz, and from whom Goetz collected assessments which he has failed to pass on to the Secretary or to refund to the producers. The remaining Interveners are the Kansas Livestock Association, the National Cattlemen’s Association, and the National Livestock and Meat Board. The Court has several other matters currently pending in this case which seek dispositive ruling on all the issues raised by Goetz’ Complaint.
On October 31, 1994, Goetz filed a motion to certify his proposed class, which the USDA has opposed. In its opposition, the USDA asserts that Goetz cannot adequately represent the members of his proposed class, since his interests are antagonistic to the putative class of cattle producers who overwhelmingly voted in favor of continuing the Beef Promotion and Research Program. In addition, the USDA has asserted that class certification is unnecessary in that the relief sought by Goetz would apply to all proposed “class” members regardless of whether this proceeds as a class action, and that administration of the class action would be unmanageable in light of the estimated 44,270 members of Goetz’ proposed class.
On November 10, 1994, the USDA filed its Motion to Dismiss, seeking dismissal of all claims asserted in Goetz’ Complaint. In that motion, the USDA referred the Court to U.S. v. Frame, 885 F.3d (3rd Cir. 1989), a decision in which the Third Circuit Court of Appeals rejected several constitutional challenges identical to those now raised in the Tenth Circuit by Goetz. In particular, the USDA argued that its assessments are not an improper tax, and that the Beef Act does not improperly delegate lawmaking authority to the Secretary of Agriculture or to the Beef Board. With regard to Goetz’ Fifth Amendment claims, the USDA argued that imposition of assessments is not a “taking” of property, and moreover that Goetz receives “just compensation” in the form of economic benefits which accrue to him as a result of the promotion and research programs.
The USDA also argued that the associational freedoms protected by the First Amendment do not include a right not to associate with the government when it is acting pursuant to a valid exercise of congressional power, and that Congress’ interest in stimulating the beef industry through promotion and research is a compelling state interest which justifies whatever slight infringement on Goetz’ first amendment rights the Beef Program may cause. Finally, the USDA’s motion to Dismiss argued that Goetz’ suit is barred by principles of sovereign immunity, which protect the United States from being subject to a lawsuit in the absence of congressional waiver of such protection.
In opposing Defendant’s Motion to Dismiss, Goetz has filed a Motion for Summary Judgment in his favor, arguing that in light of uncontroverted facts he is entitled to judgment on all claims as a matter of law. Both Goetz and the USDA therefore have asserted that the Court now has been presented with all the information necessary to rule on all the issues raised by Goetz’ Complaint.
On November 14, 1994, the Court issued an Order indefinitely enjoining the administrative proceedings against Goetz underlying this case during the pendency of the litigation. On November 22, 1994, the USDA filed a motion seeking reconsideration of the Court’s preliminary injunction. In its motion, the USDA argued that Goetz neither has nor can demonstrate that the extraordinary remedy of preliminary injunctive relief is necessary in this case and that Goetz is further not entitled to a preliminary injunction because he is not likely to succeed on the merits of his claim.
The Court has not yet ruled on the USDA’s motion to reconsider, and the administrative proceedings with respect to Goetz’ payment of assessments under the BPAO therefore continue to be stayed pending resolution of this litigation. The Court also has yet to rule on the USDA’s Motion to Dismiss, and on Goetz’ Motion for Summary Judgment.
From The Agricultural Law Letter, September-October 1994, Vol. X, No. 5 ©1994 by the Law Firm of McLeod, Watkinson & Miller. Reprinted by permission of McLeod, Watkinson & Miller.
THE COTTON EXPORT PROGRAM
John LenzGovernment outlays for commodity price support are coming under increasing scrutiny as politicians seek to reduce Federal budget deficits. Export price subsidies have been shown to be a cost-effective means of reducing treasury outlays for the cotton program, one of the more expensive government programs. In a research report, Henry Kinnucan, Patricia Duffy, and Karen Ackerman, extended earlier findings on export price subsidies to consider export promotion.
A comparative static framework was used to analyze the effects of non-price promotion and price subsidies for the export market. Based on previous estimates of supply, demand, and export promotion elasticities, the analysis suggests that both tools can be effective in raising the domestic cotton price and lowering the government costs for cotton programs.
As export demand becomes less price elastic, non-price promotion becomes the more effective tool. For example, if the export demand elasticity is unitary, the results indicate that export promotion is at least five times more effective at reducing government costs than an equivalent expenditure on an export price subsidy. Further research is needed, however, to refine estimates of important elasticity values, particularly the export promotion elasticities.
A report on this research is contained in the Review of Agricultural Economics. For further information contact Henry Kinnucan, Department of Agricultural Economics and Rural Sociology, Auburn University, Auburn, AL 36849-4201.
Selected Readings Ward, Ronald W. 1994. "Economic Returns from the Beef Checkoff." University of Florida, Gainesville. UF#NCA94.1.
Kinnucan, Henry W., Patricia A. Duffy, and Karen Z. Ackerman. 1995. "Effects of Price versus Non-Price Export Promotion: The Case of Cotton." Review of Agricultural Economics (17):23-32.
Kaiser, Harry M., Olan D. Forker, John E. Lenz, and Chin-Hwa Sun. "Evaluating Generic Dairy Advertising Impacts on Retail Wholesale and Farm Milk Markets." Journal of Agricultural Economics Research 44(no. 4):3-17.
Suzuki, Nobuhiro, Harry M. Kaiser, John E. Lenz, Olan D. Forker, K. Kobayashi, and T. Yoshida. 1994. "Measurement of Generic Milk Promotion using an Imperfect Competition Model." American Journal of Agricultural Economics (76):296-302.
Editor's Notes
John LenzWelcome to the first issue of the NICPRE Quarterly. In his "Director's Corner" in this issue, Olan D. Forker introduces you to NICPRE and describes the process by which the institute came into being. The NICPRE Quarterly, as its name indicates, will be a quarterly publication dealing primarily with evaluation of commodity promotion programs, though we will also make room for related issues as they arise.
In this first issue, our main focus is on the beef program, with a feature article on Ron Ward's evaluation research, a manager's viewpoint by John Huston, and an article by Wayne Watkinson and Peter Butcher on a producer's legal challenge to the national beef program. In addition, we also have an article on evaluation research conducted by Henry Kinnucan, Patricia Duffy, and Karen Ackerman on the cotton export program.
If you have any suggestions about issues you would like to see us feature in future issues, or, even better, if you have any research you would like us to report, please let us know.