NFAPP's Newsletter April 1997

Featured Articles :

"MAP Attack", by Paul Patterson, Timothy J. Richards and Pamela Mischen
 Topic: The effects of Market Access Program Expenditures

"Legislative Update.....Ag Promotion Hearings", by Pamela A. Mischen
 Topic: Market Access Program Hearings

"Market Watch.....Broccoli and Cauliflower", by Richard Adu-Asamoah
 Topic: Broccoli and Cauliflower Markets

MAP Attack

by Paul Patterson, Timothy Richards and Pamela Mischen

Once again, the Market Access Program (MAP), formerly known as the Market Promotion Program (MPP), is under attack as corporate welfare. In order to justify public provision of export promotion funding, Rep. John Kasich argues that the social returns from export promotion must exceed those earned by an exporting firm. Using this criterion, NFAPP undertook an evaluation of the MAP. (A complete copy of the report "Market Access Program Evaluation: Fruits and Vegetables," NFAPP Policy Briefing Paper #97-2 can be obtained through the NFAPP Web Site or by request through the mail. Please contact NFAPP at (602) 965-5470 for a copy.)

Estimates of the export earnings attributable to export promotion expenditures under the Market Access Program and its predecessors (the Targeted Export Assistance Program and the Market Promotion Program) and the Foreign Market Development Program were prepared in this study for several fruit and vegetable products, including almonds, apples, cherries, frozen potatoes, grapes, grapefruit, raisins, walnuts, and wine. Across all these products, it was found that last dollar spent on promotion by the government generated $4.05 in export sales in the short run (approximately one year) and $5.32 in the long run (see Table 1 for a breakdown by commodity). Long run returns reflect the sales response following from previous years' promotion, as consumers respond to earlier promotion.



In the absence of government aided export promotion programs, firms may under invest in promotion. This occurs because the promoting firm is unable to capture all of the benefits of promotion. Therefore, there is no incentive to invest in promotion at its optimal level. Thus, publicly funded promotion can assist in capturing these additional returns for society. The origin of these additional returns are attributable to several factors, including the benefit one exporter enjoys from the promotional efforts of other exporters--a "spillover" or "halo" effect. With regard to export promotion, some exporters may benefit from the promotional efforts of other product exporters or export sectors. Empirical analysis of the halo effect in export promotion provided mixed results.

The NFAPP study controls for many factors that may influence the growth in U.S. exports of fruits and vegetables, such as foreign income and population growth, a weaker dollar, and lower U.S. prices, as well as government export promotion policies, like the Market Access Program. Determining the independent effect of these variables on exports is important for making policy decisions.

In addition to questions of return for dollar invested in the MAP, much of the debate has surrounded the issue of generic versus branded promotion. In practice, the distinction between generic and branded promotion may be artificial. Ultimately, the issue revolves around the effect of promotion. Due to the heterogeneity of products and markets within the fruit and vegetable industry, it is clear that no one strategy for promotion works for all commodities, nor will promotion have the same spillover effects to other commodities or product from sources other than the U.S. The products that have had the most successful promotion programs are apples, cherries, and french fries. These products are already identified as quintessentially American, so whereas the promotion managers may attempt to mount a generic product campaign, they are in fact conveying a branded message -- the "Made in the U.S.A" brand. In contrast, the largest halo effect was noticed for wine, a product typically branded, which returned $7.61 to other commodities.

U.S. exports of many fruits and vegetables have more than doubled over the past decade. As a group, these products currently account for approximately 17% of total U.S. agricultural exports. The growing prominence of these products mirrors global trends towards increased trade of consumer-oriented or high value agricultural products.
For more information on exports and agricultural promotion, please refer to the following NFAPP Policy Briefing Papers:

"Effect of Fruit and Vegetable Exports on Retail-Farm Margins," NFAPP #96-2, June, 1996.

"Export Promotion of U.S. Agricultural Poducts," NFAPP #96-5, July, 1996.


Legislative Update......
Ag Promotion Hearings

by Pamela A. Mischen

Once again, at the forefront of fruit and vegetable policy is the Market Access Program (MAP). Hearings are to be held in both the House and Senate investigating the effectiveness of MAP and other agricultural promotion issues. The Risk Management and Specialty Crops and General Farm Commodities Subcommittees plan to meet on April 24th review the effectiveness of agricultural export programs. The issue of branded versus generic promotion is expected to be hotly contested.

MAP as a whole will face opposition if it comes to the floor in the House Agricultural Appropriations Bill, which is expected at the end of May. Calling MAP "[o]ne of the most outrageous transfer programs around," Rep. Steve Chabot (R-OH) proposed a bill on March 11, 1997 to eliminate MAP. Rep. Chabot stated that MAP "is about as close to legalized theft as you can get." The bill, H.R. 972, which was signed by 24 co-sponsors was referred to the Committee on Agriculture. MAP may end up taking a back seat to more pressing items such as disaster assistance and the budget which may prove to be good news for program supporters.

A representative of the Senate Agriculture Committee expects that MAP will not see any vocal opposition this year in neither the Agriculture nor the Appropriations Committees. The general feeling is that concerns over MAP were handled in the Farm Bill and that MAP will not be an issue until the FAIR Act runs its course.

The Senate is planning to hold a hearing on U.S. Agricultural Exports. The hearing at which Secretary of Agriculture Glickman and U.S. Trade Representative Charlene Barshefsky are to testify was originally scheduled for April 24th. This hearing has been postoned and is expected to be reschueduled for June.


Market Watch......Broccoli and Cauliflower

by Richard Adu-Asamoah

Supply from California Sources Lighter than Last Year:

Despite concerns about supply during the transition from the desert growing regions of Arizona and California to regions in northern California, harvests from the north began on time in late March. Harvests were light, as expected, from both the Salinas and Santa Maria areas of California until the end of March. Lighter than normal supplies of broccoli and cauliflower are expected through April, and early part of May.

Prices will Continue to be Unstable:

Broccoli and cauliflower prices were unstable throughout March due to lighter than expected supplies from California sources. Broccoli f.o.b. prices steadily declined during the last two weeks of March after moderate gains during the first half of the month (Figure 1). Cauliflower f.o.b. prices also steadily fell in the first three weeks of March but bounced back during the last week due to decreased supplies (Figure 2). Prices, however, remained lower than March 1996 prices and are likely to affect price levels through April and May. Prices in April may not be robust because low transitional supplies from the desert areas of California and Arizona to northern California did not experience a prolonged gap similar to those of previous years.



Broccoli prices are expected to improve steadily through April and will surpass 1996 prices of the same month. Average price for 20-pound carton of loose crown cut is expected to fluctuate between $7.80 and $9.50 depending on quality and supply. Average weekly shipment will be about 794,000 cartons.



Cauliflower supplies will continue to be lighter than expected through April, with variable quality. Prices will, therefore, vary widely and will be higher than prices attained in 1996. Average weekly price in April is expected to fluctuate between $9.80 per carton (20 pounds) and $15.80 per carton depending on quality and supply. Average weekly shipment during April 1997 is expected to be about 242,000 cartons.

Strategies For Future Success:

Many produce firms are positioning themselves to take full advantage of a potentially lucrative global market. Produce supply firms, especially those located in California, are integrating vertically. The objective of most merged firms is to improve their share of sales in retail, food-service and wholesale vegetable markets, at reduced costs. Creative use of vegetables is now an important part of the fresh-cut success story. Thus providing premium whole and value-added products that meet customer needs has become an added focus of many progressive produce firms. March data on pre-cut salad mixes shows a slowing in growth, a trend which is expected to continue through 1997. Processors have begun to reduce fresh-cut salad lines in favor of top-selling varieties, and even though they will continue to introduce new salads, the effort will not be at the explosive rates seen during the past five years. As processors cut down on lettuce salad mixes (in an effort to better manage this category of product line), non-lettuce items (e.g. spinach, cabbage) and hard vegetables including broccoli and cauliflower should benefit from the temporary change in industry direction. Packaged broccoli and cauliflower florets and slaw products are already selling well nationwide and the new direction should be a welcome news for growers.

The announcement by the National Cancer Institute (The Packer, March 24, 1997) that fruits and vegetables consumption among adult Americans was up by half a serving between 1989-91 and 1994, should be good news for the produce industry. Some indication of the effectiveness, and quantitative evaluation of the on-going 5 a day for Better Health program seemed long overdue. It is still a modest improvement when the increase is split between all vegetables and all fruits on the other hand, and between fresh and processed products. The good news is that the industry now has an idea where emphasis should be put in promoting fresh fruits and vegetables consumption - among children and adolescents. Broccoli and cauliflower will no doubt feature prominently among the vegetables that have experienced gains in per capita consumption. This should contribute to sustained higher prices for growers and shippers through the 1997 season, until production returns to the desert regions.

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