CONTENTS

An Ex Post Evaluation of Generic Egg Advertising in the U.S.

Manager's Viewpoint - American Egg Board

Manager's Viewpoint - California Egg Commision

Editor's Notes

Director’s Corner

Next Meeting

NEC-63 Spring 1997 March 21-22, 1997 New Orleans Economic Analysis of Industry-Financed Research and Promotion

Manager's Viewpoint

by Robert D. Pierre
President/CEO, California Egg Commission

Political pressures, commodity board/commission/council producer threats under the First Amendment, and the constant question of producers--“What is the Commission doing for us?”--helped encourage us to do a study of our economic impact. So what did we accomplish? To whom have we proven what? Do the people paying the bill fully understand what we presented to them?

Harry M. Kaiser and Todd M. Schmit came to our meeting and presented in exceptional laymen language, almost unbelievable facts--for every producer dollar invested for advertising, the producer return was seven dollars profit. Pretty fantastic, but who understood exactly what was being said in the statement? Did the egg producer in California, who competes in the national marketplace with producers of eggs in the other 49 states, in reality receive more for his/her product? Accounting for the higher environmental costs we have compared to the other states, was return on investment really that much higher? The answer appears to be a resounding NO!

The answer to the problem is familiar--competition. Share of the market. Whoever receives the order has the winning hand. The retailer in California, like any other in the country, feels he must have the best price to be competitive; that if the California producer of eggs cannot compete with the egg producer in Iowa, Indiana, Ohio, Pennsylvania, or Nebraska--the retailer can surely meet his egg requirements cheaper elsewhere.

So what did we accomplish with the econometric model? It may have convinced a few of us who understand the overall picture of competitive business. But I don’t really think we know how, nor did we before the study began, how to relay the complete results of these exercises to the producer of the product! This concern was brought up in the NEC-63 meeting held this fall in Monterey, California but never received detailed attention or further development. The subject is of sufficient proportion that it should be investigated during the year and reported at the next meeting.

I personally challenge all of you economists to go back to the drawing board and look at the big picture. You have done a great job in considering most of the factors that affect the particular product production; farm price, feed price, chick price, operating overhead, competitive product pricing, women in the workforce, etc., but are we looking at the complete picture of what has happened to an individual product? Has consumer demand been blighted by excessive retail markup? I think this is an area that affects the total picture not currently examined completely. I’ll try to shed some light on what I’m talking about.

The California Egg Commission came about because 60 percent of the producers were tired of paying the advertising/promotion/public relation cost of the total or 100 percent of production. Mandatory assessments or nothing was the edict. Mandatory assessments came in the form of the California Egg Commission with the California legislature’s blessing--effective date January 1, 1984.

Now let’s look at the whole picture, then and now. California had and has the largest human population in all 50 states; was and still continues to be one of the largest producer of table eggs (Ohio is closing in now with less layers but increased production).

We would like to believe it has been the egg producer or handler, but during years when the egg producer was actually losing money, the retailer has continually been profitable. When we recognize that supply does not necessarily affect demand, or when the retail price does not reflect the increased supply, then we will have a better understanding of the marketing problem. It would appear, it seems, that when the producer is losing money, the retailer should be making less profit, wouldn’t you think? Not so, sometimes he increases his profit.

In 1985, we sold 16 plus million 30 dozen cases of eggs intrastate at a total of $257 million, or $0.63 a case profit (2 cents a dozen). During the same year, California retailers averaged $9.50 profit or $0.32 per dozen. California Fresh Egg advertising in California averaged $4 million that year and has been in excess of $3 million every year since.

Despite years when excess supply in the nation reduced California producer profits to a negative position (1987, 1988, 1992, 1993, and 1994), retailers continued to increase their margin of profit per dozen to a high in 1994 of $0.94 cents a dozen. Wouldn’t it seem rational that the California egg producer should share in some of these profits, too? Not when the national supply is at a surplus and California becomes a “dumping ground” for surplus eggs--as many as a million cases a year from 38 different states.

Let’s speculate--if one dollar invested by the egg producer resulted in a seven dollar return on producer profits, what was the eventual dollar return for the retailer? How are sales affected by prices in California that are a dollar a dozen higher than in our border states Oregon, Nevada, or Arizona? Obviously, when you look at the human population explosion from 1985 to 1995--26,150,000 to 31,910,000, a 22 percent increase, total cases of intrastate sales have taken a big drop, down to 14,616,892 in 1995 from 16,161,991 in 1985--9.6 percent less.

Obviously, California Fresh Egg advertising has convinced the consumer of the perceived value of all eggs or the retailer would not be making the dollar a dozen. Kaiser and Schmit are working on this one for me--the results will be interesting. Again, our sincere appreciation to the staff at Cornell and to NICPRE for an excellent study. Now we have to learn how to explain, translate, and decipher the results in a meaningful manner for the benefit of egg producers.