CONTENTS

Measuring Advertising Effectiveness:
Expenditure vs.
Gross Rating Point

Voluntary Funding of Commodity Promotion Research Programs

Editor's Notes

Director’s Corner

Next Meeting

Voluntary Funding of Commodity Promotion Research Programs

by Daniel S. Tilley and Kelly Crowley

Financial support for U.S. commodity research and promotion programs frequently comes from marketing orders that call for production assessments or checkoffs. Promotion and research are supported by the assessments and the benefits created are generally non-excludable public goods that are available on an unrestricted basis to all producers. Many marketing orders have provisions that allow producers to request a refund of their contributions. Producers who request refunds become free riders if they receive the non-excludable producer benefits from program expenditures but do not pay their share of the costs.

Prevalence of free riding would threaten the existence of voluntary programs that support research and promotion efforts . The effects of refund requests on research and promotion efforts are sometimes greater than the actual refund amount because producer-supplied funds are frequently matched by other funds and there is a cost associated with writing and distributing refund checks.

Agricultural economists have been actively involved in evaluating the effects of commodity promotion programs (Brester and Schroeter; Brown and Lee; Capps and Schmitz; Cox; Coulibaly and Brorsen; Goddard and Amuah; Green, Carman and McManus; Jensen and Schroeter; Kinnucan and Venkateswaren; Ward and Dixon; Ward and Lambert). No studies have been done to learn why producers request refunds and become free riders. There is little known about how well producers understand the programs and activities of commissions. Program managers and producer representatives understand that the issue is important. Commissions frequently spend a portion of their fund on evaluating the effects of their programs, producer communication, and public relations tactics. Communication and public relations tactics are deemed necessary for general accountablility, to reduce refund rates, and in cases where referendums are necessary for programs to continue, to insure that producers are sufficiently well informed to vote on referendums. Refund request rates and referendum votes may be viewed as a measure of producer satisfaction with commission programs.

Commissioners must decide how much time and money should be spent on evaluating the effects of their programs, producer communication, and public relations tactics, some of which may help reduce refund rates and assure referendum passage. Using funds to reduce refund requests, reduces funds available to support promotion and research efforts. If producers perceive that too much time and money are being spent communicating with producers, some producers may be less willing to support programs. At the same time, producers who do not know how the money they contribute creates benefits are less likely to support the programs.

Oklahoma wheat research and promotion programs are a particularly interesting pilot study of the refund request issue. First, provisions are available in 9 of the 14 states with wheat promotion and research programs. Second, Oklahoma has the highest percentage of refunds, at 11 percent. Third, in February 1998, Oklahoma approved legislation to double the assessment. Fourth, like most states' programs, the Oklahoma wheat program is managed by a producer commission and commissioners who allocate funds generated by the checkoff to research, promotion and producer information activities. Fifth, Oklahoma wheat commissioners regularly review refund request lists. Sixth, since many wheat programs are voluntary and state programs frequently participate in matching national programs like Wheat Foods Council (Oklahoma Wheat Commission, 1997) are threatened if refund request rates are made by producers.

Our objective was to determine how economic and social factors, knowledge, attitudes and beliefs were related to the requests for refunds. A model to represent the decisions that voluntary participants in commmodity research and promotion programs make was used to generate testable hypotheses. It was hypothesized that probability of requesting a refund was related to susceptibility to social sanctions, beliefs about program effectiveness, income and to other producer characteristics. A cross-sectional survey of producers known to participate or not participate in funding decisions was used to generate data that could be used to test the hypotheses. The questionnaire was administered by mail to 2500 wheat producers in Oklahoma. The sample was taken by the Oklahoma Agricultural Statistics Service. Of those 2,500, 500 producers requested a refund last year.

A logit model was used to test the hypotheses. Number of bushels sold, personal acquantance with a commissioner, and a producer's opinions and beliefs about wheat commission activities had the greatest influence on the probability of requesting a refund. Large farmers who felt that producers were well informed, knew that programs were voluntary, and/or believed that commodity research and promotion programs should be eliminated, had a higher probability of requesting a refund. Since the process of requesting a small refund is the same as the process for a large refund, the effect of bushels sold could have been due to the learning curve associated with knowing how to request refunds and the size of the refund relative to the cost of requesting the refund.

Results in Table 1 give a summary of producers attitudes about the effectiveness of programs. We also found that the conditional probability of requesting a refund with all of the variables at their means was 0.138. When producers knew a commissioner, the probability of requesting a refund decreased by 9.7 percent. When producers agreed that programs made producers better off as opposed to disagreeing that programs made farmers better off the probability of requesting a refund decreased by 39.8 percent, the largest individual decrease in probability for the discrete variables. If producers disagreed that all commodity research and promotion programs should be eliminated rather than agreed that all commodity research and promotion programs should be eliminated the probability of requesting a refund was 22.9 percent less, and the effect on probability of requesting a refund was 68.4 percent if both attitudes toward benefits and elimination of programs were changed.

Table 1. Percentage of Respondents in Agreement with Statements about Government Assistance and Program Effectiveness
Statements	Disagree	Uncertain	Agree
a. The government should help farmers	25	19	56
b. The wheat checkoff is like a contribution to a charity	49	18	33
c. Farmer-funded variety research has improved wheat milling and baking quality	10	34	56
d. Wheat yields have increased because of research	12	12	76
e. Wheat production costs have decreased because of research	47	23	30
f. Wheat prices have increased	48	28	24
g. Promotion efforts of the OWC funds through the Wheat Foods Council are helping increase the consumption of grain based foods	16	64	30
h. The OWC represents state wheat producer's interests	12	31	58
i. Wheat producers are well-informed about Wheat Commission activities	41	35	24
j. Overall, the Oklahoma Wheat Commission programs make farmers better off	21	41	38
k. I would like more information about Wheat Commission activities	16	29	55
l. All commodity research and promotion programs should be eliminated	71	20	8
m. Contributions to wheat commodity research and promotion programs are voluntary	24	31	45

Producers who agreed that program contributions were voluntary were 12.6 percent more likely to request a refund than were producers who disagreed with that statement. Only 45 percent of the respondents agreed with the statement that contributions were voluntary, which suggests that if producers become better informed about program provisions, refund request rates could increase.

Making personal contacts with large producers would appear to be one specfic way that Oklahoma Commissioners influence refund requests. Commisioners need to be people who are well known by a large number of producers. Since the research shows that the producers' beliefs are a key factor in participation or no participation, in-depth analysis of the source of producers' negative and positive perceptions of the commission's effectiveness is needed. Simply knowing about, attending or reading publications about programs does not appear to influence refund requests unless these activities influence producers' beliefs. To the extent beliefs about the program benefits are influenced by the recommendation, refund request rates would be expected to decrease. This suggests that research on the effectiveness of commodity research and promotion programs can contribute to the decisions about whether these programs are supported by producers. Communicating the results of the research to producers is vital so that informed decisions can be made. Our research provides limited evidence that producers are more convinced that research creates positive benefits and less convinced that promotion creates positive benefits. Additional research in other states and different commodities with voluntary checkoff programs is encouraged.

References:

• Brester, G. S. and T. C. Schroeder. "The Impacts of Brand and Generic Advertising on Meat Demand," AJAE, 77(Nov. 95):969-979
• Coulibaly, N. and B. W. Brorsen. "Resolving the Conflicts between Previous Meat Generic Advertising Studies." Unpublished mimeo in review. Dept. Ag. Econ., OK State U., 1998
• Brown, M. B. and J-Y. Lee "Alternative Specfications of Advertising in the Rotterdam Model," Eur. Rev. Ag. Econ., 20(1993):419-436
• Capps, Jr., O. and J. D. Schmitz. "Effect of Generic Advertising on the Demand for Fluid Milk," So. J. Ag. Econ 21(Jul. 91):131-140
• Cox, T. L. "A Rotterdam Model Incorporating Advertising Effects." In Commodity Advertising and Promotion, eds. Kinnucan, Thompson, and Chang. Ames, IA State U. Press, 1992, 139-164
• Goddard, E. W. and A. K. Amuh. "The Demand for Canadian Fats and Oils." AJAE, 71(Aug. 89):741-749
• Green, R. D., H. F. Carman, and K. McManus. "Some Empirical Methods of Estimating Advertising Effects in Demand Systems." West. J. Ag. Econ, 16 (Jul. 91):63-17
• Jensen, H. H. and J. R. Schroeter. "Television Advertising and Beef Demand." Can. J. Ag. Econ, 40 (July 92):271-294
• Kinnucan, H. W. and M. Venkateswaren. "Generic Advertising and the Structural Heterogeneity Hypothesis." Can. J. Econ. Ed., 42 (May 94):381-396