Progress 09/15/01 to 09/14/04
Outputs
The studies funded from this project provided a considerable array of relevent results. One study of fast food demand was conducted. Several socioeconomic and demographic variables have significant influences on an individual's probability of consuming fast food and household expenditure on fast food. Significant variables were age, income, education level, hours spent at work, and the number of household members. A second and third study were completed that look at the impact of storability on food demand and on the shortcomings of standard food demand estimation methods that neglect dynamics. The former presents and tests the implications of product storability on demand estimation. The results support the existence of household stockpiling behavior and suggest that static demand estimates, which neglect dynamics, may overestimate price sensitiveness by up to a factor of 2 to 6. A study to examine contracts used in the North American sugarbeet industry was completed.
Though quite similar in many respects, the contracts we study vary across processing firms in the set of quality measures used to condition contract payments to growers. This is somewhat surprising given the homogeneous nature of the processors' finished product (refined sugar). Two complementary studies evaluated the role of gluten in shaping the market for wheat protein and then measured the impacts of the 1998-2001 wheat gluten import quota targeted at the E.U. A study of market power in the hard wheat milling industry was completed. No evidence of market power could be found. It appears that despite increasing and alarming levels of concentration, the global competition and storability characteristics of wheat make it difficult for millers to exercise price controls. A study was completed to estimate the ability of State Trading Enterprises such as the Australian or Canadian Wheat Boards to use internal producer pricing structures to distort international grain markets. For
nations that allow marketing boards to represent all growers of a raw commodity, the results suggest a favorable strategic position relative to other nations that have self-limited export policies through the Uruguay round of GATT. A study was completed to evaluate the incentives for mislabeling of conventional foods as organic. It showed that while organic certification and labeling are necessary, they are not sufficient to prevent failures of organic food markets. A study leading to a dissertation was conducted on the U.S. spreadable fats market. Considerable forms of imperfect competition were found in pricing, advertising, and in risk management issues of the firm. A study of agricultural biotechnology patent production involves positive feedbacks between prior experience and current output, complementary research in related areas, and synergies with article production. Two studies of price dynamics in U.S. dairy markets were also completed. Butter markets show assymetric price
responses and goverment price floors reduced dairy price voltility.
Impacts
The Food System Research Group funds numerous studies all trying to understand, evaluate, and measure the impacts of large powerful agribusinesses, government policies, pricing strategies, and global forces on farmer and producer welfare. Our studies focus on three major areas: food retailing, food processing, and the markets that serve producers and consumers. The expected impacts are numerous. The Wang dissertation uncovered several insights about the U.S. butter and margarine markets. Firms' advertising strategies were found consistent with collusive behavior. Pricing was found to be imperfectly competitive. Firms were found to price and advertise consistent with financial market objectives, not simply profit maximization. The two studies, Chavas and Mehta, and Chavas and Kim, developed dynamic models to evaluate two conditions prevalent in dairy markets. Asymmetric pricing implies firms do not respond as quickly to cost decreases as they do cost increases, which
implies that farmers bear additional price risk than otherwise would be the case. The Barham et. al study suggests that agricultural biotechnology patent production involves positive feedbacks between prior experience and current output, complementary research in related areas, and synergies with journal article production. The concern that applied research at universities in the form of patents would crowd out more basic research was not supported. There are also economies of scale and increasing economies of scope in article and patent production among U.S. universities.
Publications
- Wang, Shin-Shyr. Strategic Behaviour under Asset Value Maximization. PhD Dissertation. Advisor, Kyle W. Stiegert. University of Wisconsin, Madison. 2004.
- Reimer, Jeffrey and Thomas W. Hertel. Estimation of International Demand Behaviour for Use with Input-Output Based Data. Economic Systems Research, Vol 16, No. 4. December, 2004.
- Chavas, J.P. and Aashish Mehta. Price Dynamics in Vertical Sector: the Case of Butter. American Journal of Ag Economics. November, 2004. 1078-1093.
- Chavas, J.P. and K. Kim. A Heteroskedstic Multivariate Tobit Analysis of Price Dynamics in the Presence of Price Floors. American Journal of Ag Economics. November, 2004. 576-593.
- Barham, Bradford, J. Foltz, D. Jackson-Smith, and S. Moon. 2004. The Dynamics of Agricultural Biotechnology Adoption: Lessons from rBST use in Wisconsin, 1994-2001. American Journal of Agricultural Economics 61-72.
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Progress 01/01/03 to 12/31/03
Outputs
One empirical study of fast food demand in the U.S. has been completed. Both a participation and expenditure model were specified. The participation model attempted to identify the factors that influence the decision of individuals to consume or not consume fast food for a given meal. The expenditure model established an empirical relationship between household expenditure and factors determining amount of expenditure. We found that several socioeconomic and demographic variables have significant influences on an individual's probability of consuming fast food and household expenditure on fast food. Some of the more significant variables were age, income, education level, hours spent at work, and the number of household members. Both the probability of consuming and expenditures increased with income and household size, but decrease with age and education. A second and third study have been completed and published that look at the impact of storability on food demand
and on the shortcomings of standard food demand estimation methods that neglect dynamics. The former presents and tests the implications of product storability on demand estimation, using two years of scanner data on the purchasing behavior of a panel of households. The results support the existence of household stockpiling behavior and suggest that static demand estimates, which neglect dynamics, may overestimate price sensitiveness by up to a factor of 2 to 6. The third study evaluates a puzzle regarding scanner data (the so-called dip puzzle) in the marketing literature. We show that most of the previous studies have exaggerated the impact of sales of demand, as they confounded price responses with compositional effects. Using standard panel estimation methods we decompose sale vs non-sale behavior between household responses to sales and household heterogeneity, which if not purged can bias demand estimates. These are critical findings given the very high concentration levels in
the food retail sector and the ability of oligopolists/oligopsonists to exploit markets with low absolute demand and supply elasticities. A fourth study is complete. The authors examine contracts used in the North American sugarbeet industry. Though quite similar in many respects, the contracts we study vary across processing firms in the set of quality measures used to condition contract payments to growers. This is somewhat surprising given the homogeneous nature of the processors' finished product (refined sugar). It seems unlikely that processors differ significantly in how they value the various attributes of a sugarbeet, and such a difference is perhaps the most natural reason to expect variation in the structure of quality incentives across processors. Previous attempts to explain the observed variation in sugarbeet contracts have focused on differences in organizational form across firms. In this study we provide an alternative explanation that relies on variation across
production regions in growers' ability to control the relevant measures of sugarbeet quality.
Impacts
Demand for Fast Food: Results from the first study lay the groundwork for understanding some of the societal problems associated with fast food consumption: 1) obesity/overeating and 2) potential spatial market power by fast food firms. Storability and dynamics of supermarket food demand: Results from the second and third studies explain important dimensions of food purchasing patterns, and both prove critical in measuring demand elasticities. With more accurate measures of demand, it appears the problems of market power at the food retailer level are potentially much more problematic. Sugar Beets Contracts: The fourth study provides critical information about the way contracting has emerged in one commodity production and processing chain. The study provides useful and important information about how and why firms structure contracts.
Publications
- Hendel, Igal and A. Nevo. 2003. The Post-Promotion Dip Puzzle: What Do the Data Have to Say? Quantitative Marketing and Economics 1(4): 409-424.
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Progress 01/01/02 to 12/31/02
Outputs
Stiegert and Balzer (1999, 2001) developed two complementary studies that evaluated the role of gluten in shaping the market for wheat protein and then measured the impacts of the 1998-2001 wheat gluten import quota targeted at the E.U. Stiegert (2002) completed and published a study of market power in the hard wheat milling industry. No evidence of market power could be found. It appears that despite increasing and alarming levels of concentration, the global competition and storability characteristics of wheat make it difficult for millers to exercise price controls. Hamilton and Stiegert (2000, 2002) investigated the ability of State Trading Enterprises such as the Australian or Canadian Wheat Boards to use internal producer pricing structures to distort international grain markets. For nations that allow marketing boards to represent all growers of a raw commodity, the results suggests a favorable strategic position relative to other nations that have self-limited
export policies through the Uruguay round of GATT. Giannakas (2002) completed and published a study evaluating the incentives for mislabeling of conventional foods as organic. He showed that while organic certification and labeling are necessary, they are not sufficient to prevent failures of organic food markets. When extensive mislabeling occurs, the value of labeling is undermined and the organic market fails. Many other studies are underway using funding from this proposal. We are investigating demand for fast food, testing if intensely caloric fast food has addictive properties, measuring cost efficiencies in dairy processing, estimating price-cost margins in the U.S. retail milk and carbonated soda sectors, evaluating the efficiency of the emerging farm contract economy, specifying new models of industrial organization that capture finance theories related to risk and capital value, and are examining models of imperfect competition when advertising plays a key role.
Impacts
The research by Stiegert/Balzer found that demand for intrinsic wheat protein was very elastic. Thus, the returns to breeding or biotechnology programs designed to raise protein levels of wheat are likely to remain stable in response to small increases in wheat protein content. the U.S. import quota on wheat gluten was estimated to provide a 14% increase in the price of wheat gluten in the first year. By the third year, prices were only 5% above the pre-quota price. The 3-year quota increased protein premiums and provided about $500 ($1000) in additional revenue for an average 1000-acre farm producing hard red winter (hard red spring) wheat. Stiegert's finding on the hard wheat milling industry suggests that concentration is but a necessary condition for the exercise of market power and that policymakers must evaluate each industry on its own highly specific merits. Stiegert/Hamilton's research on international state trading enterprises (STE) concludes that there are
mechanisms outside of the WTO rules that STEs can use to distort trade. For the international durum market, Stiegert and Hamilton found that the Canadian Wheat Board's delayed producer pricing and single-desk marketing were mechanisms that generated a price-leadership status for Canada. Giannakas' study points to potentially large problems related to the reputation of organic foods and markups they tend to enjoy. The incentive is strong to increase supplies of organic food using mislabeled nonorganic foods and thus cause the market to fail. Stronger controls/punishments on organic labeling are suggested.
Publications
- Stiegert, Kyle and Hamilton, Steve. "An Empirical Test of the Rent-Shifting Hypothesis: The Case of State Trading Enterprises." J. of International Economics. 58(2002),135-157.
- Stiegert, Kyle. "The Producer, the Baker, and a Test of the Mill Price-Taker." Applied Economic Letters. 9(2002) 365-368.
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Progress 01/01/01 to 12/31/01
Outputs
The project was funded beginning September 15, 2001. All the proposed research is in the beginning stages. We are proceeding with the Census Bureau study of the scale and scope of the dairy processing industry. Clearance has been granted to conduct this research at the Census Bureau, Boston Office. Several other projects are underway including newly identified projects on: 1) mislabeling in organic markets, 2) contract efficiency in hog and potato markets, 3) slotting fee and advertising effects in retail food markets, and 4) demand analysis of fast food markets.
Impacts
(N/A)
Publications
- No publications reported this period
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