NFAPP's Newsletter July/Aug 1998

Featured Articles :

"The Twinkie Tax and Fruits and Vegetables", by Richard Adu-Asamoah and Paul M. Patterson
(Topic : New obesity standards and tax on high fat foods).

"Strawberry Market Watch and Industry Outlook" by Ram Acharya
(Topic : Strawberry Market Watch).

"Legislative Update" , By Amy Ridings.
(Topic: Agricultural Job Opportunity, Benefits, and Security Act of 1998.)

The newly announced standards for evaluating obesity by the National Institute of Health has brought renewed attention to the state of American dietary health. Simply by adjusting its measure based on the Body Mass Index, NIH brings the number of overweight adult to about 100 million, making the United States one of the fattest nations in the world. As a public health concern, excess weight is a serious matter, killing as many as 300,000 Americans per year. This compares to 500,000 annual tobacco related deaths. While this concern over dietary health is becoming more mainstream, it has long been a prominent issue for public health officials. For years, these officials have been calling for Americans to change their dietary habits through the food pyramid campaign and through their participation with industry in the 5 a Day campaign. These dietary health campaigns call for reduced fat consumption and increased consumption of grain products and fruits and vegetables. It is hoped that the 35% of cancer deaths related to diet could be reduced by changing dietary habits.

Emboldened by successes in reducing tobacco usage and further regulating the marketing of these products, health officials are now focusing attention on fat consumption. These discussions have led to the so-called Twinkie Tax or McTax, which would place excise taxes on foods high in fat. Like in the cases of alcohol and tobacco, "sin" taxes are intended to discourage consumption and raise revenue that can be used for education programs. Applying such taxes to foods could be extremely difficult administratively. However, as a first step, most discussions have placed the fast food industry as a primary target. What then, would be the implications of such a tax for the fruit and vegetable sector?

For some products, notably head lettuce and tomatoes, the fast food industry is of great importance. The effect of a tax on fast food though, would likely be fairly minimal for growers in the short run. Estimates of consumer demand for prepared meals have been found to be relatively inelastic, meaning that the percentage decrease in the quantity demanded is less than the percentage increase in price. So, the effect of the tax in discouraging consumption would be small, resulting in only slight declines in the quantity of produce sold through these venues. Further, the tax would fall mostly on the shoulders of consumers, through higher prices. At the same time, grower prices would decline fairly little, resulting in only a modest decline in grower revenue.

More important and probably less understood would be the impact of new dietary health promotions funded through the tax for fruit and vegetable consumption. The potential for increased funding for such promotion efforts are enormous. The three leading fast food restaurants have annual sales in excess of $20 billion. Assuming a modest tax rate of one percent applied to all sales would generate at least $200 million dollars. This far exceeds promotion expenditures by any commodity or industry group. In recent years, the National Cancer Institute has spent about $1 million per year on the 5 a Day campaign. Similarly, beef producers have typically spent about $30 million per year in national advertising. However, it is not known if all the tax revenues would be used for promotion. Also, it is not known how effective new promotion efforts would be at generating increased fruit and vegetable consumption.

Some questions have been raised over the effectiveness of past nutrition campaigns. Often these campaigns are short-term, local promotions involving little or no mass media advertising. It is unlikely that campaigns of this type can be effective in making fundamental, lasting changes in the dietary habits of consumers. However, the level of funding suggested above would allow public health officials to launch national campaigns, similar to the most recent anti-drug campaign.

To date, the Twinkie tax remains simply a policy idea, as there have been no serious state or federal legislative discussions or initiatives. Indeed, the contentious climate surrounding newly proposed tobacco taxes may only make the introduction of a Twinkie tax more difficult. Still, the level of funding that such a tax could generate may be required to make meaningful changes in American dietary habits.

This year's strawberry production is anticipated to be lower than last year's. Factors such as record high rainfall and prolonged cool weather conditions in the strawberry growing regions are blamed for this reduction. California growers were also plagued by fungus problems resulting in many salvaged berries being diverted to processing sector.

California and Florida continue to be the dominant producing states with California accounting for about 79 percent of U.S. fresh production in the recent years (1993-1997). Florida accounts for about 15 percent of production and the remaining 6 percent is accounted for by 11 other states, including North Carolina, Oregon, and New York.

Despite increased planted acreage, this year's strawberry production for both California and Florida is expected to decrease. The total annual strawberry production in California is forecasted to be 12.5 million cwt., down by 6 percent. During last seven months (January-July), California shipped 679.6 million lbs. of fresh strawberries, down by about 4 percent from last year for the same period. Likewise, Florida's production decreased by 10 percent. On the average, the total domestic production of fresh strawberry (January-July) is lower by 5 percent.

The total domestic shipment of fresh strawberry remained lower than last year's until the month of May (Figure 1). The warmer and drier weather in June and July, however, has helped in offsetting some of the early season losses.



A closer look at the weekly shipments, however, indicate that the growth in fresh strawberry production did not persist for long (Figure 2). The weekly shipment decreased from its 1997 level after the third week of July.



The domestic strawberry shipment shows a strong seasonal pattern. Although some fresh strawberries are shipped in every month, April and May are the peak months. In general, both grower and retail prices closely follow this annual cycle in fresh strawberry shipments. Normally, prices are higher in January when Florida is the leading producer of fresh strawberries. As more strawberries are harvested in California both grower as well as retail prices start to decline. These prices are at the minimum some time around the months of April or May. Then, slowly both prices start to increase as the total shipment decreases. Generally, this trend continues until the month of December.

The negative relationship between strawberry supply and prices can also be observed in weekly shipments and the average f.o.b. prices (Figure 3). The average f.o.b. price closely follows the movement in weekly shipments with a significantly negative coefficient of 0.413. Likewise, the average U.S. fresh strawberry retail price reflects the movements in strawberry shipments (Figure 4). Each of the three average monthly price series shown in the graph reflect the seasonal pattern in supply.



Moreover, the five year's average prices for the period 1993-97 are always higher than (or equal to) the corresponding prices for the period 1988-92. Similarly, current year's average monthly prices are much higher than the corresponding prices in the other two price series. This variation in average monthly prices over time reflects the long term relationship between strawberry supply and demand. On the other hand, the 5 percent decrease in domestic production of fresh strawberries can partly be blamed for the large gap between this year's average monthly prices and the corresponding prices for the period 1993-1997. In conclusion, assuming that this seasonal patter in domestic production will persist, both retail as well as grower prices are expected to increase in the coming months.

Legislative Update

by Amy Ridings