Source: UNIV OF MINNESOTA submitted to NRP
EFFECTS OF CALIFORNIA DROUGHT ON SPECIALTY CROP MARKETS OVER TIME AND ACROSS SPACE
Sponsoring Institution
National Institute of Food and Agriculture
Project Status
ACTIVE
Funding Source
AFRI COMPETITIVE GRANT
Reporting Frequency
Annual
Accession No.
1025093
Grant No.
2021-67023-33821
Cumulative Award Amt.
$500,000.00
Proposal No.
2020-06228
Multistate No.
(N/A)
Project Start Date
Jan 1, 2021
Project End Date
Dec 31, 2025
Grant Year
2021
Program Code
[A1641]- Agriculture Economics and Rural Communities: Markets and Trade
Recipient Organization
UNIV OF MINNESOTA
(N/A)
ST PAUL,MN 55108
Performing Department
Applied Economics
Non Technical Summary
Facilitating the economic viability of specialty crop production and marketing is central to the U.S. public policy priority of developing economically, environmentally, and socially sustainable local and regional food systems. However, the industry is facing important challenges due to the increased frequency and severity of drought in California, which is the largest producer of over fifty types of specialty crops. The state of academic research on specialty crops supply chain and California drought is thin. The overarching long-run goal of the proposed research is to fill this void with a comprehensive study of the impact of the California drought on specialty crop markets, quantifying the impact of drought on retail prices, and identifying the behavioral mechanisms throughout the supply chain through which the drought impacts are mitigated over time and across space. The objectives supporting this goal are: construct panel price indices using point-of-sale scanner data for all specialty crops to estimate temporal and spatial changes in retail prices in the United States; use the panel price indices to investigate the effects of the CA drought in retail prices; estimate farm- and wholesale-to-retail price pass-through rates in the specialty crop markets and assess the extent to which these rates change before, during, and after the drought; examine the ultimate effects of the CA drought on production, wholesale, and trade; identify implications of findings for the economic viability and performance of the U.S. specialty crop supply chain.
Animal Health Component
100%
Research Effort Categories
Basic
(N/A)
Applied
100%
Developmental
(N/A)
Classification

Knowledge Area (KA)Subject of Investigation (SOI)Field of Science (FOS)Percent
60361993010100%
Knowledge Area
603 - Market Economics;

Subject Of Investigation
6199 - Economy, general/other;

Field Of Science
3010 - Economics;
Goals / Objectives
Our goal is a comprehensive study of the impact of the CA drought on specialty crop markets. To this end, the proposal is consists of four complementary objectives, each with a different set of empirical approaches chosen to address an aspect of the problem and tease out the policy implications.Objective 1: Construct panel price indices for specialty crops to estimate spatial changes in retail price levels and inflation rates across major markets in the United States.Objective 2: Estimate the effect of the recent California drought on the retail prices of fresh fruits and vegetables and other specialty crops over time and across the United States.Objective 3: Estimate the price pass-through of the drought and its demand and supply determinants along the vertical chain. Specifically, quantifying the role markup adjustments in pass-through of the drought effects.Objective 4: Investigate the extent to which adaptation occurs along the supply chain by estimating the ultimate effects of the California drought on production, wholesale, and trade over time and space
Project Methods
Objective 1: Document specialty crop prices at retail and estimate changes in price levels and inflation rates across markets. We will construct retail price indices for specialty crops for a panel of MSAs using the IRI store scanner data. The store scanner data includes weekly sales information of food products at the Universal Product Code (UPC) level from over 40,000 retail stores across the United States, comprising over fifty percent of all grocery sales in the country. The panel indices will allow us to estimate changes in prices across time, space, and products. This builds on a successful collaboration in prior work. Çak?r et al. (2018) constructed price indices for fresh fruits and vegetables for a panel of 26 MSAs using the IRI store scanner data for the period 2009-2014. We will extend this work to include almonds and other tree nuts, using the most recent data available. These panel price indices will be the primary outcome variable to quantify the effects of the CA drought over time and across space. We will make these indices available to researchers who study specialty crops at the local and national levels. They will also be publicly available for use by farm managers and stakeholders who work with farmers and purchase specialty crops to sell to consumers.Objective 2: Investigate the effects of the CA drought on retail prices. To achieve this objective, we take a reduced form econometric approach. We use different models to i) measure whether retail prices are affected by the drought, ii) test whether the impact on prices increases or decreases over time, and iii) examine whether the effects of the drought differ by markets and crop type. The results of this exercise will offer new evidence on the effects of drought at retail and provide important insights into the extent to which adaptation occurs across the supply chain.Objective 3: Estimate farm- and wholesale-to-retail price pass-through rates in the specialty crop markets and assess the extent to which these rates change before, during, and after the drought. The price pass-through rate measures the rate at which price changes at one stage of a vertical supply chain are transmitted to downstream prices. Pass-through is also a measure of market efficiency. For instance, an incomplete price pass-through could indicate market power along the vertical supply chain. In general, pass-through rates deviating from unity indicate less competitive market conditions. We expect that, all else equal, the CA drought would have had inflationary effects on prices throughout the supply chain. However, an imperfectly competitive market may result in incomplete pass-through of the drought's effects as wholesalers and retailers may respond by adjusting markups. Similarly, trade adjustments might play a role in the incomplete transmission of the drought effects into prices. We will conduct both reduced form and structural methods to investigate the pass-through effects of the drought and its determinants.Objective 4: Examine the ultimate effects of the CA drought on production, wholesale, and trade. Specifically, take a reduced-form approach to estimate the drought's effects on the key economic outcomes such as total production, yield per acre, groundwater usage, wholesale prices, and imports and exports. Our goal is to explore the timing of effects as the drought progressed and whether these differed by production areas and crop types. Besides providing a robust estimate of the magnitude and timing of the impact of drought on key economic outcomes, we also examine whether the effects changed over time and in particular whether producers and marketers became more effective in mitigating the impact of the drought on the specialty crop markets ­- in other words, how much were producers able to adapt? Finally, our last objective is to synthesize our empirical findings and investigate potential policy interventions targeted to mitigate the effects of the drought at each stage of the vertical chain.

Progress 01/01/24 to 12/31/24

Outputs
Target Audience: The project targets all stakeholders involved in the specialty crop value chain, growers and their associations, processors/wholesalers, marketers, and consumers--as well as the academic audience and policymakers. During this period, we collaborated with colleagues at USDA on research and presented our results to academics, policymakers, and other stakeholders in professional settings. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided? A Ph.D. student has been employed as an RA on the project. The project provides the student with opportunities for training in economic theory and methods. Specifically, the student is building expertise in data management, data analysis, panel data methods, microeconomics, production economics, and industrial organization. How have the results been disseminated to communities of interest? We presented our results at several academic conferences and invited seminars. As mentioned above, we are preparing manuscripts for journal submission for more robust dissemination. What do you plan to do during the next reporting period to accomplish the goals? We completed one paper and areabout to submit it to a journal. Another paper is in the final stages of writing and is currently being prepared for submission.

Impacts
What was accomplished under these goals? Our primary activities include collecting, managing, and integrating data from multiple sources, including point-of-sale purchase information from scanner datasets, agricultural data on production, acreage, and irrigation, climate data on drought severity, and demographic information from public sources. We then conduct econometric analyses using the combined dataset to address the study's objectives. We have made substantial progress in these activities and are well on our way to completing the project. Our ongoing work focuses on finalizing two papers: one examines the effects of drought on specialty crop production, and the other explores how drought impacts retail produce prices and its implications for consumer welfare. We have completed the primary analyses using the most recent data and prepared draft manuscripts for both papers. Currently, we are conducting robustness checks, performing placebo tests, and preparing the final manuscripts for journal submission. Among stakeholders we are collaborating with colleagues from USDA. We have also presented our work to academics, policymakers and other stakeholders at several professional conferences.

Publications


    Progress 01/01/23 to 12/31/23

    Outputs
    Target Audience: The project targets all stakeholders involved in the specialty crop value chain, growers and their associations, processors/wholesalers, marketers, and consumers--as well as the academic audience and policymakers. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided? A Ph.D. student has been employed as an RA on the project. The project provides the student with opportunities for training in economic theory and methods. Specifically, the student is building expertise in data management, data analysis, panel data methods, microeconomics, production economics, and industrial organization. How have the results been disseminated to communities of interest?We presented our results in several academic conferences and invited seminars. What do you plan to do during the next reporting period to accomplish the goals?We plan on completing the writing of the two manuscripts and subit to a journal.

    Impacts
    What was accomplished under these goals? We completed objectives 1, 2 and 4. We presented the results from the second and fourthobjectives at an invited seminar at ERS USDA in May 2022 and at the ASSA annual meetings in January 2023. Currently, we are preparing a paper for submission. After some background analysis and data collection, objective three is now focusing on estimating the impact of drought on production. We completed the analysis of this objective and prepared a paper currently being reviewed for submission. An early version of this paper was published as an AAEA conference paper and is available via AgEcon search.

    Publications

    • Type: Conference Papers and Presentations Status: Other Year Published: 2022 Citation: California Drought and Fresh Fruit and Vegetable Prices, Invited Seminar, Economic Research Service, U.S. Department of Agriculture, May 2022
    • Type: Conference Papers and Presentations Status: Other Year Published: 2023 Citation: California Drought, Fresh Fruit and Vegetable Prices and Consumer Welfare, ASSA Annual Meetings, New Orleans, LA, January 2023.


    Progress 01/01/22 to 12/31/22

    Outputs
    Target Audience: The project targets all stakeholders involved in the specialty crop value chain, growers and their associations, processors/wholesalers, marketers, and consumers--as well as the academic audience and policymakers. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?A Ph.D. student, Qingyin Cai, has been employed as an RA on the project. The project provides the student with opportunities for training in economic theory and methods. Specifically, the student is building expertise in data management, data analysis, panel data methods, microeconometrics, production economics, and industrial organization. How have the results been disseminated to communities of interest?We presented a paper on the impact of the CA drought on FFV prices at an invited seminar at ERS USDA in May 2022. We also presented another paper examining the effects of CA drought on specialty crop production at the Agricultural and Applied Economics Association's 2022 meetings in Anaheim, CA. What do you plan to do during the next reporting period to accomplish the goals?We plan on completing the writing of the two papers and submitting them to journals for publication.

    Impacts
    What was accomplished under these goals? After some background analysis and data collection, objective three is now focusing on estimating the impact of drought on production. We completed the analysis of this objective and prepared a paper currently being reviewed for submission. An early version of this paper was published as an AAEA conference paper and is available via AgEcon search. A Ph.D. student, Qingyin Cai, has been employed as an RA on the project. The project provides the student with opportunities for training in economic theory and methods. Specifically, the student is building expertise in data management, data analysis, panel data methods, microeconometrics, production economics, and industrial organization.

    Publications

    • Type: Conference Papers and Presentations Status: Published Year Published: 2022 Citation: Cai, Qingyin ; ÿak?r, Metin ; Beatty, Timothy ; Park, Timothy A. 2022. "Drought and the Specialty Crops Production in California", AAEA Conference Paper


    Progress 01/01/21 to 12/31/21

    Outputs
    Target Audience:The project targets all stakeholders involved in the specialty crop value chain--growers and their associations, processors/wholesalers, marketers, and consumers--as well as the academic audience and policymakers. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?A Ph.D. student, QingyinCai, has been employed as an RA on the project. The project provides the student with opportunities fortraining in economic theory and methods. Specifically, the student isbuilding expertise in data management, dataanalysis, panel data methods, micoreconometrics, production economics, and industrial organization. How have the results been disseminated to communities of interest?Part of this research will be presented atthe Agricultural andApplied Economics Association's 2022 meetings in Anaheim, CA. Also, the project will be presented at an invitedseminar at ERS USDA in May 2022. What do you plan to do during the next reporting period to accomplish the goals?We plan on completing the second objective bysubmitting a manuscript for publication that summarizes the findings. We also plan to have thedraft of a second manuscript that examines theimpact of the drought on production.

    Impacts
    What was accomplished under these goals? We made substantial progress in achieving our goals. We constructed panel price indices for fresh fruits and vegetables,completing the first objective. We also obtained data from several sources and built the dataset for estimation. Our dataset includes historical information ondrought in CA, production and yield, trade, and water usage. We obtained preliminary results on the impact of the CA drought on retail, prices, production, and treade.

    Publications