Returns to Soybean Producers from Investments in Promotion and Research

Article excerpt

U.S. soybean producers have been cooperatively investing in both production research and demand promotion for nearly four decades to enhance the profitability and international competitiveness of their industry. Have producers benefitted from their contributions to soybean checkoff program activities over the years? How has the return to investments in soybean production research compared to that of soybean demand promotion investments? The overall positive returns to producers over the study period resulted primarily from promotion activities. Production research contributed negatively to overall producer returns from soybean checkoff investments.

Key Words: benefit-cost analysis, checkoff program, promotion, research, soybeans

Over the last several decades, a large and growing number of programs have been established to promote cooperative investment by commodity producers in activities designed to enhance the profitability and competitiveness of the commodities they produce. Before 1990, producer contributions to many of these programs in most states were facilitated primarily by state legislation requiring producers to pay (or "check off") a small fi-action of the value of each unit produced. National checkoff programs for four key commodities (beef, pork, corn, and soybeans) were mandated by the 1990 farm bill.1 While virtually all commodity checkoff organizations invest in generic commodity promotion and related activities in an attempt to enhance demand, many also invest a considerable portion of checkoff funds in production research.

Analyses of the effectiveness of commodity checkoff programs have proliferated along with the programs themselves. Much of this research has focused on the benefits to producers from funded generic promotion activities (Williams and Nichols, 1998). Only a few studies have considered the returns to producers from checkoff investments in production research (e.g., Lim, Shumway, and Love, 2000). Likewise, producer returns across both demand promotion and production research activities and the implications of the allocation of checkoff funds between promotion and production research have received relatively little attention (e.g., Wolgenant, 1993; Chyc and Goddard, 1994).

This study considers the case of the soybean checkoff program to illustrate the potential joint and relative net returns to producers over time from the simultaneous investment of checkoff funds in both promotion and research activities. A brief review of the soybean checkoff program is followed by a consideration of relevant theoretical and measurement issues and a discussion of the methodology and data employed in the subsequent benefit-cost analysis of the program. The analytical results lead to conclusions and implications regarding the management of commodity checkoff investments and the allocations of funds between promotion and research activities.

The Soybean Checkoff Program

Since at least the mid-1950s, investments in U.S. soybean production research and demand promotion have been funded by a combination of private and public funds. For many years, the private funds consisted primarily ofstate-legislated checkoff contributions by producers 1/2 to 2 cents per bushel sold. A national soybean checkoff program was launched in 1991 under the Soybean Promotion, Research, and Consumer Information Act of 1990.2 Subsequently upheld in a required referendum, the program mandates soybean producer participation at the rate of 0.5% of the market price per bushel when the crop is first sold. The right to demand a refund was terminated in a second required referendum. Even so, the 1996 farm bill3 requires a periodic evaluation of the effectiveness of the national soybean checkoff program and allows for periodic referenda to determine if soybean producers favor its continuance, suspension, or termination.

About half the funds collected under both the previous state-level programs and the current national mandatory program have remained in the states and been managed by state-level soybean-producer-- controlled associations or boards. …