CONTENTS

Effects of Supply Response on Returns to Catfish Promotion

Effectiveness of Almond Export Promotion Programs in Pacific Rim Markets

Manager's Viewpoint

Editor's Notes

Director’s Corner

Selected Reading

Next Meeting

Director's Corner

by Olan D. Forker

An important issue facing any commodity promotion program is the adequacy of its evaluation efforts. At the recent NEC-63 conference in Sacramento, California, co-sponsored by the California Agricultural Issues Forum, the focus was on program evaluation and legal issues facing mandatory commodity promotion programs. We had several papers about the legal issues. There were also several papers about evaluation, that is, the measurement of the degree of success of a program’s efforts. Measuring the degree of success of a strategic objective is a necessary part of good management and need not be justified on the basis of protection against legal action. It should be obvious that having good solid management and evaluation practices in place will help everyone involved (producers who fund the programs, advisory boards, government agencies, and the courts) make more informed decisions as to the continuation of mandatory programs or parts thereof.

One of the difficulties in measuring the degree of success of any commodity promotion program’s efforts is that true “test” and “control” markets do not generally exist. In most instances it is possible to track changes in awareness, consumer attitudes, and sales. Most promotion organizations maintain tracking studies to monitor the marketplace before, during, and after specific program efforts. However, tracking studies do not provide an indication of what the marketplace would have been like without the program effort. Such an assessment requires some form of statistical or econometric analysis to assess what the price and sales volume would have been without the program effort, or with the effort at a different level of intensity. Although no true test and control comparisons exist, it is possible to simulate what the market would have been like had the program effort been at a different intensity level.

Simulations involve several steps. The first is collecting data about the various conditions that have existed in the marketplace over time. The necessary data include the sales volume and price of the commodity being studied, the price or sales volume of competing products, the amount of brand advertising, consumer purchasing power, market demographics, and a measure of the level of program activity (e.g. advertising expenditures). Second is the development of an economic (econometric) model that describes, as nearly as possible, the nature of the marketplace before, during, and after various promotion programs have been conducted. The model is developed using the data that describe market conditions during the time period under study. When developed, the model can be used to answer “what if” questions: "What would the market outcomes have been with changes in prices, available supplies, consumer purchasing power, or promotion activity?" Using the model to estimate changes in the marketplace assuming changes in any one of the explanatory variables is called “simulation.” It is through simulation that one can estimate or predict the market impacts of alternative levels of promotion activities, including no activities.

Like any other evaluation method, the econometric tool is not perfect. All econometric and statistical techniques carry with them some probability of being right or wrong in describing true conditions. However, since the analyst, unless omniscient, never knows the true conditions, we must rely on statistical measures to assess our results. A standard, though often overlooked, statistical measure for assessing econometric estimates is the “confidence interval.” Based on the data used for estimation, a confidence interval is simply a range, that we can state with a particular degree of confidence, contains the true value we are trying to estimate. Although not perfect, econometric models can provide reliable estimates of the economic returns to a commodity promotion effort. “What degree of confidence do you have that the estimate approximates the true marketplace response?” is always a reasonable question to pose.

Individuals associated with NEC-63 and NICPRE have been involved in the development of economic techniques to simulate market conditions with and without various advertising efforts for about 20 years. Thus, there is a great deal of experience available in doing this kind of evaluation and in understanding the usefulness of the estimates.